TCNS Clothing (NSE: TCNSBRANDS) shares are down 19% on the news of the terms of the takeover offer from ABFRL. Which can be seen as odd, really odd, as they're now 90 rupees, or some 20%, below the cash terms of the bid itself. As we're really pretty sure the bid is going to go through - founders have signed up to it, ABFRL looks pretty certain to gain control - then the discount between the offer and the market price should simply be the finance cost of holding until it closes.
Think on it. There's a cash bid. So, we know that at some future date TCNS shares will be worth that Rs 503 of the bid. So, the value of TCNS today should be that Rs 503 minus the cost of holding stock until that future date. Minus, perhaps, some amount for the risk that the deal won't go through. But on the announcement of the terms of the bid in full TCNS dropped 19% to currently trade at Rs 417. Which is a large, large, gap for a company subject to a cash bid. So, what's going on here?
TCNS share price from NSE
The problem is the full set of terms of the offer: “As part of the transaction, ABFRL will make a conditional open offer to acquire up to 29% stake at Rs 503 per share from public shareholders and acquire the remaining stake from the founder promoters to reach an overall shareholding of 51% in TCNS.” OK, so it's only a partial cash offer, not everyone can get it for all of their shareholding. Further, the remaining 49% will be swapped for equity in the enlarged group at what appears to be an unfavourable price. What this really means is that the price on offer is not that cash price, it's the blended one of cash and stock. Which is perceived as being worth that markedly lower price than the cash alone. In fact, the general advice from brokers has been to sell into the market - which is what is being done and thus the price fall.
It is odd for a share price to fall on being subject to a takeover offer but it does happen - as here.