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Siemens makes surprise open offer

Siemens makes surprise open offer
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First Published: Tue, Feb 01 2011. 12 30 AM IST
Updated: Tue, Feb 01 2011. 08 49 AM IST
Shares of multinational capital goods maker Siemens Ltd vaulted 17.3% on Monday to close at Rs 853.50 apiece. This followed the open offer announced by parent Siemens AG, to buy back up to 67 million shares comprising 19.8% of its present equity capital. The intent is to increase the parent shareholding from the present 55% to about 75%.
What perked up the shares is the open offer price of Rs 930, which was 30% higher than Friday’s closing price of Rs 727 after announcement of its December quarter results.
Also See | Price Game (pdf)
The buy-back comes at a time when Siemens has declared strong results for the full year ended September. For the December quarter, revenue grew by 36% year-on-year (y-o-y) to Rs 2,538 crore. Reported net profit was higher by 3% y-o-y at Rs 244 crore. Operating profit margin during the quarter contracted y-o-y by about 500 basis points to 14.5%, but this was expected, as a year ago the firm had reported a one-time gain due to early completion of some projects. More importantly, the firm holds a robust Rs 15,000 crore order book.
Some analysts believe that given that most of the capital goods majors are at an inflection point in terms of their Indian operations, it may be an opportune moment for the parent firm to increase its holding. Siemens AG, for example, has around €15 billion (Rs 94,000 crore) cash and the buy-back would cost about €1 billion.
The open offer appears attractive for the retail investor. The offer price is at 32 times and 42 times the forward and trailing earnings, respectively.
Interestingly, nearly half the shares held with the public are with domestic and foreign financial institutions, with Life Insurance Corp. of India alone holding 13.6% of the total.
Given the long-term view adopted by the institutions and Siemens AG’s commitment to India that has been reiterated by the management, one wonders if they would subscribe to the open offer. The trend has been varied in the past. While ABB Ltd’s open offer for 20% shares was fully subscribed, the subscription levels for Areva T&D India Ltd were very low (only 1.22% of the 20% offered for purchase).
The open offer has already sparked off speculation of a possible delisting on Indian exchanges. At this juncture, the valuation of the open offer is rich. But if all institutions were to sell their holdings, then the rate of acceptance of the shares offered by the public to the parent could be less than half.
Graphics by Yogesh Kumar/Mint
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First Published: Tue, Feb 01 2011. 12 30 AM IST