03 December 2009

The Great Offshore takeover – not wrong, immoral or illegal

I will be discussing the issue of the hotly contested takeover battle of Great Offshore Limited on CNBC shortly (appearing on the 10pm show – news at 10 today). I will post in more detail later giving the context. But here are my two bits in two seconds to those who are familiar with the facts.

ABG dropping out of the competing open offer and selling its 8%+ stake is neither wrong morally nor does it hurt shareholders as some media reports seem to indicate. Shareholders will continue to have a competing offer by Bharti Shipyard at Rs. 590 a share, thus shareholders do not lose out (except to the extent of excess offers). Shareholders are also free to tender their shares to ABG at the substantially lower price (though no rational investor would do so given the substantially lower offer price).

Also, some news that ABG is withdrawing from the open offer is probably inaccurate as they cannot withdraw from the bid – but between two offers one substantially higher than the other, clearly no shareholder will tender shares into the ABG offer. I also find nothing immoral about ABG selling their existing shares (it is not disallowed under the takeover regulations) in the market after making an open offer – whether it is to the competing bidder or otherwise. They find that they cannot bid at Rs. 590 and thus find this the best time to exit from their position when the other offer is about to open. In fact as a fiduciary (the board of ABG as a fiduciary of their shareholders), they are duty bound to exit at this point and price which gives the best deal to their own shareholders. There is also nothing wrong from Bharti Shipyard’s perspective which is permitted to acquire shares outside the tender offer (if they acquire below 590, they only need to make a disclosure).

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