Yesterday’s takeovers are today’s nightmares

The acquisitions by Manu Chhbaria will go down as the biggest example of building an empire consisting only of taken over companies. He acquired Shaw Wallace, Dunlop, Mather& Platt and Hindustan Dorr-Oliver. Shaw Wallace, the second largest liquor company, is facing massive financial problems and various government agencies are probing the company’s financial dealings. Besides, it has also defaulted in the inter-corporate deposit market. Dunlop, once a throbbing tyre company with vast technological and financial muscle, has now become a BIFR case.

Similarly, Vijay Mallya acquired Mangalore Fertilisers and Best & Crompton with great expectations. However, losses by the two companies mounted soon after he took over. He was forced to divest his stake in Best & Crompton in favour of Polysindo of Indonesia. Mangalore Fertiliser is still in the Mallya’s stable, but continues to bleed the holder. In fact, takeovers by Chhabria and Mallya were big even by today’s standards.

P Rajarathinam, who rose like a meteor in the early ‘ninties, acquired a host of companies. The availability of funds never seemed to be a problem for Rajarathinam. He bought Apollo Tubes, MGF, one Garware firm,Raj Air and so on. However, none of his acquired companies have turned the corner and his companies defaulted on loans taken from banks and institutions. Both Chhabria and Rajarathinam figure prominently in the RBI’s list of defaulters against which banks and institutions have filed suits for recovery of funds.The takeover of Britannia Industries by Rajan Pillai also failed as he was forced to hand over the company to Nusli Wadia and a French multinational. One major success was Hindustan Lever’s acquisition of Tomco, Kissan and Kwality Foods.

“Had Swraj Paul succeeded in acquiring Escorts and DCM in the mid-eighties, things would have been different. However, lack of clarity in takeover norms and political pressure put an end to Paul’s dreams to acquire these companies,” said a corporate source. Mahindra & Mahindra also faced a takeover attempt, but Keshub Mahindra managed to thwart the attempt in the nick of the time.

Takeovers in the ‘eighties and early ‘ninties were considered a difficultproposition as bank funds were not available for such moves. Resources had to generated from existing companies or funds obtained from overseas banks. Even after surmounting the funding problems, not many companies taken over by tycoons have made much headway.

After the Sebi formulated the new takeover code, there has been a sea change in the approach of banks and institutions on funding takeovers. The major difference is that a company can not stop the transfer of shares acquired by another party under the takeover code.

With banks and institutions making funds available for takeovers, there is also a fear that this can be misused by acquirers. For, the capacity of an acquirer who takes recourse to bank funds for share acquisition is also doubtful.