BACKSTORY: When D-Mart founder Radhakishan Damani locked horns with BAT, ITC

Updated : January 21, 2021 03:24 PM IST

Radhakishan Damani’s dream of owning a controlling stake in VST remained unfulfilled.

Next month, it will be 20 years since Radhakishan Damani, counted among India’s savviest stock market investors, stunned the market by making a hostile bid for cigarette maker VST Industries, owned by British American Tobacco (BAT).

Through his investment arm Bright Star Investments, Damani had by then accumulated roughly 15 percent in the company during the previous year, at an average price of Rs 88 per share. In February 2001, Damani said he was willing to pay Rs 112 per share for an additional 20 percent in the company, a 26 percent premium to the market price on the day of the bid. Even Damani’s closest associates were surprised by this act of aggression, completely at odds with his soft-spoken and reclusive nature.

A messy bidding war ensued, as ITC—with tacit support from BAT—entered the fray to thwart Damani from taking control of VST. And it soon became evident that there were far too many obstacles—regulatory and cultural—for Damani to be able to walk away with his much-coveted prize. ITC initially made an open offer at Rs 115 per share and later increased that to Rs 126 per share. Bright Star eventually raised the price and size of its bid—Rs 151 per share for 30 percent of the company—but failed to win over banks, insurance companies and financial institutions which together held 22 percent in the company.

On the face of it, VST appeared a good investment. Cash flows in the tobacco business were good and the entry barriers, high.

Some market watchers felt Damani wanted to draw attention to the fact the stock was undervalued. By provoking a bidding war, perhaps Damani hoped to boost the stock's market value.

His associates said Damani did not underestimate BAT’s clout to hit back, but was betting that BAT would not be able to counter-attack quickly enough, given the policy restrictions on foreign tobacco companies increasing their investments in India.

Yet, nothing went right for Damani from the time he made the open offer in February. ITC, through its investment arm Russell Credit, made a counteroffer for VST, and this was approved by SEBI. In contrast, the approval for Bright Star’s open offer was delayed, and one of the reasons cited was a regulatory probe into Damani’s possible involvement in the stock market crash a few months earlier.

Despite Bright Star offering a better price than ITC, financial institutions refused to side with Damani, a decision that could have to do with political reasons rather than an investment view.

Finally, when Bright Star’s open offer commenced, VST advanced its book closure date by a day just before the last date of the open offer. Bright Star and its investment banker ASK Raymond James cried foul, alleging that it was a deliberate move to foil investors looking to buy VST shares from the open market and tender them in the open offer.

Through the open offer, Bright Star managed to increase its stake from 15 percent to around 20 percent, but Damani’s dream of owning a controlling stake in VST remained unfulfilled.

Over the years, Damani bought an additional 5.08 percent stake in the company in his individual capacity, and now owns a little over 31 percent, taking into account Brightstar's stake as well.

The stake is worth around Rs 1750 crore at current market price.

BACKSTORY: When D-Mart founder Radhakishan Damani locked horns with BAT, ITC

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