( As the story was so old, it is hard to find the information about it. But this is very important in the history of the Indian corporate world as it is one of the few incidences where Reliance industries failed in whatever it decided to do. The sources for this post are Business Standard, Wikipedia, and a Blog post which helps a lot. There are so many peoples included in it, and all the names are real.)
Larsen & Toubro Limited, also known as L&T, is an Indian multinational conglomerate headquartered in Mumbai, Maharashtra, India. It was founded by Danish engineers taking refuge in India, Henning Holck-Larsen and Soren Kristian Toubro, with the help of Indian Financial Institutions Like LIC, UTI, etc. It was one of the giant Conglomerates in India, which was on Nifty from Day one. One of the best companies operating in such a diversified business. From Finance, Defence to IT, Infra to Shipbuilding, Switches, and Real estate. As Usual, too much good is the best story for growth in the business world. It is what happens with L&T. In its first days; the company is performing best, then the possibility is that Any other big company will try to acquire it. If a target was ready to accept the bid, then most of the time, it was good for both. Both of them work with each other and make synergies. But if the target is not ready for the hostile takeover. Most of the time, it is terrible for bidders as they don’t receive complete information and possibly end up paying excess for Goodwill. The hostile takeover is brutal to see in India for many reasons, and only one was successful. It was Rassi Cement acquired by India Cement. All because of this, This story is essential.
Manohar Rajaram aka Manu Chabriya
It all started in a day in 1987. Manu Chhabria, Dubai based NRI businessman, acquired one percent shares of L&T. It is not only with L&T, but he was buying a stake in some more companies. There is one more story about it: Mr. Vijay Mallya claimed he was a partner in this. But that was a different story. Mainly with Shaw Wallace. But it was different even though Mr. Mallaya makes one engineering company under his UB group.
At that time, L&T was not so big. It was a small firm but had enormous growth potential. The Indian corporate world did not welcome Chabriya’s entry. The reasons are many. One is that he doesn’t have faith in anyone, even his firm’s managers. So the then chairman of L&T, Mr. N M Desai, realized that it would be challenging to work with him if he acquired them Fully. It was difficult for the market to forget the 1982 instance where Dhirubhai Rescued Reliance from a bear raid. So, Mr. Desai asks for help from Dhirubhai and requests them to act as As WHITE NIGHT. For Dhirubhai, It is a chance to work on his acquisition strategy of suppliers, which was one big reason why Reliance’s success is up to a specific limit. There was no Promoter on L&T, No one has held a significant Stake personally in it, and state-linked Institutions ran it. He made many acquisitions like it before. It is the same for him as L&T at that time was a Supplier of Reliance. So he agreed to help. Reliance acquired 12.4% shares from the open market. In the next couple of months, it went on 18.5%. Reliance spent 190 Crore in nearly one year. ( Securities and Exchange Board of India did not exist then).
In the next few days, L&T realizes that it is not a picnic, and Mr. Dhitubhai Ambani is not the person they thought fits the definition of White Night. Dhirubhai makes seats for his sons and himself as a board of directors. April 1989. Dhirubhai became chairman. Mukesh Ambani was MD.
Mr. N M Desai Paid the price for his defensive strategies. L&T was not only crucial for Reliance as a supplier, but also The cash on the balance sheet is a significant asset. (L&T WAS BUILDING THE HAZIRA PETROCHEMICAL PLANT. AFTER THIS, ALL THE COST IS REDUCED.) As chairman of L&T, one of Ambani’s first decisions was to ask the company to grant RIL supplier credit of Rs 570 crore. L&T also asked the cash-rich construction company to buy RIL shares worth Rs 76 crore from the market from entities close to Reliance. Another controversial decision by Dhirubhai Ambani was to make L&T take on more debt. But the party soon ended for the Ambanis. Democracy shows its strength.
Democracy is a very great thing. It makes changes very quickly. And Ambanies knows it very well.
1989. It was that year when Congress faced one of the most significant defeats. Janata Dal comes into power. Vishwanath Pratap Sing takes Charge as Prime Minister. He was the person who started the process of liberalization in India after Congress got a massive mandate in the 1984 general election. He was appointed as finance minister, and at that time, he oversaw the gradual relaxation of the Licence Raj (governmental regulation) as Gandhi had in mind. He was the person who raided Reliance and Gave immense power to Enforcement Directorate under Finance ministry. Indeed, it’s not easy for Ambanies to acquire L&T. After coming as Prime Minister, The V. P. Sing government immediately asked state-owned Life Insurance Corporation, the dominant shareholder, to make sure that the Ambanis were out of L&T. Dhirubhai Ambani was forced to resign from the board. Former State Bank of India chairman D N Ghosh (Writer of No regrets) was asked to replace him as Chairman of L&T. At the same time, The Indian Express, a Newspaper run by Ramnath Goenka, started a series in which it exposed many frauds. L&T case was one of them. It found that the takeover had been affected by financial Institutions like Life Insurance Corporation, General Insurance Corporation, and Unit Trust Of India selling their shares. As it was not allowed to sell to private parties then, Indian Express alleged that the whole operation was fraudulent. Mr. Arun Shouri, Disinvestment Minister in the Atal Bihari Vajpayee government, was also working on this case. Meanwhile, New chairman D N Ghosh started his work and started Offloading the shares of Reliance which Dhirubhai had previously told L&T to buy from people nearby Dhirubhai. It also withdrew the supplier’s Credit to Reliance. Even though Anil and Mukesh were on the Board of Directors, Dhirubhai Realized it was impossible to win against such a hostile Government, as Government Owned institutions held the majority stake.
I think Ambani Family is one of the luckiest families on earth. In 1990 V P Sing’s minority government collapsed, and Chandrasekhar became Prime Minister. He was that person who linked closely with Ambani. Because of it, Mr. Ghosh, Chairman backed by the Government, was asked to resign. The matter went to Supreme Court, but Supreme Court also ruled in Ambani’s favor. Again Democracy played its role. In 1991, P. V. Narasimha Rao led Congress’s Government into power. Ambani’s at that time, have good Holding and Proxies to make Dhirubhai chairman and Mukesh Ambani as Managing Director. But the Government was in the minority, and the Big issue was the economy. India was facing a Balance of Payment Crisis, so Rao decided not to play an active role in this issue. In fact, following orders from the then finance minister Manmohan Singh, LIC sought an adjournment of the Extraordinary General Meeting in August 1991, which was to vote on bringing Ambanis back to L&T. Shareholders close to Ambani, however, refused to vacate the hall. By then, the Ambanis also realized that it would not be possible for the Congress-led minority government to support them openly. Hence, by September, they decided to stay away from the management of L&T and dropped resolutions to be installed as chairman & managing director. But even after this, Ambanies maintained their stake in the company and remained as Passive Investors for a decade. Nothing significant happened up to 2001, in 2001, November. Ambani’s shocked the market with the decision to sell its remaining 10.5% Stake To KM Birla’s Grasim, a competitor of L&T in the Cement business. But now, nothing was similar this time; L&T was ready to fight. They have a great leader Named A M Naik… A. M. Naik, the doughty CEO & MD of the company appointed only three years before. Born and educated in a Gujarat village, Naik was not to be cowed down by the corporate raiders. He soon rallied L&T employees behind him and encouraged them to take destiny into their own hands. Instead of remaining servants to others, Naik asked his employees to become company owners. “We should perform so well that it should become impossible for anyone to buy shares in our company because good results will make the stock expensive,” Naik told them. Third Part of the drama Was ready to start.
Grasim, one of India’s largest private sector companies, is an Indian building material manufacturing company based in Mumbai, Maharashtra. It was started in 1948 as a textile manufacturer. It was now working in 12 countries on four continents. But at that time, it was not that big, nor was it a big name in the Cement Industry. The company was planning to grow and expand its business. No issue that everyone else, the company decided to grow inorganic way and was finding a target for acquisition. And they find one in L&T., But they forget that now the time has changed. Now 2 Super Heros are protecting L&T. First is, of course, Mr. Naik. Chairman of the Company. He started to change the company in his ways. Before Him, L&T was only operating in Infrastructure, and He was the man who began many other Businesses. With all of it, now L&T is much stronger than before. Another hero is not a human but a Regulator of the Capital market. SEBI. An institution set up by the Government to regulate India’s capital market and protect investors from any bad practices. With all of its Rights, the controller was ready to stop anyone who affected the atmosphere in the capital market.
The fight between Birla and L&T started when Ambanies sold their stake. It does not make any issue if they sold it near the market price of L&T., But they sold at 46% Premium. Game changed.
Mr. Naik realizes that Birla wants to acquire the company because of its cement segment and possibly cash. It is not impossible for Birla that after the acquisition, they accept the strategy of Asset Stripping. Maybe the Birla group will tell employees to leave. Naik fought Birla’s entry into the company tooth and nail and made representations to everyone from the prime minister to LIC to let L&T retain its professional management culture. But a big battle is going on between SEBI and Aditya Birla group. As the price was so high, SEBI told Birla that don’t go ahead with the plans. From the Reliance entry, this issue was a favorite with journalists also. Some came up with saying that the Birla group is breaking the Takeover code set up by SEBI. According to SEBI ‘s takeover code norms, the acquirer company (Grasim) is supposed to make an open offer to the target company’s shareholders (L&T) at the average prevailing stock price of the company in the last 26 weeks. The price at which Grasim purchased the Reliance stake in Grasim was Rs 304/share, which was 47% or nearly Rs. 100 high than average. But by the time the open offer came up, the L&T stock was trading much cheaper, and Birlas could bid for the additional stake in L&T (Held by shareholders) at a much lower price.
Small shareholders cried foul and moved heaven and earth to make K. M Birla; The Raider pays more – the same Rs 304/share it paid to Reliance. On November 21, Grasim’s lawyers sought an interim stay on SEBI ‘s earlier order putting on hold its plans for an open offer of up to 20 percent of L&T’s shares that had been publicly announced on October 13 – interestingly, at a time when both Naik and Ramakrishna, top management peoples, were out of the country. Whereas the public offer was to open on December 9, Sebi’s lawyers claimed before the SAT on November 21 that it had fresh evidence to justify its direction to Grasim to stay its public offer of L&T shares. On November 24 2001, Kumar Mangalam Birla and Rajshree Birla were inducted into the board of directors of L&T. On December 27 that year, Sebi sought details of the Grasim-Reliance share deal following allegations of ‘insider trading. After all this battle, finally, Financial Institutions also realized the value of this company. And they decided to increase their stake. But after some time, there was a fiasco of UTI. So UTI splits into three parts. The Government acquired shares of L&T., So only LIC raised its stake. Here fight with Birla went in front of the Securities Appellate Tribunal. But there was no effect. SAT reversed it.
Finally, Naik achieved success. He successfully talks with Birla and makes them ready for a deal. A spin-off, Restructuring, or Vertical De merger takes place. After all this, L&T made its Cement decision and made a different entity with the name of CEMCO. IT GIVES SHAREHOLDING BASED ON % SHAREHOLDING IN PARENT. Grasim evaluates Cemco and comes up with an open offer to increase its stake in Cemco. After that, Grasim sold its stake in Parent L&T to the L&T employee association, and this deal is valued at ₹2200. Next is the declaration from both companies during the agreement. The complex deal has been structured in different phases. It envisages the spin-off of L&T’s cement division into a company first, followed later by the acquisition of control by Grasim.L&T will first spin off its profitable cement division into a separate company, in which it will own 20%. Grasim and the other shareholders will hold the remaining 80% in proportion to their current shareholding in the parent company. As a result, Grasim, which now owns 15.74% in L&T, will see its stake in the cement company drop to about 12.6%. Grasim will buy 8.5% from L&T at Rs 171.30 and make an open offer for 30% of the cement company at the same price. The offer price values the cement business at Rs 6,051 crore. If the bid is successful, Grasim will end up owning 51% of the company, which has been tentatively called CemCo.
L&T’s stake will drop from 20% to 11.5% as it would have sold 8.5% to Grasim. Grasim will also sell its existing 15.7% stake in L&T engineering to employees’ trusts or foundations. L&T SOLD ITS REMAINING STAKE IN 2009. AND A FIGHT FINISHES WITH A WIN-WIN SITUATION. Currently, L&T IS ONE OF THE BIGGEST BUSINESS IN INDIA. HAVE OWNERSHIP WITH EMPLOYEE TRUST, FINANCIAL INSTITUTIONS, GENERAL PUBLIC. A. M. NAIK IS A VERY RESPECTED NAME IN THE INDIAN INDUSTRY. ULTRATECH, formerly known as CEMCO, IS ONE OF THE WORLD LARGEST CEMENT COMPANY WITH 74+ MN tonnes AND READY TO INCREASE IT TO 100. ENDING IT WITH A CHINESE SAYING ANYTHING WHICH NEVER KILL YOU WILL MAKE YOU STRONG.
