A day after it announced the corporate restructuring, Motherson Sumi slipped 9% to Rs.94 on the bourses. Under the terms of the restructuring, the domestic wiring business (DWH) would be demerged into a new firm which will be subsequently listed. As part of the merger deal, 1for every share held in MSSL, one share in the new entity will be allotted.

In addition, SAMIL the promoter holding company would also be merged into MSSL. As part of this merger, for every 10 shares held in SAMIL they get 51 shares of MSSL. But why did traders and investors react negatively to this news. It could have to do with the relatively expensive valuations. Moreover, the deal is expected to be EPS dilutive leading to price fall.

Of course, one reason could also be that the stock has nearly doubled in the last few months in response to the expectation of this restructuring. Hence this correction on 03 July may be more an instance of selling into the actual news announcement. Overall, this could be long term accretive for the group.