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Micro Inks - Delisting exercise

Micro Inks is the subsidiary of the German chemicals company Huber. Huber announced a delisting on the 9th of Dec. The event unfolded with the following time schedule


1) Board meeting for delisting announcement - 9th Dec 2009

2) Postal ballot result – 16th Jan 2010

3) Announcement of delisting schedule - 3rd Feb 2010

4) Opening of Reverse Bookbuilding process – 2nd March 2010

5) Closure of the reverse bookbuilding process. - 5th march 2010


Risk / Return analysis

Let me run thru the risk/ return analysis of the deal based on the framework that I had put out on a guest post on Rohit’s blog. The link to that is as attached below


1) Time Risk

The time risk in the deal was managed by entering the deal only after the delisting schedule had been announced. So there was clear timeline defined on the trade.


2) Deal Risk

Deal risk in a delisting opportunity could stem from two fronts


a) Inability to garner the requisite shares

In the case of Micro Inks the promoters held 74% of the stake in the complete. For delisting to succeed they had to garner 16% shares so as to reach the 90% hurdle that needs to be covered for delisting to be successful


In Micro Inks, Reliance Mutual fund held 7.23% stake and HDFC mutual fund had 3.69% stake. They along with other institutions held 12.25% stake in the company. This ensured a high probability of the transaction happening.


b) Likelyhood of the discovered price being unacceptable to the promotor

In the case of Micro Inks, Huber launched the delisting offer even before appointing the merchant bankers to the deal. It was a strong cue to the fact that the company was confident that the delisting will go thru. Our assumption was that some kind of indicative price would have been discussed / agreed with the institutions.


3) Price Risk

Huber had defined the floor price at Rs550 for the transaction. I entered the stock around the Rs595 mark. Our assumption was that the deal should close in the 650-675 mark giving a possible return of 10 – 12 % in a 1 month time period. We were also comfortable from the underlying valuation standpoint.


Post deal analysis

The reverse bookbuilding opened on the 2nd of March and I must admit it was well managed by Kotak Securities the investment banker. They had done a good job of sealing the institutions and lo and behold both HDFC and Reliance tendered at the same day around the same time at the same price of Rs 640. This effectively created the anchor price for the delisting exercise.


The company successfully managed to close the book and delist at Rs 640.


I had 2 options

1) Either to exit through the stockmarkets around the Rs 625-627 mark post the closure of the bookbuilding exercise.

2) Wait for the stock to get suspended followed by the delisting and then tender to the company at Rs 640. I chose this option bcos along the way Micro Inks also announced a dividend of Rs 6 with a ex date of 12th April. Considering the current level of markets with not too many alternatives to deploy capital, I was comfortable letting my capital lie here and earn the extra 1% tax free return.


So the way I see it I will wind up making about 8.5% on invested capital in a period of 2-2.5 months. Good for me.

Disclosure: Long