Indian Firms Come Of Age

While journalists may be worried about the lack of exclusivity in the news, this trend is evidence that Indian companies are getting a handle on doing business in a globalised environment. While family-run businesses still dither on how to implement difficult business decisions even professionally managed groups like the Tatas are guilty of this other professionally managed firms are using every opportunity to implement their strategic vision. And they are not afraid to share it with the world. The Wockhardt and Thapar decisions to buy and sell businesses, respectively, also illustrate this point.

Sterlites open offer for 10 per cent in Indal perhaps was the biggest news event of the week. It illustrates the changing way of doing business. Sterlites gameplan is clear. Its ambition is to be a major player in non-ferrous metals and it sees Indal as the best way to achieve it. When talks with Alcan (which holds 34 per cent) to buy a stake fizzled out; Sterlite openly declared its intentions to buy a part of the company. By publicly announcing the bid, Sterlite has chosen a new tack which Indian companies, obsessed with secret negotiations and bilateral deals, have never followed.

 

Also, by announcing its intentions not to take over the company but just being a pro-active shareholder, it will help Indal try to improve its managerial efficiency and post optimal results. Unsaid in this whole missive is a reminder that an efficient company with larger ambitions is taking a stake in Indal, whose management had better improve performance or watch out. Indeed, this strategy has been tried by many a famous acquirer.

Media baron, Rupert Murdoch, has often used this method to gain foothold in a company and then through board representation has managed to convince other shareholders that they werent getting best value for their investment and that he (Murdoch) could run them better. More often than not he has been proved right and even sceptics who did not believe him were too happy to let him try, since he always offered to buy them out at a top price.

This is what Sterlites Aggarwal might be hoping for. By not buying quietly on the open market (which may not have been possible given the thin trading volumes in the stock) which, if found out, would have given credence to the hostile bid theories, Sterlite has made its intentions very clear. But it has done so in as non-hostile a manner as possible. By wanting to be associated with the company in the long term, it is willing to put money where its mouth is, and has given a clear signal that as a significant shareholder, it wants Indal to perform better.

Obviously, the open strategy seems to be working. Even financial institutions, which talk in terms of national treasures and balk consistently at what they consider the sale of national assets every time a foreign company shows any interest in buying an Indian company, have not dismissed Sterlites open offer off-hand.

(Which, incidentally makes one wonder how ICI picking up a stake in Asian Paints was any different, and why the financial institutions reacted so adversely to that bid, even though the intentions echoed by the bidd-ers in both situations were the same.) It is likely that the company may pick up significantly more than 10 per cent if one or more financial institutions decide to cash in on an attractive offer at an otherwise dull and unrewarding time.

It is not only Sterlite which has changed tack. Hindustan Levers announcement of its merger under consideration with Ponds and the buy-out of Lever Lakme also took the markets by surprise. The move may have been prompted by insider trading allegations in one of HLLs earlier mergers, when news of the impending merger leaked and Levers officials faced an embarrassing barrage of questions from Sebi.

This trend will only accentuate in the next fiscal year. Already, companies have started providing all manner of extra information in their annual reports. And next year, many of them, including Reliance, are going to publish quarterly results. It is also hoped that instead of denying bad news, companies will also become more pro-active in explaining how they plan to tide over difficulties and adjust to hard knocks.

If this is accompanied by proper corporate governance instead of the swadeshi, RSS variant currently practiced by FIs where swadeshi bids are more equal than foreign ones then the process of consolidation of Indian industry will truly be run by the market. Indian industry will then emerge more capable of taking on foreign competition. So what if financial journalists have to find other exclusives to fill their pages.