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Honeywell Auto, Fresenius Kabi May Queue Up For Delisting

28 June, 2010

Honeywell Automation India Ltd and oncology drug maker Fresenius Kabi, formerly Dabur Pharma, may join the list of multi-national corporations (MNCs) delisting on local bourses after the Indian government announced that all listed entities should have a minimum 25% public float.

Several MNCs are now looking to speed up the process of delisting as they do not want to sell more stake under the new norms, and they will have to decide on their course before March 2011.

Sources said, firms like Honeywell Automation India were awaiting a final nod from their parent before unveiling de-listing plans. Honeywell has promoter holding of 81.6% while Fresenius Kabi’s promoter stake is at 90% as per the earlier listing norms that allowed minimum float of 10%. Fresenius Kabi acquired the listed Dabur Pharma in 2008.

Emails to Honeywell Automation and Fresenius Kabi remained unanswered at the time of posting this report.

According to a report by CLSA Asia-Pacific Markets earlier this month, MNCs may spend upto $1.2 billion at the current market prices to buy out the minority shareholders. Honeywell Automation closed trading at Rs 2,906 up 6.6% and Fresenius Kabi quoting at Rs 172.85 rose 4.47% at the close of trade on Monday.

Small individual shareholders have around 6.05% stake in Fresenius Kabi Oncology while around 2.4% stake is held by institutions. It seems that Honeywell Automation, which is part of the Fortune 100 global diversified technology and manufacturing major, may need to make an open offer before it plans delisting. Individual small shareholders have 11% stake, while institutional shareholders keep a little over 4.25% in Honeywell Automation, shows BSE data.

Delisting moves from these MNC firms could come at 10-20% premium over the current market quotes, said an analyst at a Mumbai brokerage firm, but this could not be confirmed independently.

Several MNCs with large promoter stakes have already seen their stocks run up well ahead of the benchmark indices. In fact, boutique investment management firms such as Unifi Capital, which launched ‘Delisting Opportunities Fund’ in August last year, says MNC stocks with high probability of delisting made returns of 57% (since August 2009) compared to BSE-500 index that showed up with returns of 23%.

“For many MNCs, which relectantly listed to comply the government norms in the 70s, are consolidating their shareholdings in Indian subsidiaries as they now operate in a key emerging market now and also offers a competitive production base in the region. Delisting eliminates potential conflict of interest with minority shareholders in key strategic decisions while providing fair value to minority shareholders as well,” Christopher Vinod, Vice President, Unifi Capital Pvt Ltd, said.

Alfa Lavel, which has seen India emerge as a regional hub, made a voluntary buyback offer last year taking its shareholding in the local subsidiary to 88.77%. “These MNCs where the parent is holding over 75% stake are unlikely to dilute and more likely to opt for delisting,” Vinod added.

Meanwhile, speculation has been gaining ground that Alstom Holdings and Schneider Electric that announced 20% open offer for Areva T&D India may up the offer price and go for delisting. Alstom and Schneider  jointly acquired the T&D business of Areva globally, and made a mandatory offer to buy additional 20% stake at Rs 295.34 per share, which will open on July 22.

The promoter holding at Areva T&D India already stands at 72%. For delisting to be successful, the stake held by promoter entities after the offer should be more than 90%, or higher than the aggregate of pre-offer promoter holding and 50% of the offer size, whichever is higher. If Areva’s open offer is successful, it could potentially become a target for delisting.

In context, sources said, the open offer price could be revised upwards to make some of the large institutional shareholders tender their shares. Life Insurance Corporation of India (LIC), General

Insurance Corporation (GIC) and New India Assurance Company together hold 7.13% stake in the Areva T&D India as of March, 2010. When contacted, an Areva T&D spokesperson declined to comment.

“The new regulations could hasten the plans of some MNCs to buyout minorities in their listed Indian subsidiaries and apply for delisting (once the shareholding crosses 90%) since the new plans may go against the long term strategic objective of full ownership,” said the report from CLSA.

Also, the new regulation would require 61 companies out of the BSE500 to dilute equity, which would mean additional fundraising of $13 billion to $17 billion. The cumulative stipulated equity raising for the next three years stands at $32 billion to $43 billion, said CLSA.

But the delisting play is not going to be a smooth affair going by early indications. With minority shareholders on the guard against under-pricing offers, some of them, like Goodyear, failed to attract the requisite numbers. In another case, Suashish Diamonds’ promoters were unwilling to accept the discovered price and the delisting offer failed to take-off.

It could be an expensive proposition as well in the prevailing environment, where a possible de-listing premium is already built-in. For instance, BOC India’s share price jumped by 20% after the delisting proposal was announced on June 15. Since August last year, Alfa Lavel has jumped 54% from Rs 904 to Rs 1400 today. Ineos ABS India Ltd stock soared 159% to Rs 237 between August last and now. Honeywell Automation’s stock has vaulted 73% to Rs 2950, while Esab India Limited have risen 42% to touch Rs 609 in the similar period.


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Honeywell Auto, Fresenius Kabi May Queue Up For Delisting

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