CNBC has just flashed post 3.30 pm the news that L&T has asked SEBI for relaxation in the cut-off date for the open offer so that they can make the offer at Rs.30 (if 7th Jan'09 is agreed as cut-off) or at Rs.98 (if 16th Dec'08 is the cut-off) INSTEAD of Rs.275 (the last 6-month average).
Though SEBI has not give any verdict on the same, however, L&T's demand opens up a pandora's box.
1. It implies that L&T is "willing" to buy stake even at Rs.98. This means, for the open offer, the additional outflow required is ~Rs.1350 cr. (67.4 cr sh x 20% x Rs.98). At Rs.30, the outgo will be Rs.400 cr.
2. Can SEBI set a new precedent by giving a lee-way for faulty corporate decisions like this? Or is it "pre-decided"?
3. If SEBI does permit a lower open offer price, what about the small investors who must have ignorantly bought Satyam shares in the free fall from Rs.186 - only to repent later. Will SEBI give them "REFUND" for the difference? If not, isn't SEBI for the protection of "all investors" rather than the bigger ones? Will Mr.Kirit Somaiya not raise a 'foul' cry?
4. Even at Rs.98, some cross-bidding is not ruled out, which can take the open offer price cost a little higher for L&T. (At Rs.30, it will boomerang on SEBI/L&T as all IT cos would jump in the fray for the acquisition. Hence, this is ruled out).
5. A further CASH infusion in Satyam would be needed to ensure its smooth operations. The amount could be as high as Rs.1000 cr or Rs.500 cr on an optimistic note.
6. Upaid case liability is expected to be $1 bn. This will cost Rs.5000 cr. Even if we assume L&T can settle the same at half of that amount, it still means Rs.2500 in cash.
7. Further, there is a class-action suit filed by the US investors - the liability on this account cannot be quantified at present - but can be significant enough to dent Satyam's cashflows (if any, that is.)
8. Thus, L&T needs TOTAL cash of either Rs.8,650 cr (1300 + 1350 + 5000 + 1000) conservatively OR Rs.4,700 cr. (1300 + 400 + 2500 + 500) optimistically to gain a meaningful control over Satyam.
9. Rs.8650cr is = almost 3.5 year's likely cash flow of the company whereas Rs.4700 is over 2 year's cash flow of the company. No doubts that these will fully wipe-off the cash & cash-equivalents / investments of L&T.
10. Note that L&T has "other income" of Rs.794 crore in last 4 trailing quarters, implying a reduction in EPS of appx. Rs.13.5 pre tax or Rs.9.50 post-tax = Rs.76 if one give s a P/E of just 8x to its non-core income (instead of the current 14x).
11. It is quite probable that the acquisition, if possible, will not be EPS accretive.
12. Thus, a highly regarded corporate like L&T is now involved in a possible acquisition process, whose benefits can not be measured until the Upaid case is settled, the US class-action action is settled and also the other assets/liabilities of Satyam group of companies are identified. Do you think all these can be resolved in very short time?
via Delhi Dreamer