Baring Private Equity Asia-backed Bhushan Power & Steel raised its holding in small-sized loss-making sponge iron firm Nova Iron & Steel by acquiring an additional 8.1 per cent for Rs 17 crore ($3.8 million), in an open market purchase on Monday.
With this stake purchase, Sanjay Singal-led privately held firm Bhushan Power & Steel now owns 22.8 per cent in the public-listed company which will trigger a mandatory open offer.
Nova Iron & Steel scrip hit the upper trading circuit with 4.99 per cent increase to close on Monday at Rs 14.09, valuing the firm at Rs 212 crore ($47 million) at BSE.
Bulk of the stake was acquired from Nova Iron promoters, the Gambhir family. This makes it a friendly takeover by Bhushan Power. Given that the firm has already acquired 22.8 per cent, much more than the trigger point of 15 per cent, it will have to make a mandatory offer for at least 20 per cent additional stake. It may even look at a higher tender offer or supplement it with further market purchase or a preferential allotment to obtain majority stake.
A 20 per cent additional stake at current market price will cost Bhushan Power another Rs 42.4 crore ($9.5 million). It has already invested a similar sum to buy the stake till now. See our earlier report.
For Sanjay Singal, who split from his father and brother who control the public-listed firm Bhushan Steel & Power, this comes as an inorganic expansion after a failed bid in a three-way takeover battle for Orissa Sponge & Iron. Besides Singal, other suitors for Orissa Sponge included Monnet Group and Bhushan Steel & Power.
Nova, which posted revenue of Rs 144 crore with net loss of Rs 4.23 crore for the year ended March, 2010, has seen a significant slide in business with revenues of less than Rs 3 crore in three straight quarters – ending with the three months ended December, 2010. It is yet to disclose numbers for the quarter ended March, 2011, or for the full financial year. This makes it a ripe acquisition target.
Gambhir family held 58.2 per cent stake (a quarter of this was pledged) in Nova as of March 31, 2011. With the two rounds of stake sale, their holding is estimated to have come down to around 39 per cent.
Singal appears to be betting on reviving Nova’s business. And he certainly has the means to do so. Bhushan Power & Steel had revenues of Rs 4,008 crore ($890 million) with earnings of Rs 255 crore for the year ended March, 2010. It had cash and bank balances of around $100 million for FY10.