HOV Services buoyant @ Rs 163 ~ Economic Times quotes me in today’s edition on the clearly apparent undervaluation of the stake sale in Source HOV at just US $ 95 m to promoter entity…should be worth at least US $ 250 m
Hope better sense of fair play will prevail and the stake sale is passed at a much higher consideration
Even at US $ 95 m, the gross consideration is Rs 580 crs while Market Cap of HOV is just @ Rs 200 crs…The Equity is Rs 12.50 crs (FV Rs 10) =>Rs 464/share deal value proposed…hopefully should be reconsidered to much higher….Company say the Board will decide what to do with the Monies but clearly they should be considering returning a large part to shareholders as special dividend…1000% Dividend that’s Rs 100/share maybe ?
The Buoyancy in HOV should sustain and in fact the share price can gallop up even more smartly if better sense prevails all around and minority shareholders are protected with a better deal value than the US $ 95 m proposed to the promoters entity itself
Had blogged in detail on this recently and that’s how Economic Times probably saw merit in this line of thinking and covered it with my quote
HOV Services @ Rs 153~Up 62% In 4 Days And Worth More Despite Undervaluation Of Investment Sale To Promoters
…similar point well made by Economic Times too except it’s Bank Tec that is merging into Source HOV and not the other way round…though ratios are correctly stated where the smaller Bank Tec is valued marginally higher than the much bigger SourceHOV…not looking fair too though the latter carries deb
…Morgan Stanley is mentioned too but their important role has not been shared by the Company in full disclosure especially if they were involved in the Valuation & deal negotiations and how did they arrive to give a financial committment for a new line of Credit of US $ 1.1 Billion to SourceHOV
…also is Citigroup,the largest and majority shareholder of 68%+ in SourceHOV selling too as the article mentions !? if so have they accepted this valuation of PKF Sridhar & Santhanam,the Chartered Accountants of BankTec or on which valuation are they going !?
…because the Indian Listed Company’s notifications to the BSE & NSE on September 30,2014 only states that the deal will be contracted and consummated at the same valuation provided to the majority shareholder !…that’s Citigroup
…the notification also states that SourceHOV will use the new US $ 1.1 Billion refinancing facility…. committed by Morgan Stanley….. for three purposes as below
- Refinance Existing Indebtness
- Redeem certain existing SourceHOV equity shareholders ~ Which ones ?~are they too connected or related to or are Promoters themselves ~ how much stake do they hold in SourceHOV? and at what price are they planning this redemption ? is this through a buyback !?
- Provide Additional Working Capital
Whichever way one looks at this it looks like Promoters are removing the Asset from the Indian Listed Company to themselves at a less than fair Price and thus shorting the Minority Shareholders of HOV Services !
The article mentions some shareholders are taking Company to Court…hope they are successful in compelling the Company to reconsider Deal Value upward from US $ 95 m towards US $ 250 m
More important hope they are able to thwart the Promoters bigger plans overseas to merge BankTec into SourceHOV unless they are fair to the minority shareholders of BSE & NSE listed HOV Services
The Postal Ballot for this deal ends on Monday,November 3,2014 and I’m quite sure ,despite the reservations on the deal price being undervalued,the ballot will be passed
The article title is that Shareholders are against this deal….actually the shareholders are for this deal only against this under valuation at US $ 95 m….they want US $ 250 m that would be an acceptable and fair valuation
To state it in practical & blunt terms the current Share Price of HOV Services is Rs 163 ~ even at this unfair deal value of US $ 95m it should be twice this at Rs 300+….and if the Deal Value is upped towards US $ 250 m the share price should be even twice Rs 300 …that’s Rs 600+ ! …all this even if one consider’s haircuts
November 6,2014 Update
The Share Price zoomed to Rs 187 and closed at Rs 178 yesterday
Apparently some Minority Shareholders of HOV Services have approached the Company Law Board to question the Valuation of SourceHOV and force the Company’s Board to be more fair and appoint another Valuer and raise the Valuation
Thus the HandsOn Group is now the Majority Shareholder and probably to soon become Sole Shareholder,if they have their way of the Merged huge Global Entity of SourceHOV & BancTec
The combined entity will have Revenues of over US $ 900 m and a new Credit line of US $ 1.1 billion committed by Morgan Stanley
Rohatyn Group may have sold to the Promoters HGM Group for their own reasons….just because they did so at the same price the Indian Listed Company’s Investment Stake of 26.1 % has been approved too for divestment to the HGM Group does not mean it is a fair value !…there may have been a clear conflict of interest and vested interests involved in an undervaluation
How can the Indian Company divest it’s 26.1% Pre Merger Stake in SourceHOV for just US $ 95 million !
Come On Exchanges,SEBI and CLB !…..Protect the Minority Shareholders !
Don’t let the Promoters get away with this undervaluation of the Investment stake being sold to themselves !
Let a New Independent Valuation be worked out of the merged Entities SourceHOV & BancTec…it now is one of the World’s largest TPS Service Providers
Because that’s the way to go
In fact in my View even if this stake is diluted post merger ,the value zooms up even more than the earlier US $ 250 m I opined….My sense is now double this at US $ 500 m ! for this stake ! as the merged Entity will have initial Revenues of nearly a Billion Dollars and over 16000 Employees and a Valuation in my view of over US $ 2 Billion despite the Debt it will have
Minority Shareholders are not against the deal…they are against the undervaluation at US $ 95 m….they sense that Promoters are getting to eat the full cream while offering a few licks to the minority shareholders !
So how did the postal ballot succeed ?…well……experienced veterans can tell you how
Sadly if the Deal Goes through at just US $ 95 m then watch some time in the future how and by how much the Promoters HGM Group (www.hgmfund.com) will monetize their shareholding valuation by divesting part or full stake or offering fresh equity at a high price
And whats happens to the Indian listed HOV Services after the deal goes through !?….Is there any point keeping it listed !?…..In the Scheme of Things would serve Minority Shareholders better if the Board returned to shareholders the High Book Value achieved from the Rs 464 per share received on the deal and wind up the company
So what now with HOV at Rs 178 !
My clear sense is that there is little downside and only a huge upside….and if the fair sense of valuation prevails or is forced on the Promoters then there is great upside
Suffice to state many of my clients hold this share which was first recommended last October 2013 at just Rs 39
(I must thank my blog Reader Jigam Gandhi for his latest inputs)