Regarding Tejas Networks Open Offer

Fundamental Analysis
1

I see there is an offer announced by Tata Sons’ subsidiary Panatone Finvest to Tejas Networks shareholders to get upto 26% of the company’s shares.

The open offer details state that Shareholders can tender their shares at Rs 258 each until October 6.

The current market price of Tejas Networks is around Rs 420.

Couple of questions:

  • Why would anyone take part in this open offer and sell their shares at such a low price compared to the current market price?
  • What would happen to share price after the open offer is executed? Would it bring down the market price of the company shares?
2

To answer your question , need to understand why open offer is being made and what happened before that. Let me try to give in brief, series of preceding events:

  1. Till July 2021, price of tejas was hovering around 200 Rs.
  2. In early august news came in that Tata sons’ subsidiary is acquiring around 43% stake (through series of deals) in company at Rs. 258
  3. After the news came in public domain, people were suddenly bullish on tejas (since tata was coming in) and price zoomed reaching around Rs. 420

Now, to answer your questions:

You are correct. Probably no one would take part. But since Tata is buying 40% stake it is mandatory for them, as per SEBI regulation, to make open offer for additional 26% stake at same price.
Idea being when such deals are made general public should also benefit from it and not only promoters get the negotiated price.

So Tata is making the offer as they are legally required to. Maybe no one will participate, maybe some institution / promoter who has good chunk may participate. Price is 420 right now because everyone wants to buy, but if someone wants to sell 10% stake in company, it may or may not remain at that level. So it would be wise for them to patriciate in open offer and cash out.

This is difficult to predict. But understand that price has zoomed because Tata is taking over the company (and not because open offer is being made). So that rational should not change post open offer completion.

Hope this helps.

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