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FIs and takeovers
Corporate India appears to be confused on what factors the success of a takeover bid should hinge upon. While commonsense tells you that returns to the investor should be the clincher, digressions by way of `quality of management' and even parochial considerations are being given weightage to decide the issue in favour of takeover subjects. Indal, for one, is loudly proclaiming its management virtues to drum up institutional support to thwart Sterlite's bid. If Indal's management was all that smart, its return on capital employed would not be so low. On the other hand, we have Andhra Pradesh's business community taking up cudgels on behalf of Raasi Cements.Assume for a moment that the financial institutions do buy Indal's `good management' line and ask Sterlite to back off, does that mean in future the institutions are to play the role of arbitrators in such cases? Such allowances, if they are made, are ominous for investors and will prevent them from realising potential returns. The FIs appear undecided,and preoccupied with non-issues. Quality of management, bad or good, should not be the benchmark for deciding whether to go along with a takeover bid or not. Indal should be asked to better Sterlite's offer price. Ditto in the case of Rassi Cements. The FIs should let go to the highest bidder. Such auctions will help maximise returns for their shareholders too, and the only exceptions should be in those cases where the incoming management has a history of default. Takeover bids should be seen as pure business decisions, uncoloured by issues of "morality". If there is money to be made, a takeover must be allowed to go through successfully. Let not obscurantism come in the way of investor returns.
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