EPF holds on to its 9.51% of Piramal Glass

Will the new owners continue as a listed company?

The Employees Provident Fund (EPF), the second largest shareholder of Piramal Glass Ceylon PLC (PGC), has not accepted an attractive mandatory offer of Rs. 11.86 per share made by the company’s new controlling shareholder, a unit of the mega Blackstone Group of the U.S, sources familiar with the transaction said last week.

The offeror, Pristine Glass Ltd. based in India which is a unit of Blackstone, has acquired 22.2% (approx.) of the company topping up the 56.45% (approx.) of Piramal it already held before the mandatory offer, to 78.65% (approx.), according to a Stock Exchange filing made by PGC last week.

Some brokers were speculating on the possibility of the controlling shareholder offering a price above Rs. 11.86 per share to increase its stake to 90% or more if it wanted to delist from the CSE.

“The EPF’s 9.51% is key to this. But the EPF has not been selling its investments or actively trading on the CSE in recent months following impropriety allegations. Although it was announced some time ago that the EPF would soon return to the market, this has not happened,” an analyst said.

The expected re-entry fired market sentiments but this did not come to pass.

“The price was not the issue,” one broker said. “If that was the case, a higher offer will not make a difference.”

Even if the EPF block is not being sold, a 90% target can be achieved if the rest of the minority would sell.

“I don’t see why Blackstone would want to delist,” this broker said. “They are dealing in listed companies all over the world so why delist a company here which they control?”

If 90% of a company is owned by an entity and if there’s les that a certain number of shareholders on the register, a court application for compulsory delisting can be made, the broker said. But he was not sure what this number was.

“I remember a couple of companies, including Pure Beverages, being delisted after court application but can’t recall the details,” he said.

Brokers said that Piramal was trading below the offer price while the mandatory offer was pending. They explaine that this was due to some shareholders, many of whom were traders, needed cash and did not want to wait for payment for acceptances.

Piramal closed at Rs. 11.60 (26 cents below the mandatory offer price) on Thursday, up 20 cents from the previous close, with 0.19 million shares done between Rs. 11.40 and 11.70 in 69 transactions.

“You must remember that secondary market trades involves a transaction cost – brokerage, CSE and SEC fees etc. whereas the acceptance of a mandatory offer has no such cost,” a broker said.