Takeover to unlock Gesco’s value? - Views on News from Equitymaster

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Takeover to unlock Gesco’s value?

Oct 23, 2000

GE Shipping and Gesco Corporation’s shares have been in the limelight over the last few days. Prices of these scrips have hit new highs. However, the rising interest in the stock is not only due to the fact that shipping or construction sectors are riding high. It is because of the take-over bid for Gesco Corporation by the A. H. Dalmia group. As per reports Dalmia’s intimated Gesco’s board of directors on Wednesday after having acquired 5% of paid-up capital through open market operations. The company reportedly has made further purchases on Friday. As a result, Dalmia’s stake in Gesco Corporation has shot up to 10.4% (Sheth’s hold 13% stake in the company). The company reportedly has also increased the offer price to Rs 27 from Rs 23 announced earlier. This is seen as a move to tackle counter-offer, if any, from Gesco’s management.

Gesco Corporation posted a net profit of Rs 51 m in FY00 on revenues of Rs 225 m. It has free reserves worth Rs 1 bn and carries no debt in its books. The book value of the company works out to Rs 44 against the current market price of Rs 21.

Share holdingGesco CorporationGE Shipping
International Investors
(FII's, GDR's, IFC and NRI's)
26%24%
FIs, Banks and Mutual Funds15%13%
Bodies Corporate10%5%
Others49%45%
PromotersNA13%
Total100%100%

Rocked by this takeover move, GE Shipping (the parent company) has planned for a share buy-back programme to increase promoters’ stake in the company. Currently, the promoters hold close to 13% in the company. The board of directors of the company is meeting on 31st October 2000 to finalize the share buy-back programme.

So, at what price would GE Shipping be pricing their buy-back programme? Earlier, in an interview with Mr. Bharat Sheth, Managing Director of GE Shipping said that the Net Asset Value (NAV) of the company is around Rs 55 (Rs 65 pre-demerger of Gesco Corporation). Therefore it is likely that the buy-back price to be around this level. Both GE Shipping and Gesco Corporation have hidden value in terms of fleet composition and properties respectively, apart from large free reserves.

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