Alembic Limited – Tender Offer

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SUMMARY
POTENTIAL BUYBACK ANNOUNCEMENT
On January 18, 2018, Alembic Limited (BSE:506235) announced that it intends to initiate an equity buyback on January 23, 2018. The Company’s Board of Directors will consider a share repurchase program under which, the company will buyback its own shares.

Share Price = INR 59.00

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 January 23, 2018, Alembic Limited (BSE:506235) announced a tender offer to buyback 10.25 million shares at a buyback price of INR 80.00 per share. This represents a spread of 20.3% over the market price of INR 66.50 per share, as of the announcement date. The proposed buyback shares represents 3.84% of the total outstanding shares of 267.03 million. Given SEBI’s rule of preference to small shareholders who own less than INR 2 lakh worth of shares of the Company, approximately 1.54 million shares are reserved for small shareholders, which represents 15% of the proposed buyback.

Features – Tender Offer – Fixed Price
Share Price = INR 66.50
Buyback Price = INR 80.00
Spread = 20.3%
Buyback Size = 3.8% or 10.25 million shares

RECORD DATE ANNOUNCEMENT
The Company has fixed the record date of March 12, 2018 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 April 16, 2018 and closes on April 27, 2018.

RISK-REWARD ANALYSIS
ANALYSIS AS OF TENDER OFFER ANNOUNCEMENT DATE
Share Price = INR 66.50

Based on our research and analysis, the acceptance rate of this tender offer for small shareholders is expected to fall in the 15%-50% range. At the current price level, this represents an expected return between 3.0% and 10.2%. If the share price drops by 5%, the expected return would be between -1.2% and 7.7%. If the share price increases by 5%, the expected return would be between 7.3% and 12.7%. At 100% acceptance rate, the maximum return would be around 20.3%.
Based on the above risk-reward ratio analysis, Alembic Limited tender offer appears to be an attractive low-risk arbitrage opportunity for small shareholders.

CONCLUSION = INVEST

ANALYSIS AS OF 3 DAYS PRIOR TO RECORD DATE
Share Price = INR 60.90

At the current price level and above mentioned acceptance rates, an expected return is between 4.7% and 15.7%. If the share price drops by 5%, the expected return would be between 0.5% and 13.2%. If the share price increases by 5%, the expected return would be between 9.0% and 18.2%. At 100% acceptance rate, the maximum return would be around 31.4%.
Based on the above risk-reward ratio analysis, Alembic Limited tender offer continue to appear to be an attractive low-risk arbitrage opportunity for small shareholders.

CONCLUSION = STAY INVESTED

ANALYSIS AS OF BUYBACK OPEN DATE
Share Price = INR 59.35

At the current price level and above mentioned acceptance rates, an expected return is between 5.2% and 17.4%. If the share price drops by 5%, the expected return would be between 1.0% and 14.9%. If the share price increases by 5%, the expected return would be between 9.5% and 19.9%.
Based on the above risk-reward ratio analysis, Alembic Limited tender offer continue to appear to be an attractive low-risk arbitrage opportunity for small shareholders.

CONCLUSION = PARTICIPATE

POST-BUYBACK ANNOUNCEMENT & RESULT
On April 27, 2018, Alembic Limited (BSE:506235) announced the final results of the buyback. A total of 8.37 million shares were tendered by small shareholders, out of which 1.54 million shares were accepted. Therefore, the actual acceptance rate for small shareholders turned out to be approximately 18%. The share price decreased by 12.6% since the tender offer announcement, which includes 8.8% decrease between the tender offer announcement and record date, and 3.8% decrease between the record date and closing date.

Share Price = INR 58.10

Given we decided to INVEST at the time of tender offer announcement, decided to STAY INVESTED at the time of record date and decided to PARTICIPATE at the time of buyback open date, the net realized return was -6.6% over a span of 94 days, which is equivalent to an annualized return of -23.2%.

RESULT = LOSS
RETURN = -6.6%
DURATION = 94 days
ANNUALIZED IRR = -23.2%

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.