Deepak Fertilisers in hostile bid for Mangalore Chemicals and Fertilizers

by / Friday, 14 November 2014 / Published in News & Updates

MUMBAI/BANGALORE: After sitting on the fence for almost nine months, Deepak Fertilisers, the largest shareholder of Mangalore Chemicals and Fertilizers (MCFL), on Wednesday mounted an over Rs 190-crore bid to wrest control of the Vijay Mallya-promoted company. But shares of MCFL traded above the offer price of nearly Rs 62, indicating doubt among investors that the offer would be enough to seal the deal, besides sending Deepak Fertilisers back to the drawing board.

The development will also nudge bigger rival Zuari Agro, another significant shareholder of MCFL, to decide on its future with the company.

The public offer was triggered after Deepak Fertilisers mopped up additional shares of MCFL in the open market, taking its total stake from 24.46% to 26.1%, which is above the 25% threshold required to make an open offer. Through the over Rs 190-crore open offer, the Shailesh Mehta-led company is looking to acquire another 26% stake. Last July, it had coughed up Rs 180 crore for the 24.46% stake.

Following the announcement, shares of MCFL shot up almost 12%, touching a high of over Rs 72 on the BSE. More than 3 million shares changed hands on the counter. Sources familiar with the deal said that Deepak Fertilisers didn’t expect the scrip’s price to increase dramatically and now there is a possibility that the company may rework its offer.

Since Deepak Fertilisers hasn’t held any formal talks with MCFL or indicated its intent of acquiring additional shares in the company, the open offer is being termed as an attempt of hostile takeover. Mallya, through various UB Group investment companies, holds 21.97% stake in MCFL, the largest fertilizer company in Karnataka. “We will study the offer, review our options and respond accordingly,” UB Group said in a statement. Bankers told TOI that according to MCFL’s articles of association, a document which forms the company’s constitution, Mallya — through 16% shareholding — will have the right to appoint three board members and the company MD. Sources said that if Deepak Fertilisers gains majority stake, it will look at provisions to take board seats.

“The successful culmination of open offer will result in a decisive ownership and steadfast management to Mangalore Chemicals. Since Deepak Fertilisers has a good track record in the fertilizer business, it will bring in a lot of synergy across the spectrum, especially in the field of distribution. Moreover, Deepak Fertilisers will get access to mainstream fertilizer business,” said Mahesh Singhi, MD, Singhi Advisors.

The battle for control of MCFL has been playing out for some time between Deepak Fertilisers and Zuari Agro. Kolkata-based Zuari Agro had mopped up 16.43% stake in MCFL last year and had plans to buy promoter shares to gain ownership. However, talks between Zuari Agro promoter Saroj Poddar and Mallya didn’t fructify.

Last November, Poddar told TOI, “There is no point keeping the shares of Mangalore Chemicals as Mallya is not willing to form JV or sell his stake. But I shall sell my chunk of shares to the highest bidder.”

That said, Poddar declined to comment on Deepak Fertilisers’ open offer. But a company source told TOI, “We have time to react to the open offer.”

Ravi Shenoy, assistant vice-president, Motilal Oswal Securities, said, “Deepak Fertilisers’ open offer, if successful, will give it controlling stake over Rs 3,400 crore of fertilizer sales. This will almost triple fertilizer sales for Deepak Fertilisers. Synergy benefits on the distribution front and contiguous markets make this bid for control more lucrative.”