The preferential allotment of equity and convertible warrants will enable Hindalco acquire 45.5 per cent stake in India Foils. However, the question is despite the fact that the Khaitans are willing to let Hindalco acquire the 45.5 per cent stake, why is it that the company has chosen not to buy out Khaitan's stake, instead. Obviously, Hindalco's interest in India Foils is not limited to a trade investment.

Though the preferential allotment would result in a change in control (from sole to either joint or by Hindalco) over India Foils, Hindalco won't be required to make an open offer. Regulation 3(1) of the SEBI (Substantial Acquisition of Shares & Takeovers) Regulations 1997 exempts the entity that acquires management control through this route from making an open offer.

Earlier talks between the two parties had fallen through, apparently due to undisclosed liabilities. Concurrent audit is always carried out before an acquisition and as the Sirmour Sidburg case has shown, materialinformation can be hidden even from one of the Big Fives. The stake will ensure that Hindalco will be able to participate in management and its nominee(s) will obviously be more vigilant than FI nominees on the board of various companies. Also, by taking the preferential-issue route, Hindalco has effectively ensured that the money goes to the company and the existing management cannot cash out.

The bottomline is that the open offer won't be made in hurry. The issue of equity as well as warrants will have to be as per SEBI pricing formula and price advantage to a great extent is negated. However, the route taken will ensure that cost of acquisition works out to be lower than outright open offer as in that case market would have surely outpriced the offer forcing Hindalco to upgrade. Shareholders of India Foils should take advantage of the excellent exit opportunity. Investors willing to participate in open offer can always enter at a lower price later.

Thomas Cook

The internet, teletext andtelephone related methods of conducting business transactions, are fast outdating traditional business practises. They are also reducing the consumer's dependence on intermediaries like Thomas Cook. Given this scenario and the ever-increasing competition in the market, Thomas Cook's (TCIL) long-term gameplan for survival and growth makes interesting reading.

The one stop travel shop - TCIL - benefits largely from being the only RBI-approved non-banking dealer in the business. Despite the intense competition from money changers, TCIL's volume-driven forex business and its quick response to forex fluctuations has given the company the required competitive edge. Besides the regular services, TCIL has decided to get into credit cards and merchant paper to supplement its revenue streams.

This aside, TCIL has also thought of new strategies to revitalise its travel business, which largely comprises of corporate itinerants and leisure travellers. But probably the factor which could have the largest long-termbenefit for TCIL is the management of new territories which include the SAARC countries, Mauritius, Seychelles and Burma. The company is also casting its domestic net wider with a continual emphasis on expanding its geographical base in India. Furthermore, the new travel tie-ups could well help the company buck the slowdown in the tourism industry.

While these are long-term measures, TCIL's financial performance in the medium term will continue to feel the pinch. A fact clearly reflected by the company's performance for the six months ended June 1998, when profitability increased a mere 15.6 per cent to Rs 8.10 crore. An equity dilution from Rs 5.25 crore to Rs 8.75 crore, on account of a 2:3 bonus issue last year, has also resulted in earnings per share dipping from Rs 13.35 to Rs 9.3. Probably the most worrying aspect of the results, could well be the squeeze on operating margins, despite a 36.69 per cent jump in revenue to Rs 34.82 crore.

Furthermore, the current year's financials will also be affectedby the investment of Rs 13 crore in SAP implementations and Y2K compliance. Besides, TCIL will also have to shell out around Rs 7.5 crore as first-phase capital for the new holding company in Mauritius, which will manage the new territories. Thus while most of the measures will definitely bear fruit in the future, the earnings stream and margins in the interim at TCIL could remain subdued.

MTNL

The proposed tariff revisions have several important implications for MTNL. At present, its annual fixed expenses per line are in excess of Rs 3,700. This includes a licence fee of Rs 900 per line which is paid to the DoT. The installation cost per line exceeds Rs 22,000 and MTNL depreciates its plant and machinery at 11.3 per cent. Residential subscribers contribute Rs 2,280 per line in annual revenues. This effectively means MTNL has been making a loss on its marginal subscribers. Moreover, an increasing subscriber base has been consistently eroding operating margins. This is bound to change with theproposed tariff revision.

Marginal subscribers would contribute Rs 3,720 per annum through bi-monthly rentals of Rs 620. They would be billed at the rate of Rs 1.30 per local call (five minute) for calls in excess of the free 120 calls. Furthermore, MTNL is apparently set to operate the basic network in Chennai which boasts of the highest revenue per line in India. Though Hughes Ispat, which is set to provide private basic services in Mumbai, could offer price discounts, these may be accompanied by huge deposits for acquiring the lines. MTNL is likely to maintain its market share for some time to come. On the whole MTNL stands to benefit from the tariff revisions, as it derives an estimated 40 per cent of its revenues from rental and local charges.

(with contributions from Urmik Chhaya, Percy Dubash & A G Krishnan)