Special Situation: Thomas Cook (India) – Analysis for Delisting

On May 21 2012, Canada’s Fairfax Financial Holdings Ltd had signed an agreement to acquire Thomas Cook Group 76.69% stake in Thomas Cook (India) for Rs 817 crore. Fairfax Financial Holdings (Prem Watsa is a well known value investor), the parent company of Fairbridge Capital, has been strategic investor especially in the insurance sector. In collaboration with ICICI Bank, the company had created ICICI Lombard, one of the largest private insurance players in India.

Subsequent to the stake sale, as per SEBI regulations, whenever there is a change in promoter (or more than 25% stake is acquired), the acquirer has to come up with an open offer. And they did. 24.17% stake at Rs. 65.48 per share. The offer closed on July 25th, 2012. And post offer public announcement here.

Sl.No. 7.9 in that announcement is very interesting. The acquirer holds 87.1% stake in Thomas Cook (India). All delisting fans should get excited by this percentage. According to SEBI’s delisting deadline, the group has to either delist before June 2013 or reduce their % shareholding to 75% or below. Given the spate of delisting offers (and at exciting prices) (and these guys are just 2.9% away from 90%), is there a possibility of delisting? Or will they reduce their shareholding to below 75%?

Thanks to Ashish Kila, who forwarded me the Delisting and Takeover code document (the new rules, effective October 2011), the answer is that (with 95% probability*) Fairbridge has to reduce its stake to 75% or below. What are the exact rules?

  • If maximum permissible non-public shareholding exceeds, say 75%, pursuant to open offer – the acquirer is required to bring down his or her shareholding to 75% within the time specified as per SCRR (Securities contract regulation rules).
  • The acquirer, whose shareholding exceeds 75% pursuant to an open offer, cannot make a voluntary delisting offer under the SEBI Delisting Regulations, for one year from the date of completion of open offer.

The second point clearly illustrates that Fairbridge Capital cannot come up with a delisting offer since the date of completion of open offer was July 25th 2012 and one year later, the deadline would have passed.

Ergo, Fairbridge has to reduce its stake to 75% or below. Current holding of Fairbridge is 87%. 12% dilution to go (which is a fairly large block of shares). If I were holding Thomas Cook (India), there is an avalanche of shares that could hit the market any time and hence I would sell at this moment.

*I said with 95% probability since two things can happen –

a) SEBI can extend the delisting deadline for all companies. Nobody knows what SEBI can/will do. This delisting theme is quite a speculation that is going on.

b) Fairbridge is not an inexperienced investor. Far from it. They would have obviously known that they have to dilute their stake (I think Fairbridge acquired the stake at Rs.50/- per share from Thomas Cook Group) to 75% or below before the deadline. Or, or get an exception from SEBI. Some legal loophole which might allow them to hold on to their 87% stake and also do a delisting. I wouldn’t know.

Given that, on an expected value basis, this remains a sell at these levels.

Disclosure: I don’t hold the stock (neither did I ever buy it). This post is only for analysis and educational purposes. Kindly do not take this advice as buy/sell recommendation. Please do your own due diligence before acting upon any of the information in this site.


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  1. #1 by Vivek Gupta on August 27, 2012 - 9:05 PM

    “The second point clearly illustrates that Fairbridge Capital cannot come up with a delisting offer since the date of completion of open offer was July 25th 2012 and one year later, the deadline would have passed.” :- Quote from your article.

    Hi Kiran,

    Could not understand what you are trying to imply here.
    Also in this case what is the time limit within which Acquires’s have to reduce holding to less than 75%.

    My confusion it that if promoters wish to delist the company (which they cannot do within one year of open offer), then are they obliged to bring down the holding to within 75% first and then a year latter come out with delisting offer.

    If you understand the process kindly clarify for my benefit.


    Vivek Gupta

  2. #2 by Kiran on August 30, 2012 - 4:33 AM

    @Vivek – The date for bringing down shareholding to 75% and below or delist is June 2013. Now, as per rules, these folks cannot delist. Hence, logically, they should be going to 75% and below.
    However, the only caveat – if they have got some kind of special permission from SEBI (which I am currently unaware of), then all bets are off and depending on the kind of permission and the request, anything can happen. Barring that possibility, 75% or below is happening with a much higher probability.

  3. #3 by amit on September 3, 2012 - 12:23 AM

    Hi Kiran, I have Thomas cook shares on price of 71Rs. What can i do with this share. I purchased the share because it will go 90 to 95Rs. But thomas cook set price 65Rs and 99% share holder approved the open offer price. Pls suggest. Now share is trading around 58Rs.

  4. #4 by Ninad on September 13, 2012 - 7:42 PM

    Addressing Vivek point irrespective of whether the deadline of June 2013 existed or not as per the takeover code document the promotor would have to

    1) Bring down stake to 75%.
    2) And can only launch a delisting offer post one of year of the open offer closing.



  5. #5 by Vivek Gupta on September 14, 2012 - 3:04 PM

    Thanks Ninad,

    Next point is if Thomas Cook Plc with all the bidding etc could find a taker at only 50/- a price which includes controlling interest, then why should a investor of a small fraction buy a stake from fairfax at any better price. Hence I think at current price of 58 (based just on takeover etc) nothing much exists in the stock for a short to medium term investor. I think Madhavan Menon also clarified regarding disinvesting a stake.

    Thanks again

    Vivek Gupta

  6. #6 by Vivek Gupta on September 14, 2012 - 3:26 PM

    Just went through Madhavans interview, he is talking about some 3 months cooling period post a open offer. Dint understand much but will try and keep track but logic remains ‘if Fairfax gets it at 50 with controlling interest then how will it sell a small stake at higher price’.

    Just kinda loud thinking.


    Vivek G

  7. #7 by Ninad on September 15, 2012 - 4:43 PM

    Hi Vivek

    I m not able to understand your question. Are u asking how will Fairfax sell its stake at a higher price or why would Fairfax offer a higher price to delist.



  8. #8 by Dhaval Parikh on September 16, 2012 - 11:46 PM

    The acquirer, whose shareholding exceeds 75% pursuant to an open offer, cannot make a voluntary delisting offer under the SEBI Delisting Regulations, for one year from the date of completion of open offer.

    IF this is actually a rule (and it is) than why did SEBI allow Patni to delist without following the rule. Kindly study the case of Patni and share your views.


    Dhaval Parikh

  9. #9 by Vivek Gupta on September 17, 2012 - 9:00 PM

    Hi Ninad,

    I was just implying that without hope of an open offer this CMP of 58 does not offer much to a small investor. If Fairfax bought the stake at 50(which included controlling interest) then why should it be able to offload a small stake at above this price of 50, hence current price does not offer any attractive opportunity.


    V Gupta

  10. #10 by Ninad on September 18, 2012 - 8:45 PM


    Cant comment too much whether there is value in Thomas Cook at the current price to hold the stock from a long term perspective as I havent spent time in analysing the company.

    @ Dhaval. Thats a valid point and SEBI did make a exception in the case of Patni Computers. I haven’t been able to lay my hands on SEBI’s notings on the rationale behind the decision.

    • #11 by Dhaval Parikh on September 18, 2012 - 8:56 PM

      ninad there was no reason mentioned by SEBI and infact if u read the offer document it was clearly mentioned that they will have to follow the rule and thats why after the open offer patni fell heavily. This decision was a big surprise for everyone. and if patni why not other will be allowed to do so. Moreover I also see that the point mentioned by them is illogical because if they reduce the stake by 75% before delisting wats the point in delisting? I mean ofcourse promoters will delist if they are desperate but than it won;t be mandatory for them to delist in the given timeline.

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