How did Majesco rally 78 per cent in less than a month?

The board of directors of Majesco in their meeting held on July 20, 2020, had approved the merger of its US subsidiary with a subsidiary of Delaware Corporation, affiliates of Thoma Bravo LP, which is a leading private equity firm focussed on the software and technology-enabled services sector.

Since this announcement, the stock of Majesco Ltd has soared nearly 78 per cent. So, let's know what are the reasons behind this stellar rally in the stock?

As on July 17, 2020, the value of Majesco’s entire stake in the US Subsidiary was US$ 245.33 million based on its holding of 3,21,11,234 shares of common stock, which were nearly 74 per cent higher than the market capitalisation of the company in India. The company further said that it will receive a gross value of nearly US$ 420.66 million from the divestment of US subsidiary as against the total investments made by the company in a US subsidiary of US$ 68.67 million. This consideration represented a whopping 198.34 per cent premium over the market capitalisation of the company in India.

Earlier, the per-share price for this deal was fixed at US$ 13.10 but on August 8, 2020, the company informed the bourses that this offer price increases to US$ 16.00 per share of common stock of the US Subsidiary, representing 22.1 per cent increase from its previous offer. This offer translates into nearly Rs 3,853 crore cash inflow for the company in India based on its holding of 3,21,11,234 of shares with an exchange rate of Rs 75 per dollar. Today’s market capitalisation of Majesco Ltd stands at Rs 1,948.77 crore. Notably, on a consolidated basis, the company is virtually debt-free.

The board has decided that the proceeds from the disposal of the investment in the US subsidiary will be distributed to the shareholders of the company in a tax-efficient manner as expeditiously as possible (buyback or dividend).

In today's trading session, the stock is locked in the upper circuit at Rs 677.9 apiece, up by 5 per cent.