Wednesday, June 24, 2009

To wait or not to wait

In one of my previous post Reverend put across a query to me and i quote

“Your views on Mphasis as a potential delisting candidate? An article I came across suggests that HP has no listed subsidiaries in the 170 countries it operates and makes a case for delisting. They have cited Digital (a subsidiary of Compaq) which they delisted. Happened in 2001 or so.. Your insights please?”.

It’s a interesting question and I understand the thought process that goes behind this opportunity. I have also in the past and continue to analyse similar companies.

Lets examine the structure of evaluating such a opportunity.

Mphasis was acquired by EDS which subsequently got acquired by HP globally. HP globally doesn’t have listed subsidiaries and at some point of time would probably go in for a delisting exercise for Mphasis.

The logic is fair and there is strong likelihood of this happening. The important question is when? Next month, Next year or 5 years down the line.

This is a huge uncertainty that one has to live with. Mphasis currently quotes at about 393. In the intermittent period till the delisting happens what level could the stock go down to. This is absolutely critical which leads us to the next stage.

Would I buy Mphasis without factoring in a delisting opportunity? Am I comfortable with financials, performance, industry outlook etc of Mphasis? Is there a margin of safety in the stock without the delisting?

If the answer to these questions is yes? Then it makes sense to look at the opportunity. If intrinsically one is comfortable to hold Mphasis then a possible delisting is a added bonus.

Else one needs to factor in the possible downside in the stock, the likely timeline for a corporate action and the opportunity cost with respect to the general market.

I hold a stock where there is similar logic waiting to play out. Will write on it in my subsequent posts.

On a side note Reverend, I wouldn’t see a straight delisiting exercise in Mphasis. EDS currently holds about 60%. If they were to do this I would expect them to do it 2 stages. Phase 1 do a open offer and increase their stake to either 75% or 90% based on the listing requirements and then in Phase 2 actually go thru the delisting process.

Remembered a old Rafi and Asha song on this ….
ham intezaar karenge
ham intezaar karenge tera qayaamat tak
khudaa kare ke qayaamat ho, aur tu aaye
ham intezaar karenge …


REVerenD said...

Well, selling too soon is something I been battling for sometime now.

For a guy in my generation I am not adequately knowledgable with regard to the mechanics of the software Industry. I have built a tiny position and plan to wait till there is some signs of corporate action or till I get myself more familiar with the industry before I take a call. Thanks for your perspective. Was insightful!

Ninad Kunder said...


The feeling of post sale dissonance is something that we all go thru. We remember the opportunity loss of a sale but rarely remember a sale where the stock price went down post the sale. The important thing is to define u r target value and keep that as the benchmark.



Inquisitive Stranger said...

ha ha ha ha, good one, i like the way you add proper lyrics to post, specially this one made me laugh a lot.