ABG Shipyard

THE year old drama over the acquisition of Great Offshore appears to be coming to an end. In a block deal reported to the stock exchanges earlier this week, ABG Shipyard Ltd (ABG) and Eleventh Land Developers Pvt Ltd (ELDPL), a wholly owned subsidiary of ABG, announced the sale of 30.78 lakh shares of Great Offshore through a stock market transaction. This accounts for approximately 8.27% of the current paid up shareholding of Great Offshore.

Bharati Shipyard holds a 23% stake in Great Offshore and currently has an open offer to acquire an additional 20% at Rs 590 per share. Since this is 13% higher than ABG Shipyard’s open offer, it nullifies ABG’s open offer, paving the way for Bharati to takeover Great Offshore.

The story dates back to December 2008, when Vijay K Sheth, vice-chairman and managing director, Great Offshore knocked at the doors of his friend P C Kapoor, Bharati Shipyard’s managing director, for a loan of Rs 240 crore. This was an amount he owed two financial institutions - IL&FS and Motilal Oswal. In exchange, Sheth pledged 14.89% of his stake in Great Offshore with Kapoor. These shares were earlier placed as collateral with the two financial institutions.

In May this year, Bharati Shipyard acquired the shares pledged by Sheth in a cashless deal taking Bharati’s stake in Great Offshore to 14.89%. This brought Sheth’s holding in the company to less than 1%. According to a statement from Bharati, the company has acquired 55.34 lakh shares at Rs 315 a share resulting in a deal size of Rs 174 crore.

Sheth took management control of Great Offshore after the company was demerged from Great Eastern Shipping which was run by his second cousin, Bharat Sheth following a split in the family business in 2006. To buy his holding of 15.73% in Great Offshore from Great Eastern Shipping, Vijay Sheth sold his resultant 3% stake in GE Shipping post the demerger. However, to raise more funds to facilitate the purchase, he pledged his 14.89% stake in Great Offshore to IL&FS and Motilal Oswal.

Great Offshore’s stock took a major beating when the markets crashed in 2008. The scrip fell from a high of Rs 1,102 on January 7, 2008 to Rs 212 on December 26, 2008. The financial institutions got edgy and it is understood that they wanted to dump their holding in Great Offshore.

The battle for Great Offshore ending is a win-win situation for both companies. The deal for Bharati, makes tremendous business sense as it would help it in consolidating its position across the oil exploration industry. “As of September 2009, Bharati Shipyard has a cash of Rs 550 crore on its balance sheet, which could be used to acquire the 20% shares through the open offer”, says Kunal Lakhan, Analyst at KR Choksey. To sum it up, a win-win situation for both with Bharati deriving business synergies and ABG making a cash profit.