MUMBAI, February 19: In a late evening development on Wednesday, the open offer by Sterlite to the public shareholders of Indian Aluminium Company Ltd (Indal) has been blessed by the regulator, SEBI. Now, Sterlite has been advised by SEBI to up its minimum open offer from 10 per cent to 20 per cent at Rs 90 a share. For Sterlite, the SEBI approval comes as a great boon in its grand design to gobble up Indal. It may be recalled that Sterlite, on February 16, 1998, took the public by surprise issuing a press release which read that the company, in its board meeting held on the same day, had decided to make an open offer to acquire a minimum stake of 10 per cent in the paid-up equity share capital of Rs 71.11 crore of Indal at a price of Rs 90 a share under the SEBI Regulations for Substantial Acquisition of shares.According to Sterlite, it decided to take a stake in Indal's equity so as to succeed in its endeavour to develop a long-term relationship with Indal. Sterlite is confident that the management ofIndal would find Sterlite more than a "good stakeholder". They add Sterlite could share its business experience, knowledge of domestic business environment and its entrepreneurial ideas with Indal to evolve strategic growth plans of long-term mutual benefit.
The press release further states: "At present, Sterlite or its promoters do not have any shareholding in Indal nor have they made any market purchases of equity shares of Indal, so far. Instead, Sterlite has chosen to acquire the stake through a transparent and straight forward public offer as per the SEBI regulations." But, how much transparent and straight forward is its proposal? Sterlite's original offer specifies about a minimum stake of 10 per cent but, it doesn't put any cap, why?
It is not for the first time that the promoters of Sterlite are attempting to enter into the manufacture of aluminium base metal. They have already acquired an 80 per cent stake in the equity of The Madras Aluminium Company Ltd (Malco) by investing Rs 18 crore inthe equity of the company at par. While the entire 80 per cent stake in Malco was directly taken up by the promoters of Sterlite -- Anil Agarwal, his associates and their investment companies, the acquisition of Indal's equity is undertaken by Sterlite, a public company in which the promoters have a minority stake of only around 32 per cent.
And, lastly, assuming that the Sterlite promoters and their associates had not purchased any Indal shares from the market as the press release claims, who cornered 2.5 lakh shares on January 28 and one lakh shares on 6 February on BSE when the volume of trade on NSE was just 1,100 and 1,400 shares respectively on these days? Indal's shareholding pattern as on March, 1997, reveals that the public holding in the company is just 9.1 per cent, which is very widely held by more than 29,000 small shareholders. With such a minority `public holding', how will Sterlite succeed in its mission of acquiring 10 per cent stake? Surely, the public announcement and the offer wouldnot fetch the required quantity. What Sterlite requires is some private deals with any of the 30 large shareholders, who hold more than 55 per cent of Indal's equity. Interestingly, Sterlite senior management represented by its chief financial officer Tarun Jain and the company's long-lasting `corporate designer' R Kannan of Imperial Corporate Finance and Services revealed to this correspondent that they would market the open-offer among the institutional shareholders adequately enough to collect more than 10 per cent of the equity! According to Jain, besides the Indian institutional investors of which, UTI and LIC alone hold 16.5 per cent and 15.4 per cent respectively, they may even approach FIIs/NRIs/OCBs who hold more than 4 per cent of Indal's equity. Further, despite an unattractive offer, they are hopeful of getting a good response from GDR holders whose stake is put at over 12 per cent. The purchase price of Rs 90 a share to the GDR holders, if accepted would mean that the GDR holders who coughedup $10.15 a piece (then Rs 31 to a dollar) would be indulging in a heavy distress sale. So what is the gameplan? In fact, Sterlite's management privately admits that they are willing to acquire even the entire equity of Indal whose current market capitalisation is around Rs 570 crore. However, what they want immediately is a `controlling interest' which according to them is at least 1 per cent more than Indal's Canadian promoter Alcan's stake of 34.6 per cent. This means that Sterlite would be buying out at least 25 million shares through the proposed `public announcement' at a cost of Rs 225 crore even though the company has indicated an offer of only 7.1 million shares at a cost of Rs 64 crore. Can Sterlite divert such a large amount for the acquisition of Indal shares without its shareholders' approval? In Jain's view, without the shareholders' approval, Sterlite can utilise 30 per cent of its present net worth of Rs 1,066 crore which amounts to about Rs 320 crore if the company can get an unanimousapproval from the directors at a board meeting.
This implies that with just a board approval, Sterlite can divert Rs 320 crore of its net worth which can buy out 35.5 million Indal shares, that is as much as 0 per cent of the total equity of Indal. This probably answers why, unlike in Malco, the promoters are not directly take a stake in Indal but, have chosen to acquire Indal through Sterlite. Will Alacan agree to, what appears to be, a determined `friendly takeover bid' by Sterlite?
Alcan's past behaviour does not facilitate any clue. If Sterlite sources are to be believed, Anil Agarwal approached Alcan for the first time in 1987-88. Since then, he has been trying to establish some `working relationship' with Alcan specially in their Indian arm, Indal. But, Agarwal got only a lukewarm response from the Canadian company. Perhaps, having lost patience and realising the potential of Indal, whose production capabilities are worth more than Rs 3,000 crore in present cost, Agarwal has decided obviouslyon an onslaught in the open market.
In his calculation, through the proposed public offer, he could control the Rs 3,000 crore worth company with an investment of less than Rs 300 crore.
On the suspected cornering of Indal shares between January 28 and February 6 by vested interests with prior knowledge, Jain of Sterlite argues that it is not possible. He confides that the deal was known only to himself, Kannan of Imperial and Vallabh Bhansali of Enam. So Jain's logic is that if there has been any alleged insider trading then the needle of suspicion points to the trio aiding Agarwal. Of course, the market does not rule out the possibility of all four of them directly or indirectly being involved in some sort of insider trading, given their close and active association with the secondary market.
(Syndicated by Investar -- The Aarthik News & Research Syndicate)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
