Clash Of The Titans.

     The world over, corporate takeover battles have always been the stuff that legends are made of. Rival companies often put billions of dollars at stake as they spar with each other to gain control of a vulnerable target company. These adrenaline-and-testosterone fuelled battles have always made headlines, with CEOs putting their companies’ money and their egos on the line, as they try to outbid each other, all in the race to be the king of the hill. Over the years, the corporate world has witnessed some classic battles such those for the control of RJR Nabisco, NatWest Bank and Corus Steel. Both America and Europe have seen their fair share of takeover battles but there might be one such war brewing a lot closer to home.
     East India Hotels (EIH) Limited is the flagship company of Prithvi Raj Singh Oberoi (PRS Oberoi, also known as Biki Oberoi) and it is the third largest player in India’s hospitality sector. EIH and its subsidiary, Trident Hotels, own and operate a chain of hotels and resorts across the country, in addition to a pair of cruise ships on the Nile. When it comes to the hotel business in India, EIH trails Indian Hotels, which operates the Taj, Vivanta and Ginger chains of hotels and ITC, which is second in the pecking order. EIH has some of the world’s top-rated resorts and hotels in its portfolio but an ageing promoter and a weakening balance sheet have rendered it vulnerable to a hostile takeover. And like a shark that smells blood, a raider has closed in on it.
     PRS Oberoi owned a sub-50% stake in his company and ITC, over the years, had been buying into EIH. By 2010, ITC’s stake in EIH stood at 14.98%, just a whisker below the 15% level, which would have triggered the open offer mandate. SEBI (Securities and Exchange Board of India) guidelines stated that an entity that acquired a 15% stake in a public limited company had to make an open offer to the latter’s minority shareholders to increase its shareholding in the target company, in order to eventually hold a 51% stake. Already, ITC had clawed its way up to a 14.98% stake through open market acquisitions (also termed the ‘creeping acquisition’ route) and Oberoi was fully aware that it was but a matter of time before ITC would storm the gates of EIH.
     Oberoi had to find a way to hold his fort and to his credit, he did just that. In June 2010, in a move that took the Street by complete surprise, Oberoi announced that he had divested a 14.99% stake in his company to Reliance Industries Limited (RIL). Oberoi, who wouldn’t have been able to hold back ITC in the event of a hostile takeover, had fallen back on the financial muscle of Reliance and Mukesh Ambani. EIH allotted a pair of board seats to RIL and Nita Ambani was inducted into the EIH board. In order to thwart any attempts that ITC would make to acquire EIH, Oberoi had roped in Ambani as his proverbial white knight.  
     However, the dynamics of the situation changed when SEBI raised the open offer trigger from 15% to 25%. The move gave both RIL and ITC elbow room to pick up further stakes in EIH and when it came to capitalizing on the opportunity, neither company was a laggard. RIL increased its stake in EIH to 18.5% and ITC now holds around 16%. The promoter family continues to hold the majority stake of just over 35% but the company’s deteriorating financials impede them from augmenting their shareholding. Y.C.Deveshwar, the chairman of ITC, has always maintained that ITC’s stake in EIH is purely a ‘treasury operation’, while RIL has disclosed that it has no intention of acquiring EIH and usurping management control.
     The RIL-ITC stalemate, however, has another dimension. Hotel Leelaventure Limited is the company that owns and operates the chain of Leela hotels. ITC has already planted its flag atop Hotel Leela, having acquired a 14% stake in the company. Today, Hotel Leela is in deep water, with its balance sheet loaded with a debt of over Rs. 4000 crores. The company has already been referred to the CDR (corporate debt restructuring) cell and with each passing quarter, its margins and profits are shrinking, leaving the door wide open for ITC to potentially acquire the company and wrestle away management control. Captain Nair, the promoter of Hotel Leela, has stated that he would consider approaching Mukesh Ambani, in the event of ITC launching a hostile takeover bid but the chairman of Reliance, on his part, has chosen to remain tight-lipped so far. In the recent past, ITC has been steadily buying into Hotel Leela and increasing its stake in the company. Indeed, it may not be too long before the inevitable happens and ITC moves in for the kill.
     Even though both EIH and Hotel Leela are under considerable financial pressure, they do own some of the best hotels and resorts in the world, making them attractive and lucrative targets. Needless to say, ITC and RIL have enough financial firepower to acquire and digest both EIH and Hotel Leela. After all, ITC’s cigarette business and RIL’s oil-and-gas business produce far more cash than the companies need and both companies have been ploughing the cash into their lines of business. While ITC has been growing its FMCG business, RIL has forayed into retail. ITC has also chalked out a strategy to diversify into the milk and dairy business in the near future. Ambani, on the other plans, has grand plans of his own to launch a 4G telecom venture.
     The twist of interest in the RIL-ITC story would be the takeover battle for the hotel chains of EIH and Hotel Leela. While RIL is perceived as the white knight, ITC has donned the hat of the corporate raider. With thousands of crores of rupees of free cash at the disposal of both companies, money certainly will not prove to be a constraint for these juggernauts. In the near future, the RIL-ITC stalemate could explode into an all-out takeover battle for either EIH or Hotel Leela. And if that happens, India Inc. will indeed bear witness to.....a clash of the titans.

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