Satyam open offer price may be set at two-week average

2 Feb 2009,

NEW DELHI/MUMBAI: The move to induct a strategic partner in troubled software firm Satyam Computer Services will get a leg-up, with capital market regulator, the Securities and Exchange Board of India (SEBI) considering a proposal to link the open offer price to the average price of the stock in a shorter and more recent period.

This will then be the floor price which potential acquirers will have to improve upon while seeking to gain management control of the firm in what is expected to be an open-bidding process.

The SEBI board will discuss another complex issue, how to compensate shareholders retrospectively if large amounts of cash siphoned off by the Satyam promoters is recovered by investigators and returned to the company balance sheet at a future date.

The SEBI board is meeting on Monday to consider the request made by the new Satyam board constituted by the government to ease the rules relating to open offer pricing.

According to SEBI’s takeover code, any investor who acquires over 15% in a company, will have to make an open offer to shareholders to pick up an additional 20% based on a price formula which is the higher of the average price of the stock for 26 weeks or two weeks. Going by this rule, bidders would have to adhere to the 26-week average price, which in Satyam’s case would work out to over Rs 270 per share.

This is a dampener for any one seeking to take over the firm since the acquisition cost will be steep. The Satyam board has raised this issue with the regulator, and one of the proposals being considered is to be guided by the average price of two weeks, linked to a cut-off date in January.

If the two-week pricing is taken as the benchmark, especially in January, the acquisition cost will come down substantially, considering the Satyam stock is quoting at well below Rs 60.

“The 26-week price formula does not reflect the fundamentals in this case. With the government and all stakeholders keen on finding a quick solution to reviving the company, easing the rules will help smoothen the process. After that, let the market decide,” a person who is involved in the discussions said.

Both the regulator and the government are keen on ensuring that the easing of pricing norms in the takeover regulations is not tailored to a one-off case. Instead, the plan is to formulate a general rule which could apply to cases resembling Satyam’s.

ET Bureau