Monday, April 07, 2008

Ranbaxy Making Hostile Takeover in Orchid

Although there is no confirmation from Malvinder Singh, MD of Ranbaxy, the huge rise in Orchid from Rs 106 to Rs 220 points to an definite attempt of a hostile takeover in Orchid., which news sources say is Ranbaxy.

Orchid Chemicals crashed 40% in one day, one reason being that promoter K Raghavendra Rao bought up 7% stake using margin money from brokers Indiabulls and Religare.

When Bear Stearns - which owned a substantial chunk of Orchid - pressed a distress sale, the brokers made a margin call which Rao could not honor, and hence they pressed sales to recover their money. The net result was Orchid crashed 40% and more. It has since bounced back, but now with FCCB holders not inclined to exercise their options at significant premium, Orchid is bound to remain with a lot of debt on its books.

Rao, who is also managing director, and other promoters now own 17% of the company and their rather foolhardy method of investment, belies all financial sense. Their objective was to stave off any hostile takeover - and it was easy for a outside investor, since 17% is hardly any reason to give 100% control to Rao and C0. over management. While Mr Rao has cleared his dues to these two firms, he still owes nearly Rs 65 crore to FIs and his current stake is pledged to them.

However, Rao is in a bigger soup. If the financial investors who own 37% of the company support Ranbaxy, then Rao may no longer be a dominant force in the company.

Read a related ET story here

Posted by Eclectic Investor at 3:45 PM  

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