Kumar Birla and the art of M&A

It is hard to imagine Kumar Mangalam Birla, 50, the chairman of the Rs 287,950 crore Aditya Birla group of companies, as a marauding, hostile takeover magnate. With an ability to smile instantly, his cherubic face and thick glasses paint a rather pleasant demeanour.

Yet, Birla has set himself one of the best records at winning in some of India’s hotly contested takeover dramas. Birla is recently in the news for raging a battle to take over the beleaguered Kolkata-based Binani Cement, which was auctioned by the National Company Law Tribunal, after the company defaulted on its loans to banks. Birla joined the party late, putting in a bid nearly a month after the bidding process was over. But, as things stand, Birla’s company Ultra Tech, through which the bid was made, stands a good chance to snag Binani.

Says a veteran investment banker and mergers and acquisition expert who has advised Birla on several deals: “Birla is hardly in the market for deals but when he decides to go after an asset, he doesn’t like to fail.”

It all started in the late 1990s, when India was still a nascent market for mergers and acquisition. Then, Anil Agarwal, who had big plans to build a non-ferrous metals business through his company Sterlite, picked up a 10% “friendly” stake in Kolkata-based aluminium product company Alcan. However, Alcan’s parent, Canada-based Alcoa, did not think of Agarwal's move as a friendly one and later,decided to put the local company on the block. Agarwal and Birla fought bitterly over Alcan even though Alcoa appeared more inclined to sell to the latter.

On the penultimate day, when Agarwal’s offer to Alcan’s shareholding was to expire, Birla, advised by Nimesh Kampani of J M Financial, executed a high volume transaction on the stock exchange at a price higher than what Agarwal had offered. The transaction increased Birla’s stake to a point where it became mandatory do make an open offer to the remaining shareholders. Being an all cash transaction, Agarwal quietly withdrew and Birla won Alcan. Says the investment banker: “Birla is always on the lookout for that one master stroke that won’t face a counter offer. He always focusses on that.”

The story repeated again at the turn of the century, when foreign cement companies like Lafarge and Holcim wanted to increase their Indian footprint as they saw it as an emerging opportunity. Birla, who was then among the top four players in the cement market, knew that the entry of companies like Holcim would eventually weaken the position of Indian players. With Gujarat Ambuja and ACC sold to Holcim, Birla's only opportunity was to consolidate by buying out infrastructure gaint Larsen & Toubro’s (L&T) cement business. But A.M. Naik, the fiery chairman and managing director of L&T, was no pushover and was not interested in selling the business as it played a big role in its construction business.

In one swift move, Birla bought a 10% stake that Reliance Industries held in L&T. Though it seemed like a portfolio investment initially, giving Birla’s two representatives on L&T’s board, the move eventually bought Naik to the negotiating table. Naik, at a press conference to make the announcement, likened the sale to giving away a daughter a marriage. The Birla group is now the biggest player in the
cement business in the country.

In all likelihood, Birla's latest tryst for Binani Cement has all the hallmarks of his killer strategy. Though Birla was in the race to buy Binani, the eventual winner was a rival consortium of private equity major KKR and Dalmia Cement. The consortium’s bid was chosen as the highest at the end of February but a month later, Birla offered a little over Rs 1,000 crore more than the consortium's bid and set the cat among the pigeons.

Birla offered to pay some taxes the consortium was not willing to pay and also a few unsecured creditors. His largesse got the attention of lenders, mostly public sector banks and also the promoters of Binani cement, who wanted to back Birla bid. The winning consortium has cried foul and Birla’s surprise even shook the entire insolvency process being administered by NCLT into a tizzy. The courts have also got involved. The Supreme Court has allowed the committee of creditors (CoC) to consider Birla’s bid, though it has restrained them from taking a final decision. NCLT is expected to take a final decision on the issue in early July.

Winning Binani will further make Birla the undisputed king of cement in India. Watch this space.