Mumbai, Mar 16: The swap ratio of three shares of Hindustan Lever Ltd (HLL) for four of Pond's has not evoked a positive response from the market, with some suggesting a 4:5 ratio would have been more apt.The ratio, announced on Monday, put an end to month-long speculations based on the stocks' market valuations. Though the stocks gained, the HLL scrip, which is in the no-delivery period, went up only marginally.
While a section of industry analysts justify the ratio on the basis of the market price, brokers and market participants seem to differ.
``The market price of Pond's is a reflection of expectations and cannot be considered as the basis of the swap ratio,'' said a Bombay Stock Exchange (BSE) broker.
``Considering that the merger means discounting Pond's future earnings and also the brand-value, 4:5 would be a more liberal ratio,'' he added.The book-closure date announcement is considered as the merger's most crucial aspect. ``It is important for investors to know the cut-off date, especiallyto identify whether they could be a part of the merger package,'' said a BSE broker.
Last-minute speculation at the Pond's and HLL counters saw them flare up to touch intra-day highs of Rs 1,194 and Rs 1,605 respectively. Market sources say the intra-day rise of over 6 per cent during initial trading was shortlived, with local and foreign punters jumping into the fray to book profits at higher levels. During the day, Pond's continued to trade in the upper band of Rs 1,127 to Rs 1,194 to finally close at Rs 1,138.75 with a gain of 3 per cent over Thursday's close of Rs 1,105.50 on the Bombay Stock Exchange (BSE). On the National Stock Exchange (NSE), the stock closed at Rs 1,137, with a volume of over 2 lakh shares traded.
Hindustan Lever's intra-day northward march, breaching the upper limit of Rs 1,600, was temporary. At the local bourses, the stock was traded in the band of Rs 1,572 to Rs 1,605, to finally close at Rs 1,579 registering a gain of 0.06 per cent. On the National Stock Exchange, it closedat Rs 1,583.05, with a volume of over 2 lakh shares.
``The discount or the difference in the price-earnings multiple of the two stocks have narrowed down. As technical analysts say, the size-effect has worked in Pond's case'' said a senior analyst at a Foreign-institutional investor brokerage firm.
HLL's book-value at the end of December 1997 stood at Rs 63.30, while that of Pond's was Rs 66. Market sources, however, say after studying the real-estate holdings of Hindutan Lever and the cross-valuations, the ratio seems to be justified.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
