Marg Ltd Open Offer - a lose-lose situation

Marg Ltd (BSE 530543) is a Chennai based infrastructure company. About an year ago, the company had announced a voluntary open offer to acquire 20% of the shares of the company at Rs.91 per share. However, SEBI detected violations of the takeover code in the same and investigations started. This article will make the background of the case pretty clear.

Well, today SEBI has directed the promoters of Marg to revise the open offer price to Rs.340 per share! Article This consists of the 'proper' open offer price of Rs.216, plus interest of Rs.124. The market price of the company's shares was Rs.50 yesterday and the open offer price is more than 6 times the current market price! Promoters hold 54% in the company. Seems like a sweet deal. Well, the market participants have also given its thumbs-up to this development, the stock was up 6% today.

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I also got quite a lot of emails, pointing out the clear-cut arbitrage available here. Buy the shares at CMP of Rs.53, tender them in the open offer at Rs.340. Even if there is a 50% acceptance, thats big money! How I wish it were that simple. 

Please consider the following points, before rushing to place your 'buy' order..

• The promoters of the company have fought tooth-and-nail with SEBI against this open offer. They have shown no intention or willingness to go for this open offer.
• They have already announced that they will be appealing against this SEBI order before the Securities Appellate Tribunal (SAT). 
• Now typically, it takes 2-3 years for SAT to arrive at a decision. If the decision goes in favour of SEBI, the promoters have the option to appeal to the Supreme Court (which I think they surely will).
• Now, cases in the Supreme Court routinely last for more than 5 years very easily. Cases like those of DISA have been left hanging and there are others which are in process for more than that! 
• Till the time the final decision of the Supreme Court comes, the promoters have no need to make an open offer. (In fact, even after a Supreme Court decision, the promoters have the option to appeal to a bigger bench of the Honourable Court). 
• So, lets say 2 years at the SAT and 5 years at the Supreme Court (I am always an optimist!)..this open offer issue will drag on for at least 7-8 years, before a final judgement is given or the promoters settle out of court. (The second option appears very difficult)

So, I think there is a high probability that this open offer will remain open for a long loooonnnggg time! 

Are you comfortable holding this stock for, lets say, a decade, waiting for the open offer? One should do proper fundamental analysis and determine the company's value to decide on this front. However, in my humble opinion, the words 'fundamental analysis', 'value' and 'Marg Ltd' should not be used in the same sentence!! :-)

I am very sure that I will be more than happy to give this situation a 100% pass. Muzhe iss Marg pe nahi chalna hai!

If you are thinking of getting into this one, its my request to please think twice, take some rest and then think twice again!

Cheers and happy investing!!

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