Read on Twitter
Alright, so who here is interested in a thread about the original Indian unicorn? You see, pre 2010, well before central banks were printing currency like it was toilet paper, the definition of a unicorn
was a wee bit different. (1/n 
)
was a wee bit different. (1/n )
A unicorn was that rare acquisition that worked! where the buyer wasnt loaded with tons of debt or bid up an unviable price. An acquisition where everyone made money.
India Inc. had one such in Oct 2004, when L&T Cement became Ultratech cement, KM Birla's default cash cow. 2/n
India Inc. had one such in Oct 2004, when L&T Cement became Ultratech cement, KM Birla's default cash cow. 2/n
And here is the strange bit. The Birla's came into the picture (or visibly into the picture) only in the final acts of this play.
Act1 started way back, in Aug-1987 when a certain Manu Chhabria (see pic) acquired 1% of L&T shares via the open mkt (3/n)
Act1 started way back, in Aug-1987 when a certain Manu Chhabria (see pic) acquired 1% of L&T shares via the open mkt (3/n)
Chhabria was a known corporate raider. So the L&T Chairman NM Desai panicked and asked investment advisors for defensive strategies to keep L&T secure.
Two ideas were tabled:
1). Issue 10% equity to employees, thus reducing Chhabria's holding
2). Find a white knight (4/n)
Two ideas were tabled:
1). Issue 10% equity to employees, thus reducing Chhabria's holding
2). Find a white knight (4/n)
The L&T Board thought "Issue shares to people who work for us? Who does that kinda crazy ass shit!! Thats absurd!!
Lets go find a white knight instead"
Enter - Dhirubhai Hirachand Ambani (5/n)
Lets go find a white knight instead"
Enter - Dhirubhai Hirachand Ambani (5/n)
So the Ambani's acquired 18.5% of L&T via the open mkt for Rs190Cr.
They bought these stakes from NBFCs like IDBI, ICICI, GIC with a newly created Bank of Baroda subsidiary - BoB Fiscal playing the middle-man.
Bear in mind, this is 1988. SEBI was formed in 1989. (6/n)
They bought these stakes from NBFCs like IDBI, ICICI, GIC with a newly created Bank of Baroda subsidiary - BoB Fiscal playing the middle-man.
Bear in mind, this is 1988. SEBI was formed in 1989. (6/n)
As the single largest shareholders, the Ambani's had 4 seats on the L&T board. And L&T was cash-rich!
Time to make it rain!!
In Apr-89, L&T raised Rs92Cr of debt. By Jun-89, its used Rs76Cr of it, to buy RIL shares from firms close to the Ambanis (again via BoB Fiscal) (7/n)
Time to make it rain!!
In Apr-89, L&T raised Rs92Cr of debt. By Jun-89, its used Rs76Cr of it, to buy RIL shares from firms close to the Ambanis (again via BoB Fiscal) (7/n)
Naah...Rs76Cr wasnt much of a rain.
It was just a drizzle.
The rain began in Aug-89
L&T raised Rs820Cr via debentures, and promptly extended Rs580Cr as suppliers credit to RIL, for RIL's Hazira project where L&T was the chief contractor.
Meanwhile, the L&T shareholders 8/n
It was just a drizzle.
The rain began in Aug-89
L&T raised Rs820Cr via debentures, and promptly extended Rs580Cr as suppliers credit to RIL, for RIL's Hazira project where L&T was the chief contractor.
Meanwhile, the L&T shareholders 8/n
The party had just gotten started, except Rajiv Gandhi & the Congress party got voted out, and VP Singh became Prime Minister on 2-Dec-89.
On 22-Dec-89, the director of our favourite NBFC- BoB Fiscal - Mr Premjit Singh had to go on a long leave. (9/n)
On 22-Dec-89, the director of our favourite NBFC- BoB Fiscal - Mr Premjit Singh had to go on a long leave. (9/n)
I mean, an involuntary long leave.
And then VP Singh instructed Life Insurance Corp, India's largest public equities investor, to consolidate holding in L&T and start blocking the Ambani's in the L&T boardroom.
The suppliers credit of Rs560Cr given to RIL was reversed. 10/n
And then VP Singh instructed Life Insurance Corp, India's largest public equities investor, to consolidate holding in L&T and start blocking the Ambani's in the L&T boardroom.
The suppliers credit of Rs560Cr given to RIL was reversed. 10/n
DN Ghosh, ex SBI-Chairman was appointed as chairman of L&T. He offloaded all the RIL shares that L&T had been forced to buy, stalled all L&T funded credit lines to RIL and focused on growing L&T order book.
Cut-to Nov 1990, VP Singh's rag-tag coalition govt lost power. 11/n
Cut-to Nov 1990, VP Singh's rag-tag coalition govt lost power. 11/n
Chandra Shekhar is the new Prime Minister, with an even shakier coalition. He needs money and support.
And so, on 11th Feb 1991, on Anil Ambani's wedding he sends a very expensive gift to the father of the groom.
DN Ghosh's resignation from L&T. 12/n
And so, on 11th Feb 1991, on Anil Ambani's wedding he sends a very expensive gift to the father of the groom.
DN Ghosh's resignation from L&T. 12/n
By now the Indian economy is legit rogered. So Dhirubhai, while grateful for this generous gift, doesnt have much capital to use it.
June-91, Chandra Shekhar out. PV Narsimha Rao is new PM.
The 4th PM in this saga. Rajeev Gandhi-VP Singh-Chandra Shekhar-PV Narsimha Rao 13/n
June-91, Chandra Shekhar out. PV Narsimha Rao is new PM.
The 4th PM in this saga. Rajeev Gandhi-VP Singh-Chandra Shekhar-PV Narsimha Rao 13/n
In Jun-91, Reliance had scheduled an Extraordinary General Meeting for Aug-91, to reinstate Dhirubhai in the L&T Board via a vote. They had 33% of the shares by then.
But India has a balance of payments crisis, and the prime minister has a slim majority in the parliament. 14/n
But India has a balance of payments crisis, and the prime minister has a slim majority in the parliament. 14/n
And so there is no overt support for Dhirubhai anymore. The finance minister is a political newbie, an economist called Manmohan Singh, who instructs LIC to seek an adjournment for this EGM.
Dhirubhai can read the tea leaves from a mile away. 15/n
Dhirubhai can read the tea leaves from a mile away. 15/n
He knows this tussle has run too long. And it's near impossible for a democratically elected prime minister to overtly support him in the battle for L&T.
Reliance drops all resolutions to reinstate the Ambanis into L&T's boardroom.
Meanwhile, AM Naik becomes L&T CEO 16/n
Reliance drops all resolutions to reinstate the Ambanis into L&T's boardroom.
Meanwhile, AM Naik becomes L&T CEO 16/n
Ambanis go into passive mode.
Enter Birlas.
They had steadily built up cement capacity of 13mtpa, when all India cement capacity was at 110mtpa. There was only one player bigger than the Birlas in cement.
L&T with 15mtpa capacity. 17/n
Enter Birlas.
They had steadily built up cement capacity of 13mtpa, when all India cement capacity was at 110mtpa. There was only one player bigger than the Birlas in cement.
L&T with 15mtpa capacity. 17/n
Dhirubhai knew that Birlas would pay the best price for his L&T stake.
Which they did in Nov-2001. Bought out the Ambani's remaining 10.5% L&T stake at a whopping 48% premium to the market price!
Ambani's rake in Rs766Cr, which funds their first telecom foray in 2002. 18/n
Which they did in Nov-2001. Bought out the Ambani's remaining 10.5% L&T stake at a whopping 48% premium to the market price!
Ambani's rake in Rs766Cr, which funds their first telecom foray in 2002. 18/n
Birlas waste no time & increase their stake to 14.5%. On Oct-2002, they announce an open offer for 20% of L&T shares at a 12% premium to mkt price.
But Anil Manibhai Nayak, the newly minted L&T Chairman, first L&T employee ever to make it to this post, is no push over.
19/n
But Anil Manibhai Nayak, the newly minted L&T Chairman, first L&T employee ever to make it to this post, is no push over.
19/n
Naik is happy to carve out L&T Cement for the Birlas. But he wants it done at a price & terms that L&T should get to decide, not what the Birlas decide by controlling the L&T Board.
So he does what his predecessors should have done 13yrs ago in 1988. 20/n
So he does what his predecessors should have done 13yrs ago in 1988. 20/n
He sets up the "L&T employees welfare foundation" as a private trust and L&T extends a loan to it.
The trust uses this loan to buy up 15% of L&T. Finally, Naik has supporters in the Boardroom. Someone on the Board, he controls, who cant get bought out by the Birlas 21/n
The trust uses this loan to buy up 15% of L&T. Finally, Naik has supporters in the Boardroom. Someone on the Board, he controls, who cant get bought out by the Birlas 21/n
And on this even footing, Naik begins negotiations with Birals. On Govt's direction (Vajpayee is the PM btw), ICRA has given a value of Rs310/share to L&T's complete enterprise.
Now Naik & Birla must decide how much of this 310 is cement and how much is the rest of the biz. 22/
Now Naik & Birla must decide how much of this 310 is cement and how much is the rest of the biz. 22/
The Birlas finally acquired L&T Cement for a price of ~Rs4000Cr in June-2003, of which Rs1680Cr was debt. They hoped to break even on this investment in 4years, an ambitious target for such a huge outlay.
But, India has an infra-boom, & they recoup this money before 2006. 23/
But, India has an infra-boom, & they recoup this money before 2006. 23/
Under the diversified L&T umbreall, L&T cement had a very modest 4% RoI.
The Birla's were clear that Cement would be their mainstay for years ahead, and they unlocked a lot more value out of it.
The Ultratech P&L tells a good story!
**cough cough **price cartel ** /24
The Birla's were clear that Cement would be their mainstay for years ahead, and they unlocked a lot more value out of it.
The Ultratech P&L tells a good story!
**cough cough **price cartel ** /24
This was probably one of those rare occasions that Reliance had to accept such a public defeat.
Though "Defeat" is subjective. They made a cool 100%+ return on their L&T stake. /25
Though "Defeat" is subjective. They made a cool 100%+ return on their L&T stake. /25
Btw 2001-03 was the era of some #Epicfail acquisitions. AOL-TimeWarner ($54bn writedown), HP-Compaq($12bn writedown).
And in the midst of it, happened Ultratech, the stuff you only read in textbooks & fairytales, where everyone got to make money.
Truly a unicorn! /end
And in the midst of it, happened Ultratech, the stuff you only read in textbooks & fairytales, where everyone got to make money.
Truly a unicorn!
/end
