Corporate takeover battles are rare in India. Even rarer is a three-way battle to gain control of a public listed company. Bhubaneshwar-based Orissa Sponge Iron & Steel is currently facing such a prospect. Those facing each other include two estranged brothers of a business family and one independent business group.
Public listed Bhushan Steel & Power promoter Neeraj Singal is locked in a battle with his elder brother Sanjay Singal (who had split with his father and younger brother in 2002-end and now owns privately held Bhushan Power & Steel) and another sponge iron firm Monnet Ispat which is promoted by Jajodias.
The story began late last month with Bhushan Steel's subsidiary Bhushan Energy acquiring 9.5% stake and 35 lakh warrants from the Unitech promoters- Chandras who held around 12% in the loss making firm. Combined with 5.35% of original holding, Bhushan Steel Group's total stake went up to 14.85%, marginally short of the 15% mark which triggers a mandatory open offer.
This was followed by a surprise open offer made by Sanjay Singal on February 7, to acquire 26% stake in Orissa Sponge at Rs 300 per share, a 91% premium to the closing prices of Rs 157.25 on that day.
Even as this open offer was yet to open, Monnet Ispat, which holds 14.9% stake in Orissa Sponge, announced a counter offer on February 25 to acquire additional 20% stake from the shareholders at Rs 310 per share which valued the company at Rs 600 crore($120 million).
Neeraj Singal, who had earlier ruled out making a counter offer to his elder brother claiming that it wouldn’t succeed as he doesn't own any share of Orissa Sponge, has now indicated plans of making an open offer following Monnet Ispat’s move.
An announcement is expected on Saturday.
On February 24, Monnet Ispat increased its stake in Orissa Sponge to 15% by acquiring a 10% stake from the promoter Mohanty family. Earlier this month, Monnet Ispat had acquired 5% stake held by institutional investor IDFC in Orissa Sponge. The deal was to help Monnet meet its raw material requirement.
Even as his younger brother is planning to make a counter offer, Sanjay Singal himself is looking to hike his earlier offer price from Rs 300 according to this report.
There Are Many Gainers
Orissa Sponge share price has moved up almost six times since December 8, 2008, and closed at Rs 311 on Friday. The company, which has sponge iron and steel billet plant in Orissa with an installed capacity of 2.5 lakh tonne, reported a loss of Rs 3.7 crore for the year ended March 31, 2008, as against a loss of Rs 22.9 crore in the previous year.
Orissa Sponge also has iron ore reserves of around 65 million tonne and coal reserves of around 125 million tonne.The three-way takeover battle has become complicated due to the entry of Monnet Group as a serious contender. Earlier Bhushan Steel promoters were in talks to acquire the stake held by Orissa Sponge promoter Mohantys.
Now Monnet claims that it has an agreement with Prashant Mohanty to acquire further 12% through warrants by June 2009. Since Neeraj Singal’s group also owns warrants, the eventual stakeholding of Orissa Sponge is wide open.
Orissa Sponge has 105 lakh outstanding warrants. One warrant allows the holder to subscribe to one share. Of 105 lakh warrants, 70 lakh are owned by Mohanty and the balance 35 lakh warrants by Neeraj Singal. After the conversion of warrants, Monnet Group and Mohanty’s total holding in Orissa Sponge will be in excess of 50%.
All told, even as retail shareholders of Orissa Sponge are waiting to see who gets the control of the company, they are now sitting on neat profit as the stock has taken a sharp flight upwards.