open Offer

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Querist : Anonymous

Querist : Anonymous (Querist)

28 September 2010 May I request the experts to answer the following

1) What is the meaning of Open Offer

2) Why the market price is very high when the offer price is very low ( Eg Ontrack system offer price is Rs 17 and market price is 45)

Can we reject the open offer and sell the holdings in the market

Normally what will happen to the market rate after the open offer is finished

Thks

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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01 October 2010 My understanding about open offer is that it is an offer to the existing share holders to buy shares at lower price. So if CMP is 45 and OOP (Open Offer Price) is 17, you have an opportunity to buy shares at low price and sell in the market rather than rejecting the offer.

The difference between open offer and rights issue is that in the latter you can sell your rights, if you do not want to subscribe to shares. But in Open offer, you either buy shares or dont buy, you can sell the rights.

If your query is still not resolved, pls revert.

Querist : Anonymous

Querist : Anonymous (Querist)

01 October 2010 Sir

I think your explanantion is not correct . In open offer , the Offer is made by the company to take back shareholders share at an agreed price . It is not at all like Right Issue . In right issue , SH is getting the rights to buy where as in OO shareholders can sell his share for the price agrred by the company

Kindly correct me if I am wrong

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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07 October 2010 I did some research on this and found that you are referring to the offer by RP Info systems and B Hari (can be called open offer) to buy shares as a part of takeover of the company.

This has been done as per SEBI takeover guidelines. To answer your questions:

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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07 October 2010 1. One has to follow SEBI guidelines which includes an official and public announcement (including filing the information with the stock exchanges) on one's intention to buy shares as a part of takeover.

2. Share price in a bulk acquisition will be different from market price. (You will buy 100 Kg mangoes at a lower price than 1 Kg mangoes). However in this case, the price difference is too high and I am not sure whether there is any other intention (like a plan to reduce tax liability on capital gains) behind such low price on the shares. Other possibility is that selling parties believes that current market is substantially over valued.

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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07 October 2010 3. You can reject the offer and sell in the market.

4. Price of the shares after the takeover will purely be decided by market factors and cannot be determined. If the price were to come down, it would have done so immediately upon the announcement of the offer itself.

Hope this helps.

Querist : Anonymous

Querist : Anonymous (Querist)

07 October 2010 Sir

Thanks for the detailed reply and the relevent provisions . This will help me very much . But only one last question , What will happen if the open offer takeover bid fails . ( Sebi provisions and Co act)

In the case which we discussed , they were not able to acquire shares at Rs 17 and thus the open offer practicaly failed . I am more intersted on the effect of the market price in this situation

Thank you very much

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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18 October 2010 Sorry about the delay.

If open offer fails, nothing happens legally. It ends there.

The failure of the offer indicates that intrinsic value is above Rs. 17.

I can see that share is currently trading at Rs. 44 or so, which also confirms the same.