Bayer CropScience Limited – Tender Offer

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SUMMARY
POTENTIAL BUYBACK ANNOUNCEMENT
On July 18, 2013, Bayer CropScience Limited (BSE:506285) announced that it intends to initiate an equity buyback on July 22, 2013. The Company’s Board of Directors will consider a share repurchase program under which, the company will buyback its own shares.

Share Price = INR 1656.55

At the time of potential buyback announcement, the terms of buyback i.e. mode of buyback (tender offer vs. open market repurchase), buyback price and size of buyback are unknown.

TENDER OFFER ANNOUNCEMENT
On July 22, 2013, Bayer CropScience Limited (BSE:506285) announced a tender offer to buyback 2.88 million shares at a buyback price of INR 1580.00 per share. This represents a spread of -9.7% over the market price of INR 1748.95 per share, as of the announcement date. The proposed buyback shares represents 7.29% of the total outstanding shares of 39.50 million. Given SEBI’s rule of preference to small shareholders who own less than INR 2 lakh worth of shares of the Company, approximately 0.43 million shares are reserved for small shareholders, which represents 15% of the proposed buyback.

Features – Tender Offer – Fixed Price
Share Price = INR 1748.95
Buyback Price = INR 1580.00
Spread = -9.7%
Buyback Size = 7.3% or 2.88 million shares

RECORD DATE ANNOUNCEMENT
The Company has fixed the record date of October 8, 2013 for the purpose of determining the entitlement and the names of equity shareholders who are eligible to participate in the buyback.

BUYBACK DATES ANNOUNCEMENT
The Company has announced the buyback open and close dates to participate in this tender offer. The buyback window for putting instructions opens on November 6, 2013 and closes on November 20, 2013.

RISK-REWARD ANALYSIS
ANALYSIS AS OF TENDER OFFER ANNOUNCEMENT DATE
Share Price = INR 1748.95

Based on our research and analysis, the acceptance rate of this tender offer for small shareholders is expected to fall in the 80%-100% range. At the current price level, this represents an expected return between -9.7% and -7.7%. If the share price drops by 5%, the expected return would be between -9.7% and -8.7%. If the share price increases by 5%, the expected return would be between -9.7% and -6.7%. At 100% acceptance rate, the maximum return would be around -9.7%.
Based on the above risk-reward ratio analysis, Bayer CropScience Limited tender offer doesn’t appear to be an attractive low-risk arbitrage opportunity for small shareholders at the moment.

CONCLUSION = WAIT

ANALYSIS AS OF 3 DAYS PRIOR TO RECORD DATE
Share Price = INR 1536.15

At the current price level and above mentioned acceptance rates, an expected return is between 2.3% and 2.9%. If the share price drops by 5%, the expected return would be between 1.3% and 2.9%. If the share price increases by 5%, the expected return would be between 2.9% and 3.3%. At 100% acceptance rate, the maximum return would be around 2.9%.
Based on the above risk-reward ratio analysis, Bayer CropScience Limited tender offer appears to be an attractive low-risk arbitrage opportunity for small shareholders.

CONCLUSION = INVEST

ANALYSIS AS OF BUYBACK OPEN DATE
Share Price = INR 1693.85

At the current price level and above mentioned acceptance rates, an expected return is between -6.7% and -5.4%. If the share price drops by 5%, the expected return would be between -6.7% and -6.4%. If the share price increases by 5%, the expected return would be between -6.7% and -4.4%.
Based on the above risk-reward ratio analysis, Bayer CropScience Limited tender offer doesn’t appear to be an attractive low-risk arbitrage opportunity for small shareholders anymore.

CONCLUSION = CLOSE

POST-BUYBACK ANNOUNCEMENT & RESULT
On November 20, 2013, Bayer CropScience Limited (BSE:506285) announced the final results of the buyback. A total of 0.01 million shares were tendered by small shareholders, out of which 0.01 million shares were accepted. Therefore, the actual acceptance rate for small shareholders turned out to be approximately 100%. The share price decreased by 7.2% since the tender offer announcement, which includes 12.1% decrease between the tender offer announcement and record date, and 4.9% increase between the record date and closing date.

Share Price = INR 1622.60

Given we decided to WAIT at the time of tender offer announcement, decided to INVEST at the time of record date and decided to CLOSE at the time of buyback open date, the net realized return was 10.3% over a span of 34 days, which is equivalent to an annualized return of 185.5%.

RESULT = PROFIT
RETURN = 10.3%
DURATION = 34 days
ANNUALIZED IRR = 185.5%

REFERENCE LINKS/FILINGS

Tender Offer Announcement
Record Date Announcement
Buyback Dates Announcement
Post Buyback Announcement

DISCLAIMER & DISCLOSURE
The above post/article should not be considered as a stock recommendation or trading/investing advice in any way. The stock analysis is based on the information publicly available to author, however readers should check the original source of information. Various factors, including personal ownership, may influence or factor into a stock analysis or opinion. At the time of writing this post author may have a financial interest or ownership in the discussed stock or initiate a position anytime in future.