Oracle is now tendering for 35% of the outstanding shares, compared to 20% earlier, which will take its shareholding in i-flex, assuming it is successful, to 90%. This is the maximum Oracle can hold of i-flex while still retaining its publicly traded status. Assuming shareholders tender shares up to the maximum offer, Oracle will pay a total of Rs59.6 billion ($1.34 billion) for the stake.
Analysts in India commented on Friday that the pricing reflected both the bullish Indian stock market and OracleÆs interest in i-flex. When Oracle announced the open offer in August, the Sensex was trading at around 12,000. It has since crossed 14,000. The pricing of Rs1,475 in September was a 2.5% premium to then prevailing i-flex market price but currently reflects a 10% discount.
Further, i-flex has continued to deliver strong operating performance. The latest i-flex financials for the quarter ended September 30, showed a 22.9% quarter-on-quarter increase in total income and a healthy increase in earnings.
The increase in both price and stake sought to be acquired by Oracle reflects its keenness to exercise maximum possible ownership over its profitable, high-growth Indian subsidiary. The price of Rs2,100 represents a forward multiple on 2007 earnings of about 50 times and analysts commented this is rich pricing.
Oracle acquired CitigroupÆs 41% stake in i-flex in August 2005 for $593 million. At the time, it had highlighted the strategic rationale of buying into i-flex, one of the leading providers of banking software and ebanking tools worldwide. Since then Oracle has increased its shareholding in i-flex through market purchases to around 55%.
Oracle CEO Larry Eliison was categorical that ôthere will not be another open offer and Oracle will not undertake a delisting for at least the next five years unless i-flex shares are selling at a significantly lower price than they are today. This is the last opportunity for i-flex shareholders to tender their shares to Oracle".
It remains to be seen whether shareholders are listening. i-flex closed up by a whopping 17% on Friday at Rs2,048. Thus the offer price, while significantly higher than the original price, again represents only a 2% premium to the current traded price. The broader market witnessed a 2% Sensex correction on account of profit taking, amidst nervousness that the 14,000 level which was breached could be the final frontier.
DSP Merrill Lynch is lead managing the open offer, which is now scheduled to close on December 23.
The December issue of FinanceAsia magazine carries an exclusive interview with i-flex CEO, India operations and CFO.