The heat is on

Deepak Fertilizers is likely to revise its open offer price in the fight for MCF

In what could possibly be the first instance of a hostile takeover in the domestic fertiliser industry, a battle has broken out for the beleaguered Vijay Mallya-owned Mangalore Chemicals & Fertilisers (MCF). Following the travails of Mallya in the wake of the spectacular collapse of Kingfisher Airlines, MCF’s rivals — the Saroj Poddar-owned Zuari Fertilizers & Chemicals and Sailesh Mehta-owned Deepak Fertilisers & Petrochemicals Corporation — built up sizeable stakes in the company, sensing an opportunity to buy it if and when Mallya chose to clear his outstanding dues on the airline. 

However, with Mallya not showing any intention of clearing his dues and his studied silence over the fate of his stake in the company, uncertainty was building around which way the scales would tilt for MCF. That is, until Mehta chose to go on the offensive.

The Pune-based Deepak Fertilisers has made an unsolicited open offer to acquire up to 30.8 million shares, or 26%, in MCF at Rs 61.75 a share, entailing an outgo of Rs 190 crore. Deepak already owns a 24.46% stake in the company through its subsidiary SCM Soilfert. While Zuari Fertilisers holds 16.43% stake, Poddar has clearly indicated that he would not want to launch a hostile bid, preferring a negotiated deal with Mallya.

Though Mallya holds close to 22% stake in MCF through four entities, United Breweries Holdings, United Spirits, McDowell Holdings and Kingfisher Finvest, more than half his holdings are pledged with institutions. Even as some media reports have indicated that both Mallya and Poddar are looking to raise their combined holding in the company from over 38% to 51% or that Poddar will bow out of the race by selling his stake to whoever offers the highest price, it is clear that Deepak Fertilisers is dead serious about the company. 

Winner takes all

The Street is sensing a tough contest among the fertilizer majors

MCF makes for a strategic bet given its strong presence in Karnataka, while Deepak is strong in Maharashtra and Gujarat. Also, on the product front, MCF’s urea presence will complement Deepak’s product portfolio, which is largely focused on nitro phosphate fertilisers. Though his open offer price is 18% lower than the current rate of around Rs 73, given that Deepak is sitting on cash of over Rs 183 crore and leverage of less than 1 times, there is enough firepower for Mehta to dig his heels in the bidding war. Given his airlines fiasco, Mallya is unlikely to get funding from banks or institutions, which means he will have to rely on Poddar for an amicable solution. 

With only 36% of floating stock in the market, Deepak Fertilisers’ chances of buying a full 26% from the open offer will hinge on how juicy the offer price is. For investors looking to cash out of MCF, then, the party has just begun.