Wipro Exchange Offer : What should Shareholders do ?

Wipro Ltd’s : India's 3rd largest IT company, is splitting into 2 entities- Wipro’s IT business and Wipro Enterprises (constituting non-IT businesses). The company has given option to its shareholders to convert its existing shares to either of the three options:

• Option1: Receive one equity share with face value of Rs.10 in Wipro Enterprises Ltd for every five equity shares with face value of Rs.2 each in Wipro Ltd that they hold;
• Option2: Receive one 7% Redeemable Preference Share in Wipro Enterprises Ltd, with face value of Rs.50, for every five equity shares of Wipro Ltd that they hold. Each Redeemable Preference Share shall have a maturity of 12 months and shall be redeemed at a value of Rs.235.2;
• Option3: Exchange the equity shares of Wipro Enterprises Ltd and receive as consideration equity shares of Wipro IT Limited held by the Promoter. The exchange ratio will be 1 equity share in Wipro IT Ltd for every 1.65 equity shares in Wipro Enterprises Ltd.

Though these informations are 'clearly' mentioned in the forms sent to shareholders, some investors may be confused about the conversion ratio, particularly the 3rd option.

 

• If you have been holding 100 shares of Wipro shares (old), then this would by default would be converted to 20 shares of Wipro Enterprises Ltd.
• And for every 1.65 shares of Wipro Enterprises Ltd, you would get One share of WIPRO IT (New Wipro with only IT Business).
• Hence 20 shares divided by 1.65 would give you 12.12 shares. You would be alloted 12 shares and 0.12 would go into fractional entitlement against which you may be alloted share of be paid fractional money.

 

Regarding which option to choose from:

 

We advice existing shareholders in Wipro to opt for Option 3, as most people would have bought Wipro for the IT business only. Kindly note that Wipro’s IT business accounts for 94% of the consolidated Operating profit.

Option 1 &2 is advisable for clients who seek long term exposure to Wipro’s Non-IT business, especially the consumer business. However, the date of listing of Wipro Enterprises (comprising the consumer business) is uncertain and hence these shares will be illiquid till then.

 

At EASY Investments, we sincrely feel:

• Such complicated share exchange of Wipro to Wipro enterprises to Wipro IT etc are creating lots of confusion. It took few hours for us to clearly understand, though we are in Investment Advisory and Research sector.
• When Investors see 'Shrinking' of shares, they feel let down. If someone had 100 shares of WIPRO, right now after this exchage the investors would be left with 12 shares. And someone who had 25 shares would be left with JUST 3 Shares after this conversion !
• And such share swaps / exchanges make it difficult to compute the return on investments.

But no other option. Investors have to choose any one of the three options. If the investor fails to send this signed form before 9th May 2013 to the companies registrar : Karvy @ Hyderabad, he would be alloted as per default option 3.