The Coat Beneath The Gloss

What really made 49-year-old Atul Choksey sell his 9.1 per cent stake in Asian Paints, the company that his father Champaklal Choksey and three friends had started 55 years ago and which had come to be identified with him? And why did he do it with such vengeance that he almost handed over the Rs 940-crore company on a platter to arch multinational rival, ICI?

We tried to piece together the break-up of the decade by talking to the main players of the drama. Everyone has a different version of events, but its possible still to draw out the chain of events that led to the public spectacle at Asian Paints. What emerges is a story of miscalculations, miscommunication and mistrust. But let us begin at the beginning.

 

Asian Oil & Paints Co was set up in 1942 by four close friends Champaklal Choksey, Suryakant Dani, A R Vakil and C N Choksi each with an equal stake. In the early seventies, the company changed its name to Asian Paints and a decade later, it went public with the promoters divesting 40 per cent of their stake. In 1984, both Atul and Ashwin Choksi were nominated joint managing directors. But while Atul Choksey became the official face of the company, the others remained in the shadows.

Today, the remaining promoters of Asian Paints argue that despite the public profile, the Chokseys started pulling out of Asian Paints long ago. The proof? The Choksey family stake had come down to 9.5 per cent by the mid-nineties, while the others kept their stake at around 13.5 per cent each. According to Ashwin Dani (son of Suryakant Dani), the sale was gradual; the Chokseys never sold more than 0.4 per cent at a time.

What did they make of it? We didnt take much notice because we were one of the few Indian companies which had divested as little as 40 per cent equity. We thought the Chokseys would gradually leave the company may be in the next four to five years, says Dani. In other words, the trio calculated that the 9.5 per cent stake of Atul Choksey couldnt do them much harm. As long as it was being sold bit by bit, there was nothing to worry about. That perception was to prove costly later on, because it also distorted communication between the groups.

The communication began breaking down in the early nineties. By then, Champaklal Choksey was the only original promoter alive. With the economy opening up, Champaklal saw the writing on the wall: if Asian Paints didnt embark on a major expansion programme which could cost up to Rs 1,000 crore, and became a global player, it would not survive. According to sources who knew him well, Champaklal Choksey used to point to the fate that had befallen groups like the Mafatlal. He thought Asian Paints would go the same way if it didnt go on the offensive. To expand and go global, Asian Paints needed more money than it had. Chokseys prescription: a major GDR issue. The other promoters, however, disagreed, afraid that a GDR issue would make the company vulnerable to a takeover.

The GDR issue provided the first skirmish, but the second one followed quickly. This time, the disagreement was over the dividend to be paid in 1996-97. Champaklal Choksey wanted to increase the dividend to 75 per cent from 65 per cent in the previous year, but the others thought it should be kept unchanged. Choksey, however, insisted on a higher pay-out and he had his way. It might have been Chokseys way of signalling that if the others were not ready for a major expansion, he would take the money out rather than plough it back in.

The third issue was chairmanship, according to sources close to the Choksey camp. When Champaklal Choksey decided to retire and make way for his son Atul, the others demurred. Their contention was that it was now the turn of one of the other promoter families to take charge. Dani, however, denies that chairmanship was ever an issue. What difference does it make who is the chairman since the company is being run by managing directors, he asks. Sources close to Atul Choksey, however, claim that he felt his partners were ganging up against him.

The accounts differ even more from now on. The Choksey side of the story is that they first asked the trio to buy out their stake, but they refused. Then the Chokseys asked them to sell their stake, but that too they refused. At this point, the story goes, the trio were told the Chokseys would sell their stake to any third party, whose name they would not be obliged to identify. Atul Choksey then approached Hemendra Kotharis DSP Merrill Lynch who placed 36.66 lakh shares with Capital International and Morgan Stanley within 24 hours. According to the Choksey family, the deal was done on July 30, the day when Champaklal passed way. They say the patriarch was happy the chapter had been closed and went to sleep peacefully. The deal fell through, however, when the identity of the seller was known.

Dani, the most vocal of the troika, disputes this version. Why would somebody who has been divesting his stake want to buy us out, he asks. Then why didnt the promoters buy out the Choksey family? At at no point did Atul Choksey make us a formal offer. If he had, we would have bought him out, says Dani, categorically.

That, however, still leaves one question unanswered. If the troika were willing to buy out the Chokseys, why didnt they offer to do so during the two weeks when it was up for grabs? That is, during the period between the DSP deal falling through and the ICI deal being clinched. From a purely strategic point of view, it could be argued that it didnt make sense for them to pay that much money if there are other ways of making sure that the control of the company didnt change either by blocking a transfer of shares to ICI or by promising each other that they will always stick together. Just as it didnt make sense for them to buy out the Choksey stake as long as it was being offloaded bit by bit.

But whatever happens next, it is going to be a fierce fight to the finish.