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22JAN, 2013, 02.22PMIST, RAMKRISHNAKASHELKAR,ETBUREAU
GSK Consumer open offer: Makes sense for investors
to go for it
Stock | standardchartered | Retail investors | GSKConsumer
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MUMBAI: When promoters launch open offers to buy
shares at a premium just to raise their stake, it is
logical that retail shareholders should make the best of
it. That is because the offer will not lead to any change
in the business model or management structure nor will
it lead to a delisting of the shares. Besides, the
premium valuation which it commands at the start of
the offer because of the promoters desire to raise
holdings slips once the offer period ends which in turn
implies that the stock price could slide later.
The ongoing open offer for GSK Consumers is a case
in point. GSK Consumers' foreign promoters have
launched an open offer at Rs 3900 per share to raise
their stake in the company to 75% from 43.16% at end
December 2012. After the announcement in November
2012, the stock has gained nearly 25% reducing the
arbitrage opportunity — buying in the open market at a
lower price and selling in the offer to ensure a risk-free
gain.
As the surge in the stock price is mainly due to
arbitrage, the price will likely correct once the offer
closes. This is more so because the company's
business model or growth prospects are not going to
see any significant change post the offer.
"We see no change in GSK Consumer's operations as
the process to launch new products in listed entity has been transparent," according to a report on the
company's open offer from Standard Chartered. The report says that new launches from the company such as
Lucozade, Nutribar, Chill Dood and Foodles have not found much success and the non-core business still
contributes only 6.5% of sales. The research house downgraded the stock with a target price of Rs 3600,
indicating a correction once the offer closes.
It is not uncommon for promoters to raise stake in listed entities through open offers. Last year, Tata Steel
launched voluntary open offers to raise stake in its subsidiaries Tinplate Company of India and Tata Sponge
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Whenpromoters launchopenoffers tobuyshares at a
premiumjust toraisetheir stake, it is logical that retail
shareholders shouldmakethebest of it.
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launched voluntary open offers to raise stake in its subsidiaries Tinplate Company of India and Tata Sponge
Iron. Both these stock which witnessed a run up when the open offers were underway, fell subsequently and
are currently trading 14%-17% below their open offer prices — Rs 60 for Tinplate and Rs 375 for Tata Sponge.
In the process Tata Steel raised its stake in Tinplate from 61% to 75% and in Tata Sponge Iron from 43.2% to
54.5%.
Given all these, it perhaps make sense for investors to go the open offer.
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