Vedanta Delist: What is Next?
In this article, we shall explore the timeline of delisting, what is in it for the shareholders and will things play out. Most Importantly going to explore the big question: What to do if you are a existing shareholder in the mammoth? This is the second article on Vedanta, if you haven’t read the first one please read it first. Click Here
Timeline-:
Step 1: Vedanta Limited will seek shareholders’ approval for the delisting proposal by way of a special resolution through postal ballot and e-voting (This can typically take 4–5 weeks). For the resolution to be approved, two-thirds of the public shareholders will have to vote in favor of delisting.
Remember, this is an approval for the delisting proposal, and has nothing to do with the price offered by the promoter group.
Step 2: Post shareholder approval, the company will file for reverse book building process with the stock exchanges (Stock exchange approvals typically takes 2–3 weeks)
What is a reverse book building?
When a company has excess cash on its balance sheet or the company wants to increase the shareholding of the promoters or when a promoter wants to delist from stock exchange they can buy-back the shares from existing public shareholders through a Reverse Book Building process, subject to necessary approvals from SEBI.
While Book Building is to issue shares to the public, Reverse Book Building is to buy-back the shares from the public.
The company has to appoint a merchant banker to conduct the process. The last 26 weeks / 6 months average closing price of the stock will have to be averaged and then that will become the Floor Price of the stock (assuming such price is higher than the ruling / prevailing price in the stock market). The floor price fixed would be announced in newspapers and such other medium to the shareholders and allow them to bid. The shareholders can bid at the floor price or above the floor price. On the date of the closure of the bid period, the company will assess the demand and then consider whether to accept the price that has been bid and if the same is accepted by the company then the price will be the “cut-off” price at which the shares would be bought back. The shares would be taken from the respective Demat account of the shareholders and pro-rata the money would be credited to their registered bank accounts.
If the company cannot accept the price at which the shares have been bid then the offer may be rejected and the process would be called-off. This usually happens when the bid prices highly vary from the floor price (for ex: if the floor price has been set as Rs.100 and the demand is at Rs.150 then the company may feel that price to be costly/unaffordable).
Step 3: Once the approvals are in place, the reverse book building exercise starts on the stock exchange platform. Shareholders quote a price at which they are willing to tender their shares. The book is kept open for 5 working days
Step 4: All the quotes are aggregated and a final price, also known as the ‘discovered price’ is announced on the last day of the book-building exercise.
Step 5: The company board will have to accept/reject the discovered price within 5 working days from the closure of the book-building exercise.
Step 6: If the discovered price is not acceptable to the board/acquirer, it can announce a counteroffer, which will be higher than the price offered initially.
Step 7: For the delisting process to be successful, the promoter’s stake in the company will have to go up to 90 percent. If the promoter fails to increase his stake to 90 percent, the company cannot delist.
- Delisting floor or offer price is calculated by SEBI formula ( i.e. volume weighted average price 60 days before the date of intimation.)
Now, the big question is: What happens to the money that we have invested in the stock when a company gets delisted? In voluntary delisting, when a company willingly decides to remove its shares from the stock exchange and it pays shareholders to return the shares held by them and removes the entire lot from the exchange.
In case of voluntary delisting, the delisting shall be considered successful only when the shareholding of the acquirer together with the shares tendered by public shareholders reaches 90% of the total share capital of the company. The promoter of the company is not allowed to participate in the process and the floor price is decided based on a reverse book building process.
Eligible shareholders may tender the equity shares through their respective stock brokers by indicating the details of the equity shares to be tendered under the delisting offer during the normal trading hours of secondary market. Those investors fail to participate in the reverse book-building process have the option of selling their shares to the promoters. The promoters are under an obligation to accept the shares at the same exit price. This facility is usually available for a period of at least one year from the date of closure of the delisting process.
Let us understand this with the example of Essar Oil. The company has announced delisting of its share from the exchange after its takeover by Roseneft and set a floor price of Rs 146.05, but at the time the final discovered price came, Oil Bidco (Mauritius), the promoter of Essar Oil, agreed to pay Rs 262.80 a share, an 80 per cent premium to the floor price. Of the 1,425 crore shares held by public shareholders, the promoters acquired 1,010 crore shares through the offer, against the requirement of 926 crore for the delisting to be successful. The stock was trading at around Rs 100 in June 2014, when the delisting was announced. Shareholders tendered their shares between December 15 and December 21, 2015, through the reverse book-building window made available to them under the delisting regulations. The company then applied for final delisting to the stock exchanges. After the formal approvals came, the shares were formally delisted. Thereafter, an exit window of one year was made available to the remaining shareholders to tender their shares at the delisting price. ( Source: ET Money)
Delisting does not happen overnight. Investors get ample time to offload their stocks. If an investor continues to hold on to the shares post-delisting, it will continue to have legal and beneficial ownership and rights over the shares investors hold.
Let’s take another example of UTV Software Communications. As the buzz of a possible delisting move started doing the rounds, with news reports appearing in early June, the stock started inching up.
It rose about 30% from Rs 665 on June 3, 2010, to Rs 950 on July 26, when The Walt Disney Company's formally announced its plan to delist at Rs 1,000 per share. However, in keeping with corporate norms, the company initially denied any such development.
Interestingly, the share price of the company had taken major strides from the turn of the calendar year itself. The share was trading at Rs 553 on December 31, 2010.
So, I would conclude just do not follow your broker or news blindly, study analyse and then react, you are going to be a sole winner.
