Special situation. Report 801 Claris Life-sciences buy back.
On Jan 7th claris lifesciences came up with a corporate announcement about their intention to buy back CLICK here 14% of their outstanding shares.
Company proposed a price of Rs 250/share for the buy back. Buy back through tender offer works almost like open offer and arbitrage opportunities arise out of acceptance ratio and price market assigns to the residual shares.
So, Theoretically only 14 out of 100 shares will/should be accepted in buy back. Hardly an interesting deal is it.
But in practice, the buy back acceptance will be a lot better.
Because of 02 reasons
a) 15% of the buy back is reserved for the small shareholders (people holding an amount less than Rs 200,000).
b) There are a lot of brain dead shareholders in the retail small shareholder category. As the company has proposed to buy-back 9,250,000 shares, 15% of the same will be reserved for small shareholders i.e. 1,387,500 shares. In case of Claris Lifesciences, Small shareholders hold about 29-30 lakh shares in the company.
Accordingly, I reckon the acceptance ratio to be around 70% or more.
Based on the probability matrix, we decided to participate in this Special situation.
We built our entire position (5% of our corpus) @177.00. Stock rallied all the way to 188, we were tempted but we did not square off the position.
If 70% acceptance matrix holds true then, we will be able to sell 70 shares @ 250 = Rs 17500. Our cost is Rs 17700.
So we will be able to generate 30 shares of claris @Rs 1.6 each. In worst kind of sell off, we will be able to square off the remaining 30 shares @ Rs 100 each, netting us a profit of Rs 2800 on an investment of Rs 17700 or Absolute return of 15.81%
Now as we speak, postal ballot formalities are over, Last I spoke with the Investor relations, they were awaiting SEBI approval
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