Mumbai investment firm makes open offer for VST

Mumbai investment firm makes open offer for VST
ENS ECONOMIC BUREAU

MUMBAI, FEB 13: Even before dust raised by the Gesco Corp-takeover affair that concluded dramatically last month has settled down, yet another takeover drama is in the offing. Mumbai-based investment outfit Bright Star Investment Ltd, controlled by two stock brokers, has made an open offer to acquire 20 per cent stake in Hyderabad-based tobacco company VST Industries Ltd.

After acquiring 14.97 per cent of holding in VST through open market operations, Bright Star has now made a public offer to buy 30,88,384 shares of VST at Rs 112 per share.

The open offer move assumes significance as tobacco major BAT plc of the UK is the largest individual shareholder with a 32 per cent holding in VST. Financial institutions hold 20 per cent of the equity, while the balance 33 per cent is held by then public. BAT also holds around 33 per cent stake in ITC Ltd, the largest Indian tobacco company.

BAT, as an international entity, cannot directly increase its holding in VST as it will have to first seek Foreign Investment Promotion Board (FIPB) clearance. BAT's effort to increase its stake in tobacco major, ITC, a few years back had raised an uproar in corporate India. Given the present circumstances and the past experience, market sources said that chances of a counter offer in the VST case are bleak as it (BAT) will need to take the government clearance to increase stake in the Indian company.

While sources close to the acquirers insist that the open offer is not a hostile one, market pundits are yet to come to a conclusion on the reasons behind the takeover bid. "One possibility is that the acquirer is mopping up shares which will be later be sold to BAT. It can also be a hostile bid against the wishes of BAT or ITC," market sources said, adding, "the acquirer has no experience in running a tobacco company. So it's clear that their idea may not be management control."

ASK-Raymond James & Associates Ltd (ASK-RJ), who were managers to the public offer of Delhi-based Dalmias takeover bid for GESCO in October, are the managers to the Mumbai firm controlled by Radhakishan S Damani and Gopikishan S Damani.

Bright Star, a Rs 55.11 crore networth company, had set aside Rs 34.58 crore for acquiring the 20 per cent stake and deposited Rs 40 lakh in an escrow account, one per cent of total consideration payable in accordance with the takeover code requirements of the Securities and Exchange Board of India, according to a public announcement to the stock exchanges.

The firm had also deposited shares of Infosys worth Rs 12.76 crore as a marketable security with appropriate margins with ASK-RJ and with this total value of securities and cash deposited amount to Rs 13.16 crore, more than 25 per cent of total consideration payable under the offer.

The offer would open on March 30, 2001 and close on April 29, 2001. Bright Star said the open offer is to achieve a substantial increase in its holding of shares/voting rights in VST and has no plans to increase it. The offer price is much above the traded price. During the 12-month period, the highest price and the average price paid by it was Rs 110.55 and Rs 87 respectively.

The offer price of Rs 112 was higher than the Rs 100.5 which was the average of the weekly high and low of the closing prices for the VST quoted on the National Stock Exchange, where its shares were traded frequently for 26 weeks period ended February nine, 2001. The offer price represented a price/earnings multiple of 10.98.

The investment company has retained the option to acquire VST shares outside the framework of the takeover code and also to revise offer price upwards prior to the closure of open offer. Bright Star said the open offer was subject to approval from the Reserve Bank of India for acquisition of shares from NRI shareholders and would be subject to all statutory approvals that might become applicable at a later date.

VST has a paid up capital of Rs 23.44 crore comprising 1.54 crore ordinary fully paid up shares of Rs 10 face value and eight lakh 10 per cent cumulative redeemable preference shares of Rs 100 face value.

Bright Star, which is into the business of investment, buying, underwriting, acquiring and holding shares, debentures, bonds, etc. plans to achieve a substantial increase in Bright Star's holding of shares in VST. Bright Star does not have the intention to go beyond increasing its holding. However, Bright Star might seek to increase shareholder value through various means, which may include selling or encumbering the value of assets of VST.