Takeover of Raasi Cements by India Cements

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Some supplies were transported using the Bombay Port Trust's jetty services in Kerala. But as their market prices were non-competitive, the shipments were stopped. Analysts felt that the attempts by cement producers from the north and west India to transport cement to the south was likely to meet resistance in future especially in the coastal markets.

Demand in this region was driven by the housing sector in Kerala and Tamil Nadu, and large infrastructural developmental work in Andhra Pradesh. During the period 2000-05, demand for cement was expected to grow at 10-12% per annum. With the industry operating at 85% capacity, the regional deficit for cement in the southern region was expected to grow by 20-30% in 2000-05. Therefore, prices were expected to increase by at least 5%-6% p.a. in 2000-05. Analysts felt that the acquisition drives by companies like ICL, Grasim, L&T and GACL in the late 1990s was only the first phase of a long awaited consolidation process in the Indian cement industry. Nowhere in the world were there 117 cement plants spread over 59 companies. They felt that the number of companies would fall to a single digit number by 2005. Companies with smaller capacity would either sell out or close down operations.

The Takeover of Raasi

By January 1998, Srinivasan had accumulated 18.03% of Raasi's equity, both through open market purchases as well as by buying out the stake of an estranged faction of the Raju family. In February 1998, Srinivasan announced an open offer to acquire an additional 20% of Raasi's equity. He offered Rs 300 per share, 72.41% above the stockmarket price of Rs 174 on February 26, 1998. Raasi's shareholders seemed to find it hard to turn down his offer.

On March 1, 1998, the state-owned APIDC sold its 2.13% stake in Raasi to ICL. Subsequently, a Chennai-based stockbroker, Valampuri & Co., cornered 1.40 % of Raasi's equity from the market for Srinivasan, taking ICL's stake in Raasi to 21.56%. Srinivasan was also negotiating with V.P. Babaria, a transporter for both ICL and Raasi, to pick up his 7% stake in the latter. If Babaria sold his stake, ICL's stake in Raasi would go up to 28.56%. With more than 25% of Raasi's equity in his kitty, Srinivasan would be in a position to veto any special resolution put up for the approval of Raasi's shareholders.

A confident Srinivasan told Business Today in Chennai: "Raju cannot wish me away and that's irrespective of the response ICL will elicit for its public offer, which will be open between April 15 and May 15, 1998." Unwilling to take any chances, Raju planned to execute a series of defensive manoeuvers to stall Srinivasan. Raasi could get its shareholders to approve the hiving-off of the 39.5% stake it owned in SVCL.

But this could be opposed by the financial institutions as Raasi had promised BIFR⁹, while taking over the sick company, that it would not dispose of the shares. Raju also had the option of making a counter-offer to his shareholders, and weaning away potential sellers from Srinivasan. But this was an expensive option, (Raju needed approximately Rs 100 crore to make a counter bid) and he did not seem to have the funds to pull it off.

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9] Board for Industrial and Financial Reconstruction.