It all began with a one percent stake which a Dubai based NRI businessman Manu Chabbaria acquired in the Larsen & Toubro. He had previously taken Shaw Wallace, Dunlop, Hindustan Dorr-Oliver, to name a few, so his entry was not greeted by the Indian corporate world.
BARKING UP THE WRONG TREE
L&T management soon acknowledged that Manu Chhabria wants to take over the company. So the then chairman of L&T, N M Desai reached Dhirubhai Ambani to protect L&T from the takeover and invest in the company as a white knight. Ambani didn’t let any opportunity to pass and as expected bought 12.4% from the open market.
But Ambani had different agendas, it was a chance to work on his strategy of acquisition of the supplier.
He continued to buy shares from the open market and increased his holdings to 18.5 percent by spending around 190 crores. All of this happened before SEBI established way back in 1989 and Ambani was backed by the Congress party.
AMBANI’S FIRST STEP TO THE HOSTILE TAKEOVER
L&T soon realized that the threat of Manu Chhabria might have taken off but different challenges arrived as Ambani had distinct plans.
L&T was crucial for Ambani because the company was constructing Reliance petrochemicals and L&T also had substantial cashflows. So being a chairman of L&T company was made to grant supply credit of 570 crores to Reliance and to buy Reliance shares worth 76 crores from the market from entities close to Reliance.
Another controversial decision by Ambani was to make L&T take on more debt.
This all ended soon in 1989 only when Rajiv Gandhi, leading Congress, lost power to Janta Dal’s VP Singh. VP Singh was not a friend of any business tycoon, which led to the revival of the raid raj.
The government soon asked state-owned Life Insurance Corporation, the prominent shareholder, to make sure that the Ambanis were out of L&T. Dhirubhai Ambani was forced to resign from the board but Mukesh and Anil Ambani were still on L&T’s board and former State Bank of India chairman D N Ghosh was asked to replace him.
This was also the time when Ambanis were fighting a bitter battle with Nusli Wadia of Bombay Dyeing for supremacy in the petrochemicals business. Meanwhile, under Ghosh, L&T immediately withdrew the supplier’s credit to Reliance and began off-loading Reliance shares in the market.
But then came another twist. V P Singh’s minority government soon collapsed and was replaced in 1990 by Chandra Shekhar, who had closer links to the Ambanis. Ghosh was asked to resign.
The Supreme Court also ruled in Ambani’s favor. With the general elections of 1991 bringing the Congress back to power in a minority government under PV Narasimha Rao, the Ambanis tried to make a comeback.
In June 1991, Ambanis tries to regain control of L&T as they were merely exercising “shareholder’s rights”. They acquired 21.82 percent of L&T equity through various companies – financial institutions held 41.04 percent and the rest was with the public.
This maintained the Reliance camp, which was more than enough justification to take over management control, especially when numerous Indian companies were run by businessmen whose equity holdings were as little as 4 percent.
But following pressure from the Opposition, Prime Minister Rao decided to stay away from the battle. In fact, following orders from the then finance minister Manmohan Singh LIC sought an adjournment of the Extraordinary General Meeting in August 1991 which was to vote on bringing Ambanis back to L&T. Shareholders close to Ambanis, however, refused to vacate the auditorium.
By then, the Ambanis also realized that it would not be possible for the Congress-led minority to openly endorse them. After that, the Ambanis stayed on as passive investors in L&T for more than a decade.
THE KNIGHT WHO OUSTED BIRLA
Ambanis had one more surprise in store for the company. After it failed to buy out L&T due to opposition from financial institutions, RIL sold its 10.5 percent stake to Aditya Birla Group company Grasim, L&T’s competitor in the cement industry.
But with the rejuvenated enthusiasm under the leadership of Anil Manibhai Naik, L&T was geared up to put up a fight. The visionary CEO and MD of the firm, Naik, born and brought up in a village in Gujarat, had a strengthened stance and was determined not to be oppressed by the corporate world raiders.
Conceptualizing unity and vision in the employees of the company, he filled them with a zeal to take the reigns in their own hands and themselves became the owners of the company.
“We should perform so well that it should become impossible for anyone to buy shares in our company because good results will make the stock expensive,” Naik emphasized.
Naik started to revolutionize the company from within. Naik fought Birla’s entry into the company tooth and nail and made representations to everyone from the prime minister to LIC to let L&T retain its professional management culture.
Months of hustle and negotiations involved, Birla finally exited L&T, selling its stake to an employees’ trust run by L&T employees in June 2003. As a trade-off, Birlas acquired L&T’s cement division and named it UltraTech.
A win-win situation for both ends, L&T had ultimately become its own decision-maker.
Achieving a point of no return, and taking steps to the zenith, L&T and Naik never looked back.
Since 1999, when Naik commenced commandeering the firm, the market value of L&T has shot up nearly 67 times, from 2,000 crores to a value of 1,34,000 crores, with its employees owning 13.56% of the company. But the prey itself became the predator.
L&T did a hostile takeover of Mindtree Ltd., procuring a controlling interest, raising its stake in the software-based company making India witness its first successful hostile takeover of a software developer.
Written by Shrey Mahendra for FinMedium.
Cover Image: DNA