Thursday, July 12, 2012

Clarity on media reports of Open offer in Andhra Pradesh Paper Mill

Today there were media reports in many newspapers including economictimes that verdict on open offer of AP Paper is expected soon. If the verdict by Securities Appelette Tibunal (SAT) is against "International Paper Company", (Current promoter of AP Paper), they may have to have to pay an offer price above 600/-.

Please read that news here :

Reading the new, a common investor will infer that there will be an offer in the company above Rs 600/- well above yesterdays closing price of around 330/-. If the offer is for 26% then the acceptance ratio will be 100% , and so the price of AP Paper has almost moved up. Also the company is expected to declare Q1 results of FY12 tomorrow, further raising the expectation of open offer.

Please understand, that the open offer of the company @544.20/- per share is over in 2011. At that point of time they bought shares from promoters @ Rs 544.20 /- +  Rs 130.73 as non compete fees. Non compete fees to promoters is perfectly legal but SEBI discovered that they also paid that price to certain Non - Promoter. Based on these understanding SEBI gave a ruling to increase the offer price to Rs 674.93.

International Paper went to SAT against SEBI verdict, and in its interim order SAT directed company to proceed with open offer at the price of Rs 544.20 and also directed it to deposit Rs 130.73 per share in escrow account.

So the offer is already over, more over if the SAT verdict  is in favour of minority shareholders, the shareholders who have sucessfully tendered their shares in open offer will get a windfall of Rs 130.73 per share.

There is nothing to cheer for current shareholder and please do not get swayed by hopes of open offer.

There can be de listing offer in the company, but looking at the financial reports of the company, I have reservation that International paper will come with offer or maybe not at this price. Also there is no compulsion on the part of promoter to de-list as they have shareholding of 75%, which is the threshold limit.

I suggest caution in trading these stock as hopes of open offer after SAT verdict is a myth.

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