Zandu surge may throw spanner in Emami works  ( July '22,2008, Business Standard)

The Zandu Pharmaceutical stock has surged three-fold over the open offer price of Emami, plunging the latter's takeover plans into uncertainty. The open offer begins from July 24.

Emami's offer price of Rs 7,315 a share would receive a lukewarm response from retail and other corporate investors as Zandu's share closed at Rs 21,315.60 apiece on the Bombay Stock Exchange on Monday, said analysts.

"Instead of tendering shares at the open offer, an investor would rather sell their shares in the open market," an executive of an institutional investment firm said. "Emami will either have to increase the offer price or simply let this offer to lapse," he added.

Keeping in mind the higher acquisition cost, the Kolkata-based company has set up a war chest of Rs 250 crore to fund the Zandu takeover. This also gives credence to reports that Emami will make a better offer to Zandu shareholders, including the Parikhs.

"Emami is quite serious about Zandu and it will try to control the company," said analysts. In a communication to its shareholders, Emami informed that it woudl invest Rs 250 crore to acquire the Mumbai-based company from its own funds.

The company is also raising its borrowing limit to Rs 500 crore to look for other takeover targets. The Kolkata-based company is also raising money by selling convertible securities equivalent to 15 per cent of its post-issue, paid-up capital to qualified institutional bidders (QIBs).

Emami's attempt to raise funds from all quarters comes at a time when its acquisition cost for Zandu Pharmaceutical has shot up substantially. The open offer to the Zandu shareholders follows the acquisition of 27.5 per cent stake by Emami from the Vaidyas, one of the promoter families.

The ayurvedic medicine maker's other promoter, the Parikhs, are resisting the takeover attempt. Though in the past, Emami had made an offer to the Parikhs to share the management of the company with it, the Parikhs had not responded positively.

Since the announcement of the Emami takeover plan, the Parikhs have been buying shares from the open market, which has ignited Zandu's share price to touch an all-time high. Zandu's 52-week low was Rs 3,370 a share.

Emami has paid Rs 130 crore to the Vaidyas to buy out their shares at a price of Rs 6,900 a share and according to market regulator Securities and Exchange Board of India's takeover regulations, Emami has to make an open offer to the other shareholders.

Both the Parikhs and the Emami executives did not comment on the issue.