Promoter of Onmobile Will Buy 10% of Company at Rs. 40 in an Open Offer

3 comments Written on February 12th, 2014 by
Categories: General

This is a guest post by Medianama (also posted here) which is a premier source of information and analysis on Digital and Telecom businesses in India.

A much awaited offer for Onmobile Global* shareholders: after several conference calls where shareholders were asking the company to buy back shares, its largest shareholder Onmobile Systems Inc has made an open offer for 10.03% of the company’s shares for a total consideration of Rs 47.6 crore (around $7.6M), offering existing shareholders an opportunity to exit at Rs 40 per share for maximum of 11,900,000 shares. This is a voluntary open offer, which allows any shareholders that want to exit, an option. More here.

The Onmobile shares closed today at a price of Rs 30.4, up Rs 1.4 for the day.

At Rs 40 per share, the offer price is:
- 31.58% (Rs 9.6) higher than the current price of Rs 30.4. At that price, this open offer would have cost Onmobile Rs 36.17 crore
- 4.31% (Rs 1.8) lower than the 52 week high of Rs 41.8. At that price, this open offer  would have cost the company Rs 49.74 crore
- 2.1 times (and Rs 20.95 higher) than the 52 week low of Rs 19.05. At that price, this open offer would have cost the company Rs. 22.67 crore.

Onmobile’s current market cap is Rs 347 crore, with a free-float of Rs 225 crore.

While technically, this is not a buyback from Onmobile Global, it is in the same vein: financial / retail investors are getting an exit, and Onmobile Systems Inc’s shareholding is increasing. This offer can also been seen as Argo Capital, which owns 74.7% of the voting share capital in Onmobile Systems, as going all in. Onmobile Systems currently owns 32.88% of the fully diluted voting share capital in Onmobile Global, and post acquisition, this will increase to 42.9%. Note that Tony Haight, the President and CEO of Onmobile Systems Inc is the Chairman of Onmobile Global, and Mouli Raman, the CEO of Onmobile Global, is also a shareholder in Onmobile Systems Inc.

This offer comes on the back of a challenging quarter (Q3-FY14) for the company, wherein it reported a net profit of Rs 3 crore on revenues of Rs 204.3 crore, excluding Livewire, which it acquired last year.

Buyback Pressure

In July 2012, OnMobile Global had completed a buyback, essentially buying back a total of 4 million shares worth Rs 23,76,20,381, at Rs 59.41 per share. The current offer is Rs 19.41 (and 32.67%) lower. That was a particularly turbulent time for the company, which it now appears to have emerged from.

There has been sustained pressure from shareholders on Onmobile for a buyback. A shareholder (a fund) on Q1-FY14 conference call had, once again, made a case for a buyback, saying: ”At the current rate of Rs 21, we (OnMobile) are at Rs 240 crore of market cap, and the cash is Rs 180 crores. We really strongly feel that there could be a policy where incremental cashflows, after even paying for Livewire, be used first for a buyback. Even a small amount of Rs 25-50 crore, would be good enough to restructure the capital structure. Secondly, there can be a payout policy of 40-50%, and that can, in addition to the buyback, because buyback I think very very strongly, has to be done at this level, that is my recommendation…” In response to a non-committal response, the shareholder had then said ”You have a huge amount of cash, and all your business plans can go on. Also between buybacks and dividends, this is the best time a capital structure could be handled. This time, if we don’t have to service that equity for next 10-20 years, if we do the buyback today…” More here.

Before that, there had been calls for a buyback at the end of FY13, as well as in Q3-FY13.

Disclosure: Onmobile is an advertiser with MediaNama, sponsoring our coverage of the 2G spectrum auctions in February 2014

Capital Mind’s Take

This is not a buyback by the company, Onmobile Global as being reported by PTI. The purchaser is a US based entity called Onmobile Systems, which is a different entity. Why is this important? Onmobile Global’s Rs. 280 cr. cash stash will not be used to buy the shares - the cash remains with the company. The purchasing company, Onmobile Systems, will buy it from its own funds which has no implication on the cash in Onmobile Global.

Secondly, Onmobile Global is not raising cash. The proceeds of the buyback will go to the shareholders that sell those shares back. Onmobile Global will not get any money.

And also, the company has only about 80 cr. of cash,

The shareholding pattern of Onmobile is, approximately:

  • Promoters: 38%
  • FIIs: 5%
  • Mutual Funds: 10%
  • Individuals: 47%

If all non promoters tender their shares, then 62% shares will be offered, of which 10% will be accepted. Meaning, about 1/6th of your shares will be bought, the rest will be returned. You can assume that some people won’t bother giving back shares so about 1/5th of your shares can be sold at Rs. 40.

The current price is Rs. 33.70 (has gone up 10% from Rs. 30 after the offer), but it appears like the shares will fall in value back to Rs. 30 after the deal. Remember the company has ZERO benefit from the deal, so there’s really no reason to value it higher than before this offer.)

If you own shares you better submit all of them in the open offer, or sell them today and buy them back after the open offer if you don’t have the time. The offer is between April 3 and April 21. Here’s the offer details:

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About the Author:
http://www.capitalmind.in
The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.

3 comments “Promoter of Onmobile Will Buy 10% of Company at Rs. 40 in an Open Offer”

So Deepak;

I think its correct to say its a sell as its does not do anything for the company.
And looks like the Promoter (Onmobile Global) is doing this to keep Institutional Investors Happy

In terms of trade can it play out in following ways
1. Do you think market price catches up to INR 40?
2. Would Shortsellers pound this if goes to anywhere near INR 40?

Disclosure: I am long and currently in black in Onmobile

There’s hardly any shorting on this stock no? (No F&O)

40 can happen, of course. It’s just about a few more % from here…

Yup no F&O.
Lets see if it has legs for 40. I am curios. If it does go to 40 or nearby one does not have to sell in the open offer , can just sell in the market