And then I think of old George Pollexfen,
In muscular youth well known to Mayo men
For horsemanship at meets or at racecourses,
That could have shown how pure-bred horses
And solid men, for all their passion, live
But as the outrageous stars incline
By opposition, square and trine;
Having grown sluggish and contemplative.
William Butler Yeats : From “In Memory of Major Robert Gregory”
In the avowedly Socialist days of the later Indira Gandhi years, there were two celebrated hostile takeover bids involving Escorts Limited and Delhi Cloth Mills (DCM). Both prominent Delhi-based companies were being run by promoter-directors on the back of very slim residual promoter shareholdings. The tacit understanding with the financial institutions, mostly government owned, that held the bulk of the shares, was that they would be passive, except in matters of the public interest.
Certainly, they were never to threaten the promoter-director “ownership” to effect unwanted changes based on notions of synergy, efficiency, better financial ability, technological advantages and so forth, as these notions were Capitalist, devil-take-the hindmost ones, not likely to promote social equality. The policy framework was reasonably inflexible in its interpretation of the rules that governed the “mixed economy”, put in place by India's chief architect Pandit Nehru, himself.
Enter stage right: Swaraj Paul, now a Lord of the British realm, and then a confidante of all powerful prime minister Indira Gandhi. Paul decided to challenge this cosy assumption by mounting a takeover bid on both the companies. Both were ultimately thwarted by their alarmed promoters, with the help of the self-same Indian government when it was pointed out that allowing Mr. Paul to succeed might set a “bad precedent”. It was, in hindsight, an idea before its time.
Later, in prime minister Narasimha Rao’s term, akin, in India’s economic history, to Sleeping Beauty being awakened by the handsome prince from years of a deep sleep; a new development took place. This was in the first flush of liberalisation, after the restrictive provisions of the Monopolies and Restrictive Trade Practices Act (MRTP), of 1969, were removed at last, in 1991. The 33 per cent foreign shareholder of ITC, British-American Tobacco (BAT), made a spirited attempt to wrest board-room control, as a creeping acquisition manoeuvre was not enough to assure it a majority stake. But this too failed, with a little help from Delhi.
Except, this time, the reasons were far less ideological. The Indian management, backed by the majority shareholders, composed, once again, largely, of the financial institutions and the general public, did not agree with the BAT vision. BAT ostensibly didn’t like ITC’s diversification ideas, and wanted it to stick to tobacco and financial services. The Indian side of the company resisted stoutly. Still, BAT could hardly be blamed for using the issue to try and get back their dominance. It was 1994, and time to take back the control it had been forced to cede in the seventies, along with a large number of big-name foreign companies.
They had all fallen victim to the mighty bludgeon of the MRTP Act aided by the cosh of the Foreign Exchange Regulation Act (FERA), also enacted in the “hard currency” starved sixties. These laws nevertheless came in very handy for some Stalinist intimidation of big business, whenever Delhi felt inclined to do so. And all the government control of the time had a good side too--kicking out IBM with the dilute-or-leave dictation, and their choosing to do the latter, gave wings to a new born HCL, and led to the nascent home-grown software revolution, with Infosys and Wipro as its best known “poster boys”.
But while ITC remains an Indian majority company to this day, happily pursuing its many non-tobacco interests; many others, such as fast-moving-consumer-goods ( FMCG) major Unilever and advertising No.1 JWT, were able to buy back their shares, post liberalisation, with their Indian counterparts only too happy to receive a God-sent windfall profit in exchange.
Later still, the business of mergers and acquisitions (M&A), share buy-backs, raising of promoter stakes, and flotation of new 100 per cent subsidiaries; all became a reasonably welcome part of the corporate lexicon. In fact, the farther we get away from Socialism, with changes in the Companies Act too, enacted in 2003, the less alarming it looks.
Once it began in the nineties, the process snowballed: Standard Chartered bought out and merged ANZGrindlays with itself; in succession to ANZ buying out Grindlays Bank. In the Vajpayee years, Jet Airways bought over Sahara Airlines in a great show of headlines and grins, garlanding and hugging, only for something to go sour for a while with the legal fine print, before being resolved, like a Hindi movie, in the end.
Recently, in the current Sonia Gandhi/Manmohan Singh dispensation, Kingfisher Airlines merged Air Deccan into itself. And this process was more or less smooth, expect for a few grimaces and howls of pain emanating from Air Deccan’s promoter Capt. Gopinath, no doubt struggling to digest his own good sense.
Around the same time, the Arun Sarin led Vodafone of UK, with particular frisson in India because Sarin is indeed a proud son of Punjab, used quite a few of its dollars and pounds to buy-out telecommunications notable Hutch-Essar. There was little demurring from the Indian government—Hutch, and its dog, was foreign anyway; and the Ruia brothers of Essar seemed willing enough, at the right price. The "right price" leveraging may however be the reason for Sarin alleging some desultory interference from North Block. But then, what is high finance without a modicum of high drama?
Essentially, our policy makers have demonstrated nervousness in the face of foreign takeovers. It is the post-colonial nightmare after all. Liberalisation takes some getting used to.
But now, in 2008, we seem to have come of age. We like it enormously when our companies go forth and conquer. We even claim victories for any corporate achievements by the global Indian diaspora, most notably Laxmi Mittal’s wholly Europe-based merger of Mittal Steel with Arcelor. Domestic greats, notably in the TATA Group, have been doing us proud by snapping up quite a few iconic names including Corus Steel of the UK and Jaguar/Land Rover. We don’t like it at all when an Orient Express Group calls TATA names and resists her overtures.
At the moment, we are cheering Bharti and Walmart. We are watching with approval as Reliance Communications (RCOM), talks to merge with MTN of South Africa, interference with first-right-of-refusal litigation from Reliance Industries (RIL), notwithstanding. And we’re glad that Bharti didn’t agree to become an MTN subsidiary after all, because, the urge to regress into notions of economic patriotism is still strong.
So it takes courage and vigour to move India’s corporate history forward one large and irrevocable step. And this has now come in the form of the Singh brothers of Ranbaxy declaring they have sold their entire 38.4 per cent controlling stake to Daiichi Sankyo of Japan. Malvinder and Shivinder Singh have willingly turned Ranbaxy into a subsidiary of the Japanese pharmaceutical company! It is an audacious move, laudable for its stark unsentimentality and modernity.
The Singh brothers will realize Rs.10, 000 crores or USD 2.4 billion for the sale, and benchmark the value of the company, that their family built over more than half a century, at around USD 8.5 billion. The promoters selling off their shareholding has allegedly prompted international drug major Pfizer to go after the remaining financial institutional and public holdings. This will give Daiichi a run for its money. They will have to try harder to effect control, because Daiichi wants 51 per cent via an open offer to the public shareholders and preferential shares promised by the Singh brothers. The biggest pharmaceutical company in India is indeed a worthy prize, and these, in rapid succession, are exciting developments; of the kind that could turn India into a global M&A destination.
The young Singh brothers can put their handsome sale proceeds to good use in their Fortis Healthcare and Religare Financial Services ventures, of course; or start something new. Ranbaxy, the Daiichi subsidiary, will also be the stronger, more competitive and better-funded for its change of ownership.
Perhaps it is time to realise that if the British and the Americans and the Europeans can countenance the sale of their prominent assets to the best bidder, so can we.
This action, on the part of the Singh brothers, is an admirable, non-atavistic move; and has much to teach many other Indian companies struggling with their second-rate profiles and antiquated assets floundering in a rapidly globalising world. Taken to its logical conclusions, this trend could add considerable value to embedded assets, efficiency, competitiveness and world-class standards to India’s corporate scenario; shifting companies and assets to stronger hands, infusing moribund enterprise with new life; and open the floodgates to unprecedented all-around growth.
Our public sector, sluggish and underexploited, currently being prevented from even domestic privatisation by a recalcitrant Left, could benefit enormously too. Not only would this enrich the government with monies that can be used to strengthen infrastructure, health and education, all crying needs of the nation; but it could also go to areas such as defence production, where privatisation and international input could lead to quantitative and qualitative leaps!
It is clear from the ways of the global marketplace that India is now an unshakeable part of, that sometimes the only way forward involves more finances and expertise than one has access to in-house, or indeed in-country. It is seen, again and again, that the “inorganic” growth route of acquisition and merger have actually prevented many proud assets from going under. Far too often, it is the very weight of once-upon-a-time pre-eminence, or relevance, contrasted with a terminal decline brought on by changed times that needs to be addressed. The top 10 Indian corporations of today are hardly those of twenty years ago, and several of them have become multinationals in their own right.
The ability to turn pressure and competitive disadvantage into a triumph, by a boldness of thought is a new Indian option, thanks to the way shown to us by the Singh brothers. Chairman Mao’s “Let a hundred flowers bloom” exhortation comes to mind. His ghost may be bemused to see it put to such capitalist purpose, but, then again, his modern-day Chinese successors would not. After all, they too have come of age and the future is calling.
(1,738 words)
Gautam Mukherjee
Monday, 16th June 2008
Also Published in print in its 1,050 words version in The Pioneer on June 19th,2008 and online at www.dailypioneer.com as "India comes of age".
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