Nirma - Delisting

The promoters of Nirma in their announcement on 11th of October stated their intent to take the company private and de-list it form the exchanges. I have in the past invested in multiple delisting opportunities and had also put out a guest post on my friend Rohit blog detailing out the framework that we follow while evaluating a delisting opportunity. The link to that post is here
Using that framework let me quickly run thru the thought process in evaluating this special situation opportunity. In any delisting opportunity and the same framework can broadly be applied across other special opportunities, there are 3 risk points in the transaction


1) Time Risk
2) Price Risk
3) Deal Risk

Let me address each of these risks with respect to the Nirma opportunity.
1) Time Risk - The entry point for the transaction was timed post the shareholder approval. Post which filing is done with the exchanges. By monitoring various milestones in the deal, Time risk was constantly tracked.
2) Deal Risk – The promoters owned 77% stake in the company. For the reverse bookbuilding to succeed the promoters had to garner atleast 13% in the process.
Analysis of the shareholding structure indicated that institutions held about 2.56% shares and 42 individuals owned about 14.97% shares in the company. Clearly the company had to manage these shareholder to ensure that the delisting takes place.
3) Price Risk - This is where the opportunity really opened up. The promoters in their communication indicated Rs 235 as the fair prices for the delisting process. This effectively set the floor for the delisting.

Transaction Details
As stated earlier the floor price on the transaction was effectively set at Rs 235 as the promoters had indicated that they were comfortable with this price. I entered the trade around the last week of November in the price range of Rs 222 - 225. Surprisingly inspite of the Rs 235 floor set, the market was effectively paying me option money to take up this position.

The reverse bookbuilding started on the 17th of Jan and is on till the 20th which is tomorrow. I exited the position today in the range of Rs 245-247 on the exchanges. The trade gave me a return of 10% on capital in a span of 2 months.

There could be more return on the table as the book appears to be closing in the 250 -260 range but I m comfortable taking my money home without having to live thru the risk.