AS M&A ACTIVITY PICKS
UP, WHITE KNIGHTS ARE
RIDING INTO INDIA INC
However, the corporate landscape is strewn with instances of
benefactors actually turning into predators
Mukesh Ambani
Chairman,
Reliance Industries
Over the years, ITC had mopped
up 14.98 per cent stake in hotelier
EIH Ltd. If ITC had launched an
open offer, there is very little
EIH promoters could have done,
except increase stake by 5 per
cent a year. To counter a possible
ITC threat, EIH sold around
15 per cent stake to an
investment arm of RIL
Anand Mahindra
Vice-Chairman,
M&M Group
The Sheth family, promoters
of Gesco Corporation, were
caught napping when Delhi-
based Abhishek Dalmia
bought 10 per cent stake in
the firm and mounted a
hostile bid. The Sheths
turned to Deepak Parekh of
HDFC, who in turn roped in
the M&M Group to counter
Dalmia’s bid
RANJU SARKAR
New Delhi, 27 September
n 2007, Israeli drugmak-
I er Taro Pharmaceutical
was in trouble. Invento-
ries and debtors mounted,
and it ran out of cash af-
ter a string of US acquisitions.
When Dilip Shanghvi, chair-
man of Sun Pharma, stepped in
as a white knight and offered
to merge the two companies in
a $454-million deal, little did he
realise that it would ultimate-
ly take a three-year legal battle
to gain control of Taro.
Cut to August this year.
When an arm of Reliance In-
dustries Ltd (RIL) picked up
14.12 per cent stake in hotelier
EIH Ltd, Mukesh Ambani
donned a new avatar. As a white
knight, Ambani helped EIH
owner Prithvi Raj Oberoi count-
er a possible bid by ITC Ltd. The
cigarette-to-hospitality-to-FM-
CG major has mopped up 14.98
per cent stake in the hotel com-
pany over the years.
By bringing in a strong third
shareholder with a large stake,
Oberoi managed to shore up his
defences against ITC. ‘‘If ITC,
with 14.98 per cent stake, ex-
ecuted an open offer, there was
no way the Oberois could have
countered it. At best, they could
have raised their stake by 5 per
cent every year,’’ explained Hi-
mani Singh, an analyst with
Elara Capital.
In one fell swoop, Oberoi
managed to pit a stronger force
(RIL) against ITC, in effect neu-
tralising the marauder, had it
decided to launch an open of-
fer. ITC has maintained for a
decade that it would not launch
a hostile bid for EIH, but its stake
was too high for the Oberoi’s
comfort. Indeed, before inking
the deal with RIL, the Oberois
had tried to rope in Analjit Singh
of Max, who holds 4 per cent
stake in EIH.
CASE STUDIES
Dilip Shanghvi
Chairman, Sun Pharma
When Israeli firm Taro Pharma
found itself in trouble in 2007,
Sun Pharma stepped in as a white
knight and offered to merge the
two firms in a $454-mn deal. Taro
made a quick recovery and its
promoters reneged on the deal.
Sun took over Taro after a three-
year legal battle
Ramesh Vangal
Investor, TMB
In 2007, when Ramesh Vangal and his friends
stepped in to buy out C Sivasankaran’s stake in
Tamilnad Mechantile Bank, he was seen as a
white knight. But the Nadar community resisted
his attempt to take control. The bank has been
mired in a battle between two brothers
PC Kapoor
Vice-Chairman,
Bharati Shipyard
V K Sheth of Great Offshore Ltd
was in trouble in a pledged shares
deal. PC Kapoor of Bharati
Shipyard stepped in to help Sheth,
but later wrested 14.89 per cent
stake in GOL and launched an
open offer. ABG Shipyard
countered Bharti’s offer in a battle
lasting over six months
A white knight – or, a com- share price to buy over 10 per made a counter offer to acquire
pany that thwarts a hostile cent stake in Gesco and 33.8 per cent. Both continued
takeover of a target company mounted an open offer for an- mopping up shares from the
by executing a friendly takeover other 45 per cent. market and revising the offer
instead —is a common phe- The Sheths turned to mas-
nomenon in global M&As. ter strategist Deepak Parkeh of
When Mittal Steel, for instance, HDFC. He roped in the Mahin-
went after Arcelor, the Euro- dras and its group firm, Mahin-
pean steelmaker approached dra Realty & Infrastructure, to
Russian peer Severstal to help make a counter offer with the
it ward off the Lakshmi Mit- Sheths for 33.5 per cent of
price in a takeover battle that
lasted over six months. It finally
came to an end when ABG
Shipyard exited the race and
Bharati Shipyard took con-
trol of GOL.
A white knight can even be
tal-led group. Though it is a rel- Gesco. The battle ended after perceived as a black knight --
atively new phenomenon in In- Dalmia sold his 10.5 per cent as Ramesh Vangal’s experience
dia, there are already a few stake in Gesco to the Sheth- at Tamilnad Merchantile Bank
instances of domestic compa- Mahindra combine and made (TMB) reveals. In May 2007,
nies playing white knight. a killing. when Vangal and his friends
In many cases, of course, fi- Dwijedra Tripathi, a former stepped in to to buy out C
nancial institutions like Life In- professor at IIM-Ahmedabad Sivasankaran's stake in the
surance Corporation or gov- and a business historian, feels bank, he was seen as a white
ernment-controlled banks have that as M&A activity picks up knight. But his attempt to place
come to the rescue of Indian in the country, we could see even his nominees on the board met
companies facing more attempts at with stiff resistance from the
takeover threats.
The most cele-
A WHITE KNIGHT hostile takeovers
and the appear-
Nadar community, who feared
outsiders would take control of
brated of these
— or, a company that ance of white bank that it controlled.
cases were at- thwarts a hostile knights. Ironically, Sivasankaran him-
tempts by RIL to takeover of a target But some- self had come in as a white
take over Larsen company by times, a white knight to buy out the Ruias of
& Toubro and by executing a friendly knight could turn Essar Group, who had cornered
UK’s BAT to wrest takeover instead — predator, as an- 67 per cent in the bank. When
control of local other faction of Reserve Bank of India ruled that
arm ITC.
is a common the Sheth family an industrial group could not
In a more re- phenomenon in discovered re- run a bank, the Ruias agreed to
cent instance, K global M&As, but cently. In 2009, Vi- sell the stake back to the com-
Raghavendra Rao, they are relatively jay Kantilal Sheth, munity, but at a high price.
the promoter of new in India the promoter of That’s when Sivasankaran came
Orchid Chemicals Great Offshore in as an investor and bought the
& Pharmaceuticals Ltd, managed Ltd (GOL), was in trouble when Essar stake. He agreed to sell it
to garner the support of insti- lenders made margin calls un- back to the Nadars at 2.38 times
tutional investors to ward off a der a share-pledge deal. The the price, but they could afford
takeover bid by Solrex (believed promoters of Bharati Shipyard to buy back only half the stake.
to be controlled by brothers stepped in to help Sheth with TMB has been mired in an
Malvinder and Shivinder Singh, the required cash. ownership battle between
erstwhile owners of Ranbaxy Although Bharati Shipyard’s brothers Sivanthi Adityan, who
Laboratories). Solrex had picked PC Kapoor maintained that it runs one of the largest Tamil
up 12 per cent stake in Orchid. was only a strategic investor, dailies, Daily Thanthi, and Ra-
Institutions, which together held it subsequently wrested around machandra Adityan. In Jan-
38 per cent, backed Rao. 14.89 per cent stake in GOL, uary, Sivanthi, with the sup-
In 2000, the promoters of making itself the largest share- port of the Nadar Mahajana
realty firm Gesco Corporation holder, and launched an open Sangam and foreign investors,
turned to the Mahindras to offer for another 20 per cent. wrested control of TMB’s
counter a hostile bid by Delhi- This was the first instance in the board. Ramachandra had ear-
based Abhishek Dalmia. The history of corporate India, where lier fought to retrieve the bank
Sheths of Gesco were caught pledged shares were invoked. from Sivasankaran, but later
napping when Dalmia’s Re- The battle to acquire GOL opposed the entry of non-
naissance Estates used a low intensified after ABG Shipyard Nadar groups.