Mumbai: Shares of rating agency Crisil Ltd on Monday rose 20%—the maximum allowed in a day’s trading—after McGraw Hill Financial Inc., the parent of global rating agency, Standard and Poor’s Financial Services Llc, said it is making a voluntary open offer to acquire an additional 22.23% stake in Crisil.
The offer, if subscribed fully, will increase McGraw Hill Financial’s stake in Crisil to 75% from 52.77%, according to a statement.
The cash offer of Rs.1,210 per share represents a premium of 29% to the stock’s closing price of Rs.942 on 31 May and a premium of 12% to Crisil’s all-time closing high of Rs.1,262 on 28 May 2012, at the National Stock Exchange, the company said.
“The offer to increase our investment in Crisil represents a vote of confidence in Crisil and also represents a vote of confidence in the growth prospects of India and the other markets that Crisil serves,” said Harold McGraw III, chairman, president and CEO of McGraw Hill Financial.
Full acceptance of the offer at current exchange rates values the total transaction at approximately $340 million. McGraw Hill Financial will finance the transaction with existing cash resources, it said.
The tender offer period is expected to begin in July 2013 and conclude in early August 2013, the release said. Morgan Stanley India Co. Pvt. Ltd is the manager to the issue.
Investors should tender their shares at the price offered by McGraw Hill, according to Anuj Anandwala, analyst at Parag Parikh Financial Advisory Services Ltd.
“At current levels, Crisil is beyond valuations because competition among rating agencies is cut throat, ticket size is decreasing and the (corporate) bond market is sluggish because of slow economic activity. In this scenario, I would wait for the next few quarters before deciding on whether to enter the stock,” Anandwala said.
Crisil’s profit dropped 15.3% to Rs.45.60 crore in the quarter ended March compared with the same period in the previous year.
The McGraw Hill offer was good for Crisil because “it shows that the parent has confidence in the company”, Anandwala said.
McGraw said that McGraw Hill Financial intends to “keep Crisil a listed public, independent company to maintain the company’s leadership and essential role across the Indian economy, and to preserve the entrepreneurial, growth-oriented spirit of the high-performing Crisil team”, allaying fears of whether the management control will shift from India to US.
McGraw Hill Financial first acquired an equity stake in Crisil in 1997, which was later increased in 2005, making the US-based company a majority shareholder in the Indian rater.
Anandwala said McGraw Hill is increasing stake possibly in the expectation of a higher dividend from its Indian arm. Crisil had given a Rs.3 per share dividend in April.
“I expect the Crisil stock to rise to the McGraw offer price, which is about 8% away from its current price, in the next couple of days,” Anandwala said.
“The transaction would be immediately accretive to McGraw Hill Financial’s earnings per share,” the US company said.
Crisil stocks were split to a face value of Rs.1 per share from Rs.10 per share in September 2011 to increase liquidity in the market after it ran up to Rs.8,234 apiece then.
Crisil shares ended at Rs.1,126.60 apiece on BSE, up 20% from previous close, while India’s benchmark Sensex Index fell 0.76% to 19,610.48 points.