L&T - LIFE COMES A FULL CIRCLE

about 5 months ago
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Life does come in full circle. Today L&T is planning a hostile takeover and a few years ago, it was itself the target.

L&T, led by AM Naik, is making a hostile takeover bid for Mindtree and that scared the co-founder to resign from his Govt job and come to the rescue.

L&T is planning to buyout the 21% stake of the largest shareholder – Coffee Day founder, V Siddhartha at a price of Rs.981/share, after which it will have to make the mandatory open offer to the shareholders to buy 26% stake.

Fearing this, the Mindtree co-founder, Subroto Bagchi resigned on Sunday as the head of Odisha Skill Development Authority and he has come back today to Mindtree to rescue his company from any hostile takeover.

Flashback to 2001: The very same Naik was shocked to learn that Reliance Industries had sold all their 10.5% shares in L&T to Birla and all this while he was abroad. What followed then is a part of Indian corporate history. Naik’s story of how he thwarted Dhirubhai Ambani and Birla from taking over L&T continues to be talked about even today.

At that time, L&T, to prevent the takeover, ring fenced the company from future takeover attempts by setting up the L&T employees welfare foundation that eventually bought Birla’s stake. And the Birla’s got L&Ts demerged cement business.

There have been quite a few drama’s of hostile takeovers in the past. Who can forget the great NRI predator, Swaraj Paul. His battle to takeover Delhi Cloth and General Mills Co Ltd (DCM) and Escorts are parts of case studies today.

And when we talk of hostile takeovers, can the name of Shaw Wallace be left behind? Manu Chhabria was known as the ‘takeover tycoon’. He had first acquired Dunlop jointly in 1984 with R.P. Goenka, and became the single largest shareholder when he bought out RPG’s stake after the two fell out. Three years later he won Shaw Wallace, ending a two-year battle with its professional chairman, S.P. Acharya. He was also locked for years in a legal battle with Vijay Mallya, who financed 50% of the buyout of R.G. Shaw, Shaw Wallace’s foreign holding company. When Chhabria refused to acknowledge Mallya’s claim, it became a long drawn legal fight. It led to the arrest of Mallya in 1986 for allegedly violating foreign-exchange rules. Mallya was released within a day but Chhabria won control of Shaw Wallace. Mallya, in 2005 bought Shaw Wallace for Rs. 1,300 crore from the Chhabria family after his rival’s death in 2002. It’s a different story that today Mallya does not own much of his companies.

There was also the hostile taokeover story of India Cements hostile bid for Raasi Cements (“RCL”). ICL made an open offer for RCL shares at Rs. 300 per share at the time when it ruling market price was around Rs.100. Indian financial institutions usually stand with the promoter but they were shocked to know that the promoter had sold off stake to the acquirer leaving little room for them to tender their stake to the acquirer during the open offer. However, ICL also bought out the FIs in the open offer and thereby increased their holding in RCL to 85%. There is also the more recent story of Subhash Chandra-controlled Essel Group's move to mount a hostile bid on IVRCL.

There are just a handful of such hostile takeover stories and almost non-existent in the recent liberalised rules of M&A. Many of these takeovers got drawn into long legal battles while some were ended through amicable negotiations.

The risk is always high in companies where promoter holding is low but in many cases, like L&T, the employees or loyal DIIs and individual stock holders make that formidable wall.

Take a look at this small table

COMPANY

Promoter stake(%)

Institutional stake (%)

Retail stake(%)

Market Cap (Rs.cr)

Mahindra & Mahindra

21.57

54.54

23.41%

85,400

UPL

27.92

62.94

8.27

47,100

GE Shipping

29.66

44.09

26.25

4390

IVRCL Ltd

5.37%

50.98

43.65

78

India Cements

28.32

43.36

28.32

3050

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