The diversified conglomerate Larsen and Toubro (L&T) signed an agreement with Cafe Coffee Day founder VG Siddhartha to buy 20.4 percent of the shares in the leading services company Mindtree at ₹981 per share for approx. ₹3,300 crore to take over the company.
On Tuesday, Mindtree strongly condemned the incident and said, “The hostile takeover attempt of Mindtree by L&T poses a serious threat to the unique organization we have built together over 20 years.”
In light of this recent development, it is time to take a look at some hostile takeovers that have taken place in the country in the past.
While there has been a recent surge in merger and acquisition (M&A) activity in India, the number of hostile takeover attempts has remained limited.
Technically, a takeover is the process by which one person or company acquires controlling interest in another company. This can be done in a friendly or hostile manner.
A hostile takeover, on the other hand, is the acquisition of one company (target) by another (acquirer). This is done by directly appealing to the company’s shareholders or by fighting to replace management and thus obtain approval for the takeover.
However, the government’s policy of curbing the concentration of economic power through the introduction of the Industrial Development and Regulation Act, 1951, the MRTP Act, the FERA Act, etc. has made hostile takeovers a difficult proposition. As a result, India has witnessed only a handful of hostile takeover attempts since its economic liberalization in 1991.
One of the most famous hostile takeover attempts occurred in 1983, when London-based industrialist Swaraj Paul attempted to control the management of two Indian companies – Escorts Limited and Delhi Cloth Mills (DCM) Limited – by buying their shares from the stock exchange. Although Paul ultimately withdrew his offer, his hostile threat sent shockwaves through the otherwise complacent Indian business community.
In 1998, India Cements Limited (ICL) made a hostile takeover bid for Raasi Cements Limited (RCL) with an open offer for RCL shares at ₹300 per share at a time when the share price on the BSE ₹100.
However, the investors felt cheated as the promoters themselves sold their stake to the acquirer, leaving them little scope to tender their stake to the acquirer during the public offer. However, ICL also bought out the FIs during the public offer, increasing its stake in RCL to 85%.
Another hostile takeover was triggered in 2008 when Emami acquired 24 percent of Zandu from Vaidyas (co-founders). ₹6,900 per share. A public offer of 20 percent followed and Parikh (co-founder) gave up her 18 percent stake after four months of trying in vain to save the company. ₹750 crore was the consideration that Emami paid for a 72 percent stake in the company.
In October 2000, Abhishek Dalmia made a public offer to acquire 45 percent of the share capital of Gesco Corporation at ₹23 per share. This transaction developed into a drama of hostile takeovers until the promoters of Gesco and the Dalmia Group announced that they had reached an amicable settlement in the battle for Gesco, with the former acquiring Dalmia’s 10.5 percent stake at a price of ₹54 per share for a total compensation of ₹16 Crores.
