The second open offer of Diageo for United Spirits Ltd. (USL) shares at Rs.3,030 per share is likely to get a ‘descent’ response from retail and institutional investors, say analysts. Long-term investors would prefer to hold on to their stocks as the valuation of the company under Diageo would go up in future, they added.
“The valuation of Rs.3,030 per share is very fair. The offer could not have been much better. This time Diageo will manage to acquire 26 per cent stake. They have offered more price because they are keen to expand in this market. They are in a hurry to bring in money because of the appreciation of the underlying currency, that is, the rupee. In this way, they will get a benefit of 9-10 per cent,” said Deven Choksey, Managing Director & CEO, KR Choskey Shares and Securities Pvt. Ltd.
However, some analysts have advised long-term investors to hold on to their stocks. “Long-term investors should not participate in this open offer because valuation of the stock will move up after Diageo assumes majority control. USL is a unique company because of the sector it operates in. This is one company that will have higher market share,” said Ambareesh Baliga, Managing Partner, Global Wealth Management, Edelweiss Financial Services.
“So long-term investors with four to five years horizon should hold on. We expect Diageo will look at increasing its holding in USL to up to 75 per cent and in this case, long-term investors can fetch more returns,” he said. However, he said the offer would get descent response because of participation from lot of foreign institutional investors (FII). “FIIs hold nearly 40 per cent share of USL. Even if 50 per cent of them decide to sell at Rs.3,030 per share, Diageo will get 20 per cent stake in the open offer. Besides, Kingfisher’s lenders, if allowed, will sell the pledged shares to recover their money. They don’t look at valuation. They just want to exit at whatever price they get,” Mr. Baliga said.