Lessons All Round From 10 Years Of Reforms

A little more than 10 years ago, Reliance Industries had made an unsuccessful bid to gain management control of engineering giant Larsen & Toubro. Reliance's bid then was foiled primarily by an unfriendly government at the Centre.

The National Front government of V P Singh made sure that Larsen & Toubro could not be pocketed by the Ambanis. The finance ministry worked overtime to instruct financial institutions to ensure that Reliance failed in its bid. Reliance gave up even before the actual trial of strength began. The finance ministry also made sure that Larsen & Toubro was headed by a nominee of the financial institutions. The choice fell on former SBI chairman D N Ghosh.

 

That was a period of hectic corporate lobbying and political activity. Madhu Dandavate was the finance minister and the finance secretary was Bimal Jalan. The corridors of North Block were being frequented by corporate lobbyists. A worried Mukesh Ambani, escorted by R K Mishra (a trusted long-time friend of the Ambanis apart from being a seasoned journalist), was seen knocking many important doors in the North Block.

Even West Bengal Chief Minister Jyoti Basu played a role in foiling the bid. Apparently, the choice of D N Ghosh as the new chairman of Larsen & Toubro was made by Basu, whose request the former SBI chairman could not turn down. Mukesh Ambani even conducted select press briefings at New Delhi (a rare thing for him) to convince the media about the correctness of the Reliance bid. But all this yielded no result as the government's might through the financial institutions proved too big for the Ambanis.

For the following 10 years, Reliance maintained a low profile as far as taking over an Indian company was concerned. The takeover code was formulated in 1996 and the Securities and Exchange Board of India (Sebi) framed detailed norms under which companies could make a bid for taking over another company. Several companies took advantage of the new takeover code. Some failed like Sterlite Industries and some succeeded like Hindalco and India Cements.

But Reliance Industries was nowhere near the takeover scene. Everybody was speculating about the day Reliance would use its huge cash reserves strength to make a bid for a company in India. That wait was over last week with Reliance making an open offer for BSES.

The personalities that played a key role then are still around, although in different positions. V P Singh and Madhu Dandavate are retired politicians today. Bimal Jalan is the RBI governor. Jyoti Basu continues to be the West Bengal Chief Minister. But today these don't matter as many things have changed since Reliance's last unsuccessful bid for Larsen & Toubro.

The takeover code is in place and financial institutions have begun acting in their own interest and in the interest of their own investments and bottomlines. The North Block is still their boss, but there is greater freedom. The manner in which the institutions asserted themselves last year in the case of ACC's preferential issue for the Tatas is a case in point.

Ten years ago, the bid for Larsen & Toubro was scuttled in North Block by a few people on principles that were not laid down as a code. Today, there is a code. Financial institutions will hold meetings in Mumbai to decide whether to sell their shares in BSES at the price quoted by Reliance Industries. They are even talking of not agreeing to sell these shares at the price quoted by the Ambanis.

It is possible that Reliance Industries may eventually raise its price for the open offer. And it is also possible that a counter-bid may come from another company which may quote a better price for the open offer. All this may happen without North Block doing anything.

Indeed, 10 years have seen some change in the role of North Block.