Mumbai: Shares of Bharati Shipyard Ltd, India’s second largest private yard, zoomed 17% on the Bombay Stock Exchange, or BSE, on Thursday to close at Rs207.80 a piece even as the company’s offer to buy shares of the country’s largest offshore oilfield services firm Great Offshore Ltd opened for the public.

The stock of ABG Shipyard Ltd, the second bidder for Great Offshore that technically still remains in the fray, too rose by 3.51% to close at Rs213.75 but the Great Offshore stock remained virtually flat at Rs513.70.

Smooth sailing: Bharati’s Ratnagiri shipyard. The company’s shares rose 17% on the BSE on Thursday to close at Rs207.80 a piece.

ABG Shipyard’s offer is Rs520 a share for a 33% stake.

In past two days, the Bharati Shipyard stock has risen 29.22% and that of ABG Shipyard 13.27%. Bharati Shipyard is set to win the battle for Great Offshore while ABG Shipyard has for all practical purposes given up, after making the deal more expensive for Bharati Shipyard.

According to sector analysts, Bharati Shipyard stock is rising as the takeover makes sense for the company despite the cost. The shares of ABG Shipyard, too, are on the rise as the company has made a smart exit at the right time.

Bharati Shipyard has invested Rs322.32 crore to acquire 23.17% in Great Offshore. At Rs590 a share, it will have to spend another Rs462 crore to buy another 20% stake.

The battle started in May when Bharati Shipyard paid Rs315 a share for acquiring a 14.98% stake in Great Offshore after its promoter Vijay Sheth forfeited shares pledged with the company. On 4 June, Bharati made an open offer to buy from shareholders for additional 20% stake at Rs344 a share.

“It would be incorrect to say that ABG shipyard lost the battle, as the company made a profit of Rs54.40 crore from its investment in Great Offshore over the span of last six months," wrote Kunal Lakhan and Shraddha Shroff, analysts with domestic brokerage Kisan Ratilal Choksey Shares and Securities Pvt. Ltd, in a 2 December note to investors.

The note said the bidding war is expected to benefit Great Offshore shareholders as there was already an appreciation of 50% in the stock price from the moment Bharati Shipyard made its first open offer (at Rs344).

Some analysts say the battle for Great Offshore is far from over and there could be a new twist if ABG Shipyard gets substantial offers from Great Offshore shareholders.

The current market price of Great Offshore is less than ABG Shipyard’s offer and hence investors looking for an exit from Great Offshore can sell shares to ABG Shipyard even though its offer price is less than that of Bharati Shipyard. This is because Bharati Shipyard will buy only 20%. Under the takeover norms of India’s capital market regulator, in normal circumstances an entity cannot withdraw from the fray after making an open offer to buy shares from the public.

Theoretically, if investors respond to both the offers and both Bharati Shipyard and ABG Shipyard decide to buy to the extent they have made their offers, then Bharati Shipyard will end up owning 43.17% stake without management control and ABG Shipyard 33% with management control. This is because both the firms have made their offers under different sections of takeover code of the capital market regulator.

“It is better for investors to tender for both open offers," said Navindar M., an analyst with Natverlal and Sons Stockbrokers Pvt Ltd. According to him, even though the ABG Shipyard offer is lower than that of Bharati, investors should yet offer shares to ABG Shipyard as it is higher than the current market price. Since ABG Shipyard’s offer is for 33%, it will accept more shares on offer compared with Bharati Shipyard..

“If ABG gets substantial offers (from Great offshore shareholders), than a new drama begins," he said.

The Kisan Ratilal Choksey note said the acquisition may look expensive for Bharati Shipyard if one compares Great Offshore with Aban Offshore Ltd, India’s largest oil drilling company, but overall is is a “fair valuation".

“This acquisition presents significant synergies to Bharati Shipyard, whose current order book would last for another two-three years. In the next two years, Great Offshore’s 70% of assets will come for replacement or repairs. These orders can be worth Rs2,500-3,000 crore. Thus, Great Offshore’s orders will come at the time when Bharati Shipyard’s orders are about to get exhausted," the note said.

Analysts are divided over the implications of ABG Shipyard’s unprecedented act of selling the target company’s shares just a day before the open offer begins on the existing takeover norms.

“It might not be a legal violation, but the spirit of open offer is being violated. The capital market regulator should investigate the situation led to this," said Arun Kejriwal, director of Kejriwal Research and Investment Services, a stock advisory firm. Kejriwal owns shares in Great Offshore.

The authors of Kisan Ratilal Choksey report also noted that they are concerned over possible capital market regulator Securities Exchange Board of India’s (Sebi) reaction to this last minute action by ABG Shipyard.

But a person familiar with the development said ABG Shipyard has taken all necessary steps to comply with Sebi guidelines. Kotak Mahindra Capital Co. Ltd is advising ABG Shipyard in this open offer proceeding. “ABG Shipyard will buy shares if investors are willing to tender shares at Rs520," he said.