The Telegraph
Since 1st March, 1999
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Merger scare mauls Digital

Mumbai, June 9: The Digital Globalsoft share plumbed new lows as leading brokerage houses hinted that they could invest less after its merger with H-P’s Indian arm. The stock closed at Rs 372.35 on Dalal Street, down Rs 125.75, or a whopping 25.54 per cent on a volume of 36.29 lakh shares. It had lost more than 30 per cent earlier in the session. The share’s previous year-low was Rs 436.

“Investors have punished the stock. But that’s not enough. The regulators should punish the management too,” said a fund manager affiliated to a leading mutual fund.

Sebi is reportedly taking a look at the controversial share swap, which marks yet another instance of small shareholders’ interests being ignored by an MNC.

Leading foreign investors like Morgan Stanley have already lowered Digital’s rating to “underweight”. It said the merger will dilute earnings by 20 per cent to 25 per cent, and could prove to be a negative move for small shareholders. Credit Lyonnais also maintained a “sell” call on the stock.

The swap ratio says H-P’s Indian arm is 1.07 times worth more than Digital, a valuation which many consider unfair and opaque. Analysts say the numbers do not justify the merger ratio.

“HPS ISO has been valued disproportionately. HPS-ISO is a $ 50 million company, as against Digital’s $ 80 million. The margins of the unlisted subsidiary are also lower,” they argued.

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