The Story
This is one company where the original promoters just watched their entire control going away to their biggest competitor. Vijay Kantilal Sheth, vice-chairman and managing director of Great Offshore became the first promoter in
And now this battle for complete control over Great Offshore by Bharati Shipyard continues. Drama started when ABG Shipyard made an open offer to acquire over 32% in Great Offshore at Rs.375 a share, countering Bharati's bid of Rs 344/share for a 20% made earlier this month. ABG holds a 2.02% stake in Great Offshore, purchased in FY09 from the open market. This open offer of ABG opens on
Bharati Shipyard, which had a 14.89% stake in Great Offshore disclosed yesterday that it had bought further 4.5% stake in the company from Bharat and Ravi Sheth (cousins of Vijay Seth) for Rs. 403 a share. With this buy, Bharati’s stake now stands at 19.1% and till date, it has spent Rs.245 crore for this stake.
The drama here is that both –ABG and Bharati are reluctant to let go. Bharati has said that it will make a counter bid for controlling stake and ABG has reacted stating that it will make another bid over this counter bid.
For the shareholders of Great Offshore, this is good news, especially in the short term. Today, the stock is quoted at Rs.420 levels and they should stay put for this war of bids to end at the end of which, the final price would be much higher and thus best to hold on.
Why do these two companies want Great Offshore?
For Bharati Shipyard, it is imperative that it gets the company as currently 30% of its order book comes from Great Offshore and if ABG gains control, then it might stand to lose more than just the controlling stake. So for Bharati it’s a cacth-22 as taking over will trigger off high debt and letting go would mean probable loss of revenue.
Great Offshore is an offshore oilfield services firm while ABG and Bharati are ship manufacturing and repairing companies. The outlook looks bleak for both ABG and Bharati as no new ships are being built and order book is not very good for current year. But if either of them manage to get control of Great Offshore, it would help them get over their current slowdown. The acquisition could make either of them into fully integrated player in the highly lucrative field of offshore oilfield services market. Great Offshore has a fleet of 40 vessels of which 75% are old and needs to be decommissioned. This would mean business for ABG and Bharati, not to mention revenues which would come out of repairs.
But can ABG and Bharati really afford this price war induced acquisition?
For them, this counter bidding will prove to be counteractive as every hike in the offer price, signals more money than anticipated going out of the company. Bharati would have arrived at a price of Rs.344/share after calculating all the fair valuation parameters. And now, it paying Rs.403 for 4.5% stake and new offer price, are all price forced due to circumstances. This new price would not be the fair valuation because it has now become more or a tussle than a ‘strategic’ takeover, and this works out to be too expensive. Bharati has already spent Rs.245 crore till date. So this means the company will now go for more debt to make this acquisition that too at a time when business for the shipping sector is not exactly booming. For FY09, Bharati Shipyard posted net sales of Rs.1019.23 crore on which it posted a net profit of Rs.130.03 crore. Its interest outgo was at Rs.56.71 crore and it does not have reserves to really fall back upon to fund this acquisition, meaning its debt component would go up further.
On the other hand, ABG Shipyard for FY09 posted a net profit of Rs171.10, up 6.48% on net sales of Rs. 1412.20 crore, up 46%. Its interest outgo for the year was higher at Rs.74.24 crore. It has reserves of Rs.788.05 crore which is why it has stated that it will fund this acquisition through internal accruals.