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'We are not corporate raiders by design'

The recent Nusli Wadia-Arun Bajoria tussle over Bombay Dyeing may have star power and, hence, media attention, but it is l'affaire Gesco that has set the tone for not-so-friendly takeover battles in 21st century Corporate India.

It took Johny-come-lately Abhishek Dalmia of Renaissance Estates Limited or REL, one of Delhi's well-known real estate developers, to shake Corporate India out of its stupor and sensitise it to the harsh realities of the Takeover Code.

With a rare mix of gumption, grit, timing, imagination, cunning and initiative, Dalmia took on the combined might of the Sheths, Mahindras, Deepak Parekh, Uday Kotak in his open bid for Gesco Corporation.

Monday, after months of corporate muscle-flexing, Dalmia agreed to sell his 10.5 per cent stake in Gesco for Rs 163.5 million. And, at the end of it all, walked away laughing to the bank, Rs 90 million richer, leaving behind a trail of a smart money-maker.

In his first media interview after he clinched the deal, Dalmia tells Associate Editor Y Siva Sankar why he did what he did.

The deal with Gesco has left you richer by about Rs 90 million. How do you feel about this?

Without commenting on the figure mentioned by you, we look at this transaction as a great learning experience. The satisfaction derived by the successful culmination of the whole transaction has been much more than the satisfaction that merely earning money would have given us.

Are you happy with the end-result of the controversial takeover bid? If not, what other result would have made you happy?

To the best of my knowledge, we went strictly by the book. Therefore we are surprised that you use the word 'controversial', which would have been more appropriate in the Bombay Dyeing case.

Having said that, the final outcome of the effort, put in in the past two-three months, has left us pleasantly weary.

There were contrasting views on your open offer for Gesco equity. Some experts said hostile takeovers are bad for Corporate India's morale. Others said hostile takeovers lead to the discovery of real value of companies and will unleash healthy competitive forces in the market. What is your own thinking on this, especially about the Takeover Code?

Our understanding of purpose and intent of the Takeover Code is to unlock shareholder value. The Code exists in many countries with similar objectives.

Given that in the instant case our efforts have unlocked shareholder value, our view is that the Code is serving a very useful purpose and should be made more takeover-friendly.

The choices that Corporate India has are either to increase their stake in their companies to an unassailable position or to deliver shareholder value.

If they do neither, they should feel threatened by threat of a potential takeover. After all, the shareholders collectively own the company and have a right to be rewarded for taking the risk of investing in the company's equity.

If the rewards are not forthcoming, they should have a choice of having the value unlocked through the intervention of a 'hostile raider'.

When did you make up your mind that Rs 54 per Gesco share is a fair price at which you can divest your 10.5 per cent stake? Was the deal, brokered by S Gurumurthy and Deepak Parekh, a mutually agreeable one? Or were you coerced into signing on the dotted line? Please elaborate. (Sections of the media have interpreted the deal as the pipping of REL by the Sheths-Mahindras combine).

There has been no coercion by anyone whatsoever. The logic of the settlement is as follows:

Once the Sheth-Mahindra combine had decided to raise their offer price, we had to decide if it makes economic sense to revise our offer to a price beyond that level. Given the fact that the current book value of the company is about Rs 54 per share, paying anything more than that price would have meant recreating the assets of the company at a cost which would have been higher than their market value (the assets were transferred into Gesco by Great Eastern Shipping in early 2000 on market value basis).

Secondly, given the fact that the last date for revisions was approaching (January 15), our revision would have created the possibility of a bidding war, ending in a stalemate. Stalemate because both us and the Mahindras would have ended up with a 35 per cent to 40 per cent stake in the company. This would have been disastrous from the point of view of the shareholders.

Besides, we have always maintained that we are not emotionally attached to the company and any decision would have to be made on the basis of economic rationale.

Keeping these things in mind, we felt a settlement was the best option under the circumstances.

When did you first eye Gesco? What attracted you to the company? What value did you see in Gesco that you decided to bid for it?

We were shareholders in GE Shipping and got some free shares in Gesco Corporation due to the demerger.

Subsequently, we got the balance sheet of Gesco in early July.

A study revealed that the company was highly undervalued by the markets. An asset base of Rs 1.5 billion, an annual cashflow of Rs 100 million and a market cap of Rs 270 million provides for a compelling investment opportunity.

By the time we crossed 5%, the share price had gone up from Rs 10 to Rs 17/18. The share was still dramatically undervalued. Therefore, we decided to make a bid.

Besides the film industry, the real estate industry is said to have links with the underworld. Do you believe this? During your years as a real estate magnate, have you had any occasion to suspect that the industry is not clean?

It takes all types to make this world. It depends on how you want to operate.

Were you prepared to take over and manage Gesco if your open offer succeeded? Or, did you eye Gesco merely as a short-term investor with an eye on making a fast buck and then exiting the counter?

Our actions have spoken louder than words. However, if people still doubt our intentions, our saying anything at this stage won't change their opinion.

If you had succeeded in taking over Gesco, what changes would you have effected in the company?

No comment.

Are you planning to bid for any other companies, now that you have reportedly gone laughing all the way to the bank, so to say, after the Gesco deal?

We are not corporate raiders by design. However, if we find another interesting opportunity, we would have to resist great temptation to not go after it.

In retrospect, what do you see as the turning points/crucial junctures in l'affaire Gesco?

Many people fallaciously believe that the turning point was when they (the Sheth-Mahindra combine) managed to buy out IFC (stake in Gesco) at Rs 44.

From our point of view, the turning point obviously was the decision of the Sheth-Mahindra combine to revise their offer to make it equal to book value.

As a successful businessman who has made Rs 90 million in quick time out of a single deal, do you think you have set a fine example for Indian youth? What is your message to those aspiring to become crorepatis in India?

Well, not so long ago, I was an aspiring student myself (I'm just 31).

I realise there is a big onus on me when I make a statement here. The single message is master your subject, always be on the lookout for practical situations where you can add value by applying your knowledge; having found a situation, believe in yourself and go after it. This will entail hard work, but in the end, it is worth it.

Is the money you made out of the Gesco deal your biggest achievement to date? If not, what is, and why?

This is certainly my biggest professional achievement so far.

What are your future business plans? How would you describe yourself -- corporate raider, instinctive businessman, successful market player, investor par excellence?

A chartered accountant by education and a businessman by profession, who strives hard to keep his feet firmly on the ground.

Would you like to add anything else?

Thank you for giving me this opportunity to share my thoughts with rediff.com's readers.

FROM THE REDIFF ARCHIVES:

Dec 27, 2000: Dalmia group raises Gesco offer price to Rs 45

Nov 22, 2000: Dalmia yet to decide on Gesco stake

Nov 13, 2000: Bombay Dyeing calls report on peace deal with Bajoria 'speculative'

Oct 17, 2000: Bombay Dyeing episode is a good incident, says guru Ghoshal

Oct 12, 2000: Bajoria's temporary 'no' for open public offer in Bombay Dyeing

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