Wednesday, November 26, 2008

Mather & Platt Delisting - Offer Acceptance

I had written earlier here about the delisting opportunity in Mather & Platt. The company through its announcement has accepted the discovered price of Rs 250 for delisting. I had expected the acceptance price to be in the 200-220 mark but it has turned out to be more attractive.

All shareholders who tendered in the open offer will get paid Rs 250 per share for shares tendered. For shareholders who have not tendered shares they can do the same post delisting which might take about 2 months. The share price for Mather has subsequently moved above the 240 mark filling in the potential arbitrage opportunity.

I have exited my remaining positions by tendering in the open offer.

Thursday, November 20, 2008

Tata Steel CCPS - Better bet

Tata Steel issued 547,251,605 2% Convertible Cumulative Preference Shares (CCPS) of Rs. 100 each at an issue price of Rs. 100 each aggregating to Rs. 5,473 crores in Sept 07. As per the terms of the issue, six CCPS of Rs.100 each are compulsorily and automatically convertible on 1st September, 2009,into one Ordinary Share of Rs. 10 each, at a premium of Rs. 590 per share

Since it is a preference issue the preference shareholder has a higher right to the dividend than the equity shareholder. So unlikely that Tata Steel will skip dividend on the CCPS. The outflow is about 110 crores in terms of dividend.

A lot of water has flown below the bridge since then and the CCPS is currently trading around the Rs 23-24 mark. The Tata Steel stock has got hammered down in the current downturn with steel prices on a downward spiral.

I have listed down possible scenarios in terms of the Tata Steel stock price a year down the line. Looked at 5 possibilities, price remaining same, +10%, +20%, -10% & 20%. So if we buy 6 CCPS and multiples thereof I have listed down the cashflows out of the trade and the payoff in terms of return ( IRR)

Tuesday, November 18, 2008

Bihar Caustic - Q2 Results Update

BSE Sensex - 8937
CMP - 31.7

I have written about Bihar caustic here and followed up with a update on the first quarter result here.

The second quarter result came in disappointing with both a sequential as well as YOY drop in net profit. The company had a blast at its boiler plant and hence resulted in lower production ad additional one time expense in repairing the plant. It also resulted in increase of fuel cost for production as the boiler plant was catering to the captive power plant.

So minus the one time impact the results would have been much better

But the stock has got hammered down post the results and closed today at Rs 31.7 down 57% from where I had originally looked at the stock. The stock is currently available at

Equity - Rs 23.3 crores
Reserves - Rs 193.8 crores
Book Value - Rs 93
Price/ Book Value - 0.33
H1 EPS - 8.89
Annualised P/E – 1.74

Commodity prices have spiralled down worldwide so Q3 & Q4 operating and net profit margins will get affected. So we will see the downturn on that count.

Corporate Action
The Board has passed a resolution rechristening the company to Aditya Birla Chemicals Limited.

I continue to hold the stock and add more to my positions.

Wednesday, November 12, 2008

Mather & Platt Pumps - Delisting Play

Last month amidst the chaos that was playing out, I came across a announcement on the BSE (18th of October) about the outcome of the EGM conducted at Mather & Platt Pumps.

Mather & Platt Pumps is owned by Wilo which is a German company.

Details of the EGM is linked here and it gave a go ahead to the management to explore potential delisting of the company. The stock was hovering around the Rs 146 mark and I bought some stock. The company announced its delisting offer on the 23rd of October. I have enclosed the link here. Was caught up in work so didnt focus too much on it.

Surprisingly in the panic the stock still didn’t move. I managed to pick some additional stock at Rs 149 on the 27th of October. So the information was available in the public domain for over a week and the stock refused to move at all.

It started moving subsequently and I exited some of my positions today around the Rs 200 mark. My estimate is that the bookbuilding will throw up a price around the 200 – 220 mark. Not waiting to catch the top and also it is more tax efficient to exit through the stock exchanges.

Tuesday, November 11, 2008

Dabur Pharma & IL&FS Investmart - Two to Tango - Arbitrage Bet

I had written earlier on the potential arbitrage opportunity in Dabur Pharma and here on how it almost didn’t play out. The arbitrage has become far more attractive now.

Dabur Pharma
A quick recap. Dabur Pharma was acquired by Fresenius and it made a open offer at Rs 76.50 and acquired the mandatory 20% in the open offer. Fresenius’s stake post the open offer is 90.89% in the company.

IL& FS Investmart
IL&FS Investmart was sold off by Etrade to HSBC which wanted to expand its securities business in India. HSBC also made the mandatory 20% open offer at Rs 200. Its stake post the open offer in ILFS Investmart is 93.86%.

So what is the bet?

In both the cases the public shareholding has fallen below 10% post the open offer and according to SEBI both the companies have to either delist or the respective promoters have to offload their stake to bring it down below 90%.

In the event of the company delisting then as per SEBI rules the last open offer price has to be offered to the remaining shareholders to exit for a period of 6 months after delisting.

What are the potential payoffs?

Dabur Pharma
Current Price – 38.5
Exit Price - 76.5
Delisting Return - 98%
Potential Downside - 20%

ILFS Investmart
Current Price – 84
Exit Price - 200
Delisting Return - 138%
Potential Downside - 20%

Possible scenarios

1) Both get delisted - Returns - 118% ( Too good to be true :-)) – Probabaility – 25%
2) Dabur delisted, ILFS stays listed - Return 39% - Probability – 25%
3) ILFS delisted, Dabur stays listed - Return 59% - Probability – 25%
4) Both stay listed - Return (-20%) Probability - 25%
Potential Payoff - ( 0.25*118% + 0.25*39% + 0.25*59% + .25*(-20%) )= 49%

Disclaimer - I have a position in both the stocks and kindly do u r own due diligence before taking a decision.