Lucky promoters miss market crash

A handful of Indian promoters have made a killing amidst the market mayhem. They were lucky enough to sell their companies at massive premiums this year, narrowly escaping the steep Sensex fall of the last two months.

The Singh brothers sold Ranbaxy in June at a 71% premium over the existing share price, Parikhs sold Zandu Pharma in October at a 54% premium to the latest price, BK Modi sold Spice Communications to Idea Cellular in June at a 52% premium, Burmans sold Dabur Pharma in April at a 56% premium, e4e sold Aztecsoft in May at a 55% premium and, in the same month, IL&FS and US-based brokerage firm E*Trade sold their stakes in IL&FS Investsmart to HSBC at a 63% premium.

These deals were sealed just before the market crashed to sub-10,000 levels. While the stock market started moving down after hitting a peak in January 2008, it had stabilized at 14,000-15,000 in August. But with large US financial services companies going belly up in September, the markets witnessed a fresh round of selling. Sensex, the bellwether stock market index, has lost 36% value since September 14.

Promoters of companies who negotiated the sales can now look back and call it “a close shave.’’ “Usually, when the market trades at a fair price, sellers look at a premium of 15-30%,’’ says advisory firm Grant Thornton’s M&A head Pankaj Karna. But, he adds, “Premiums that sellers command varies across companies. So a billion-dollar company which has a key position in its industry would get higher premium even when markets are trading at a fair price. Given today’s valuations, some promoters can even look at premiums which are in triple digits.”

Some of the deals were finalized when prices were relatively closer to the stock market prices. For instance, owners of textiles exporter Gokaldas Exports had announced they were selling stake to private equity firm Blackstone in August 2007 at Rs 275/share, a premium of 19.5%. The scrip, which rose to a high of Rs 299/share in January, closed at Rs 94.25 on the BSE on Wednesday. Ranbaxy promoters sealed the best deal, selling their company to Japanese drug maker Daichii Sankyo in June at Rs 737/share, a 31% premium to the ruling market price.