ABFRL decides to acquire and merge TCNS

It’s an interesting transaction structure –

  • 1st stage – ABFRL will acquire 51% of TCNS at Rs 503/ share for a total cash consideration of Rs 1,650 crore; implying a valuation of Rs 3,235 cr. This is similar to TCNS’s current market price.
    • 20.19% to 29% through open offer. Open offer is to comply with the regulations.
    • Remaining 22% to 30.81% from the promoters. Basically promoters are keen to sell their whole stake of 30.81%. However, given the mandatory open offer requirement, they will be able to sell only the balance after open offer tendering.
  • 2nd stage – if 51% is acquired, TCNS will be merged into ABFRL at a swap ratio of 6:11 i.e., 11 equity shares of ABFRL for every 6 equity shares of TCNS
    • It interestingly implies a valuation of only Rs 2,400 crore for the balance TCNS shareholders (based on ABFRL’s current valuations)
    • This valuation is almost 25% lower than what ABFRL is paying for acquiring 51% stake in stage 1.

The aforesaid structure prima facie would seem unreasonable for non promoter investors in TCNS and hence stock price may correct significantly.

  • TCNS is almost 70% owned by non promoter investors including the likes of TA Associates (29%), Nalanda (7%) and Elevation (5.4%).
  • TCNS’s business has been volatile and TA looking to exit has been in the news for sometime.
  • Whether the subject deal is passed by TA is not clear. If not, there is a possibility that the deal may not go through.
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