The application was filed by Clariant under regulation 3(1)(j)(ii) of Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, consequent to the acquisition of Hoechst AG's speciality chemicals business worldwide by Clariant AG, Switzerland. As Hoechst AG, Germany, held 50.1 per cent in the equity capital of CCL, a leading speciality chemicals company in India, the application to Sebi was necessitated.

Clariant had earlier hoped that since the transfer of 50.1 per cent ownership of CCL meant a `mere transfer' of shareholding from Hoechst AG to itself due to the global restructuring, it would be granted exemption from making a public offer.

However, Sebi veered around to the view that the proposed transfer ofshareholding in CCL would result in a change in control and management of the company and therefore would attract regulation 10 of the takeover code. Sebi's ruling implies that Clariant, the acquirer, will, per force, have to make an open offer to the public in conformity with the takeover guidelines.Internationally, Clariant was formed out of the chemicals division of Sandoz and was floated as an autonomous company in July 1995. It already has an Indian subsidiary, Clariant India Ltd, a leading manufacturer of textile chemicals and leather dyes.

In July 1997, the speciality chemicals business of Hoechst AG was integrated with Clariant. The global restructuring process was to be completed in three stages. Stage I involved the purchase by Clariant of Vitreon, an autonomous company comprising the speciality chemicals division of Hoechst AG, against which the latter would be issued 45 per cent of Clariant's equity.

In stage II, there was to be a purchase of all assets of Hoechst AG's speciality chemicalsbusiness located outside Germany for cash by Clariant.

Stage III meant the takeover by Clariant of Hoechst's shareholdings in its foreign subsidiaries operating in the speciality chemicals field. It is the last leg of the phased out takeover that entailed the transfer of Hoechst AG's 50.1 per cent shareholding in CCL to Clariant.

In India, CCL was promoted in 1956 by the Ruias, the Khataus and the Ghias in association with Hoechst AG and Bayer AG. Both the foreign partners held an equal stake of 16.4 per cent in CCL. In the early eighties, the Ruias and the Khataus moved out of the company and offered their stake to the public. Towards the end of the last decade, Bayer AG divested its holding in favour of Hoechst AG, thereby raising the latter's stake in CCL to 32.8 per cent.

Later, the Ghias also exited from CCL by selling their 7.2 per cent stake to Hoechst AG. This acquisition took Hoechst AG's stake in CCL to 40 per cent. Thereafter, through a preferential allotment in 1992-93, Hoechst AG enhancedits stake to 51 per cent, thereby making CCL its subsidiary.

CCL's product profile encompasses a wide range of products used in agrochemicals, pharmaceuticals, textiles, leather and the inks and paint industries. In spite of its diverse product range, the operations are characterised by high synergy. The present paid-up equity capital of CCL is Rs 11.65 crore, comprising 1,165,000 numbers of Rs 100 paid-up shares. Of this, nearly 75 per cent is held between Hoechst AG and the financial institutions in India, leaving a very low floating stock of less than 3 lakh shares in the market. On the bourses, the CCL counter has traditionally witnessed very thin trading volumes.

Two factors might have contributed to this phenomenon. One, a forty-year history, with many shareholders belonging to the earlier generation expected to have struck an emotional bonding with the company. Besides, the low floating stock of less than 25 per cent has also not helped matters. However, the announcement of the acquisition ofworldwide speciality chemicals business by Clariant last year did briefly catalyse an increase in trading interest in the counter. During July and August 1997, CCL posted unusual trading volumes in excess of 1,000 shares on seven trading days, with a cumulative volume of 21,190 shares, or over 3,000 shares per day.

It was during this period that the scrip's price rose from Rs 3,125 on July 1, 1997 to Rs 3,550 at the end of the month. In the following month, too, the high volumes enabled the scrip to initially post handsome gains.

However, CCL's shares ended the month at Rs 3,399, a loss of Rs 150 per share. Ever since, the trading volumes on the counter have dwindled with the share price declining to a low of Rs 1,740 last month. Nonetheless, the latest communication from Sebi, officially announced on September 11, rejecting the application of Clariant seeking exemption from the public offer, seems to have perked up the counter a bit. If the public offer is mandatory, the market price of the scrip inthe six months prior to such an offer will come into play. Which probably explains the sudden spurt in the price of CCL. In the last five trading days, CCL's market price has moved up from Rs 1,800 to Rs 2,313, with each day witnessing handsome gains on the price front. The last two days also saw a marked increase in the daily volume transacted.

On the operational front, CCL posted a net profit of Rs 38.3 crore on a turnover of Rs 373 crore in fiscal 1998, resulting in an earnings per share (EPS) of Rs 330 for every Rs 100 paid-up share. However, this profitability was achieved on the back of a non-recurring income of Rs 29.5 crore from the sale of its textile dyes business to DyStar India, a 50:50 joint venture between Hoechst and Bayer.

After excluding this one-off income and its tax impact, the adjusted EPS works out to about Rs 140 per share, which discounts the latest price 16 times, which is nearly the industry average. Though on the basis of fundamentals a further rise in the market price ofCCL might not be warranted, the possibility of the public offer by Clariant has stoked fresh trading interest in the scrip.

Consequently, an ascending CCL priceline in the near term cannot be ruled out. In this context, while Sebi's decision to reject Clariant's case might spark off a debate, the punters will surely not complain.