National Aluminium Company Limited – Tender Offer

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SUMMARY
POTENTIAL BUYBACK ANNOUNCEMENT
On October 9, 2018, National Aluminium Company Limited (BSE:532234) announced that it intends to initiate an equity buyback on October 12, 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 61.00

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. However, we note that National Aluminium Company Limited purchased shares through tender offer route 1 time in the past, so likelihood of a tender offer is higher.

TENDER OFFER ANNOUNCEMENT
On October 12, 2018, National Aluminium Company Limited (BSE:532234) announced a tender offer to buyback 67.31 million shares at a buyback price of ₹ 75.00 per share. This represents a spread of 12.0% over the market price of ₹ 66.95 per share, as of the announcement date. The proposed buyback shares represents 3.48% of the total outstanding shares of 1932.93 million. Given SEBI’s rule of preference to small shareholders who own less than ₹ 0.2 million worth of shares of the Company, approximately 10.10 million shares are reserved for small shareholders, which represents 15% of the proposed buyback.

Features – Tender Offer – Fixed Price
Share Price = INR 66.95
Buyback Price = INR 75.00
Spread = 12.0%
Buyback Size = 3.5% or 67.31 million shares

RECORD DATE ANNOUNCEMENT
The Company has fixed the record date of October 26, 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 November 13, 2018 and closes on November 28, 2018.

RISK-REWARD ANALYSIS
ANALYSIS AS OF TENDER OFFER ANNOUNCEMENT DATE
Share Price = INR 66.95

Based on our research and analysis, the acceptance rate of this tender offer for small shareholders is expected to fall in the 20%-65% range. At the current price level, this represents an expected return between 2.4% and 7.8%. If the share price drops by 5%, the expected return would be between -1.6% and 6.1%. If the share price increases by 5%, the expected return would be between 6.4% and 9.6%. At 100% acceptance rate, the maximum return would be around 12.0%.
Based on the above risk-reward ratio analysis, National Aluminium Company 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 67.35

At the current price level and above mentioned acceptance rates, an expected return is between 2.3% and 7.4%. If the share price drops by 5%, the expected return would be between -1.7% and 5.6%. If the share price increases by 5%, the expected return would be between 6.3% and 9.1%. At 100% acceptance rate, the maximum return would be around 11.4%.
Based on the above risk-reward ratio analysis, National Aluminium Company 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 67.45

At the current price level and above mentioned acceptance rates, an expected return is between 2.2% and 7.3%. If the share price drops by 5%, the expected return would be between -1.8% and 5.5%. If the share price increases by 5%, the expected return would be between 6.2% and 9.0%.
Based on the above risk-reward ratio analysis, National Aluminium Company Limited tender offer continue to appear to be an attractive low-risk arbitrage opportunity for small shareholders.

CONCLUSION = PARTICIPATE

POST-BUYBACK ANNOUNCEMENT & RESULT
On November 28, 2018, National Aluminium Company Limited (BSE:532234) announced the final results of the buyback. A total of 18.78 million shares were tendered by small shareholders, out of which 10.10 million shares were accepted. Therefore, the actual acceptance rate for small shareholders turned out to be approximately 54%. The share price decreased by 3.4% since the tender offer announcement, which includes 0.6% increase between the tender offer announcement and record date, and 4.0% decrease between the record date and closing date.

Share Price = INR 64.70

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 4.9% over a span of 47 days, which is equivalent to an annualized return of 45.1%.

RESULT = PROFIT
RETURN = 4.9%
DURATION = 47 days
ANNUALIZED IRR = 45.1%

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.