The risk that these 480 Indian companies face...
In this issue:
» Construction spending declines in the US
» Coal mining in India is a victim of policy mess
» Borrowers in debt market postpone plans
» Faber's yet another gloomy prediction
» ...and more!
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In India, one such example in recent times has been that of the hotel chain East Indian Hotels (EIH) wherein ITC had been gradually buying more shares of the former in order to launch a takeover bid. And there is the possibility of more such companies becoming vulnerable in light of the new takeover code. This code allows acquirers to make an open offer for an additional 26% on purchase of 25% stake of the target company. 480 companies as listed by the Economic Times, have promoter shareholding less than 25% of total equity. Thus, they are susceptible to the risks of hostile takeovers. However, it is not that simple. Most companies in India are managed by promoters. Hence, the latter is bound to protect its interest and will not relinquish control without a fight.
This means that the company launching such an attack needs to be very clear as to why it wants to go down this route. In mergers and acquisitions, in general, the acquiring company has to make sure that it pays a reasonable price for the target company. It needs to gauge the synergies that are likely to flow in on making the acquisition such that the payback period is not too long. Many a time, when competition for a particular target heats up, valuations soar. As a result, the company which has finally made the acquisition ends up paying a very high price.
This applies to hostile takeovers as well. Since these are bound to be fought tooth and nail by promoters, the acquiring company at the end of the day needs to evaluate whether the price paid and the potential benefits are all worth it.
Do you think that companies with low promoter holdings are increasingly vulnerable to hostile takeovers? Share with us or post your comments on Facebook page / Google+ page.
01:36 | Chart of the day | |
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Data Source: The Economist |
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It goes without saying that gold is the best bet for such an event. But we were surprised Faber also talked of investing in stocks. This because, he clarified, the stocks can go up because of sheer liquidity even though the main economy is not doing well. That's some really scary stuff from one of the world's foremost big picture guys, isn't it?
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04:55 | Today's investing mantra |
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2 Responses to "The risk that these 480 Indian companies face..."
gsk
Apr 3, 2012I think it is good for the small share holders. Yes the fight will end either way. However some small share holders get good amount for their investments. The problem with the promoters and not with the common men. So let it be like that and in the long run the economy will get a great blow then let us cry together
kranthi Mark
Apr 4, 2012Don't conclude this is the RISK to the Indian companies.. First of all we need to analyse the key reasons ! why the promoter holding came down to such a low level ?? which gives chance for take overs !!. When promoter group holding is coming down then Promoter loses the interest on the company expansion and future growth and try to exploit the nominal share holders by way of high perks and high comissions on profits. But probability is if the diluted holding is going into good dedicative strategic investors again gives higher probality of growth of the nominal share holders. By and large .In some cases these startegic investor like PE , VC ,and other funds makes managements to take decisions which makes shorterm gains and long term pains.Weather its low or dominant promoter holding MANAGEMENT is life blood to the company .The quality of management that runs the comapny with commitment and greater VISION always creates sustainable wealth to all the share holders irrespective of share holding pattern.