Icis 9.1% Stake In Asian Paints: The Facts Behind The Case

On 18th August, 1997, ICI PLC announced that it had agreed to purchase, subject to regulatory approvals, 9.1 per cent of the shares of Asian Paints (India) Limited from Kotak Mahindra Capital Company.

Champak Lal Choksey, one of the promoters of Asian Paints and the main architect of its success and stature, had approached ICI PLC through his son Atul Choksey in April 97 to explore whether ICI would be interested in buying their block of around 9.5% shares of Asian Paints as they had decided to divest. Whilst these discussions were still in progress, the Chokseys decided to sell 8% of Asian Paints shares from their block of 9.5% to two Foreign Institutional Investors (FIIs) through DSP Merrill Lynch. Subsequent events have been widely reported in the press. Apparently, the deal with the FIIs broke down on the grounds that material information had been withheld from them that the sellers were the Choksey family. On 13th August, the Chokseys reportedly revoked their deal with DSP Merrill Lynch.

 

Subsequently, a somewhat larger block of 9.1% shares belonging to the Choksey family and associates were purchased by Kotak Mahindra Capital Company (KMCC) and on 18th August, after obtaining necessary permission from the Reserve Bank of India (RBI) to bring in the foreign currency for this transaction, ICI PLC agreed to purchase these shares from KMCC at Rs 351 per share for a total transaction value of about Rs 128.7 crore, subject to regulatory approvals.

There is no takeover of Asian Paints by ICI PLC involved in this deal. The agreement to buy 9.1% shareholding does not automatically entitle ICI PLC to a seat on the Board of Asian Paints. ICI PLC has already met the other three promoters on 18th August to explain its position and sought to forge a friendly relationship with the promoters and shareholders of Asian Paints and explore a future alliance between its operations in India and those of Asian Paints to the benefit of customers, employees and shareholders of both companies. A major Indian newspaper has stated ICI PLC has made no bones about its takeover intent and used this misrepresentation to develop a swadeshi-videshi debate. There is no substance to this claim.

Summary

The facts are that ICI PLC was invited by the Chokseys to buy out their shares in Asian Paints. When their deal to sell 8% of Asian Paints shares to FIIs fell through, ICI PLC was approached by KMCC who had purchased the Chokseys block of shares, this time around 9.1% of Asian Paints. Recognising the serious risk of this block of shares landing in the hands of one of its global competitors, ICI PLC moved swiftly to purchase these shares, subject to regulatory approvals, to stem this threat. Association with ICI PLC could ultimately be of advantage to the shareholders of Asian Paints. All the steps of the transactions have been carried out in a fully transparent manner complying with the laws of the land. The foreign exchange was brought in for this transaction only after obtaining the necessary permissions from RBI. ICI PLC is in dialogue with the other promoters of Asian Paints to explore the way forward.