THE DELISTING THEME - WHAT TO DO?

By Ruma Dubey

The buzz word on Dalal Street for some time now has been delisting. But some companies touted to be hundred percent delisting candidates have since then announced that they had no plans for delisting and promoters were paring their stake to meet the 75% requirement.  Disa India, Honeywell Automation, Blue Dart Express are just a few of them which over the last fortnight dashed hopes of traders who were expecting to make a killing on the delisting theme. Their stock prices have come tumbling down like a pack of cards and that has raised the hackles and a big question – is the delisting story over?

Well, there is no direct “yes” or “no” answer to this question as how can one speak for what the promoters of the various ‘potential delisting’ companies are thinking? But maybe if they issued denials earlier, we need to take that denial seriously and stop living in fool’s paradise.  There are many queries on whether or not Astrazeneca will go ahead with the delisting prospect. Ditto for others like Timken, 3M, Fresenius, Gillette, Oracle Financial and many more.

It is best to now go by individual companies, try to find out if the promoters had clearly issued denials for delisting. Taking a blanket call on all companies with more than 75% stake and then hinging on delisting would be imprudent.

There is no set formula which will tell you whether or not the company will opt for delisting. One cannot assume that because a company is doing very well in India and has invested a lot, will decide not to delist. If that was the case, Cadbury should never have delisted in 2003. Astrazeneca has time and again refuted delisting plans but the market feels it is just a meaningless denial as given the 90% stake of promoters, they will have to delist or else they should have started the process of paring their stake soon enough. No such announcement is currently on the anvil. Thus it is very difficult to label a NO or a YES.

And the shareholders are no longer mute spectators and sometimes, they do not allow delisting as they do not get the expected price. In Jan 2011, delisting plans of Kennametal hit a roadblock after shareholders rejected the company's share buyback proposal. It had planned to acquire the shares through purchase of 11.84% public stake or 26 lakh outstanding shares for Rs.514.98 a share. And more recent is the case of Saint-Gobain which failed to delist. Thus apart from shareholders having high expectations, the cost of delisting is also getting to be unaffordable. But there are companies which in 2012, have got delisted – Alfa Laval, Patni Computer, UTV Software Communications, Carol Info Service and Exedy India.

Take a look at some of the companies where promoter’s stake is more than 85%(does not include PSUs) 

So as an investor, how should you play this theme? Do not buy shares only because it is a delisting candidate, pay attention to its fundamentals also. And if you think you have made good money and the stock is touching new highs on expectations, sell and make the most of the ‘delisting’ buzz.  If delisting does get announced, you may not lose much as you have sold at a high but if delisting is scuttled and promoters opt to bring their holding, then you will lose much more than what you could have gained.