Note: The entire analysis is mostly from the perspective of small shareholders who are eligible for 15% quota under buyback through tender route.
Claris Lifesciences [BSE: 533288, Market cap 1,250crs] had announced buy back of equity shares @ 250 per share through tender route and had also announced dividend @ INR 9 per share [record date 21 Jan 2014]. The buy back and dividend payment involves cash outgo of INR 285 crs. Read here for complete announcement.
Company sold its intravenous solutions business in Dec 2012 for around INR 1,000 crs. My GUESS is, the buy back is basically to give SAFE PASSAGE to institutional investors [> 25% stake] in general and particularly to First Carlyle Ventures III which invested 11% stake during 2006. Adjusted cost price for First Carlyle Ventures III comes to around 130 per share.
Under SEBI buyback rules ‘small shareholders’ are eligible for 15% quota under buy back through tender route. Small shareholders are those shareholders whose market value as on record date as announced by company is less than or equal to INR 2 lakhs.
Download the complete mindmap from here.
What’s implied in current price of INR 200
[Click on image to enlarge]
Implied Acceptance Ratio [AR] 65-70%, probable 80-100%
Negatives about the company and management
What can go wrong?
Even if promoters do not participate in buy back [promoters announced they will participate], acceptance ratio for institutional shareholders will be only around 30%. This raises the possibility of panic exit either before or after buy back and is the most important risk to this idea. If institutional shareholders exit before the buy back lots of arbitrageurs might enter the stock and acceptance ratio will be impacted negatively. Arriving at the possible exit price is very difficult, given the past performance of the company and UNCERTAINTY on the utilization of cash surplus. But I think, it is one of those cases where one can SEEK UNCERTAINTY ON FAVORABLE TERMS.
Cancellation of buy buck is technically possible, but very remote risk given the institutional shareholding pattern. Even if the buy back cancel, most probably company will provide some other route for exit of institutional shareholders.
Expected return more than 10% under worse case scenario
Company needs to obtain shareholder approval through special resolution and then it will make Public Announcement of record date for the eligible shareholders. Only those shareholders will be eligible to participate under ‘Small Shareholders’ quota those market value of holding as on the the record date is less than or equal to INR 2 lakhs.
Checklist: You can download Check-Once-done checklist for buyback from here
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