War for IVRCL control heats up as Essel hikes stake to 12.27%

The battle for the control of infrastructure firm IVRCL has become intense with Subash Chandra’s Essel Group raising its stake by 2.08 per cent to 12.27 per cent

Written by ENS Economic Bureau | Hyderabad | Published:April 5, 2012 1:11 am

The battle for the control of infrastructure firm IVRCL has become intense with Subash Chandra’s Essel Group raising its stake by 2.08 per cent to 12.27 per cent,thereby overtaking the Hyderabad-based firm’s chairman and managing director Sudhir Reddy’s 11.8 per cent holding.

The Essel Group bought an additional 55 lakh shares of IVRCL on April 2 and 3 through privately held arms,taking its stake in IVRCL higher than that of the Reddy-led promoters,thus triggering talks of a hostile takeover. Traditionally,hostile takeovers are rare in India. Under the new Takeover Code,the Essel Group can buy up to 24.99 per cent stake in IVRCL without having to make an open offer.

Reddy has gone on record stating that he does not want to lose control of his company,while adding that the Essel Group will not be given a seat on the board. But now with Essel Group’s stake in IVRCL higher than that of the promoters,the battle for management control is surely on.

Violet Arch Securities research head Sailesh Kanani said the stake increase cannot be seen as a financial investment.

“Now that they (Essel) have more stake than IVRCL promoters,the logical conclusion is management control. Essel eventually may increase its stake to 25 per cent and go for an open offer,” Kanani said. The future course of action for both the companies will depend on institutional investors of IVRCL,he added. The IVRCL share,which touched a low of Rs 27 in December 2011,have jumped nearly 18 per cent since March 28 after the Essel Group announced that it has acquired over 10 per cent stake in the company. The scrip on Wednesday ended 2.67 per cent up at Rs 71.20 on a day the Sensex lost 111.40 points,or 0.63 per cent.

Investors now seem to believe clearly that the Essel Group will now go all out to gain control of IVRCL. “The open offer will come at a massive premium to the current share price,and that’s what investors are hoping for,” an analyst with a brokerage firm said. While promoters of IVRCL held 11.18 per cent stake in the company,FIIs and DIIs held 37.11 per cent and 5.4 per cent,respectively,as on December 31,2011.

FE

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