Tuesday, February 1, 2011

MNC delistings - lessons from history

This was coming. The stock price movement of Siemens clearly was suggestive of some corporate action. And now we know, it's the delisting offer by the German parent which follows almost similar offer by ABB. Now the big question is - Should the retail shareholders tender?

Over last 2 days, you would have seen a lot of analysis on TV and print telling you how great this offer is compared to the fundamentals shown by Siemens over last 1 year. Well, I am not a great follower of any such analysis and I just know one thing - you must pay top dollar to de-list a company, especially if the shareholders have been patient.

To present my case, I am giving an example of AstraZeneca (there are so many examples, I just picked one). I am giving bullet points which are easy to understand


-In March 2002, announced delisting offer at Rs 375/sh

-Managed to increase stake from 56.5% to 87.2%

-In Sep 2002, announced another offer for the balance 12.8% stake

-Open offer was again made at Rs 375/sh

-Managed to take stake to 91.6%

-In 2004, announced delisting offer for residual 8.4% stake

-This time, the floor price of Rs 875 fixed for residual stake

-Discovered price was around Rs 3000/sh

-Exit price was rejected promptly

-In 2006, face value was split from Rs 10 to Rs 2

-In 2010, announced another delisting offer with floor price of Rs 576/sh

-Pre-split, this floor price worked to Rs 2,880/sh

-Co indicated exit price of Rs 1152/sh

-Pre-split, this exit price worked to Rs 5,760/sh

-CMP at 1237, adjusted for split at 6,185

-Stock up 1550% since first offer in 2002

Now lets assume you were holding AstraZeneca shares in 2002 and tendered it because the offer looked lucrative at that price. Now what did you do with that money?

Whatever you did, you must have done something really special to beat the 1550% returns that AstraZeneca gave over this 8 year period

Now, I know stock price is not just a factor of fundamentals. With the float down to less than 9%, the selling pressure on the stock is limited. But the point is you could have been one of those representing this 9%.

Now, the other argument is regarding the financial performance of Siemens which has been rank bad over last 1 year. My apologies for being a fan of history, but lets take another example here


Year Profit Growth

2002 20.4 185%

2003 32 57%

2004 57 78%

2005 64 12%

2006 102 66%

2007 161 58%

Now, why I have put the 2005 numbers in bold? See what follows


-Board approved delisting offer in Feb 2005

-Price in Feb 2005 was around Rs 150

-In March 2005, announced floor price of Rs 153

-In March 2005, stock price was around Rs 200

-Discovered price of Rs 295 was rejected

-Promoters found Rs 295 too high

-Stock went on to make a high of Rs 500 in 2007

-Investors would have made 233% by staying invested

-Stock had already rallied 94% in 2 years preceding delisting offer

Only in 2005, the company came out with bad numbers. As coincidence would have it, that did lead to a lot of investors getting frustrated and some of them actually tendered the stock in offer

Conclusion: My point is simple. Why do you invest in stock markets? To create wealth, right. Else you go and trade, do jobbing, arbitrage or whatever. But if you want to create wealth, think long-term. Just imagine, in 10 years, Siemens may be generating 20% of its profits from India. Do you want this company to take all this profit and distribute it as dividend to its German shareholders? Think again before you tender the shares

Disclaimer: The author of this article does not invest/trade in stock markets.

1 comment:

  1. I happened to watch live on CNBC ur analysis of Siemen's offer and think its an excellent idea on ur part to start a blog so that we can catch up on ur views 24 X 7
    keep up the good work, Anuj