MNC arms’ delist plans may hit price wall

MUMBAI: A number of multinational companies are looking to delist the stock of their Indian subsidiaries or increase their stakes through share buyback to cash in on the substantial fall in valuations between January ���08 and February ���09.

Companies lined up for delisting include UK-based equipment maker Avery India, South Korean confectionery maker Lotte India and US drugmaker Mylan���s Matrix Labs.

Experts, however, say the revival in the market over the past couple of months may deny many firms a cheap exit.
���Acquirers will have to revise their offer price upwards and shell out more for the same number of shares,��� said Devesh Kumar, managing director of broking firm Centrum Broking.

In fact, some companies, including Swiss drugmaker Novartis, revised their open offer prices in the past few days after shares rose above their offer prices.

In the past, a number of multinational firms have converted their listed Indian arms into wholly-owned subsidiaries by acquiring shares held by retail and institutional investors through open offers.

Recent examples include Mather & Platt Pumps, Rayban Sunglasses, GE Capital Transport, Igate Global and Yokogawa.
Firms such as Cadbury, Carrier Aircon, Akzo Nobel Chemicals, Sandvik Asia, Otis Elevator and Reckitt Benckiser delisted their Indian arms between 2000 and 2003.

Experts said several MNCs are trying to delist by increasing the prices offered for the shares of their Indian arms.
One reason for such a rush is to avoid the listing norms. Being listed means the balance sheet of a company stays in public domain, and so do the strategies. Also, the listing requires country-specific disclosures and adds to costs.

Listed companies have to provide all information to investors, who can question their decisions at annual shareholder meetings. In contrast, a privately-held, or delisted company, can easily escape such public scrutiny.

Mr Kumar of Centrum Broking, however, said that delisting may not be the best option for the simple reason that companies listed on Indian markets are likely to have better PE multiples.

Also, staying listed will make it easier for companies to raise funds through secondary issues or debt instruments and improve public awareness of their products, he added.

Some companies such as drugmakers Pfizer, Merck, Novartis and Ciba, are making open or buyback offers simply to increase foreign parents��� holding.

They may eventually go for delisting once they reach the Sebi-stipulated limit of 90% for delisting shares. Scrips of many such companies have shot up much beyond the price at which promoters planned to acquire shares.

Pfizer had announced its open offer to increase its holding from 41.3% to 75% at Rs 675 per share, at a premium when the company���s shares were trading below Rs 600 in the first week of April. Currently, it is trading at Rs 756. Pfizer can now only hope for the share price to come down so that it can buy those shares. The open offer opens on June 10.

Swiss drug firm Novartis AG sweetened its open offer price to Rs 450 a share from Rs 351 earlier for acquiring an additional 39% stake in its Indian subsidiary, which analysts say could be a precursor to delisting.

Avery India received a proposal from its UK promoters to acquire balance 21.72% of equity shares. It will hold an extraordinary general meeting next month to consider the proposal of voluntary delisting.

Confectionery maker Lotte India in May informed the Bombay Stock Exchange that it will buy all shares of the company at a discovered price of Rs 540 per share.

Mylan has offered to buy back 24.8% of Matrix Laboratories.

During the bull-run, delisting offers usually dry up barring a few exceptions because of rising cost of buying and lesser chances of success of the offer.

The exit of multinationals from the bourses has also faced some criticism. Analysts said many companies before delisting show bad corporate performance so that shareholders are not attracted.