India Cements Chanceless Coup

He also turns down the description aggressive. I am more tenacious than aggressive, he says. Sports also taught him the importance of team-play, he adds, and willingly attributes the success of the company to his team.

B V Raju of Raasi Cements may feel differently. This week Raju was at the losing end of a hard-fought hostile takeover. Five days ago he signed on the dotted line and handed over Raasi Cements to Srinivasans India Cements which is now the giant of south India.

Srinivasan says that ICL has worked hard to pull off the Raasi takeover. There is no point in making half-hearted attempts. If a target has been set then it shall be achieved. Before the game starts, India Cements does plenty of careful homework and every eventuality is thought out and strategies planned for each move the other player may make.

 

Srinivasan says he spent many sleepless nights while preparing the bid for Raasi. For instance, he says, My Rs 300 per share offer was only for Raasi and never included Vishnu Cements as proclaimed in the media.

Some analysts thought that the Rs 300 per share offer was far too high. In classic terms though it was an offer that could not be refused since the stock was trading at around Rs 60.

Srinivasan points out that the high bid swung the deal quite neatly in his favour. It was a price that could not be matched and at one go, he eliminated the possibility of a bidding game of endless counter-offers and counter-counter offers with the price rising at Rs 10 per bid. He also excluded the possibility of Raasi finding a White Knight and even financial institutions dithering as they are in the case of Sterlite and Indal.

Raasi had its own cash flow problems and there was never a real threat of a counter-offer by the company. Srinivasan had it all worked out and knew that Raasi Cements promoter and chairman B V Raju would not be able to put together a war chest realistically capable of matching him. Although there were rumours about white knight riding to rescue, it wasnt possible to find anyone who was willing to top the India Cements bid.

Confident that he would triumph, Srinivasan did not react to the provocative statements issued by B V Raju. Instead, he worked ceaselessly behind the scenes and outside the glare of publicity, to reason things with the Raasi chief. This persuasion finally succeeded, as B V Raju capitulated on Monday selling his 32 per cent stake at Rs 286 and thereby guaranteeing Indian Cements a majority stake of 53 per cent. The deal makes history as one of the few successful hostile takeovers in India. Incidentally Raju sold his stake at a surprising discount of Rs 14 to the original public offer. Of course, this was still a huge premium on the prevailing price of Rs 165.

What made Raju change his mind and capitulate? Theres no doubt that he was already batting on a sticky wicket. B V Rajus son-in-law N K P Raju had already sold out. Had I not stepped in to take N K P Rajus stake, some others would have, says Srinivasan. What is wrong in buying out a persons stake if the latter wants to sell and I offer the right price? he asks. This, he says, is how he also put forward his case before B V Raju.

At the same time, India Cements made sure it was making the right moves with the all-important financial institutions. Srinivasan camped for several days in Mumbai and made innumerable presentations to the various institutions that hold a stake in both Raasi and ICL.

But Srinivasan had prepared for all eventualities. Most analysts believed that the Unit Trust of India (UTI) might find the India Cements offer irresistible. In the event UTI decided to back Rajus management team. But Srinivasan had anticipated this possibility and that was why he opened direct negotiations with Raju.

Having missed a golden opportunity to make a killing, the financial institutions have been left with egg on their face. Rajus sudden U-turn has left them out in the cold. Should they come to the negotiating table again, ICL and N Srinivasan will be calling the shots.

On the financial front, ICL had also prepared the ground thoroughly. It got board resolutions passed to increase equity, first by Rs 150 crore and then by another Rs 100 crore. (Rs 200 crore as equity and Rs 50 crore as preference shares.) Equity capital was to be raised through rights and private placement and the company is now working on the finer details of the ratio and the price. Similarly, guarantees and credit limits were raised.

ICL was also extremely careful not to make mistakes on rules and regulations. The new takeover code was scrutinised. The escrow account and the bank guarantee requirements were met in keeping with the law a point that Raasi conceded when it said ICLs takeover bid was within the four walls of the Sebi takeover code.

After taking over Raasi, ICL is first expected to reconstitute the board although no official announcement is being made in keeping with the Sebi rules that will come into play during the period of the open offer.

Srinivasan is now focusing on closing the deal quickly and moving on to new challenges. The next year will now be devoted to translating the synergies of these acquisitions to bottomline.

If India Cements has reached where it has today, it is because I have always been thinking about the company. As every window of opportunity opened, I was there for ICL, Srinivasan says. Nothing except golf over the weekend distracts me from the companys affairs. You will never have seen me involved in the activities of industry associations or chamber of commerce, he points out.

That isnt entirely true. Srinivasan is currently the chairman of the Madras Chamber of Commerce and Industry and says he has been able to discharge these functions because of the very efficient chamber secretariat. In any case, his term expires in June and Srinivasan says he will give ICL his undivided attention.

Meanwhile, to guard its territory the lucrative southern market ICL will use its sheer strength and play hard ball. Recently, to keep out outsiders, local cement manufacturers, led by ICL, dropped prices. ICL is willing to slash prices again if competition threatens. It can afford to do so because a multi-plant location helps it save on transportation costs which are a key element in cement pricing.

ICL has three brands Sankar, Coromandel and now Raasi. New brands could be possible if ICL feels the need to penetrate its markets further. Its well-established and wide distribution and marketing network only add to the companys strengths.

ICLs moves gain in significance because Gujarat Ambuja has been eyeing the southern markets eagerly. This is an old rivalry. It goes back to the days when the two companies bid for Coromandel Cements. The foreign owners were holding discussions on the future of the company and both ICL and Gujarat Ambuja were called in as potential buyers.

Quizzed hard, Srinivasan had casually asked a question of his own the reserve price the Americans had in mind for the plant. With the question answered Srinivasan went home and upped his earlier bid to a little more Rs 105.3 crore than the reserve price. With this, the first takeover was complete and Srinivasan had learnt a lesson that he has used to devastating effect many times over.