Unichem Laboratories Limited – Tender Offer

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SUMMARY
POTENTIAL BUYBACK ANNOUNCEMENT
On January 3, 2018, Unichem Laboratories Limited (BSE:506690) announced that it intends to initiate an equity buyback on January 8, 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 332.85

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 8, 2018, Unichem Laboratories Limited (BSE:506690) announced a tender offer to buyback 20.60 million shares at a buyback price of INR 430.00 per share. This represents a spread of 16.5% over the market price of INR 369.25 per share, as of the announcement date. The proposed buyback shares represents 22.65% of the total outstanding shares of 90.94 million. Given SEBI’s rule of preference to small shareholders who own less than INR 2 lakh worth of shares of the Company, approximately 3.09 million shares are reserved for small shareholders, which represents 15% of the proposed buyback.

Features – Tender Offer – Fixed Price
Share Price = INR 369.25
Buyback Price = INR 430.00
Spread = 16.5%
Buyback Size = 22.7% or 20.60 million shares

RECORD DATE ANNOUNCEMENT
The Company has fixed the record date of February 16, 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 March 7, 2018 and closes on March 20, 2018.

RISK-REWARD ANALYSIS
ANALYSIS AS OF TENDER OFFER ANNOUNCEMENT DATE
Share Price = INR 369.25

Based on our research and analysis, the acceptance rate of this tender offer for small shareholders is expected to fall in the 90%-100% range. At the current price level, this represents an expected return between 14.8% and 16.5%. If the share price drops by 5%, the expected return would be between 14.3% and 16.5%. If the share price increases by 5%, the expected return would be between 15.3% and 16.5%. At 100% acceptance rate, the maximum return would be around 16.5%.
Based on the above risk-reward ratio analysis, Unichem Laboratories 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 377.30

At the current price level and above mentioned acceptance rates, an expected return is between 12.6% and 14.0%. If the share price drops by 5%, the expected return would be between 12.1% and 14.0%. If the share price increases by 5%, the expected return would be between 13.1% and 14.0%. At 100% acceptance rate, the maximum return would be around 14.0%.
Based on the above risk-reward ratio analysis, Unichem Laboratories 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 334.25

At the current price level and above mentioned acceptance rates, an expected return is between 25.8% and 28.6%. If the share price drops by 5%, the expected return would be between 25.3% and 28.6%. If the share price increases by 5%, the expected return would be between 26.3% and 28.6%.
Based on the above risk-reward ratio analysis, Unichem Laboratories Limited tender offer continue to appear to be an attractive low-risk arbitrage opportunity for small shareholders.

CONCLUSION = PARTICIPATE

POST-BUYBACK ANNOUNCEMENT & RESULT
On March 20, 2018, Unichem Laboratories Limited (BSE:506690) announced the final results of the buyback. A total of 8.78 million shares were tendered by small shareholders, out of which 3.09 million shares were accepted. Therefore, the actual acceptance rate for small shareholders turned out to be approximately 35%. The share price decreased by 8.4% since the tender offer announcement, which includes 8.3% decrease between the tender offer announcement and record date, and 0.1% decrease between the record date and closing date.

Share Price = INR 338.10

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 0.3% over a span of 71 days, which is equivalent to an annualized return of 1.7%.

RESULT = PROFIT
RETURN = 0.3%
DURATION = 71 days
ANNUALIZED IRR = 1.7%

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.