Indian oil refiner Essar Energy (ESSR) has received a 70p per share takeover approach from its major shareholder, potentially ending a torrid run on the stockmarket where it listed at 420p four years ago. Essar Global Fund, controlled by the billionaire Ruia brothers, has done a u-turn on previous plans to increase the stock's free float by saying it wants to go from 78% to full ownership.


The shares naturally rise on today's announcement, yet the 2% gain to 67.3p still leaves the stock below the proposed takeout price. In normal situations, that's the market voicing its doubt that a bid would succeed. The fund says it will pay 80p for each convertible bond.


Essar operates coal mines and power plans in India, as well as a refinery in the UK and a 50% stake in a refinery in Kenya. It listed in May 2010 and quickly hit a high of 638p in December that year as investors liked its plans to expand refining and power capacity. Yet the stock has since slumped as Indian economic growth expectations have fallen. There's been licence issues with coal projects and Essar has struggled with tax issues.


ESSAR ENERGY - Comparison Line Chart (Actual Values)


The possible offer for Essar has a familiar tone to the downfall of diversified miner Eurasian Natural Resources which left the stockmarket last year after being bought on the cheap by its founders following endless corporate governance problems.


Essar Global Fund said last November that Essar Energy's shares represented 'exceptional value' and, as such, it would only dispose of the minimum amount for the group to hit the 25% free float requirement to qualify for the FTSE UK Index Series.

Issue Date: 17 Feb 2014