A brief account of hostile takeovers in India

New Delhi, March 19 (IANS) With diversified conglomerate Larsen and Toubro (L&T) signing a deal with Cafe Coffee Day founder V.G. Siddhartha to buy 20.4 per cent stake in leading services firm Mindtree at Rs 981 per share for about Rs 3,300 crore, in a bid to acquire the firm.

Mindtree on Tuesday came out with a scathing condemnation saying: "The attempted hostile takeover bid of Mindtree by L&T is a grave threat to the unique organisation we have collectively built over 20 years."

With this latest development, it's time to look at some hostile takeovers that occurred in the country in the past.

While India has been witnessing a spurt in the number of merger and acquisitions (M&A) in recent times, the number of hostile takeover attempts has been limited.

Technically, acquisition refers to the process in which a person or a company acquires controlling stake in another firm. It can be friendly or hostile.

A hostile takeover, on the other hand, is the acquisition of one company (target company) by another (the acquirer) that is accomplished by going directly to the company's shareholders or by fighting to replace the management to get the acquisition approved.

However, the government's policies to curb the concentration of economic power through the introduction of the Industrial Development and Regulation Act, 1951, MRTP Act, FERA Act etc. have made hostile takeovers a difficult proposition. As a result, since its economic liberalisation in 1991, India has witnessed only a handful of hostile takeover attempts.

One of the most famous hostile takeover attempts took place in 1983, when London-based industrialist Swaraj Paul sought to control the management of two Indian companies -- Escorts Limited and Delhi Cloth Mills (DCM) Limited -- by picking up their shares from the stock market. Though Paul ultimately retracted his bid, his hostile threat sent shockwaves through the otherwise complacent Indian business world.

In 1998, India Cements Limited (ICL) made a hostile bid for Raasi Cements Limited (RCL) with an open offer for RCL shares at Rs 300 apiece at a time when the share price on the BSE was Rs 100.

But the investors felt cheated as the promoters themselves sold out their 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%.

Another hostile takeover was triggered in 2008 when Emami acquired 24 per cent stake in Zandu from Vaidyas (co-founders) at Rs 6,900 per share. An open offer for 20 per cent followed along with Parikh's (co-founders) giving in their 18 per cent stake after four months of futility to save the company. Rs 750 crore was the consideration paid by Emami for a 72 per cent stake in the company.

In October 2000, Abhishek Dalmia made an open offer to acquire 45 per cent of share capital in Gesco Corporation at Rs 23 per share. This transaction entered became a drama of hostile takeover 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 buying out Dalmias' 10.5 per cent stake at Rs 54 per share for a total consideration of Rs 16 crore.