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Sunday, 5 November, 2006

Blue Dart Express Limited

Prof. Bakshi sent an email to his students in which he talked about an arbitrage oppurtunity with Blue Dart Express Limited. He asked us to read about it and come up with an analysis. We were asked to read the following documents...

1. Press Release by Blue Dart Exoress Limited on 17th August
2. The Blue Dart delisting proposal
3. Delisting guidelines on SEBI website
4. This link on
5. This link on Financial Express
6. This link on IndiaTogether

After we have read these documents, we were asked to come up with an analysis (both financial and analytical). After reading the documents, these were the observations.

There was a jump of about 20 odd percent on Aug 15 and 16. It was followed byt a 4% drop right after the announcement. May be the price is low as compared to expectations of the market? After that, the price has been following the index (no major gains and no major losses).

At the time this was posted, BDEL was trading at 590 odd. Just wondering if the memory of Mr. Market so short term that it has forgotten the news of buyback and taken the price to 590, above the magic number of 550? or may be Mr. Market is shouting at us that the offer price of 550 is utterly stupid and should be ignored. This could also mean that a lot of shareholders would bid above 550 in the RBB and these would ultimately be unacceptable to the company.

The concept of RBB is interesting in its own manner. Reminds of Vickery auctions. They accept the price at which maximum investors bid. Logic says everyone would want to get most from his or her investments. In a geographically spread world, we don’t know what the exact price could be ... comes into the picture the 550 figure (and the physical display of bids received). They have provided a ready reference point (grounding effect) at 550. People might be tempted.

If I buy at more than 550 and company does not accept anything above 550 in RBB, the open market price might come down and I might loose money. I might also bid abnormally high, something like 1000. What if I was a MF with about 4% interest and I decide to offer all my 4% at 1000. Now the maximum number has to be at this 4% because the general public holds 5% in total and all of them wont tender at 550. What happens in this scenario...? Eventually we could be looking at target price much more than 550. How much more is the question? How much more is difficult to answer, but again it can be anything but 550.

Its a classical heads I win tails you loose situation! If I buy above 550, I can’t win in this game if I am a small guy. !! And on top of everything else, the company making the offer knows this too. They know people would not want to make losses. I have no clue what they are trying to achieve from all this. I cant see them delisting the company if it was their objective and I cant see them getting more than a handful of those 18.57% shares they are after. If we look at the action of peer companies (TNT and Fedex), all these carriers are planning to take back the Indian operations into their direct control. They probably do not want to report a few things an Indian partner would have to report.

One of the websites said "Under current SEBI rules, there is no downside to DHL not proceeding with the Reverse Book Building process if the offered price is unacceptable, as we are not under any regulatory compulsion to either delist Blue Dart or reduce our shareholding from the current levels. DHL is very happy to remain as an 81.03% shareholder in the Company if the delisting process is not completed," quotes Greg Tanner (one of the directors in DHL and in BDEL). - is he saying that even if certain number of shareholders dint tender their shares, the company might not be delisted from exchanges? The same has been mentioned in the bid document as well.

Finally the company has to work in India. There is no way they can wind up Indian operations. All the logistics companies have identified India and china as growth avenues. They must be getting real desperate over this new bill and they must have thought about something in case the bill actually comes into affect. What happens to the shareholders then.. ?

And in the end, all we said was a lot of summary with little or no opinon of our own and lots of questions ...

Other important links
Google Finance, Kotak Research, BSE Reverse Book Building

After the analysis, when the interesting aspects of the industry were further googled, following two links came up
1. Fedex buying its Indian partner for cash
2. TNT buying its Indian partner

And the open ended question now is "In wake of new bill that would cause an hinderance to these international players, why are they buying their Indian partners?"

Other opinions on Blue Dart delisting
1. Hindu Businessline

Further the open was to open on 6th November 2006 (today) and last time I checked, Blue Dart was trading at 600. Live status of the reverse bookbuilding process of Blue Dart Express Limited can be seen on the here (BSE website).


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