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SSI's AlbionOrion deal raises more questions

NetScribes/Salil Panchal

The SSI-AlbionOrion deal seems to be getting more convoluted. Despite AlbionOrion promoter Prasad Potluri's statement that his company is not unduly worried about short-term fluctuations in the SSI stock, there are growing concerns about the future path of the stock.

The markets have another interpretation of the statement - that his apparent nonchalance notwithstanding, Potluri may actually be worried, given the fact that the deal with SSI has a high stock component.

The concerns arise from three counts - a big price differential between SSI's local stock and its global depository shares, a fairly high holding in the stock by a local operator, and perceived problems in the pricing structure of the AlbionOrion deal.

Details of the Potluri's statement were disclosed at a recent presentation made to leading domestic financial institutions and mutual funds, including UTI, Morgan Stanley, State Bank of India, DSP Merrill Lynch, Birla Mutual Fund and Prudential ICICI. The SSI top brass had met these institutions on November 30, 2000 to apprise them of the deal.

In September this year, SSI had announced a cash and stock deal to acquire AlbionOrion. The deal involves $20 million in cash and issuance of 6.5 million global depository shares. Taking into account the preferential price of around Rs 3,070 per share, the GDS component of the deal would work out to $43.65 million.

What complicates things is the fact that the SSI stock is currently quoting much lower at Rs 1,738 on the Bombay Stock Exchange. Market circles are now wondering where the SSI stock price is actually headed, considering that the deal has to go through at the 'purchase agreement' price of Rs 3,070 per share. One major concern is that if the stock price continues to dip, the deal price may not be realised.

Another factor causing discomfort to the institutions is that while acquisition deals are usually struck at a sales-to-acquisition ratio of 1:1 or even 0.95:1.05, the SSI-AlbionOrion deal works out to a high ratio of 1:2.36. As on March 31, 2000, Albion's total sales stood at $27 million, while the deal has been valued at $63.65 million.

There's more trouble for the deal. According to the market grapevine, a leading bull operator in the country has a substantial holding in the SSI stock. Over the past few trading days, he is said to have purchased over 1.5 million shares.

This operator's holding in SSI through various arms works out to 11.6 per cent, just below UTI's 14.8 per cent (as on September 2000), FIIs' 13.3 per cent and mutual funds' 16.37 per cent. Such a large holding by a single operator is not seen as a good sign for the SSI stock's future movement.

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