The stock market is witnessing a slew of delisting offers -- Alfa Laval, Carol Info, Patni Computers, UTV Software -- due to various reasons. For investors in these, it is often a tough call on whether or not they should go along.

Sometimes, the price offered by the company is not lucrative enough to exit. However, if they do not exit, they run the risk of getting stuck with the stock if the company does not relist.

Delisting means permanent removal of stocks of a listed company from the stock exchange.

This can be done by promoters increasing their stake in the company, or when the company is merged or acquired by another one and so on. The process can take six to eight months.

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According to a recent report by ICICI Direct, there are many probables for delisting. These include Oracle Financial Services, Novartis, Honeywell Auto, Thomas Cook, Singer, Gillette, AstraZeneca Pharma, Blue Dart and 3M India. These companies have to take a call sooner or later on whether to reduce promoter holding or go for delisting.

In most cases, the company/ies share prices tend to go up as soon as the market smells a stock delist. Rising prices lure investors, who rush to take advantage of short-term gains.

Some that have delisted in the past three years include Bhuruka Gases, Aztecsoft and Binani Cement. The share prices of these companies had risen sharply after the announcement.

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The stock of UTV Software Communications started rising in June, on speculation of delisting plans. By the time the plan was announced in late July, the share price had shot up 30 per cent since June.

Many may have bought the stock from the time it started moving up, for short-term gains. But, experts advise against buying merely on delisting rumours.

Pankaj Pandey of ICICI Direct suggests an alternative, "Choose fundamentally strong companies from the list of probable candidates and stay invested until they delist."

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What and why?

Tender the shares only if you get a good premium at the time of delisting. "You will have to see if there is enough left on the table for you as an investor. That is, if the delisting price will give you enough returns," says Prashanth Prabhakaran, president-retail broking, IIFL.

Adding, that one should not look at the delisting price in isolation. "You should look at the quality of the shares. It could be a wise decision to tender shares if you are uncertain about the company's future," he adds. Holding on to stocks for more than a year means no capital gains tax.

If you do not tender your shares, you will continue to remain a shareholder and be eligible for benefits such as bonus, dividends and so on from the company.

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Since you are holding on to shares of an unlisted company now, you may find it difficult to sell these scrips. "You will have limited options. If you want to unload shares after the delisting, you can do so by tendering these to promoters within off-market transactions," says Prabhakaran.

Off-market transactions are those which do not take place on the stock exchanges, and are conducted through negotiations between the buyer and the seller. In the rare event of these firms relisting, you may get to trade these in the secondary market.

Alternatively, you can take legal recourse like the shareholders of chocolate maker Cadbury India. In early 2003, Cadbury delisted, offering Rs 500 a share.

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The company managed to buy over 90 per cent of shares, the minimum required for delisting. It has been trying to buy out the remaining shareholders (2.4 per cent). However, the latter did not accept the price offered and have gone to court. The case is still going on.

In the case of an unsuccessful delisting, while investors can quote any price, it is up to the company to accept or reject it. For buying the statutory minimum 90 per cent, a company has to fix the price in such a manner that it is acceptable to investors.

Failing which, the delisting will not happen and the stock price can crash. In this case, Pandey says whether you should book losses and exit or not is a call to be taken on fundamentals and business prospects.

It is best to tender your shares in a delisting programme, he advises. "Unless you are a big investor and have a substantial say in the company; then, you can hold on to your shares," he adds.