GE's Open Offer, Gives Less To Retail Investors

General Electric (GE) one of the leading energy and healthcare company in US  announced to acquire stakes in the domestic subsidiaries of Alstom SA France. The French parent company Alstom has two listed entities in India. One is Alstom India, engaged in business of power generating & power transmission equipment segment and Alstom T&D, engaged in the business of transmission and distribution segment. The Alstom SA France owns 68.56 per cent stake in Alstom India and 75 per cent in Alstom T&D. 

As a part of the proposed acquisition of the Power and Grid Business mentioned in the Alstom Offer, GE will indirectly acquire 68.56% in the Alstom India, and 75% in Alstom T&D if the transaction is completed. GE has offered Rs  688 crore for aquiring 26 per cent or 1.74 crore shares of Alstom India for a price of Rs 382.2 per share. It has also planned to acquire up to 25 per cent or 6.4 crore shares of Alstom T&D India through the open offer at Rs 261.25 per share (accumulating total to Rs 1,672 crore). This will indirectly increase GE’s total shareholding in Alstom India to 94.56 per cent (including 68.5% stake of Alstom SA) and in Alstom T&D the holding will increase to 100 per cent (including 75% stake of Alstom SA).

Looking at the acquisition we can say that after raising stake in the company, the strategy of GE would be to delist from the exchange. But the story is not so simple, taking the stake to 90% (as per the SEBI norms) the minimum promoter holdings required for delisting will take time. Till the shareholders do not get right price, they are not going to submit their shares. The domestic institutional investors (DIIs) and retail holdings in Alstom India are14.36% and 11.33% respectively, whereas in Alstom T&D the DIIs and retail shareholders have holdings of 16.25% and 7.23% respectively as on March 31, 2014. Even if the retail investors submits their shares and if DIIs does not agree to submit, the company will not be able to fulfill its minimum requirement of delisting.

The price offered for acquiring the shares of the company is lower than the market price of the shares closed on Tuesday. Alstom India on Tuesday closed at Rs 454.2, while the offer price is Rs 382.2 almost 19% lower than the market price. Alstom T&D on Tuesday closed at Rs 267.1, while the offer price is Rs 261.25 almost 2% lower than the market price. 

Whereas from the shareholders point of view, the offer doesnot seems so lucrative. The offer price is not so compelling that the shareholders will submit their shares. The share of Alstom India is currently trading at a price of Rs 454.2, which is very close to its 52 week high of Rs 480.90. And the same is with Alstom T&D, the share of the company is trading at a price of Rs 267.1 and its 52 week high is Rs 297. So to curtail its limits of 90% the company will have to come out with more attractive offer next time or will have to withdraw the open offer.