Saturday 12 October 2013

Special Situation - Fresenius Kabi


Whenever I see special situations, I ask myself 'Why bother'?? I am stress-freely enjoying plain simple equity plays & CAD is at two year low & QE is continuing in US & so India should do well.

Then I recall words from Prof Bakshi in some article- "Special situations should be treated as an alternative to cash. And I increase my allocation to these plays whenever I find equity markets over-valued."

If that's the case, with 20.5K on the board & within inches of ALL TIME HIGH at a time when GDP growth is terrible, this is a good time for Special Situations.
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Fresenius Kabi Oncology Ltd is a subsidiary of a Singapore based multi-million Euro company. Promoters have decided to delist the Indian company & have received all the necessary approvals. Tendering will start in another 3 days. For success, 9.5% of total shares need to be tendered out of 19% total non-promoter shares. Lets try to answer 3-4 most important questions in this case.

WILL THE TENDERING SUCCEED?
Highly likely.

  • 6.5% shares are with just 4 FIIs.
  • Next 3% shares are with 24 FIIs/ Banks/ MFs as per the last available shareholding pattern. 
So, the cards are clear to everyone- who needs to tender to make this a success!! Unlike, cases when whole  25% is with retail guys- who all keep thinking that let others tender... Why should I tender. 

WILL PROMOTERS ACCEPT THE DISCOVERED PRICE??
Highly Likely.

  • Only the global entity is listed. All other country entities are not listed.
  • Company has raised & won appeals against SEBI over de-listing. So, would be desperate to get de-listed.
So, case of Deprival Super-reaction Syndrome & Commitment & Consistency Bias should make them accept even at a price higher than what they think is justified.

WHAT WILL BE THE PRICE???
  • Floor price decided by SEBI formula is Rs 116/-
  • Promoters have indicated Rs 130/- as indicative price at which they will accept.
  • They indicated this price on April 16, 2013 when Euro was 71 Rs. Now, its 82 Rs. So, this 15% depreciation should make them ready to pay 15% extra on 130/- promised. That's about 150/- Rs.

  • BUT those FIIs which hold the controlling power were all issued shares at Rs 80 in Dec 2012. So all of them are sitting on huge profits. So, they may not tender at such high prices.
  • FIIs may be operating on Promoters' guidelines. This can be a BIG plan- I give shares to you at 80 Rs; you give me back at 120 one year later. 

  • Even if this whole game is pre-decided, I don't think they would like discovered price to be very near to floor price just to avoid facing SEBI's wrath again.
So, there are various angles which makes this case interesting to watch, even if you can't see the whole picture.
My prediction is that Delisting is going to be successful at price of  Rs 140-150.
That's a cool 10% upside in less than 1 month.

Less favorable case would be successful delisting at Rs 130. That's no profit- no loss.

Worst outcome would be delisting failure. High Unlikely. But if that happens, stock may fall 20-30%.

Let The Game Begin!!!

Disclosure- Playing but not heavily. Need to build more conviction on these to play heavily.