Lever To Own Lakme If Tata Stake Dips Below 20%

Details revealed for the first time at the Lakme annual general meeting here yesterday show that while Lakme has wrung some major concessions, they have ceded to Lever the right to become the owner of Lakme Ltd if the Tata group's stake in the company falls below 20 per cent. At present, the Tata group's stake in Lakme Ltd is 23.52 per cent.

The revelation is important as it comes at a time when the deal is considered by many to be a sell-out by Lakme. Even at the AGM, several shareholders expressed concern over the deal saying Lever will soon gain majority control over the company.

"What will Lakme do now. It has sold off everything, including its brands?" asked one shareholder. Lakme and Hindustan Lever signed a 50:50 joint venture last November to set up a marketing company, Lakme-Lever Ltd.

Under the deal, Lakme became a manufacturing company producing all the brands to be marketed by Lakme-Lever. The deal also envisaged Lakme setting up a wholly-owned subsidiary, Lakme Brands, which will own all the Lakme brands and lease them to the new joint venture.

The salient features of the deal are:

Tata Sons will have the right to appoint all future managing directors and chairmen of Lakme-Lever.

Tata Sons and its affiliates have 23.52 per cent stake in Lakme Ltd. If their stake ever falls below 20 per cent, Lever will have the option of picking up the entire stake and gaining control over Lakme.

Lever's 50 per cent stake in the joint venture is subject to a lock-in period of 10 years. Lakme has no such restrictions. If, after 10 years, Lever wants to opt out, Lakme will have the first right of refusal. The price will have to be mutually agreed and cannot be below the price at which the shares were first acquired.

Even after Lakme says no, Lever cannot sell its stake to anyone. It will have to inform Lakme of the identity of the buyer, and the price per share of the impending sale. If Lakme is against the buyer, it has the option of stepping in again to pick up the shares.

The six members of Lakme-Lever board do not have any special powers or votes. All decisions will have to be unanimous.

After nine years, Lever will become joint owners of Lakme Brands, Lakme Ltd's 100 per cent subsidiary. Formed last year Lakme Brands became the owner of all Lakme's brands. It will lease these brands to Lakme-Lever and earn royalty of 5 per cent on domestic sales and 8 per cent on exports. The AGM also threw light on the Rs 75 crore worth of optionally fully convertible debentures (OFCD), privately placed by Lakme Brands recently. It became clear that of the total debentures on offer, Lever had picked up OFCDs worth Rs 74.5 crore. This is significant because if Lever opts for conversion, Lakme's stake in Lakme Brands will come down from 100 to 50 per cent. Lever will hold the remaining 50 per cent.

Scotching reports that the deal with Lever was a sell-out, Simone Tata, chairperson of Lakme, said both companies are equal partners and the question of ceding majority control to Lever does not arise.