Bhushan Steel Group has literally reignited a unique three-year-old, three-way takeover battle for Bhubaneswar-based public-listed company Orissa Sponge Iron & Steel by making an open offer to buy 20 per cent stake that may cost it as much as Rs 220 crore ($43 million). This follows a Supreme Court order dated March 26, asking the group to make the pending open offer after withdrawing a writ petition in Orissa High Court which was stopping the long-delayed open offer.
Not surprisingly, Orissa Sponge scrip has shot up over 50 per cent in the past one month and hit the upper circuit limit to close at Rs 359.8 a share on the BSE on Wednesday.
Bhushan Energy, a subsidiary of the public-listed Bhushan Steel & Power which is led by the father-son duo of Brij Bhushan and Neeraj Singal, has made the open offer to buy 6.1 million shares at Rs 360 a piece. The open offer starts on May 3 and closes on May 22.
The acquirers were pitched in a rare three-way battle to gain control of Orissa Sponge Iron & Steel, involving two estranged brothers of the Delhi-based Singal family and one independent business group. Bhushan Steel & Power promoter Neeraj Singal was locked in a takeover battle with his elder brother Sanjay Singal (who has formally split with his father and younger brother, and now owns privately held Bhushan Power & Steel) and another sponge iron firm Monnet Ispat, promoted by the Jajodias.
The company, which has a sponge iron and steel billet plant in Orissa, reported a loss of Rs 54 crore, with revenues of Rs 61 crore for the nine-month period ended December 31, 2011. Orissa Sponge also owns iron ore and coal reserves, which are of prime interest to the suitors.
Recap
The story began in early 2009 with Bhushan Steel’s subsidiary Bhushan Energy acquiring 9.5 per cent stake and 35 lakh warrants from Unitech promoters Chandras who held around 12 per cent stake in the loss-making company. Combined with the original holding of 5.35 per cent, Bhushan Steel Group’s total stake went up to 14.85 per cent, marginally short of the 15 per cent mark which triggered a mandatory open offer (recently, this trigger limit has been raised to 25 per cent).
This was followed by a surprise announcement of an open offer by Sanjay Singal, to acquire 26 per cent stake in Orissa Sponge at Rs 300 per share, almost twice the market price of Orissa Sponge back then. Singal’s Bhushan Power & Steel is backed by Baring Private Equity Asia.
But even before this open offer could open, Monnet Ispat, which held around 14.9 per cent stake in Orissa Sponge, announced a counter offer to acquire additional 20 per cent stake from the shareholders. The deal was to help Monnet meet its raw material requirements. The Jajodias also struck a strategic alliance with the Mohantys of Orissa Sponge and together own around 60 per cent stake (including the Orissa government arm which is one of the co-promoters of the firm) in the company as of now, making an open offer a futile effort in terms of a takeover. Monnet Ispat counts among its investors PE giant Blackstone besides Norwegian sovereign wealth fund.
What Next?
The fate of this takeover battle was sealed when the Mohantys – promoters of Orissa Sponge – converted their warrants into equity and hiked their holding from 33 per cent to 43 per cent in early 2009 and at the same time, inked a partnership with the Jajodias. With the conversion of Bhushan Steel’s outstanding warrants into equity getting mired into legal tussles, it’s only a matter of time before the takeover battle loses its flavour. At the same time, since this is a competing bid by Bhushan Steel Group, the public offers under all subsisting bids will close on the same date.
In the recent past, Baring PE Asia-backed Bhushan Power & Steel has made other moves by acquiring a large strategic stake in another public-listed company Nova Iron & Steel.