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OPEN OFFER Open Season On VST An astute broker-duo sniffs an opportunity in VST, and moves in for the kill. By Brian Carvalho
February 15: With more than a little help from John Band, Managing Director of advisory firm ask Raymond James, the Damanis officially flag off their open offer with advertisements in the country's leading papers. VST-and BAT-have 21 days to react. By the time you read this, the British tobacco major might have already done so. If it hasn't yet, three options lie ahead. One, make a counter-offer directly. If the Foreign Investment Promotion Board (FIPB) throws a spanner in the works-like it did a few years ago when BAT tried to increase its stake in VST-there's Option 2 to fall back on. Which is to route its counter-offer via ITC, in which it also has a 32 per cent holding. The third choice isn't very appealing. To allow the Damanis to become the largest shareholder in VST (with 34.9 per cent against BAT's 32 per cent), and let them 'advise' the UK corporation on how to maximise shareholder value. Of course that's subject to the Damanis being able to corner 20 per cent more. But with shareholders crying out for value, and getting it thanks to apparent takeover bids-remember Gesco? - BAT wouldn't be ready to run the risk of letting the Damanis lie. A rather nervous G.S. Damani says he's been accumulating VST shares ''for the past two years now. The price is good and it's a good long-term buy,'' is all he's willing to add. ''For the past five-six years, VST's performance has been disastrous, and we feel that there's been little management control on the part of BAT. There's not been enough pressure for improvement,'' explains Band (who was at the forefront of the Dalmias' offer for Gesco a few months ago, which resulted in the former making a killing). There's some truth in that statement. But only some. Yes, VST for instance did sink into the red in 1998-99 with a Rs 89-crore loss. But last year it turned around smartly with a Rs 16-crore profit, giving it an earnings per share (EPS) of roughly 10, and a P-E, at the Damanis' offer price of Rs 112, of 11 (two years ago, VST was commanding a p-e of over 30). But it's the current year that promises to be even better, and analysts are projecting a Rs 22-23 crore net profit by March. That should propel VST's EPS into the Rs 15 region, which at the current p-e of 11 means a price of around Rs 160. ''There is plenty of value in the stock,'' avers Rajesh Kothari, an equity analyst at Ajay Kayan's SMIFS Securities. Now if BAT does a make a counter-offer of Rs 140-a modest premium to the offer price-the Damanis would be only too eager to throw in the towel. For they would have just made a 50 per cent killing, as their average price of acquisition of 14.9 per cent worked out to Rs 87. If you own VST shares, relax and enjoy the ride. -Additional reporting by E. Kumar Sharma |
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January
14: A top-level team from Ambit Corporate Finance, Ashok Wadhwa's
high-profile investment banking outfit, is huddled in closed-door talks
with the top brass of VST Industries, which includes managing director
Raymond Noronha and Chairman Abhijit Basu. They're working on how to
counter the open offer bid for 20 per cent of VST made by BSE broker
brothers Radhakishan and Gopikishan S. Damani, who already control 14.9
per cent of VST's equity. ''We are examining the details and it's
implications,'' the chairman told BT.