|
|
             |
M&A Cut To Size Investors haven't forgiven ISPL for its unequal merger of 10 months By Ranju Sarkar
Just why are investors deserting ISPL? "I think the market appreciated the merger per se, but reacted to the effect on our earnins," says Ahmed. But Dalal Street thinks otherwise. Blasts Hozefa Topiwala, 28, Research Analyst, ask Raymond James: ''The merger ratios were grossly unfair. No company has done such blatant daylight robbery.'' Here's what got investors spewing venom: for every nine shares of Wilkinson and 13 shares of Duracell, ISPL doled out two of its own shares to each. Apparently, neither of the two companies deserved such high valuations. Notes Samir Arora, 38, Head (Asian Emerging Markets), Alliance Capital: ''The two new businesses are getting 80-90 per cent weightage, which cannot be justified either by their financial or brand strength.'' Marketmen say the reason behind the generous exchange ratio-worked out by KPMG-was simple: Gillette owned 85 per cent of Duracell and the whole of Wilkinson, and paying more to the two companies would have meant increasing Gillette's stake in ISPL-which it has, from 51 per cent to 72 per cent. Had Gillette bought that kind of a stake off the market, it would have had to cough up Rs 666.32 crore (based on the January 7 price), and not the Rs 20.02 crore it paid by way of stock swap. Points out a Mumbai-based fund manager, who dumped ISPL immediately after the merger: ''The incremental growth in profitability from these businesses would at best be 15 per cent, while ISPL's equity has more than doubled.'' What makes the merger worse is the fact that none of the two businesses yields high returns. Wilkinson makes low-end razor blades and Duracell, low-volume alkaline batteries. On an equity that has more than doubled to Rs 32.58 crore, ISPL's earnings per share are likely to fall from Rs 15.06 in 1999 to Rs 5.96 by fiscal end. Despite the hammering, ISPL is hardly a company to write off one's portfolio. It's the undisputed leader in its industry, and is clocking a top-line growth of 40 per cent a year. Avers a Mumbai-based fund manager: ''We see the current price as a buy opportunity.'' And if Ahmed manages to get the new businesses going, he may soon have a stock graph line that's going up. |
|
Issue Contents Write to us Subscriptions Syndication INDIA TODAY | INDIA TODAY PLUS | COMPUTERS TODAY © Living Media India Ltd |
 |
 |
Hell
hath no fury like investors wronged. If there's anybody who shouldn't
doubt that stockmarket aphorism, it is Zubair Ahmed. Ever since the
$9.89-billion Gillette Company steamrolled the merger of its Indian
subsidiaries-Wilkinson Sword India and Duracell (India)-with the flagship
Indian Shaving Products Ltd (ISPL), Ahmed-CEO of ISPL-has watched his
company's stock plunge. Consider: from a pre-merger price of Rs 2,467.85
on January 7, 2000, the stock tanked to Rs 804.50 on September 21, 2000.
That's a loss of Rs 560.86 crore in marketcap.