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ABG Counterbids For Great Offshore, Price War Seen

23 June, 2009

 Shipbuilder ABG Shipyard Ltd said on Tuesday it has bid for a controlling stake in offshore services firm Great Offshore, countering an offer by rival Bharati Shipyard.

Bharati Shipyard’s board will meet on Tuesday to consider raising offer price and will address the media at 5 p.m, a senior official who did not want to be identified told Reuters.
ABG Shipyard’s counter bid to acquire over 32 percent in Great Offshore at 375 rupees, is likely to spur a protracted price war, analysts said.
“For me, its true valuation would be around 400 rupees. If Bharati Shipyard makes an offer around 403, it is over-valued,” Syed Sagher, an analyst with Pinc Research, said.
Television channels CNBC-TV18 and ET Now reported that Bharati may revise its bid to 402-403 rupees, but the official said the shipbuilder will make a formal announcement only after the board meeting.
ABG Shipyard will not “come back with any immediate reactions,” Agarwal told reporters, when asked if it would revise its bid. “We will evaluate at the right time. Next step is we’ll sit and decide what’s the best way forward.”
For both ship-builders, the acquisition will take them one step further with the offshore services business and turn the buyer into an integrated shipping firm, though a price war may erode benefits of the acquisition, analysts say.
“We’ve got ship building, we’ve got ship repair. Providing offshore services is a good synergy,” Chairman Rishi Agarwal told a news conference, after it announced its counter-bid.
Shares in Great Offshore soared 10.6 percent, ending up 7.9 percent at 413.6 rupees. ABG Shipyard finished 1.8 percent higher at 213.15 rupees.
ABG, which already holds a little over 2 percent stake in Great Offshore, plans to fund the acquisition from its internal accruals. It has a cash reserve of 2.5-3 billion rupees, Agarwal said.
However, analysts see Bharati Shipyard as better placed to acquire Great Offshore as it already holds a 15 percent stake and has orders to build vessels, including a rig for Great Offshore.
Earlier in the day, about 1.7 million shares of Great Offshore, representing 4.6 percent of its equity, changed hands in multiple block deals on BSE at a weighted average price of 404.42 rupees each.
“It is very likely that Sheth brothers will sell their 5 percent to Bharati Shipyard. Eventually Bharati will only need 6 percent to become a substantial shareholder. So, as of now Bharati is strategically better placed than ABG,” Ajit Motwani, an analyst with Emkay said.
Television channel CNBC-TV18 reported that Sheth family, the founders of shipping firm Great Eastern Shipping Co, has sold its stake in Great Offshore to Bharati Shipyard through the block deals.
However, Bharati’s investors displayed their concern over the offer escalating into a price war, by taking the shares down as much as 6.5 percent on day, and closing 5 percent lower at 162.5 rupees.
“Investors are reading it as an expensive deal,” Pinc’s Sagher said. “They’ll have to take loans for this definitely. They’ll have to raise debt at a higher cost.”


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ABG Counterbids For Great Offshore, Price War Seen

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