Big Shots

When L&T was owned by Reliance Industries

Created on 02 Dec 2021

Wraps up in 6 Min

Read by 53.3k people

Updated on 16 May 2024

L&T: A Dramatic Saga of Hostile Takeovers

Lights, Camera, Action! Did you also picture a dramatic movie set? Well, my friend, drama is in every segment of life, even the Biz world. The actors, you ask? It's the Tycoons!

Confused, much? Well, today's story will explain it all, for it is about a drama of its own kind, the hostile kind! A saga of the hero becoming the victim and the victim becoming the villain.

It all started in a land far-far away- Dubai in the early 80s. There lived a businessman, Manu Chhabria, who was wealthy & successful and wanted more power. He learned about an old Indian company, Larsen & Toubro, which happened to be the largest engineering firm in the country.

A brattish tycoon that he was, he wanted a rich stake in the company, which he eventually started buying. By 1998, his stake in L&T had grown to 1.5%, which caused sentiments in the stock market to go wild as one of the biggest Indian conglomerates was going to be taken over by a foreigner!​

This had to stop. How can a complete foreigner take over L&T when the management doesn't even want to sell it? It was time to fight back.πŸ‘ŠπŸ‘Š

The White Knight

To defeat the Black Knight, the chairman of L&T approached India's richest family to acquire more stakes than Chhabria in the company.

Ambanis to the rescue! Dhirubhai Ambani came as a White Knight buying a 12.5% ​​stake from the open market. The stake later increased to 18%. Ambani not only increased the stake, but he also slowly became a board member and, on top of this, brought his sons Mukesh & Anil to the board!

Well, well, well, now the tables have turned! It was evident that now Dhirubhai Ambani was the one trying to take over L&T. Seems like the Dark Knight's traits were a bit contagious.πŸ˜‰

Can you sense the betrayal? One of the reasons Ambani was interested in L&T was because of how cash-rich the company was and not to help L&T's management!

Ambani took full advantage of his position in the company, like taking a grant ofβ‚Ή570 Croresfrom L&T and asking it to buy shares in Reliance. How dramatic, right?

Political influences are always involved in these business games. The plot twist happened once again when Congress, the biggest supporter of Ambanis back then, lost power. Soon, it was clear that the new political party would be against Ambanis, and the pressure rose.

Soon enough, in 1989, the government intervened, making sure the Ambanis were out of the company, and they were forced to resign from the board. As if faith didn't want this Hostile Takeover.

Following this, Ambanis remained a passive investor in L&T for over a decade. But this was the calm before the biggest storm! (PS., Is this where Ekta Kapoor drew her inspiration from?)

In 2001, to make a dramatic exit, Ambanis sold their entire 18% stake to Kumar Mangalam Birla. And now, Birla had eyes on the cement division L&T had. His Grasim was neck to neck in competition with L&T Cement.

The company desperately needed a leader & savior and not another devil in disguise. This time, a true hero entered and saved L&T, and that was AM Naik, the CEO & MD of the company. (*Romantic orchestra plays in the background*)

To save the company, Naik brought the synergy of all the employees and asked them to become the owners of the company. So, the L&T's employee trust was formed. After months of negotiations and discussions, In 2003, Birla agreed to exit its stake in L&T, and it was sold to the employee trust.

In return, Birla received the L&T cement division, and this way, Ultratech Cement was born.​

Poor L&T! Like a damsel in distress, it hopped from Chhabria to Ambani to Birla. But let's not victimize L&T too much because what's to come next will blow your mind!

The tables turn again, and this time, the victim becomes the villain! (“Dhum-ta-na-na-na-na” moment.) Let's check out the next episode of this drama.

Hostile Takeover by L&T

Keep track of the plot, guys, because now, L&T will play the culprit! 

Now, it was evident that L&T was cash-rich, with more than $2 Billion cash in reserves. They had to utilize these funds and wanted to invest it somewhere for the best return. Well, what could be a better option than the Indian Software Industry? And so, L&T's radar caught Mindtree .

The first-ever hostile takeover in India is of L&T and Mindtree!

Obviously, Mindtree didn't want this takeover. They tried to find various ways to stop it just like L&T did in the past, but all in vain. The founders and family put together had only a 13% stake in the company, which was insufficient to prevent the takeover. (Who's chopping onions here?! 😭)

Enter VG Siddhartha!

Cut to a different scene. VG Siddhartha , the founder of Cafe Coffee Day, was desperately in need of funds. His company, popularly known as CCD, and he himself was under huge debt. Well, something had to be done. Luckily, he held a 20% stake in Mindtree! Enters the damsel turned villain. L&T took advantage of Siddhartha's vulnerability and approached him as he already wanted to sell the stake.

Siddhartha sold his entire stake in a million-dollar deal, allowing L&T to hold a 20% stake in Mindtree, more than the founders collectively had.

No, no, not the end yet. L&T went on to buy another 25% stake from the open market! Lastly, it made an open offer to the major shareholders of Mindtree to sell their stake to L&T for β‚Ή980 per share.

Wish to know what's going on with Reliance in present time? We have you covered! Check out this article to see what future holds for Reliance.

Higher officials claimed that β‚Ή980 per share was an undervaluation; the true valuation should have been β‚Ή1081 per share. Yet, this offer was oversubscribed 120 times as if Mindtree was destined for a hostile takeover, and in return, they couldn't do a lot to save themselves.

L&T intended to take over as many shares as possible. This way they became the owner of a 60% stake in Mindtree taking complete control. Finally, Mindtree became a Larsen & Turbo company on June 27, 2020.

When Mindtree became an L&T company!

The Bottom Line

Following the takeover, Mindtree founders Krishnakumar Natarajan, NS Parthasarathy, and Rostow Ravanan resigned from the company's board and executive roles. It was like the end of an era! (again, somebody stop chopping onions! 😭)
What happened with VG Siddhartha (Rest In Peace) was even worse. L&T continues to flourish as a number-one company in India and is going strong!

Moral of the story- When we think of a business, we think of its products, how well it performs in the stock market, and every shiny thing. We rarely know about the tricky games that happen behind the curtains. Mind you! These Business games are indeed devious!

The plot turns in L&T story:

Baby Turntable GIF - Baby Turntable Spinning GIFs

Eager to know about another business game? Here's something for you: JIO on its way up; right up to the top! 

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An Article By -

Ayushi Upadhyay

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A Keen Learner. Tiny, brainy, and studious, this quiet one stays in her zone until she pops. And once she does, boy, are her comebacks snappy! There is no financial question that she can't answer through her magical blog-writing. 

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