The Hindu Business Line : Vanavil Dyes: Reject

SHAREHOLDERS of Vanavil Dyes and Chemicals can reject the open offer being made at Rs 45.9, which is substantially lower than the prevailing market price of Rs 63.

A section of the shareholders is entitled to interest at 10 per cent from 1998 after deducting the dividend. Even at Rs 54.23 (including the interest component), the offer does not look attractive. The interest component of Rs 8.33 would be paid only to shareholders who held the shares continuously from February 24, 1998, until the closure of the offer. The legal heirs of any deceased shareholder in possession of the shares would be entitled to the interest component.

Offer background

In association with EBITO, Clariant International and Clariant AG, Colour Chem proposes to acquire up to 20 per cent of shares in its subsidiary, Vanavil. This is similar to the open offer made to Colour Chem's shareholders, which closes on June 27.

In 1997, Clariant AG had entered into an agreement to acquire the speciality chemicals division of Hoechst on a global scale. In June 2000, EBITO was formed with Hoechst holding 51 per cent equity stake and Clariant International holding the rest. In October 2000, Hoechst's shareholding in Colour Chem was transferred to EBITO. In early 2001, Clariant International acquired the entire stake in EBITO.

Colour Chem appealed to the Supreme Court that its order in the case of the open offer by EBITO to Colour Chem's shareholders be applicable in Vanavil's open offer. The Supreme Court admitted the appeal requiring Colour Chem to pay interest only to shareholders who continuously held their shares from February 24, 1998 until the offer closure.

The core business

Vanavil, which makes dye-intermediates and napthols, derives about 40 per cent of its revenues from blue pigments. Its products are used by textile, rubber and plastic industries.

The company's fundamentals are on a sound footing. The stock trades at about 20 times the earnings per share for FY-05. After Vanavil came under the EBITO fold, it appears to have reconfigured its traded dye-intermediates business.

While the company's sales have been coming down steadily in the traded business, the margins, which were on the rise between FY 1999 and 2003, have stabilised in the last two years. Vanavil has also increased the production of blue pigments, a value-added product. The company's exports have grown at annual rate of 12 per cent over a four-year period.

With a chunk of the revenues accruing from its holding company, Colour Chem, and other group outfits, Vanavil's merger with Colour Chem or Clariant International's other subsidiaries in India remains a possibility. The offer opened on June 15 and closes on July 4.

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