Sterlite jacks up Indal offer price to Rs 221

As against the earlier offer for 20 per cent stake, Sterlite has now proposed to acquire 52.03 per cent stake. This would be payable in cash Rs 131 and Rs 90 by way of nine optionally convertible preference shares (OCPS) of Rs 10 each carrying a dividend rate of 11 per cent per annum. It has also offered an option toIndal shareholders to convert the preference shares into equity shares of Sterlite at the end of 18 months from the date of allotment.

The conversion price is at a discount of 10 per cent to the average of the high and low price of Sterlite during 10 weeks preceding the conversion date and subject to a minimum price of Rs 350 per share. OCPS which are not offered for conversion would be redeemed in cash in two equal instalments at the end of 3rd and 4th year.

At the revised offer price, Sterlite would have to fork out Rs 818 crore for 52 per cent stake in Indal. “This would be funded by securitisation and receipt of deferred payment receivables from DoT of Rs 370 crore, internal accruals and borrowings besides the preference share issue of Rs 333 crore,” Sterlite officials said.

On the other hand, the total cost of acquiring 20 per cent Indal stake at Rs 175 per share would be just less than Rs 250 crore for Alcan. The Canadian firm had earlier stated that it had readied a war chest of Rs 350 crorefor hiking its stake in Indal from 34.62 per cent to 54.62 per cent. The equity capital of Indal is Rs 71.11 crore.

The new offer prices of both Sterlite and Alcan are much higher than the market price of Indal. The share closed at Rs 137.60 on the Bombay Stock Exchange on Friday. The scrip is expected to go up following the revision in the offer price which is more than double the book value of Rs 90.

Alcan had last month revised its offer to Rs 120 per share (of Indal) as against Sterlite’s price of Rs 115. With Sterlite hiking the offer price to Rs 221, the takeover war is likely to hot up further. As per the SEBI directions, both the companies would have to announce the price by Monday (the announcement should appear on May 25 newspapers), the last date for revised offers.

The open offers by Sterlite and Alcan have received only lukewarm response so far. The open offer which opened on May 4 will close on June 2. Minority shareholders, who hold less than 10 per cent of Indal’s paid-up equity, haveresponded to their offers only in small numbers. The key to the takeover battle is the 36 per cent equity stake of financial institutions.

Institutions are likely to unload their shares following the steep rise in the offer price. In the case of India Cement bid to acquire Raasi Cement, institutions had missed the bus by failing to sell their holding to India Cements at a high price of Rs 300 per share. It is unlikely that they would miss the bus again. Some institutions are believed to be for a sellout to Sterlite only if it can fund a 51 per cent acquisition in Indal. A 51 per cent holding in Indal by Sterlite would require it to buy out the entire FI stake and another 15 per cent from the minority shareholders, an acquisition that will cost Sterlite close to Rs 500 crore.

If it doesn’t get majority stake in Indal, Sterlite can neither get management control (as Alcan already holds 34.62 per cent) nor can it press for any board representation to influence the functioning of Indal. This situation islikely to destabilise Indal. Sterlite sources have indicated that they have sufficient resources to fund 51 per cent acquisition.

Alcan is the largest sharholder in Indal with around 35 per cent equity stake. The Canadian major, faced with a takeover threat, now wants to increase the stake to over 54 per cent for which it has already received approval of the Foreign Investment Promotion Board.

Alcan had the equity holding of 79 per cent till 1987. In order to free itself from the FERA restrictions Alcan diluted its equity below 40 per cent. The equity got further diluted when Indal issued GDRs in 1993. The Sterlite open offer marked the first ever reverse takeover bid in the Indian corporate history. It was an Indian company trying to take over reins of a well-run corporate from a multinational corporation.

Sterlite Industries had recently said in a press release that it does not propose to strip assets of Indal, for which it has made an open offer for a 20 per cent stake. This claim has been inresponse to fears expressed by the Indal unions in their representations to the chiefs of financial institutions and in their letters to the Union government.

Sterlite has pointed to its record in the context of Madras Aluminium (Malco) takeover. "In Malco’s revival there was no asset-stripping; on the other hand, substantial additional investments amounting to Rs 220 crore are being made to set up a captive power plant…" the release says.

"…additional investments are being made to ensure long term investment for all. In fact, all the profits have been ploughed back and no dividend has been taken, clearly demonstrating the promoter’s commitment to the unit’s business operations…" the release adds.

Sterlite has also pointed out its growth in turnover and assets over the last ten years and has said in the release that a growth-oriented company adds assets and thereby creates employment, and not strip assets and curtail employment.

If Sterlite succeeds in acquiring Indal, Alcan is likely to reviewits position in Utkal Alumina International’s proposed $ 1-billion (Rs 4,000 crore) alumina producing project. Alcan Aluminium is also a key promoter of Utkal Aluminium. The single largest shareholder in the export-oriented alumina project is Hydro Aluminium of Norway, which has an equity holding of 40 per cent.