Mumbai: Caterpillar Inc, a US-listed company, through its subsidiary Caterpillar Commercial SA (CCSA), has made an open offer to buy out the public shareholders of Hindustan Powerplus (HPL) at a price of Rs 32 per share.
The CK Birla group, in technical and financial collaboration with Caterpillar of the US, promotes HPL. The CK Birla group and Caterpillar hold 37.75-per cent stake each in HPL with the balance 24.5 per cent being held by the public.
Post-announcement of the offer, the CK Birla group has made its intention known that they would participate in the offer made by CCSA. With the CK Birla group companies participating in the offer, CCSA will reach a holding of at least 75.5 per cent.
Key financials of HPL:
| ||FY |
|FY 2003 |
|Total Income (Rs million) ||1673 ||1612 ||1634 ||1155|
|Profit After Tax (Rs million) ||62 ||77 ||65 ||30|
|Dividend (%) ||- ||5% ||5% ||-|
|EPS (Rs) ||1.96 ||2.42 ||2.03 ||0.95|
|Return on Networth (%) ||6.8% ||7.9% ||6.5% || |
|Book Value per share (Rs) ||28.74 ||30.67 ||31.11 || |
Key features of the HPL stock:
|High Price || ||52 Week ||2 Year|
| || ||36.00 ||36.00|
|Low Price || ||17.50 ||11.50|
|Statutory Price (On Announcement Date) ||23.40 || || |
|Offer Price ||32.00 || || |
|Offer Price Premium over Statutory Price ||36.75% || || |
|Price/Earnings (At offer Price) ||15.76x || || |
|Price/Earnings (Industry Average) ||9.80x || || |
|Dividend (FY02) yield at offer price ||1.56% || || |
The company has not been able to show growth during the past few years on the total income and the profit after tax. With the dividend being low at 5 per cent the yield is also very low. The offer price of Rs 32 is near its two-year high price of Rs 36. The offer price of Rs 32 per share is attractive since it is at a significant premium to the pre-announcement price and the price earning ratios of comparable companies in the industry.
Should one hold or tender?
Prior to the offer the HPL stock was infrequently traded on the stock exchanges, further after the completion of the offer the liquidity would reduce even further thereby reducing the option of exit in the open market in the event low liquidity. Due to the low level of floating stock investor interest in the stock would reduce and chances of capital appreciation would reduce significantly.
Since the Indian promoters, CK Birla group, is tendering its 37.75-per cent stake in the offer, CCSA would in effect have met its main objective of control in HPL as its holding would increase to beyond 75.5 per cent of HPL's capital.
The recently introduced reverse book-building guideline would be applicable in the case of HPL only in the event of its reaching 90-per cent stake in HPL. In the event of CCSA not reaching 90-per cent stake in HPL it may not make an open offer or may not opt for the reverse book-building option at all. Even if an offer is made as per reverse book-building guidelines, CCSA has an option to reject the price discovered by the reverse book-building mechanism and not acquire any further shares.
In light of the above and the attractive price offered by CCSA it would be advisable to participate in the offer.
Open offer to acquire 19,779,914 shares of HPL by Caterpillar Commercial SA at Rs 32 per share:
The last day by which payment would be made to the shareholders: 10 May 2003.
|Offer size ||Rs 633 million|
|Offer opens ||12 March 2003|
|Offer closes ||10 April 2003|