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Suresh Krishnamurthy

SHAREHOLDERS of Yokogawa Bluestar (YBL) can accept the offer made to them at Rs 67 per share. Yokogawa Electric Corporation (Yokogawa) is making the offer, with the intention of delisting the company. In this context, shareholders may have no option but to tender to the open offer.

There are reasons to believe that the offer price may not fully capture the intrinsic value of the stock. The offer price represented a premium over the price at which the stock was traded before the announcement.

However, the share price was unduly depressed because of the financial performance of the company. YBL has made losses for both the year ended March 2002 and March 2003.

The poor financial performance was largely due to the lower economic activity. Now, there is promise of an improvement. The user industries have started showing signs of greater economic activity.

For example, power generation, transmission and distribution are expected to get a fillip. Similarly, investments in the petroleum sector appears poised to rise while cement sector consolidation may pave the way for investments in fresh capacities.

Despite intense competition, these factors would in the normal course help YBL return to profitability. This is also reflected in the firm trends in stock price of one of its competitors, Tata Honeywell. In other words, the promoter has used the trough of the economic cycle to make the open offer.

However, despite the offer price being lower, shareholders will have no option to but to accept the offer. This is because the financial performance of YBL is dependent on support from Yokogawa.

This is unlikely if Yokogawa commands anything less than 100 per cent of the company's equity.

Besides, there is always the threat of delisting if Yokogawa's stake rises to more than 90 per cent. Yokogawa now holds close to 70 per cent. In this context, tendering to the open offer appears to make more sense.

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