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GSK Consumer open offer: Makes sense for investors to go for it Story


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MUMBAI: When promoters launch open offers to buy shares at a premium just to raise their stake, it is logical that retail shareholders should make the best of it. That is because the offer will not lead to any change in the business model or management structure nor will it lead to a delisting of the shares. Besides, the premium valuation which it commands at the start of the offer because of the promoters desire to raise holdings slips once the offer period ends which in turn implies that the stock price could slide later.

When promoters launch open offers to buy shares at a premium just to raise their stake, it is logical that retail shareholders should make the best of it. EDITORS PICK Prestige Estates Projects shares gain ahead of placement programme Pantaloon shares up; RBI eases norms for foreign investment in company

The ongoing open offer for GSK Consumers is a case in point. GSK Consumers' foreign promoters have launched an open offer at Rs 3900 per share to raise their stake in the company to 75% from 43.16% at end December 2012. After the announcement in November 2012, the stock has gained nearly 25% reducing the arbitrage opportunity — buying in the open market at a lower price and selling in the offer to ensure a risk-free gain. As the surge in the stock price is mainly due to arbitrage, the price will likely correct once the offer closes. This is more so because the company's business model or growth prospects are not going to see any significant change post the offer.

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"We see no change in GSK Consumer's operations as the process to launch new products in listed entity has been transparent," according to a report on the company's open offer from Standard Chartered. The report says that new launches from the company such as Lucozade, Nutribar, Chill Dood and Foodles have not found much success and the non-core business still contributes only 6.5% of sales. The research house downgraded the stock with a target price of Rs 3600, indicating a correction once the offer closes. It is not uncommon for promoters to raise stake in listed entities through open offers. Last year, Tata Steel launched voluntary open offers to raise stake in its subsidiaries Tinplate Company of India and Tata Sponge

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launched voluntary open offers to raise stake in its subsidiaries Tinplate Company of India and Tata Sponge Iron. Both these stock which witnessed a run up when the open offers were underway, fell subsequently and are currently trading 14%-17% below their open offer prices — Rs 60 for Tinplate and Rs 375 for Tata Sponge. In the process Tata Steel raised its stake in Tinplate from 61% to 75% and in Tata Sponge Iron from 43.2% to 54.5%. Given all these, it perhaps make sense for investors to go the open offer.

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GSK Consumer open offer: Makes sense for investorsto go for it  

GSK Consumers' foreign promoters have launched an open offer at Rs 3900 per share to raise their stake in the company to 75% from 43.16% at...

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