There’s No Incentive To Buy In Open Market To Sell To Co In This Buyback
GEE CEE Ventures, formerly known as Gwalior Chemicals, may appear to have outperformed the market by doubling in the past one year against BSE Sensex’s 79% gain. However, the company has grossly underperformed the Sensex since June 8, 2009, when it announced sale of its entire business to Lanxess India for Rs 536 crore — valuing the company at over 43% premium to its earlier market capitalisation. Since the announcement, the scrip has actually fallen 15%, while the Sensex gained 21%.
At the time of the sale, the company had announced distributing Rs 100 crore to shareholders by way of a large one-time dividend and/or share buyback. The company had also mentioned investing in power generation and high value speciality chemicals at its Ankleshwar site as its future growth plans. The company’s share buyback offer opened on April 1, 2010 for 40.5 lakh shares at a price of Rs 120 each, which is at a steep 30.7% premium to its latest market price. However, unlike other buyback offers, GeeCee’s promoters with nearly a 60% equity stake are also offering their 1.48 crore shares for buyback. No wonder then, the offer has failed to enthuse retail shareholders, who are effectively crowded out.
In other words, even if all the nonpromoter shareholders tender their shares in this buyback, at least 60% of Rs 48.6-crore, the total corpus earmarked for the buyback, will go to the promoters, since shares in buyback will be accepted on a proportionate basis. A retail shareholder, who tenders 100 shares in the buyback, could get money for only 16.4 shares, provided all 2.47-crore shares turn up for the buyback. As a result, there is no incentive to buy in the open market to sell back to the company in this buyback. Whether the company later distributes another Rs 50 crore in dividends as promised on June 9 is yet to be seen. However, retail investors, who already hold stake in the company, have little option, but to enter this lottery.
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