Essar Energy bid turns hostile

The majority owner of Essar Energy has gone hostile with its controversial offer to take the Indian-focused oil refining and power generation company private at 70p a share.

Essar Global Fund Limited, which controls 78 per cent of shares in the London-listed company, confirmed on Friday that it was making a formal offer to buy out the minority shareholders in the business at no premium to its previously rejected approach.

The investment vehicle of the billionaire Ruias, one of India's richest families, had faced a deadline of 5pm of Friday to make clear its intentions under a "put up or shut up" timetable imposed by the Takeover Panel.

Essar Global first made an approach pitched at 70p for the outstanding 22 per cent of shares it does not own last month. The approach values Essar Energy's total equity at £900m. That is less than the £1.2bn raised through the sale of 23 per cent its shares at 420p each by Essar when it floated in 2010, in what was then ranked as the biggest London listing since December 2007.

The Essar conglomerate, founded by brothers Shashi and Ravi Ruia, controls a network of heavily indebted businesses in India which also covers shipping, steel production, real estate, telecoms and call centres.

In spite of losses made by minority shareholders since 2010, Essar Global repeated its argument on Friday that it has been the biggest loser from the collapse of Essar Energy's share price, as the value of its holding has fallen by around $6bn since flotation. It defended the value of the offer, saying Essar Energy had "suffered from a succession of unexpected headwinds".

However, Philip Aiken - who heads a five-man committee of independent directors which had previously rejected the initial approach - expressed disappointment on Friday with the formal offer and insisted that it "materially undervalues" the company.

He pointed out that as recently as November, Essar Global had acknowledged that Essar Energy was worth 97p a share. Since then, he argued, "there's more things that have gone better than worse" for Essar in India.

Last month David Cumming of Standard Life Investments, Essar Energy's leading minority shareholder, described the initial approach as "cynical opportunism".

Standard Life, Capital World Investors, Scottish Widows and Henderson Global together control about half of the company's free float, with Norges Bank, UBS, BlackRock and Legal & General also among the top 10 shareholders.

The formal offer leaves longstanding minority investors nursing large losses if they accept 70p, or the prospect of remaining a shareholder in a company about to be excluded from FTSE indices because of the size of Essar Global's stake.

Essar Energy shares, which traded as high as 638p in December 2010, closed at 66.55p on Friday ahead of the formal offer.

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