Takeover of Raasi Cements by India Cements

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The Takeover of Raasi Contd...

SEBI ordered an investigation into the legality of this share transfer and the Hyderabad City Civil Court was to judge how fair the transfer was to the shareholder of Raasi. Company sources said that Srinivasan would try to convince the courts that the shares were sold at a throwaway price of Rs 10. This would make the deal detrimental to shareholders' interests under Section 397 of the Companies Act, 1956, which dealt with "prevention of oppression," and defined oppression as "lack of probity and fair dealing in the affairs of a company to the prejudice of its members."

In August 1998, Raju and his associates announced an open offer for a 20 per cent stake in SVCL at Rs 25 per share to increase their share from 39.5% to around 60%. On September 4, 1998, SEBI allowed Raju to go ahead with his open offer. Confident of the success of the open offer Raju increased the original offer price of Rs 25 per share to Rs 100 in September 1998. Meanwhile, in August 1998, Raju also picked up a 26.21% stake in SVCL, buying the shares of Industrial Development Bank of India (13.16%), Industrial Credit and Investment Corporation of India (6.53%), and the Industrial Finance Corporation of India (6.52%).12 With this acquisition he increased his holdings in SVCL to 65.71%. Raju then tried to raise his stake in SVCL to over 90%. If all went well, Raju could delist the company by making another open offer to the remaining shareholders. Even if he had to return the 39.5% stake to Raasi, he would still hold a controlling stake of over 50%.

If SEBI was convinced that the share-transfer was deterimental to the interests of Raasi's shareholders, it had two options. One, the transfer could be reversed: Raju could be legally forced to return the 39.5% stake to Raasi. Or, SEBI could direct Raju to pay the difference of Rs 90 per share to Raasi.¹³

In mid 1999, almost a year after SEBI started its investigations, it was yet to make a public statement on what its investigations had revealed. In October 1999 Raju sold his disputed 39.5% stake in SVCL to ICL. In a compromise reached in Hyderabad, Raju sold his shares for Rs 1.15 billion, at Rs. 120 a share.

Commenting on the surrender, Raju said, "I have had a long and successful innings, but the younger generation of the family is more interested in high technology areas like software. In view of my age and keeping in mind the interest of the stakeholders in SVCL, we decided to divest in favour of ICL."¹⁴ With this, ICL acquired 88.55%¹⁵ of SVCL's paid up capital.

All cases relating to the matter, pending before SEBI were dropped. In December 1999, ICL Securities Ltd. (ICLSL), along with ICL and Raasi made an offer for the purchase of the remaining shares of SVCL (constituting 11.45% of the equity share capital) at Rs. 98.25 per share. By the end of 2000, SVCL became a subsidiary of ICL.

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12] IDBI, ICICI and IFCI are all financial Institutions operating in India.
13] In 1997, Raasi divested its shares in SVCL at Rs 10 each. In 1998, the price had gone up to Rs 100 each. Thus, the difference of Rs 90.
14] Financial Express, October 28, 1999.
15] In October 1999, ICL Securities Ltd., (ICLSL), a wholly owned subsidiary of ICL acquired 49.05% of the equity share capital in SVCL.