BackTakeover bid for Tide Water Oil a decade in the making
Several companies have tried to seize control because the firm is run by a small state-owned enterprise with a minority stake and hardly any financial muscle
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Kolkata/Mumbai: For the management of lubricant maker Tide Water Oil (India) Ltd, a takeover bid from one of its key suppliers, Standard Greases and Specialities Pvt. Ltd, wasn’t entirely unanticipated.
It was in the making for almost a decade.
Several companies have tried to seize control of this Kolkata-based maker of Veedol lubricants because it is run by a small state-owned enterprise with a minority stake of 28.68% and hardly any financial muscle.
Mumbai-based Standard Greases, which on Tuesday announced a voluntary open offer for 26% of Tide, has over the past seven-eight years built a substantial stake of almost 25% in the company. Standard Greases offered to pay ₹ 16,632 per share, valuing the 26% stake at ₹ 376.73 crore.
It isn’t surprising that it is looking to tighten its control over the company, said Kallol Dutta, chairman and managing director of Andrew Yule and Co. Ltd, which controls Tide Water.
But the Andrew Yule management isn’t “intimidated" by the move, according to Dutta. It isn’t, after all, an unfamiliar situation and the management of Andrew Yule has for years been bracing to take on predators.
SBI Capital Markets Ltd, too, which is managing Standard Greases’ open offer, isn’t a new player in this game. It has only switched sides: it had previously tried to sell Andrew Yule’s stake in Tide Water; now it is advising an acquirer.
Back in 2009, the Union government decided to sell Andrew Yule’s holding in the lubricant maker along with the 14% stake held between two state-owned insurers, Life Insurance Corporation of India and United India Insurance Co. Ltd.
The proposed sale of shares was aimed at reviving Andrew Yule, a former British managing agency, which in the early 1970s was taken over by the government. Two other businesses of Andrew Yule were sold at that time, but the sale of 42% of Tide Water was aborted.
However, in anticipation of the stake sale in Tide Water, two entities started to invest in the company’s shares. One of them was Standard Greases, which bought a substantial part of the shares sold by the exiting Chevron Corp.
The other one was Kolkata-based businessman Mahendra Kumar Jalan, who had even struck a deal with a foreign partner to jointly bid in the Tide Water stake sale after cornering at least 14% of its shares.
Both were at that time snapping up shares from the exiting foreign stakeholders of Tide Water.
Tide Water was founded almost 90 years ago by an eponymous US company in partnership with Andrew Yule. The US parent went through several takeovers until it ceased to exist by that name in the 1950s.
Its 22.12% stake in Tide Water wound up with Chevron, while its key Veedol trademark went to BP Plc., except in India, when the British petrochemical giant acquired Burmah-Castrol in 2000.
Jalan eventually cashed out in 2011-12, selling most of his shares to Standard Greases because his partner lost interest in Tide Water. He admits to having made a “decent profit" from the investment.
Many more are now waiting to make a killing, such as the little known PQR Consultants Pvt. Ltd, a Kolkata-based firm with a paid-up capital of ₹ 3 lakh, which owns 4.6% of Tide Water’s shares—an investment worth ₹ 70.75 crore at the current market price.
Shares of Tide Water jumped ₹ 590, or 3.46%, on BSE on Wednesday to close at ₹ 17,636 each in a flat market—it is already trading at a premium of over ₹ 1,000 on the price offered by Standard Greases.
In October 2011, Tide Water bought from BP the Veedol trademark for global use, paying around ₹ 51 crore. It paved the way for expansion beyond India, and made Tide Water more attractive as a takeover target.
For Standard Greases, which has already committed ₹ 376.73 crore for the open offer, Veedol appears to be the key driver, said a Kolkata-based stock market analyst.
“It was known from the beginning that the acquisition of the Veedol trademark would only increase predatory interest," this person added, asking not to be identified.
Founded in 1983, the Mumbai-based company is a leading manufacturer of lubricants in India, but it doesn’t have a brand of its own. That apart, it knows Tide Water closely, being one of its key suppliers, said the analyst cited above.
The two companies operate in the same field, and “so we thought time had come" to consolidate, said D.S. Chandavarkar, chairman and managing director of Standard Greases.
Compliance with Indian corporate laws, he said, was the reason for making the offer.
Andrew Yule’s Dutta, however, said he hadn’t seen it coming at this point. He said he was confident that small shareholders would back the existing management and ward off this bid for change in control.
But Tide Water is a classic example of a company with a small paid-up equity (of ₹ 87.21 lakh), whose shares are thinly traded, though listed on both the BSE and the National Stock Exchange.
Only a few hundred shares of the company are traded every day, and even small orders lead to “massive swings", said the analyst cited above.
According to Tide Water’s own annual report, the company’s shares rose from a low of ₹ 8,100 to ₹ 19,680 and again fell to ₹ 12,240, all within fiscal year 2014-15 even without any significant surge or disruption in operations.
The open offer gives an opportunity to investors with bulk holdings to cash out, said the analyst cited above, adding that if it offers the right price, Standard Greases should be able to substantially shore up its holding in Tide Water.
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