In simple terms, open offer is the offer given by companies to buy the shares of targeted company from the investors at a pre-informed price.
Targeted company is the company in which another company want to buy the stake.
Open offers are given to avoid the speculation in shares and settle the deal at a proposed price. For example, Company X is trading at 75 and company Y wants to buy the company.
If company Y buys the shares directly, then the shares of company X will flactuate significantly since investors will jump to buy shares of company X looking at the increase in delivery percentage.
Company Y to stop this unusual flactuation, can offer a straight offer at 85. Investors willing to give the shares at 85 can sell their shares to company Y.
Currenly the biggest open offer in Indian Stock market from Relay B.V. ( “Acquirer” / “Relay”) and Diageo plc (“PAC” / “Diageo”) for buying United Spirits Ltd. The current market rate of United Spirits Ltd is around 2600 and open offer is placed at 3030.
Not all open offers are successful, many of the open offers fails due to investors not selling the shares. Investors do not sell the shares even at higher prices thinking that prices will go up due to synergy created by aquirer.
The open offer price has to be placed at a perfect price, which can lure investors to sell the shares.
As earlier said, open offers are not only to avoid speculations in shares but also due to legal requirements. Since, as per rules one can not buy shares above certain limits.
Posted 3 years, 7 months ago by Stock Guru
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