Essel Wants To Excel In Infrastructure

By Author: mergersindia K
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Facts of the transaction
IVRCL shot into limelight after Subhash Chandra-promoted multi-activity Essel Group picked up stake in Hyderabad-based infrastructure developer IVRCL Ltd and offered to buy out the promoters of the company. The two Essel Group entities -Asian Satellite Broadcast and Jay Properties –increased their stake to 12.27% from secondary market where as IVRCL promoters Sudhir Reddy and his associates own just 11.2 per cent at the moment.
Essel Group has publically expressed its interest in picking up more stake in IVRCL, and with it, its ownership.
However, IVRCL’s Balram Reddy told news agencies recently that the company is “ready to resist the (takeover) move to any extent.”

Purpose of acquisition by Essel Group

For the Essel Group, which runs a fairly successful infrastructure business, the initiative means acquisition of assets and business that show a lot of potential.
If the Group manages to pick up majority stake, it would add strength to its infrastructure portfolio, particularly in the water space. The water industry in India has witnessed tremendous growth ...
... in the past several years and several companies have announced expansion activities to keep abreast with demand for water infrastructure.

Chandra wants to make it (Essel Infra) big enough so it will continue to expand on its own stream and give the regular returns. The idea for Chandra would be to acquire IVRCL and reverse merge the company into Essel infra projects to create an integrated infrastructure player and derive the best value for his consolidated company.

The acquisition of a controlling stake in IVRCL will also help Essel take control of two more listed entities - IVRCL Assets and Hindustan Dorr Oliver - as well as closely-held UK-based company Devi Markham.

IVRCL promoter’s unduly low promoter’s stake
IVRCL has been particularly vulnerable for many years because of the very low promoter shareholding in the company. And with the company market value has crashed, it’s also going extremely cheap.

IVRCL’s promoters collectively hold 11.8% but that may not be the only part of the shareholding they have influence over- ‘other corporate bodies’ hold about 20.71%.

Essel already owns more than the promoters
No one can hope to control the company with a mere 12% holding. They will need the support from the other shareholders i.e. Financial Institutions/corporate bodies.

Whether Essel can run the business without present promoter?
Even though Essel is yet to announce plans to acquire management control in the infrastructure firm, IVRCL suspects that the Mumbai Company may be already on the job.

Market analysts said Essel may further increase the stake and claim management control. Sailesh Kanani, Research Head, Violet Arch Securities said 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.
No one can hope to control the company with a mere 12 % holding. They will need the support from the other shareholders i.e. Financial Institutions/corporate bodies.

Conclusion
Small Stake of promoter’s is very difficult to save from hostile takeover, until and unless, the company benefits the residual investors.

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