Hostile Takeovers - Role Of Fis Come Into Focus

The Sterlite offer of Rs 90 for a 20 per cent stake in Indian Aluminium Company (Indal), the India Cements offer of Rs 300 for Raasi Cement, and the Wockhardt friendly buyout of the Tatas in Merind have triggered a new era in the Indian corporate scene. It has witnessed a not-so-friendly bid for the first time through the Sterlite offer.

The contests through offers and counter-offers result in a rally in the stock price of the target company. The investor will certainly benefit from this rally as he gets a chance to make money. At the same time, it is also possible that due to offers and counter-offers, companies may just overvalue the target company and thus create a distorted picture.

 

A top UTI official commented that there cannot be an ad-hoc policy towards such offers that come the way of the institutions. We have to study each case separately. For example, in case of Sterlites offer for Indal, we cannot disclose what our stand will be on the issue simply because as investors, we would like to have the best price. We would prefer to wait till the last day. However, if the offer is revised by Sterlite, then we have to also take into consideration the issue of whether the acquirer can afford to do so, he said. UTI has holdings in both Sterlite as well as Indal. The official says that if at any stage, they feel the revised Sterlite offer is detrimental for the acquiring company, UTI will not only sell Indal but also dump the Sterlite stock. These are hypothetical situations anyway, the official adds to ensure that the issue is not blown up out of proportion.

The entire approach of institutions towards such offers has changed since liberalisation. Today, the decision is taken purely in the interest of unitholders and related to its investment policies. However, the UTI official defends the approach adopted by the fund even in the pre-liberalisation era. The decisions taken then were also commercial ones considering the prevailing regulatory framework. However, now institutions cannot be looked up to as protective walls for managements which do not perform, he added.

Investors would like to put only those managements in place that would utilise assets of the company in an effective way. The role of the FIs as a shareholder of a company has become more demanding, and every move that they take has to be in the interest of the shareholder.

Leading investment bankers are very happy about the developments that have been taking place in the Indian corporate scene, and so are shareholders of these companies. Institutional investors are not so enthused by these developments as they consider themselves as long term players. At the same time they do not want themselves to be taken for granted by existing managements.