Dear Readers,

In Oct’14, Panasonic Appliances India (BSE Code – 523307), subsidiary of Panasonic Corporation, Japan came up with a de-listing offer for the public shareholders.

Sensing a short term opportunity with good probable returns we shared Panasonic Appliances de-listing opportunity with Alpha + members on 30th Oct’14 around the levels of 275.

Few days back, on 15th Feb’15, we finally asked our members to exit completely from the stock around Rs 320 and thus closed the opportunity with a gain of 16% + in around 3.5 months (4.56% returns by SENSEX during the same period).

Going by the number of shares tendered in the reverse book building and the prices at which they have been tendered, Panasonic Appliances is likely to get de-listed at Rs 380 (subject to promoter’s acceptance of the same), however since we had no intention of participating in reverse book building, we felt that at Rs 320 the risk reward ratio wasn’t favorable and thus exited completely without getting greedy for extra 5-10% gains.

Besides high quality stocks for long term wealth compounding, we keep recommending such Special situation opportunities to our Alpha +/Alpha + and Model portfolio members as these are to a certain extent immune from regular market risks and volatility. Also, they act as temporary parking places for cash waiting to be invested in high-quality companies.

For those interested in participating in similar Special situation opportunities, we have produced below the detailed note on Panasonic Appliances opportunity shared with Alpha + members on 30th Oct’14.

Disclosure: I do not have personal investment in the stock and the members have already been suggested to exit completely. For a more detailed disclosure, read below.

Alpha Plus – Panasonic Appliances de-listing opportunity

Dear Sir,

We would like to bring to your notice a Special situation opportunity on the proposed de-listing of Panasonic Appliances India Ltd (BSE Code – 523307)

Note: Please read the entire note, especially Risks/concerns for an independent assessment of the risk reward ratio in this opportunity.

Investment strategy: Buy in the price range of 265-286.90 (BSE CMP – 273.25)

Panasonic Appliances India (BSE – 523307) – Basic details

Panasonic Appliances is the subsidiary of well-known Panasonic Corporation, Japan and the latter holds 74.22% stake in the company.

The company was established in 1988 for manufacture, import, marketing and sales of kitchen appliances and small domestic appliances. The company is headquartered in Chennai, Tamil Nadu and its two main products are electric cookers and mixer-grinders.

De-listing offer from the promoters

On 17th Oct’14, post market hours, Panasonic Appliances India informed exchanges that it has received a letter from promoters (Panasonic Corporation, Japan) with a proposal to voluntary de-list the equity shares of the company from the exchanges.

Further, on 28th Oct’14 the promoters intimated the floor price of Rs 167.55 for the de-listing offer.

It’s important to note here that 167.55 is just the base price for the de-listing offer and the shareholders are free to tender their shares at a price in excess of 167.55. Also, in the past, the promoters have acquired shares at substantial premium to the floor price.

Important points with respect to de-listing offer

  1. It’s a voluntary de-listing offer as promoter holding is 74.22% i.e. less than maximum permissible 75% for listed companies.
  2. Panasonic Corporation is a multi-national group and Panasonic Appliance’s de-listing offer is minuscule in terms of the overall size of operations of parent company. The parent company recorded annual revenue of 4 lakhs crore + in FY 13, while at current price the de-listing offer will cost only Rs 80 crores to the parent company.
  3. The de-listing was probably planned well in advance as the parent company increased its stake by ~7% in the last 2 years with the issue of preferential shares and compulsorily convertible debentures (now converted into shares) at Rs 125/- per share.
  4. With the above two allotments and inter-se transfer of shares between promoters, Panasonic Japan now holds 74.22% stake in the company.

Thus, we believe that the intent is strong and Panasonic Japan may not hesitate and go ahead with de-listing, even if the discovered price in RBB is at substantial premium (even more than 100%) to floor price of 167.55.

One negative though, as is usually the case with most of the de-listing offers is that there’s not much support in terms of operating performance or the valuations of the company.

Rationale behind this opportunity

In the past many de-listing cases, especially involving foreign promoters, shareholders have tendered shares at 100-200% premium to floor prices and in most of the cases promoters have accepted such prices.

To us, Panasonic Appliances looks like a case where the probability of above panning out is high.

Risks/concerns

We are still some steps away from reverse book building, if the promoters backtrack on the de-listing proposal there would be a rush to exit from the stock and one may not be able to exit before the stock has corrected by 20-30%.

Secondly, if public shareholders do not approve the de-listing proposal with requisite majority the above mentioned scenario of 20-30% correction will pan out.

Last but not the least, SEBI is contemplating changes in de-listing regulations and the impact (positive/negative) of the changes will be known only when the new regulations are out.

In case of any queries, feel free to drop a mail or call us.

Best Regards,
Ekansh Mittal
http://www.katalystwealth.com/
Ph.: 0512-6050062, Mob: +91-9818866676
Email: info@katalystwealth.com