India is a market global giants can't ignore. And low promoter holdings at a score of India's most respected companies, many of them a part of India's biggest conglomerates, make them sitting ducks for prospective raiders, global or Indian. That foreign institutional investors (FIIs) and private equity (PE) players are sitting on chunks of shares-in many cases their collective holding is more than the promoter group itself-makes for a compelling case for a corporate raid from within or without. And of course there are those blue-chips that have no promoter, and are deemed to be "professionally-run". Have a look at the menu on display: HDFC (Housing Development Finance Corporation), the pioneer in home finance, which has also spawned a bank. It has no promoter, and a string of FIIs are clutching onto close to 68 per cent of the institution's equity. Then there's engineering and construction giant Larsen & Toubro (L&T), a professionally-run company in which banks, financial institutions (FIs), mutual funds (MFs) and FIIs collectively hold a little over 55 per cent. And there's a long list of companies in key sectors like it services, infrastructure, automobiles, cement, metals and banking where the promoters' stake is dwarfed by the holdings of institutional players. "The worry is for companies whose business doesn't depend on promoters and who have huge assets and a strong brand name," says Ambareesh Baliga, Vice President, Karvy Stockbroking.
The first high-profile unfriendly attempt at an acquisition can be traced back to non-resident Indian tycoon Swraj Paul in the early 1980s when he had a go at Escorts and DCM. However, he had to beat a hasty retreat thanks to resistance from startled Indian business houses and the draconian Foreign Exchange Regulation Act (FERA, which was finally dust-binned in 2000). The late Manu Chhabria met with some success, acquiring professionally-run companies like Shaw Wallace and Dunlop (ironically, another predator, the UB Group's Vijay Mallya, took over Shaw Wallace last year after Chhabria's death).
To be sure, the low promoter holdings of Indian family businesses have invited persistent interest from wannabe raiders. And that activity has intensified in the past six years. In 2000, a corporate greenhorn Abhishek Dalmia picked up 10.5 per cent in Gesco Corp., the real estate arm of Great Eastern Shipping, via his Delhi-based investment firm Renaissance Estates. He went on to make an open offer to acquire 45 per cent of the company, but the Mahindras threw their hat in with a counter-offer at a higher price. After a few more offers and counter-offers, the Mahindras and the Sheths of GE Shipping settled to buy out Dalmia's 10.5 per cent stake. Dalmia didn't get the company, but he made a killing (a 50 per cent appreciation of his original investment), as did minority shareholders.
Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.