IFCI deal cancellation impact….

IFCI Board called off the deal of 26% stake sell to Sterlite gr which had offered to buy the stake at Rs 111.

The issue under consideration is that why the deal is called off and what should be the impact on the stock…?

The deal is definitely called off by IFCI prima facie on the pretext of management control. Though Sterlite had bid for 26% stake in IFCI the same was for strategic investment and price of Rs 111 was just for the same.

The price of Rs 111 was fixed in view of the fact the debt was converted into equity at Rs 107 which by far is considered as the base price of the stock.

It seems Govt was reconciled to part with management control for much higher premium than at Rs 111 because of the intrinsic hidden value in IFCI. But for the fact the Sterlite could not have offered the much sought after price by Govt for management control and as result the deal was called off.

In fact, the decision was set to come out on 17^th Nov but for this kind of negotiation was delayed till 19^th Nov and when the talks failed the deal was called off.

The immediate impact could be that the stock price will crash by at least 20% to begin with because of the timing of the issue and the overbought condition in the stock. But our analysts believe that there could be huge buying from FII’s at lower levels because of the simple opportunity to make killing return of over 30% in such scenario.

The fresh talks will start very soon the fact will remain that Govt will not sell stake below Rs 111 come what it may. Rather they will now prepare for higher bidding which is a good sign for long term investors.

What investors should do in such cases…?

IFCI is a great investment story and investors should do well to hold on to the shares for long term though for immediate future the pull back may not happen. It is like Bajaj Auto announcing the de-merger stock crashing by 30% and then in 3months Bajaj comes back to square one leaving history behind.

Short term traders must book loss to begin with and long term investors must add more at Rs 75 to 80 levels because you are getting the same IFCI at 25% to the price at which LIC and others subscribed to the equity (Rs 107). Who is smarter investor will be known in due course of time.

IFCI deal at 111...

IFCI deal finalised at Rs.111/- per share although there is a chink in the armoury the deal will go at 111 without management control.

IFCI - Outcome of Board Meeting Wednesday, December 19, 2007

IFCI Ltd has informed that as the financial proposal submitted by the Sterlite Industries Ltd led consortium was conditional, the Board of Directors of the Company at its meeting held on December 19, 2007, has unanimously decided that the conditional offer is not accepted and therefore the same is rejected.