Posts Tagged OpenOfferAnalysisFramework

Special Situation: Open Offer Analysis – Tata Steel’s Open Offer for Tinplate Company of India and Tata Sponge Iron

Last Friday (15th June, 2012), there was a corporate announcement by Tata Steel. It had announced an Open Offer for two of its group companies – Tinplate Company of India and Tata Sponge Iron.

Seemingly, there was some insider information trading already (hello, Rajat Gupta speaking!) going by the increase in stock prices of both stocks as seen below (courtesy: Moneycontrol)

Tinplate Company of India

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Tata Sponge Iron

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Of course, nothing can be proved in India and hence we can all rest easy and get back to Insider trading (kidding!).

Anyhow, I was all excited about this Open Offer since the closing price was Rs. 45/- for Tinplate Company of India and Rs. 306/- for Tata Sponge Iron. In my excitement, I wrote up an investment note about this Open Offer. I however didn’t realize that the announcement had come about after market hours and I didn’t consider the impact costs.

Please download the investment note (clicking on the link will automatically start a word document download) Open Offer_Tata Steel_Evaluation that I wrote up for the Open Offer. Even if using this document doesn’t generate any returns currently, it atleast has the framework to work on future open offers.

Looking forward to your comments/insights/learnings from past open offers.

P.S: I had shared this investment note with a few senior investors on Saturday. Thanks to Neeraj and Ankur, I realised that I have to include the following points in that analysis:

a) Consider impact costs. Ankur was a little gentle, saying that I didn’t consider impact costs in the calculations while Neeraj was a little more blunt saying ‘this is theoretically perfect, but practically, the market will not give you a chance since you didn’t consider impact costs’ 🙂 .

b) Tax implications: If and when you tender in an Open Offer, since you don’t pay STT, the gains are subject to taxes (long term and short term). The market will usually raise it up to a level where there is no arbitrage due to the tax angle. This is another angle that I need to add to my Open Offer framework note.

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