Piramal Healthcare invests US $ 640 million for a 5.5% stake in Vodaphone Essar….looks suspiciously like a ready forward deal as Ajay Piramal explains the Exit Options !…whatever…. limited downside from CMP of Rs 380

Piramal Healthcare invests US $ 640 million for a 5.5% stake in Vodaphone Essar….looks suspiciously like a  ready forward deal as Ajay Piramal explains the Exit Options !

Stock Channels carried ‘live’ this afternoon Ajay Piramal’s Media Meet to announce the rationale of the above investment

Interesting Comments made by Ajay Piramal…..however he refused to answer directly a question posed to him whether the exit options have been documented with Vodaphone….in a subsequent interview when posed the same question he replied that the confidence comes from the discussions he has had !

Ofcourse they would be confident !…it would have been captured in a Shareholders Agreement

So what is this new Investment and the rationale given

Well,Piramal Healthcare is sitting on Rs 10000 crs cash and receivables …..This surplus was a result of selling out in 2010 their domestic generic formulations business to Abbott for Rs 17000 crs or US $ 3.8 billion !…at nine times sales and 30 times EBIDTA !…transferring as of September 8,201,the Baddi Plant Assets and 5000 employees and 350 brands to Abbott…Rs 10000 crs were received upfront while Rs 1750 crs will come in four annual tranches  

The monies received/receivable are @ Rs 17000 crs….tax was Rs @ Rs 3700 crs..Rs 2508 crs was used to buy back 20% of the equity => 4.18 crs at Rs 600/share…Apart from a normal dividend of 300% or Rs 6/share a special dividend of a similar amount was announced 

Ajay Piramal boasted today  that the rime objective was to increase shareholder wealth !…and  that he has distributed Rs 2700 crs to shareholders !….really !…How ?…actually the routine Dividend is Rs 6 per share => @ Rs 100 crs…a special dividend was announced of Rs 6 per share too….that’s another Rs 100 crs….so dividend was an aggregate of Rs 200 crs….and Rs 2508 crs of company monies were used to buy back shares as stated above…at Rs 600 per share !…this reduced the paid up equity capital base from Rs 41.80 crs to Rs 33.44 crs as at June 30,2011….now buyback is normally a strategy that should be EPS accretive to remaining shareholders  and is deployment of surplus company funds that cannot be reinvested or applied elsewhere to earn good returns !……what has happened is that the scrip price has drifted down below Rs 400 from above Rs 500….the buy back of 20% of the shares was not a good strategy at the high price of Rs 600 …..remaining shareholders have suffered badly…..company has lost Rs 2508 crs for this buyback with nothing to show for it !  read more