Responsive Industries Limited – Tender Offer
Stock quotes may be delayed unless otherwise stated
SUMMARY
POTENTIAL BUYBACK ANNOUNCEMENT
On October 9, 2018, Responsive Industries Limited (BSE:505509) announced that it intends to initiate an equity buyback on October 17, 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 71.95
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 October 17, 2018, Responsive Industries Limited (BSE:505509) announced a tender offer to buyback 20.75 million shares at a buyback price of ₹ 77.00 per share. This represents a spread of 5.0% over the market price of ₹ 73.30 per share, as of the announcement date. The proposed buyback shares represents 7.77% of the total outstanding shares of 262.50 million. Given SEBI’s rule of preference to small shareholders who own less than ₹ 0.2 million worth of shares of the Company, approximately 3.11 million shares are reserved for small shareholders, which represents 15% of the proposed buyback.
Features – Tender Offer – Fixed Price
Share Price = INR 73.30
Buyback Price = INR 77.00
Spread = 5.0%
Buyback Size = 7.8% or 20.75 million shares
RECORD DATE ANNOUNCEMENT
The tender offer expired on December 4, 2018.
BUYBACK DATES ANNOUNCEMENT
The tender offer expired on December 4, 2018.
RISK-REWARD ANALYSIS
ANALYSIS AS OF TENDER OFFER ANNOUNCEMENT DATE
Share Price = INR 73.30
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 4.5% and 5.0%. If the share price drops by 5%, the expected return would be between 4.0% and 5.0%. If the share price increases by 5%, the expected return would be between 5.0% and 5.0%. At 100% acceptance rate, the maximum return would be around 5.0%.
Based on the above risk-reward ratio analysis, Responsive Industries 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
The tender offer expired on December 4, 2018.
ANALYSIS AS OF BUYBACK OPEN DATE
The tender offer expired on December 4, 2018.
POST-BUYBACK ANNOUNCEMENT & RESULT
The tender offer expired on December 4, 2018.
Share Price = INR 87.10
Given we decided to INVEST at the time of tender offer announcement, decided to CLOSE at the time of expiry, the net realized return was 18.8% over a span of 48 days, which is equivalent to an annualized return of 271.2%.
RESULT = PROFIT
RETURN = 18.8%
DURATION = 48 days
ANNUALIZED IRR = 271.2%
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.
Leave a Reply