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Backstory: When Anand Mahindra stepped in to rescue Gesco from hostile takeover

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Gesco’s problem was its tiny market cap of around Rs 23 crore and the equally small 15 percent stake with which the promoters controlled the company. Given the circumstances, it was a perfect sitting duck for a raider who could find some value in the company.

Backstory: When Anand Mahindra stepped in to rescue Gesco from hostile takeover
In July 2000, Gesco Corporation was a newly set up real estate company, a part of the larger Sheth group which also owned Great Eastern Shipping. While its profits were low, just Rs 5.14 crore for FY1998, it had some excellent properties in prime locations in Delhi, Mumbai, Bangalore, and Pune, adding up to an asset base of Rs 152 crore. Gesco’s problem was its tiny market cap of around Rs 23 crore and the equally small 15 percent stake with which the promoters controlled the company. Given the circumstances, it was a perfect sitting duck for a raider who could find some value in the company.
The undervalued company caught the eye of Abhishek Dalmia, son of Ajai Hari Dalmia, the founder of Orissa Cement Ltd (OCL) and a self-confessed Warren Buffet fan who had previously bought into other undervalued scrips of companies like Great Eastern Shipping and EIH Ltd. In 1999, the younger Dalmia had forayed into real estate by setting up Renaissance Estates Ltd and in July 2000, he started mopping up shares of Gesco.
Over the next three months he and his associates accumulated 10 percent of the company’s stock and with that in hand on October 18, 2000, he duly notified the company, the Bombay Stock Exchange, and the Securities and Exchange Board of India (Sebi). Subsequently, Dalmia made an open offer to acquire an additional 45 percent at a price of Rs 23 per share.
Ghanshyam Sheth, who managed Gesco at the time, hadn’t envisaged facing a hostile takeover of any kind. In desperation, he turned for help to Kotak Mahindra and also approached Deepak Parekh, the CEO of HDFC Bank, for his advice. Parkeh, whose bank had also given a line of credit to finance the transaction, connected Sheth with Anand Mahindra. Following a series of discussions, Mahindra stepped in to rescue Gesco through his group company Mahindra Realty and Infrastructure Developers (MRID). Together, the two companies now made a counter-offer of Rs 36 per share even as Dalmia had upped his offer to Rs 27.
The bidding war continued for the next few months and ultimately the two sides reached a compromise with the Sheth-Mahindra combine buying out Dalmias' 10.5 percent stake at Rs 54 per share to take their holding in Gesco to 30 percent though the larger part of that — 17 percent — now rested with MRID. Ghanshyam Sheth managed to hold on to his company though his family’s share went down to 13 percent.
Dalmia, whose average acquisition price had ranged between Rs 22 and Rs 25, made a killing on his investment. For Gesco’s shareholders too, the deal was a bonanza since under the open offer they had the option of selling their shares at Rs 54, a substantial premium over the market price.
Once it was done, the two parties praised each others’ sagacity and also put out an enigmatic statement thanking RSS ideologue S. Gurumurthy: "Both the parties want to thank S. Gurumurthy for taking the initiative to bring about this settlement which is in the interest of both the parties".
—Sundeep Khanna is a former editor and the co-author of the recently released Azim Premji: The Man Beyond the Billions. Views are personal