No arbitage oppurtunity in Ranbaxy at 500

The present outstanding shares of RLL are 37,32,37,870 shares while open offer is for 9,25,19,126 shares, which implies offer for 24.79% of present equity. Though the mandatory open offer is for 20% equity of RLL, which is calculated after including outstanding ESOP of 83,88,353 shares, preferential allotment to Daiichi of 4,62,58,063 shares and 3,47,11,343 shares underlying possible conversion of zero coupon foreign currency convertible bonds.



Of the present equity of 37.32 crore shares, Daiichi is acquiring 12.99 crore shares, from promoters of RLL, being 34.81% of the present equity. This means, 9.25 crores shares would get acquired out of remaining 24.33 crore shares, which would result in an acceptance ratio of 38%. As some of the shareholders may not be able to participate in the offer, the acceptance ratio for all practical purposes can estimated to be 40%.



Share is now ruling at Rs.500. If somebody buys 100 shares today, it would cost him Rs.50,000. If 40 shares are expected to get accepted at Rs.737, it would realize Rs.29,480, leaving residual cost of 60 shares at Rs.20,520 or Rs.342 per share.



If we add tax on estimated gain of Rs.9,480 (Rs.237 x 40 shares) at Rs.2,800, the residual cost of 60 shares would be at Rs.390 per share. Share of RLL, post open offer, is likely to rule at around Rs.360 per share. For September F&O, the share is ruling at Rs.362 per share.



So under the given circumstances, there does not exist any arbitrage play and hence it is not advised to buy from the secondary market now at Rs.500 per share and participate in open offer.