|15 October, 2019

Total's Indian deal offers only a soft premium

The deal will cost Total about $866mln in total

Image used for illustrative purpose. The logo of French oil and gas company Total is seen above a petrol station in Cape Town, South Africa February 7, 2019.

Image used for illustrative purpose. The logo of French oil and gas company Total is seen above a petrol station in Cape Town, South Africa February 7, 2019.

REUTERS/Mike Hutchings

MUMBAI - Total is putting a small premium on India. The French giant’s bid for Adani Gas is a measly 9% over the pre-deal price and is unlikely to entice public investors, allowing Total to buy a stake of more than one-third directly from the namesake family. It allows the bidder to easily take joint control of the country’s largest city gas distribution company just as the government aims to double the share of gas in India’s energy mix by 2030.

Shares of the Indian company were trading about 2% above the proposed tender offer price of 149.63 rupees by Tuesday morning, the day after the deal was announced. In an ordinary takeover, that would force the bidder to consider coming back with a better offer. But Total may make its entry into a company with a pipeline network of over 6,500 kilometres and big growth ambitions through a different route.

A public offer to shareholders is mandatory by any acquirer buying more than a quarter of a listed company. Total’s bid allows it to tick the box on the rules, while leaving it free to buy most or all of what it wants, at the same price, directly from the Adani family, helping the pair to equalise their ownership at 37.4% each. The deal will cost Total about $866 million in total.

Takeover premiums in India are rarely generous and typically below the long-term global average of about 30%, calculated by Boston Consulting Group in its 2019 mergers and acquisitions report. Even so, Total is pushing into a sector with huge growth potential. In return, the Adani family can use the proceeds to trim debt elsewhere in the conglomerate and to potentially fund hot new businesses, including data storage parks.

Public investors may share the spoils from the tie-up in other ways. A strong multinational partner will have the right to appoint two members to the board, the same as the family. That will likely bring more checks and balances that could further widen the valuation gap over peers in Adani Gas’ favour. Total, for its part, can take some comfort that it’s not splurging to climb into bed with a powerful Indian owner.


- India’s Adani Gas disclosed on Oct. 14 that French energy giant Total had reached an agreement to buy an up to a 37.4% stake in the company for as much as $866 million.

- Total will make an open tender offer to public shareholders to buy up to 25.2% of the company, and then buy as many shares as needed from the Adani family to take its shareholding up to the targeted level.

- Under the terms of the offer, the Adani family and Total would each hold 37.4% of the Mumbai-listed company and have the right to appoint two directors to the board.

- Total, which is being advised by Citigroup, will offer 149.63 rupees per share as part of the open tender offer, or a premium of 8.7% to the closing price on Oct. 11.

- Adani’s share price was trading at about 152 rupees at midday local time on Oct. 15.

(Editing by Jeffrey Goldfarb, Robyn Mak and Sharon Lam)

© Reuters News 2019

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