Alfa Laval (India), a listed multinational and maker of specialised engineering equipment such as heat exchangers, separation and fluid handling equipment, may get delisted from the Indian stock exchanges. The company said its board will meet on September 19 to consider a delisting proposal from its parent company Alfa Laval Corporate AB Sweden.
The delisting is not a surprise because the foreign parent already owns an 88.77% stake in the company, after it made an open offer to shareholders in 2009. Under the revised public shareholding limits, the parent would have to either lower its stake to 75% by 2013 or delist the company. It has chosen to do the latter.
The timing is right, for the parent that is. Deteriorating economic fundamentals in the western world and India’s own inflation-driven interest-hikes may combine to hurt earnings as well as share prices of engineering companies such as Alfa Laval. That may help the parent delist the company relative to if it was delisting the company in a bull market.
Still, the current price of Alfa Laval is Rs 1,960, translating to an asking price of about Rs 530 crore for the public stake. Delisting will have to be done through the reverse book-building route, wherein the promoters will specify a floor price, but shareholders will be free to bid for a higher price.
The price discovered through this process is final, but Alfa Laval has the choice to decline the price and cancel the offer. However, that throws open the prospect of paring its stake in the company. That may not be a palatable option and Alfa Laval may be willing to pay a premium to exit.
Existing shareholders will have it good, as they are almost certain to get a much higher price than the current market price, in the delisting process. While little can be done to prevent good companies such as this from delisting, reducing the number of investment options for investors, at least investors can reap a windfall from their shareholding in the company.
Next in process will be the board meeting, which is just a formality. Then, they will seek shareholder approval for the delisting and then set a floor price for the sale. Then, the reverse book-building process will open and from the bids received, a discovered price will be announced and whether the buying shareholder (Alfa Laval Sweden) accepts it. If it does not, all the shares will be returned.