HOV Services drops below Rs 130 even as it tries to clarify to a Minority Shareholder

This must be my fifth or sixth post on HOV Services ! but this is an important update

Important Update Wednesday,December 10,2014 

This is Courtesy a Minority Shareholder to who the Company’s CFO replied by email on his specific queries…am reproducing the reply verbatim below and then raising questions on this

” Hello …..,

Reference your below mail pl note as under

1)      At the time of merger the major stakeholder in SourceHOV was paid off and hence that proportion of share gets reallocated to other existing  shareholders. Hence the holding percentage went up from 26.13 % to 44.82 %. . The valuation does not change

2)      The stake sale  is still on . we expect the entire process to be completed by 31st March 2014.

3)      As mentioned earlier the valuation of 44.82 % also remains same at US $ 95 Million.

Hope the above clarifies your queries.

Thanking you “

As usual more questions are raised from such replies 

  1. Who Paid of the major stakeholder ? How Many Shares and for how much ? 
  2. If SourceHOV itself paid off  from the new Debt as was stated by them as one of the applications for assuming the new line of credit of US $ 1.1 b ,then was this not a BuyBack and were the shares not cancelled and Equity Capital reduced consequently  or  was this proportion of shares,as HOV Services states above,  reallocated to other existing shareholders?if so, then in what proportion was this done or was in same proportion of their holding pre merger or post merger ? And was this done free like a Bonus  or did these shareholders pay for the shares  and if so how much did they pay? and how was this payment funded by HOV LLC …or do you mean the stake increase to 44.82% is a direct result of reducing the Equity Capital by the same quantum of  shares held by the majority shareholder who were paid off in the merger? 
  3. If the stake sale is still on you must mean March 31,2015 ! and not 2014!?
  4. Explain how could the Valuation of a post merger 44.82% stake be the same as that of a pre merger 26.1% stake  on the proportion of shares of  the majority shareholder being reallocated to existing shareholders as the company states above  ? Please clarify how many shares did HOV LLC hold in SourceHOV pre merger and now holds post merger and after paying out the majority shareholder and reallocating their proportion of shares to existing shareholders of SourceHOV ….in any case this must call for a fresh Valuation of SourceHOV post merger and post such a reallocation ! 
  5. Were the Shares purchased from the majority shareholder actually reissued or transfered to existing shareholders or does HOV LLC now too holds the same number of shares in SourceHOV that it held premerger and as enquired above their stake has gone up to 44.82% only because SourceHOV Equity Capital has bee reduced  ? 
Can the Company please disclose the Post Merger Balance Sheet in detail of SourceHOV ?
In the Meantime  the Share Price of HOV Services on BSE & NSE has dropped below Rs 130
Company does not think it necessary to notify the Exchanges of the all of the above and the fact that the Company Law Board is hearing a plea from a group of minority shareholders on the undervaluation of the sale 
So who’s creating the Panic in the HOV Share Price fall  if the deal is on !? 
Does this make HOV a Buying Opportunity  at Rs 127-Rs 130 even if the deal goes through at US $ 95m and not more for those who have the risk taking ability for this volatility and the patience for a few months more ? 

3 thoughts on “HOV Services drops below Rs 130 even as it tries to clarify to a Minority Shareholder

  1. Gaurav sir, this is not related to the post … But is it not time for another TAP-GAP survey for 2015 :)) . can you please put this on your to do list for December

  2. The value can still remain the same, if the stake was bought by taking debt. so if the EV remains the same, the equity value will fall and debt value will go up in EV as the same shares were bought by using debt. in that case shareholding of existing shareholders can go up but since EV remains the same, the value of increased stake can remain same.

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