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The Tug of War over Gesco Corporation

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Case Details:

Case Code : BECG028
Case Length : 9 Pages
Period : 2000 - 2002
Pub. Date : 2002
Teaching Note : Available
Organization : Gesco Corporation, Renaissance Estates Ltd, HDFC
Industry : Financial Services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Sheths Make a Counter Move

On November 5, 2000, the suspense over what the Sheths would do to counter the hostile bid ended partly. The Sheths formed an alliance with the MRID to jointly make a counter-offer.

Playing a key role in bringing the two sides together was Deepak Parekh, CEO, HDFC, which had also given a line of credit to finance the transaction. HDFC requested the Mahindras to form the alliance at the instance of the Sheths. While there was no final word yet on what the price for the joint counter-offer would be, it was believed that after a successful counter-offer, MRID and the Sheths would hold shares in Gesco Corp in a ratio of 3:2. Analysts felt that the HDFC masterstroke to get the two parties together was prompted by the institution's belief that there should be a consolidation in the construction business. Commented a top HDFC Official, "The stronger companies should come together in the construction business...

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Dalmia Prepares for a Counter Offer

In the meantime, the Dalmia group was planning to raise its offer price of Rs 27 by November 20. Said Band, "We are definitely in the game, and determined to take control of Gesco Corporation. We will take a final decision on the price after seeing the fine print of their (the Sheths-Mahindras combine) public announcement.

Since we would be mailing the offer notice to Gesco shareholders on November 20, in all likelihood we would have decided on the revised price by then." he added. The Dalmia camp, as a counter strategy to the Sheths-Mahindras offer, was also considering coming out with a statement to Gesco shareholders highlighting the difference in the quality of management. The Dalmias were likely to highlight that the Sheths' white knight, MRID, was a loss-making company and had huge negative cash flows. (MRID posted losses of Rs 17.85 crore in 1999-2000, and cash flows were a negative Rs 59 crore in that period). Said Band, "The quality of real estate assets of Gesco are far superior to that of Mahindra Realty...

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