Sunday, August 26, 2012

Special Situations in APW President Ltd

APW President Systems was taken over by Schneider in May, 2011. They now holds 75% stake in the company and they have made an voluntary offer to delist the company in December, 2011. The proposed price for delisting is Rs 195/-.

Schneider Electric: the global specialist in energy management

The Company have already taken shareholders approval and In Principle approval from Stock Exchange for delisting. The Company will have to come out with delisting offer by January, 2013. 

Schneider Electric have taken over several business in recent past Luminous, Smartlink, Zicom and APW by paying top dollar for each buys. Their strategy for all acquisition except APW  was to buy business of the listed company and not the company itself. One of the rationale is reduction of compliance and quicker decision making without involving interest of minority shareholders.

The company had paid 1 times of sales when it took over from Indian promoters. They have also paid up to 6 times of sales to buy Zicom and Smartlink , though we must understand that APW sales are stagnant. The company is making losses since it was acquired by Schneider, It could be because of its expansion in Bangalore, where break even may take time.

The Indian promoters , who were just shareholders in the company to the tune of 11 % have mostly exited the company by selling the shares in open market after the declaration of delisting offer. (These could be because of capital gains or maybe Schneider have option to call shares from these previous promoters at some time at a pre - decided price to the extent of their holdings in the company.)

The current market price of APW president is Rs 205/-, which is 5% more than the Delisting indicative price. The final delisting price could be higher at 240/- and more. The company needs to buy 1.5 million shares and the company may have to shell out Rs 30 crores to 45 crores depending on book building. which is almost $5 million  to$8 million dollars for a company with sales of $ billion in India and $1.36 billion of profit globally for 2012.

The company should be ready to pay higher price for APW because

a) It is the other company listed in India apart from Schneider Electric Infra , which it got because of acquisition of Areva division. APW is small in size and it will be cumbersome to manage many companies in terms of compliance.

b) When Schneider had declared a voluntary delisting in December, the USD/INR was around 45 and now rupee has depreciated against $ by more than 20% making it easier to increase the offer price by almost 20% without increasing its offer in dollar terms.

How ever there are pitfall in this situation :

a) The Indian promoter has completed exited from the company and probably the positions are taken by people betting for delisting. The price had shot up to 255 /- and it is quoting now at Rs 205/-.

b) The company earning potentials are flat but Schneider will bring its expertise and experience to work, but in long run,

c) There is a wait of up to January 2013 for the offer to come in as this is the time up to which Schneider will have to make an offer.

It seems to be a good trading bet, with limited downside of up to Rs 195 /- with a high probability of positive surprise.

This is not the recommendation to anybody whatsoever to buy or sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.

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