Mumbai: The battle for control of Mangalore Chemicals and Fertilizers Ltd took a decisive turn on Tuesday after UB group chairman Vijay Mallya and Kolkata-based industrialist Saroj Kumar Poddar announced a joint counter-bid to take on Deepak Fertilisers and Petrochemicals Corp. Ltd, which on 23 April launched a hostile bid to seize majority ownership in the farm input maker.
Capping months of negotiations, the two finally joined forces to neutralize the threat faced by Mangalore Chemicals, a UB group firm, said a person close to Poddar, asking not to be named. The counter bid for 30.8 million shares, or 26% in Mangalore Chemicals, priced at Rs.68.55 a share, is to be funded by Poddar’s Adventz Group, which, in turn, will get to “participate” in the management of the target company.
Poddar is “on the right side of this takeover battle, unlike Sailesh Mehta (Deepak Fertilisers’ chairman)”, this person added.
“We will examine the counter-bid and along with our investment bankers review our options,” said a spokesperson for Pune-based Deepak Fertilisers.
The agreement between Mallya and Poddar, struck on Monday, could eventually lead to the latter taking full control of Mangalore Chemicals, but for now he or one of his nominees will be appointed director on the board of the target company.
Mallya has a so-called put option on his 22% stake in Mangalore Chemicals, but it isn’t immediately clear when he is going to cash out. “He can decide for himself when he wants to exit,” said the person cited above.
UB group spokesperson Prakash Mirpuri said it was “not in a position to discuss anything beyond what is stated in the press note”. Mallya did not reply to a Mint question seeking comment on the possibility of exiting from Mangalore Chemicals at a later stage.
When Poddar started acquiring equity in Mangalore Chemicals a little over a year ago, he was seen to have been brought in as a white knight to ward off other suitors such as Deepak Fertilisers. Poddar has always maintained that he wouldn’t launch a hostile bid on Mangalore Chemicals, describing Mallya in interviews as a “friend”.
Mallya and Poddar jointly own 38.4% of Mangalore Chemicals, according to regulatory filings. Because they need to secure only about 12% more of the company’s shares to get unassailable control, the combine is seen to be ahead in the race vis-à-vis Deepak Fertilisers, which has, over the past few months, built a 25.3% stake in the company and has lately bid for 26% more. Only about 36-37% of Mangalore Chemicals’ shares are widely held. The rest are with the three entities vying for control.
Both the bids are, however, at a discount to the current market price of Mangalore Chemicals’s shares, which shot up to Rs.75.45 each on BSE in early trade on Tuesday, but eventually closed at Rs.70.55 each, up 10 paise or 0.14%, while the Sensex gained 1.36%. Compared with the Rs.68.55 offered by the Mallya-Poddar combine, Deepak Fertilisers’ bid is modest at Rs.63—it has already been raised once from Rs61.75 for compliance with takeover laws.
At current market price, 30.8 million shares—or a 26% stake in the firm—are worth Rs.217.4 crore.
In the light of the latest development, Deepak Fertilisers is unlikely to get into a “bidding war”, said Ravi Shenoy, assistant vice-president (mid-cap research) at Motilal Oswal Securities Ltd, a broking firm. It may weigh other options such as demanding a board berth on the strength of what it already owns in Mangalore Chemicals, he added. Mallya and Poddar are surely going to oppose this.
Besides throwing his weight behind Mallya to keep Deepak Fertilisers from taking control of the UB group firm, Poddar’s Zuari Agro Chemicals Ltd has also concluded an agreement this year to use Mangalore Chemicals’ facilities for contract production. The aim is to boost Mangalore Chemicals’ cash flow and help it tide over difficulties it faces because of the downturn in the economy.
Explaining his interest, Poddar had previously said that Mangalore Chemicals and Zuari Agro could realize benefits of synergy, their plants being of the same vintage and being located close to each other. Even the markets they cater to are the same.
Monday’s agreement between the two industrialists and Tuesday’s joint bid could be the beginning of the integration of operations of the two firms that Poddar always wanted.
Shares of both Zuari Agro and Deepak Fertilisers fell on Tuesday. While the former’s shares fell 1.11% to Rs.129.10 each on BSE, the latter’s dropped 2.09% to Rs.128.95.