Essel hikes IVRCL stake as takeover threat looms

Subhash Chandra-led Essel Group is aggressively increasing its holding in Hyderabad-based infrastructure firm IVRCL by making fresh purchases of shares from the open market. In the last few days, Essel Group has increased its holding by 2.08 per cent to take it to 12.27 per cent overtaking the stake of IVRCL promoter E. Sudhir Reddy, who holds 11.18 per cent.

Foreign institutional investors and domestic institutional investors held 37.11 and 5.4 per cent stake in the company respectively as per the shareholding pattern recorded on December 31, 2011. The rest was held by public.

Asia Satellite Broadcast Pvt Ltd and Jay Properties-both Essel Group companies- have intimated to stock exchanges that they had purchased 55,60,000 shares, representing 2.08 per cent of the total equity of IVRCL. IVRCL shares have gone up by more than 17 per cent since March 28 after the announcement made by Essel on stake acquisition. IVRCL's shares closed with a gain of 2.67 per cent at Rs 71.20 on Wednesday. The company scrip has increased by more than 17 per cent since the first announcement was made by the Essel group on March 27. Securities and Exchange Board of India takeover guidelines allow 25 per cent stake. It is being expected that Essel will gradually acquire 25 per cent stake before making an open offer to take over IRVCL.

Last year, a Sebi panel on new takeover regulation had recommended an open offer for buying up to 100 per cent in the target company while suggesting an increase in the trigger limit to 25 per cent. While the recommendation on trigger was accepted, the suggestion for offer size has been kept lower due to intense opposition from industry and other market participants.

Sailesh Kanani, research head, Violet Arch Securities, said that the stake increase cannot be seen as a financial investment. "Now that they (Essel) have more stake than IVRCL promoters, the logical conclusion is management control. Essel eventually may increase its stake to 25 per cent and go for open offer," Kanani said.

This hostile takeover bid has now fuelled a south vs north war with owners of several infrastructure companies from Andhra taking side of Reddy to prevent a takeover.

According to analysts, some institutions which hold stake in IVRCL are not happy with the company's performance under the present management and are seeking a change in management.

Chandra is eyeing IVRCL because the company's fundamentals are strong and it will complement Essel's infrastructure business. Through IVRCL acquisition, Essel is also looking at controlling two more listed companies IVRCL Assets and Hindustan Door Oliver as well as closely-held UK-based company Devi Markham.

Chandra's sudden move has united Andhra Pradesh-based infrastructure companies who are now mobilising funds to support Reddy to thwart the takeover bid from a 'north Indian company'.

A senior IVRCL official told journalists that the company has received support from other infrastructure companies in the region to counter the hostile takeover attempt. Reddy is also reportedly kept his plans under the wrap and has not revealed his counter strategy.

However, analysts said that since both parties have taken a position, it would be interesting to watch the takeover drama that would unfold in the coming days. IVRCL reported net profit of Rs 6.79 crore for the third quarter ended December 31, 2011, down 84 per cent over the same quarter last year.

IVRCL's total income decreased by 15 per cent to nearly Rs 1,203 crore in the quarter. Though the Essel Group has not yet publicly admitted about the take over bid, its statement after the stake acquisition makes its intention clear.

"In line with its philosophy to grow its infrastructure business to match and benefit from the rising proportion of infrastructure investment by India, the Essel Group has acquired a 10.19 per cent stake in IVRCL Ltd and is keen to increase it and is in the process of increasing it," Himanshu Mody, head group finance and strategy, Essel Group, had said last week.

"The Essel Group sees exciting business possibilities to expand its infrastructure portfolio through this investment," Mody had added.

Courtesy: Mail Today