Hostile Take Over Battle for Mangalore Chemicals Likely

In an aggressive effort to bid for the UB Groups Mangalore Chemicals & Fertilizers (MCF) , Pune-based Deepak Fertilizers has decided to sharply increase its open-offer price to acquire additional 25% in MCF from Rs 63 per share to Rs 93 per share.

The move comes amid a two-way battle for control between Deepak on one side and the UB Group - Zuari Agro Chemicals combination on the other. Deepak holds a little over 25% Vijay Mallyas UB Group holds around 22% though a part of its holdings are pledged while Zuari holds little over 16%

After Deepak initiated a hostile takeover bid offering to buy additional shares in the firm at Rs 63 -- Mallya teamed up with Suraj Poddars Zuari and together the two launched a rival joint open offer for Rs 68.55.

The Sebi and Competition Commission of India have approved both open offers even as recently there have been questions over whether the UB-Zuari bid may suffer a setback after Mallya was declared a wilful defaulter by United Bank of India recently owing to defaults with grounded-airliner Kingfisher.

According to terms agreed upon between UB and Zuari, Mallya was supposed to remain MCF chairman for a period of five years but following the willful defaulter tag, that comes under question as under Reserve Bank of India rules, banks cannot lend to firms associated with willful defaulters.

Together, the two need to secure an additional 12%, which would make it easier for them to control the company. Deepak Fertilisers, which has, over the past few months accumulated a 25.3% stake in the company, needs to secure a larger amount of equity through its open offer, if it hopes to counter the Mallya-Poddar combine.
Only 36-37% of Mangalore Chemicals shares are widely held. The rest are with the three entities vying for control. Besides throwing his weight behind Mallya to keep Deepak Fertilisers from taking control of the UB Group firm, Poddars Zuari Agro Chemicals has also concluded an agreement this year to use Mangalore Chemicalss facilities for contract production.

The aim is to boost Mangalore Chemicalss cash flow and help it tide over difficulties emerging from downturn in the economy. Explaining his interest, Poddar had previously said Mangalore Chemicals and Zuari Agro could benefit from synergies since their plants are of the same vintage and are located close to each other.

The battle for control of Mangalore Chemicals and Fertilizers Ltd intensified after Deepak Fertilisers and Petrochemicals Corp. Ltd again revised its open offer price upwards to Rs.93.60 per share from Rs.63 after launching a hostile bid to seize majority ownership in the farm-input maker.

Rival consortium Zuari Group firms, in association with Vijay Mallyas UB Group affiliates, had revised their open offer price upwards to Rs.81.60 per share from Rs.68.55 to buy an additional 26% in Mangalore Chemicals. The open offer opens 1 October and closes on 17 October.

The battle for control of Mangalore Chemicals started after the Competition Commission of India cleared an open offer launched by Zuari Group firms on 4 September. Thursday was the last day to revise the open price for Mangalore Chemicals.

What should a investor in MCF do now ?
We believe that in the short term the MCF stock is likely to remain in the limelight as there are growing expectations that both parties could further increase the offer price In order to get the remaining shares from the open market. It is common knowledge that this opportunity should rightly be capitalized by a retail investor as it is unlikely to see this stock rally being sustained once the deal is finalized. Therefore we suggest that investors should wait for Oct 17th when the Zuari open offer closes as we expect a further increase in the open offer from Deepak Fertiliser side.

In all this seems to be a very interesting takeover battle which investors are bound to benefit in the short term.