Open offer for Great Offshore: The race for controlling stake

With Bharati Shipyard raising its open offer price for Great Offshore last week, the next move in the bidding war for the Mumbai-based offshore oilfield service firm, is expected to come from ABG Shipyard. Though ABG has time till the third week of August to revise its offer price, reports indicate that it may do so sooner.
The two private sector shipyards are in a race to wrest control of Great Offshore — a company created through de-merger of the offshore business of Great Eastern Shipping.
Bharati Shipyard first made an open offer in May for 20 per cent stake in Great Offshore at a price of Rs 344 per share, after it bought promoter Vijay Sheth’s 14.89 per cent stake in the company. Mr Sheth was forced to sell his stake as he had failed to payback the Rs 240 crore borrowed from promoters of Bharati Shipyard against a pledge of his own shares in Great Offshore. Eventually, he quit the company by May end, giving up all his plans to make Great Offshore a major global player in the offshore service.
Though Mr Sheth’s exit was widely viewed as a fallout of the equity market meltdown, which eroded the value Great Offshore shares, a section in shipping circles believes that Mr Sheth did not act wisely.
While Bharati was busy with plans to mobilise funds for the open offer, ABG Shipyard, its competitor in shipbuilding, came out with a surprise counter bid to acquire 32 per cent stake in Great Offshore at Rs 375 per share. Though it was quite unanticipated, Bharati acted swiftly; it acquired another 4.58 per cent stake held by members of the Sheth family at Rs 403 per share, raising its stake to over 19 per cent.
This automatically raised its open offer price as per the SEBI Takeover regulations. Subsequently, Bharati made a formal announcement last week, increasing its offer price again by Rs 2 to Rs 405.
Why just Rs 2? “There is no logic, we were just rounding it (open offer price) off,” a Bharati Shipyard official said.
Wind favours Bharati
Right now, the wind appears to be blowing in favour of Bharati; it already holds a 19 per cent stake in Great Offshore, its offer price is higher by Rs 30, though it is below the current market price. Also, the average cost of acquisition would work out lower for Bharati. If it can garner another 6-7 per cent, it will have the crucial 26 per cent holding, enabling it to have a say in board decisions.
But analysts say that it would not be smooth sailing for Bharati as the acquisition could put pressure on its financials.
ABG currently has just two per cent stake in Great Offshore. Its offer price (of Rs 375) is much below Bharati Shipyard’s revised offer price. Yet, ABG is seen as a serious contender and it is believed to have the strength to raise sufficient resources to acquire the controlling stake.
The Great Offshore share shot up following the bidding war and it is now ruling at Rs 430, much above the open offer price.
Analysts say that as long as the crude price remains above $35 a barrel, offshore support services will be a lucrative business.
“So long as the hunt for oil continues, offshore support services will be in demand. When oil prices peaked at $145 a barrel, the rate for offshore supply vessels shot up to as high as $59,000 per day. Though the rates are now down by around 50 per cent from its peak, they offer good returns,” said an analyst.
For Bharati or ABG, Great Offshore offers twin benefits. One, the huge potential that India’s growing oil exploration and production service sector holds for the company. Second, a considerable number of Great Offshore vessels are due for replacement. This would be a captive business for anyone getting control of the company. Bharati is currently building a drilling rig and an OSV for Great Offshore costing over $200 million.
No wonder, the two shipyards are battling it out for the offshore service firm.