Sucheta Dalal :MSL conundrum (20 July 2003)
Sucheta Dalal

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MSL conundrum (20 July 2003)  



Kolkata jute baron Joy Kankaria’s Rs 200 per share for the Maharashtra government’s 27 per cent stake in Maharashtra Scooters Limited (MSL) can only be termed as a willingness to make a hostile bid for the company. But will the action checkmate Bajaj Auto, which holds a 24 per cent stake in the company? That too without Kankaria ever having to prove that he is indeed serious about his bid for MSL? It could well happen. After all, Kankaria has the tougher race. He has to purchase 47 per cent of the equity — 27 from the government and another 20 per cent through an open offer to shareholders, while Bajaj Auto, as a co-promoter will not have to make an open offer if it buys the government holding. Moreover, Kankaria’s high price and lack of experience in the auto business will ensure a rush to sell their shares at Rs 200 by MSL’s retail investors. Interestingly, MSL cannot exist without Bajaj Auto’s life support. It depends on it for management, CKD kits, marketing and R&D. So, what is Kankaria’s game plan? Ironically, MSL’s biggest asset seems to be 3 per cent of Bajaj Auto equity, it holds.

Who will blink first?

Kankaria’s offer makes little business sense and it was only possible in a unique situation like that of MSL. But the very threat of Kankaria’s open offer has clearly put Bajaj Auto on the back foot. It now has two choices. It can either pay up Rs 200 a share or buy out the Maharashtra government stake; or it can allow Kankaria to make his move and acquire a 47 per cent of MSL. If it also hikes its own stake to 26 per cent, it can block all special resolutions and safeguard its business interests.

With MSL holding over 3 per cent of Bajaj Auto equity, it is safe to bet that Bajaj will not be a friendly co-promoter; which means that even if Kankaria is in for a rough ride if his offer is accepted. In the meanwhile, Bajaj Auto has submitted another valuation by a foreign investment bank, which values MSL at Rs 65 (as a going concern) as against Crisil’s valuation of Rs 230 (which Bajaj claims is a break up valuation).

But Bajaj’s weakness is probably an unwillingness to irritate the Maharashtra government by getting into an adversarial position with it.

So, it could well happen that Bajaj Auto may simply pay up Rs 200 crore a share for the State government stake and close the chapter. For the moment, it remains to be seen who blinks first.

The only winner

Whatever the outcome of the MSL story, there seems to be one clear winner, and that is Kolkata-based broker Chandravadan Desai. Desai, who holds a 5 per cent stake in the company has already made a substantial paper profit, and the stock has doubled since his acquisition, despite the recent dip.

If Bajaj Auto pays Rs 200 per share and acquires majority control, the MSL price is bound to surge on the expectation of restructuring and revival of the company. If Bajaj calls Kankaria’s bluff, then the prospect of an open-offer by the Jute baron and a mop up of another 3 per cent of floating stock by Bajaj Auto will also boost the MSL share price. Either way, Desai is the winner. And although he has categorically stated that he has nothing to do with Kankaria and his bid, the grapevine insists that the Kolkata googly is entirely his brainchild. If Bajaj Auto finally coughs up Rs 200 per MSL share, it would be a lesson to other industrialists not to underestimate a determined minority investor.

Helmet bonanza

If helmet companies were listed on the market, their stocks would have soared through the roof after the Court ruled that helmets would be made mandatory for two-wheelers, even for pillion riders. Some law students had filed the public interest litigation (PIL), which led to the Court order, that very laudably makes life safer for two-wheeler riders.

But a two-wheeler in India is usually the family vehicle. How will the judgement apply to little tots and babies dangling dangerously from their mothers’ laps?

If it is dangerous to ride without a helmet, it is worse still to ride sidesaddle, while clutching a baby. Will the Court also rule that Chunnu and Munnu can no longer ride their pappa di gaddi without wearing little helmets? Only then will the Court order make sense in the Indian context. Otherwise, we should allow individuals to choose what is safe for them or good for their complexions.


-- Sucheta Dalal



 



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