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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"We will stay as long as the price is economically viable, even though we are committed to taking control of Gesco. If they announce a knock-out price and we are forced out of the game, we will remain in the company as minority shareholders and with enough stake to have an influence on management decisions."

- John Band, CEO, ASK-Raymond James, the investment banker for Dalmia group involved in acquiring shares of Gesco Corporation.


On July 21, 2000, at the Gesco Corporation1 (Gesco Corp's) annual general meeting (AGM), a shareholder stood up and asked executive vice-chairman, Sudhir Mulji (Mulji) a question: "If your market cap is so low (Rs 23 crore on that date) and the promoter stake less than 15%, isn't Gesco Corp a sitting duck for a raider?"

Mulji seemed to have taken it lightly and responded, "If there's a takeover bid, I will welcome that since shareholders will gain."

Mulji and Ghanshyam Sheth (Sheth), CEO, Gesco Corp, should have taken it seriously for, seated among the shareholders was Sanjay Bakshi (Bakshi), an Abhishek Dalmia2 (Dalmia) confidante. Even as Mulji did not take the matter seriously, Dalmia was busy mopping up shares of the Sheth-managed company. By October 2000, Dalmia and his associates had cornered 10.5% of Gesco Corp stock. On October 18, Dalmia made an open offer of Rs. 23 through his company-Renaissance Estates Ltd. for acquiring an additional 45% of Gesco Corp shares.

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On October 21, the offer price was raised to Rs. 27. If Dalmia got thorough with the offer, his stake in the company would cross 55%. The fear of losing a newly spun off company, made the Sheths look for help.

Sheth approached HDFC CEO Deepak Parekh (Parekh) for advice who in turn put him in touch with the Mahindras. Anand Mahindra's Mahindra Realty and Infrastructure Developers (MRID) joined the Sheths in making a counter-offer of Rs 36 per share versus Dalmia's Rs 27. This drama of offer and counter offer continued for some time. However, in January 2001, one of the most engrossing corporate battles came to an end. (Refer Exhibit I & II for chronology of events and offer guidelines). The Sheths-Mahindras combine and the Dalmia group announced they had reached a settlement in the battle for Gesco Corp, with the combine buying out the Dalmias' 10.5% stake at Rs 54 per share. Following the deal, the combine's stake in Gesco Corp went up close to 30% (MRID 17% and the Sheths 13%).

The Tug of War over Gesco Corporation - Next Page>>

1] Formerly the property division of The Great Eastern Shipping Company Ltd, (Gesco) the company was formed after its demerger from Gesco on February 10, 2000 to form Gesco Corporation Ltd.

2] Abhishek Dalmia was the son of Ajai Hari Dalmia whose father was the founder of Orissa Cement Limited (OCL). In 1999, the family business had split and Ajai Hari was given the company's business in the US and UK-Utkal Investments with interest in trading, real estate, and auto dealerships. Abhishek joined the family business in 1992, and was put through different functions at OCL. In 1999, Abhishek Dalmia floated his own venture-Renaissance Estates Ltd. In July 2000, Bakshi, also a Director on the Utkal board, made a phone call to Dalmia one Sunday morning to share some juicy details he had picked up from Gesco Corp's annual report. Within hours of discovering that the Sheth company was badly undervalued, the duo decided to start accumulating its shares.


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