Whoa ! HOV Services drops from 150 to 100 on U Turn on SourceHOV Stake Sale

Whoa ! HOV Services drops from 150 to 100 on U Turn on SourceHOV Stake Sale

Have blogged before on HOV and this will probably be my last on it ! What else can I say ! I have also tagged this post under “When the Heart explodes through the Helpless Mind!” 

Ironically HOV Services looks a Great Buy at Rs 100 levels even if the 44.82% Stake held by it in SourceHOV through it’s wholly owned subsidiary is not now being monetised…the deal was first alleged to be greatly undervalued at US $ 95 million perhaps because the Purchaser was Promoter related Entities themselves ! Company  Board even approved the Sale and later Minority Shareholders too did so.Even some of Minority Shareholders withdrew end January 2015 their Case filed before the Company Law Board for this undervaluation  to clear the way for the deal to happen before March 2015

It did not happen and now all that the Company did was send a curt and terse notification to BSE & NSE that was displayed on their websites on the evening of Monday,April 20,2015 and led to  two 20% lower circuits on both yesterday and today to take the price below Rs 100 before reviving…The Relevant Notification extract is reproduced below

“In regards to the proposed transaction for sale of Company’s investment through its US based wholly owned subsidiary, HOVS LLC, the Company has received communication from the purchaser informing the Company that they had decided not to proceed with the purchase of the investment.”

No Explanation given on this Deal U Turn ! after all sanctions to go ahead were in place !…Purchaser was Promoter Related Entities

Majority shareholder Rohatyn Group stake in SourceHOV too was ostensibly bought out by SourceHOV at same Company valuation and therefore they must have been paid off over US $ 250 m last year from the new line of credit arranged by Morgan Stanley for SourceHOV and which thus moved HOV Services stake of 26.1% in SourceHOV through it’s wholly owned subsidiary (pre merger and pre Rohatyn Group stake buyout) to the current 44.82%

HOV Services is available at Rs 130 crs Market Cap at Price Rs 104 and holds a 44.82% stake in one of the world’s largest Transaction Processing Services (TPS) Companies SourceHOV which after BancTec merged into it last year has sales of US $ 900 m,over 16000 Employees and operates from over 85 Centres round the world

Problem is does one wish to buy or remain invested in a Company where blatant disregard of Corporate Governance is visible

Am Sure like in the past SEBI and Exchanges will be made aware of  this latest situation by disgusted and highly concerned minority shareholders who had bought and held on in anticipation of deal conclusion and over Rs 600 crs being received by HOV Services.  I daresay,like in the past, not much will come from this !

Here’s the selling storm action on BSE & NSE yesterday and today after a Monday Closing of Rs 149 post which the U Turn on the Deal was notified to the Exchanges

Yesterday Tuesday ,April 21,2015

BSE  ~ 51351 Shares traded with closing Rs 119.60 (20% lower circuit) after H/L of Rs 135/Rs 119.60

NSE ~ 148912 Shares traded with closing Rs 120.40 (20% lower circuit) after H/L of Rs 138.35/Rs 120.40

Today Wednesday ,April 22,2015

BSE  ~ 118123 Shares traded with closing Rs 104 ( 13 % lower) after H/L of Rs 111/lower circuit Rs 95.70

NSE ~ 371813 Shares traded with closing Rs 104.55 (13% lower) after H/L of Rs 111.40/lower circuit Rs 100.30

So what should be the Approach & Rationale now of those who hold the Share and those looking to buy at these levels ?

This is not specific Advice as each to his own Counsel but let me at least put it this way : On one hand you have Corporate Governance Issues and instinctive anger and disgust at this Deal U Turn and  wanting to sell off the holding and on the other you have a limited downside indicated from here with  HOV having a Market Cap of Rs 130 crs and holding a 44.82% Stake in SourceHOV through it’s wholly owned US Subsidiary which at their agreed deal valuation is worth US $ 95 m or over Rs 600 crs  and which was challenged by certain minority shareholders in the Company Law Board as being undervalued

The Deal is now not Happening now and thus the Stake is not being monetised now….as for in the future…que sera sera !

Anyone with Rs 130 crs can buy out this Company 100% theroritically ! and hold this company and nearly half of SourceHOV …a stake worth at least Rs 600 crs if not higher and is free to monetise whenever !….or maybe the Promoters will delist HOV…they already hold 49.5% and need just Rs 65 crs or just over US $ 10 m to buy out the remaining stake from the market…of course  SEBI has SASTA & 52 Week High is Rs 191.50 recorded in November 2014 & assuming the price does not go up  while buying out floating stock from the market !

Disclaimer : Continue to Have an Interest in the Company’s Shares