Takeover of Raasi Cements by India Cements

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The Takeover of Raasi Contd...

Raju's efforts to find a 'white knight' didn't succeed either. R. Kunjitapadam, technical adviser and vice chairman, Raasi, said, "Some companies did try to help us out of the crisis. We were looking for assistance in the form of a white knight, or joint participation in developing the company further, and parting at a later date." Raasi approached three sources - Kumar Mangalam Birla (Chairman, A.V.Birla Group), GACL and Switzerland's Holder Bank.

Birla wanted a 51% stake while GACL seemed to prefer a takeover. Raju then made a final attempt by talking to Holder bank, but the latter wanted to merge Raasi with its Indian enterprise, Kalyanpur Cements. Raju expected help from the Andhra Pradesh government and other state industrialists who were against ICL's takeover bid. However, Mr. Chandra Babu Naidu, the Chief Minister of Andhra Pradesh, refused to meet a delegation of state industrialists who wanted to present Raju's case. His only comment to the sale of APIDC's stake in Raasi was, "The old man will be unhappy". In March 1998, realizing his predicament, Raju began to negotiate with Srinivasan to sell his 33% shares in the company. In an exclusive interview to Business India Raju said, "Though I had 33% of the shares and associates held 10%, I needed another Rs.1 billion for 51%. I did not want to incur further debts. It will take me ten births to repay them. Let this child of mine be happy, even if it's with a new owner."10

After protracted negotiations with an ICL team which flew down from Chennai to Hyderabad, Raasi decided to let ICL buy its shares at Rs.286 a share. In April 1998, Business World reported, "On paper Raju has reaped a harvest of Rs. 1.49 billion on this deal. But after deduction of all dues and shares for friends and relatives from the promoters' stake of 33%, Raju will net only Rs 30 million in his personal account." Commenting on the sell-out, Srinivasan said, "We are happy that Dr B V Raju and his associates have agreed to sell their stake in Raasi Cement.

The consolidation process will be beneficial to both companies as it would result in production, marketing and distribution synergies." "At a later date, we plan to merge both the companies"¹¹, he added. The takeover of Raasi by ICL led to a new controversy over the ownership of SVCL. SVCL was of strategic importance to both ICL and Raju (See box). In early 1998, when ICL made known its intention to take over Raasi, it was believed that SVCL, in which Raasi had a 39.5% stake, would be part of the deal. However, when ICL came up with its open offer for Raasi, it discovered that the latter's entire stake in SVCL had been sold to some of the promoter's group companies.

In late 1997, Raasi had convened a couple of board meetings and its shares in SVCL were divested at Rs10 each, allegedly to Raju's friends and relations. Till the eventual takeover was complete no one questioned this deal. After the takeover of Raasi, ICL examined Raasi's books and found that it had violated the Securities & Exchange Board of India (SEBI) takeover guidelines which prohibited the target management from disposing off any asset during the open offer period. ICL complained to SEBI that Raasi had divested its 39.5% holding in SVCL in favour of nine firms controlled by Raju, in violation of the SEBI takeover code and the Companies Act.

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10] BusinessIndia, April 10, 1998.
11] Financial Express, April 7, 1998.