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Business – ITC muscles its way into EIH takeover

NEW DELHI: ITC on Wednesday fired a warning shot at Max India’s Analjit Singh and the Oberoi family, indicating that it is not disinclined to
the idea of a fight for EIH, the company that runs the Oberoi and Trident hotel chains.

“Generally, ITC is averse to hostile approaches for takeovers. But if someone else enters the fray we may rethink our approach,” chairman YC Deveshwar told reporters in his first comment on the issue after ET reported last month that Mr Singh and EIH’s founding family, the Oberois, are negotiating a deal which could see the Max India chairman becoming the biggest shareholder in India’s third-largest hotel chain.

ITC, which operates the country’s second-largest hotel chain behind the Tata group’s Indian Hotels, owns a 14.98% stake in EIH.

The diversified conglomerate also signalled that it is not going to precipitate a battle, but position itself so that it gains extra leverage in any future negotiations concerning its plans for EIH.

A person close to ITC said the company is exploring several options, including increasing its stake to 25%, just 1% shy of the level which will give it the power to veto board resolutions. This in effect means that ITC will have to make an open offer for acquiring an additional 20%.

But he added that if ITC chose this option, it would make the open offer at the market price so that shareholders do not participate in large numbers. Doing this will, however, allow ITC to increase its stake subsequently through the creeping acquisition route, giving it the freedom to buy 5% annually.

The other options under consideration include ITC staying invested at the current level or exiting the company altogether.

Under the proposed deal, the Oberoi family, which owns 43% in EIH, will sell a little over 17% to Mr Singh for up to Rs 1,250 crore, valuing the company at more than Rs 7,200 crore. Along with Mr Singh’s shareholding through purchases in the open market, his stake will rise to 26%.

Together, Mr Singh and the Oberoi family will own a 52% stake in EIH, hoping to fend off any possibility of rival ITC attempting to gain control.

Government-run insurers, LIC, New India Assurance and GIC, together own a little over 10% in EIH while Reliance Capital’s holding is a shade over 2%.

Persons close to the Oberoi family said that once a deal is finalised, Mr Singh will make the mandatory open offer for an additional 20% stake at a price expected to be between Rs 165 and Rs 185 per share. The EIH share closed at Rs 132.60 on BSE on Wednesday.

Mr Singh, who has built and sold many businesses — the most notable of which was his exit from mobile operator Max Telecom in favour of Hong Kong’s Hutchison Whampoa — was not available for comment. The serial entrepreneur’s Max Group has interests in consumer-facing businesses such as telecom, healthcare and insurance.

To finance the deal, Mr Singh is mobilising Rs 1,150 crore by selling shares in two investment firms. He is divesting a 49% stake in an investment firm that owns 7.33% of Vodafone Essar to the British telecom group to mop up Rs 533 crore.

In addition, he is divesting 49% stake in Capricorn Hospitality Services, an investment company of the promoters, to private equity firm NSR Direct for Rs 600 crore. NSR Direct is an affiliate of leading private equity firm New Silk Route. The government has approved both the transactions.

Mr Singh recently joined hands with EIH to set up a 100-room five-star hotel in Dehradun under the Trident brand.
Founded in 1934, the Oberoi group operates 27 hotels under the luxury Oberoi and five-star Trident brands. Its other businesses include inflight catering, airport restaurants, travel and tour services, car rentals, project management and corporate air charters.

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November 26, 2009 - Posted by | Uncategorized |

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