Kolkata/Mumbai: In March 2011, after he managed to secure for the Bangurs of Kolkata an eye-popping price for their 53.46% stake in the Andhra Pradesh Paper Mills Ltd (better known as Andhra Paper), several Indian paper manufacturers approached Haigreve Khaitan, senior partner of law firm Khaitan and Co., asking whether they too should go the Bangur way. And if he could help them.
The LN Bangur Group got a 180% premium over the market price of Andhra Paper’s stock when it sold its stake to International Paper Co. for Rs.1,390 crore. The deal, valued at a total of $388 million (around Rs.2,000 crore at that time), including International Paper’s public offer for 20% more of the company’s shares, set a new benchmark.
“I don’t see Haigreve as just a lawyer,” says Shreeyash Bangur, group patriarch L.N. Bangur’s son and an erstwhile director of Andhra Paper. “He donned many hats during the negotiations (with International Paper)—sometimes acting as a lawyer, sometimes as an investment banker.”
From his 13th floor office in Mumbai’s One Indiabulls Centre, the practice that 42-year-old Khaitan leads for Khaitan and Co. is very different from, but also similar to, the one that his father Pradip Kumar Khaitan is celebrated for. Pradip Khaitan, based in Kolkata, is also a senior partner in the 101-year-old firm.
Many of India’s hoary business groups trace their origin back to Kolkata, and the city’s blue-blooded Marwaris are extremely particular about whom they deal with. If Mumbai’s business groups placed their trust through the 1990s and 2000s (and continue to do so, in some cases) in the famed 3Ks (Hemandra Kothari, Nimesh Kampani and Uday Kotak), then Kolkata’s business houses placed theirs in another K, “Pintu”, or Pradip Kumar Khaitan.
When the Bangurs sold out, Andhra Paper was the fifth largest paper maker in India—a minnow compared with International Paper, the global leader. Naturally, promoters of other Indian paper companies wanted to cash out for a similar payoff.
The Bangurs didn’t seek advice from any investment bank, allowing Khaitan and his team to conclude the deal. The biggest challenge for the lawyers was to maintain confidentiality—with at least 20 entities on the selling side, that wasn’t easy, according to Khaitan.
Khaitan hasn’t been able to close similarly lucrative deals for the other Indian paper manufacturers, none of which have struck it as rich as Andhra Paper.
Defending his inability to get blockbuster deals for other Indian paper companies, Khaitan says not everyone needs to sell out. The case for the Bangurs was different, he adds. For at least one-and-a-half years, the Bangurs engaged with Khaitan to explore whether selling Andhra Paper was the best option.
This included a “dispassionate evaluation of the family’s priorities, their strengths and weaknesses”. His initial advice to the Bangurs, Khaitan recalls, was to stay invested for “some more time”.
iGate Corp., Hospira Inc., Harley Davidson Inc., Nippon Life Insurance Co., the Blackstone Group Lp and most recently Vedanta Resources Plc as they expanded in or entered India.
The senior Khaitan, 71, has for decades presided over the complex restructuring of Kolkata’s dynastic conglomerates, devising for them the most tax efficient and frugal ways of running, expanding and separating businesses. Haigreve Khaitan’s speciality is corporate takeovers, often involving foreign investors and Indian family-run firms.
“Haigreve moved out of Kolkata to seize the opportunities that came in the 1990s with the opening up of the Indian economy,” says his father.
Not everything the younger Khaitan touches turns to gold though. One deal that didn’t work was the near-takeover of Balrampur Chini Mills Ltd, a sugar firm, by Bajaj Hindusthan Ltd three years ago. The promoters had agreed on the price, yet the deal fell through because they couldn’t reach an accord on other undisclosed issues.
Haigreve Khaitan defends his advice to Bajaj Hindusthan at the time, saying that it benefited his client. But another lawyer, who was familiar with the negotiations, says the stand Khaitan took “surprised everyone”. “It was unusual,” says this lawyer, asking not to be named and unwilling to disclose what the stand was.
The Khaitans share one key trait, according to the people who know both father and son: the ability to win the confidence of family-run businesses and think like entrepreneurs.
“Pintu babu owes his success as a lawyer to his business acumen,” says the partner of another Kolkata-based law firm of similar vintage as Khaitan and Co., asking not to be named. “Because he thinks from the shoes of an entrepreneur, his advice is held in high esteem by Kolkata’s Marwari businessmen.”
To earn the trust of people across this business community is extremely tough and is a critical element of Khaitan’s successful career. In his prime, he used to be Kolkata’s most sought after lawyer when it came to resolving family issues. In those days, no deal would be done without Khaitan somehow being associated with it. For many Marwaris, Khaitan wasn’t just a family lawyer.
“He always stood by us in our most difficult moments and advised us on all matters—from legal to emotional,” says Sanjiv Goenka, chairman of the RP-Sanjiv Goenka Group (RPSG), about his family’s long association with Khaitan.
The lawyer-client relationship sometimes grew into a closer business association. Pradip Khaitan is on the board of several firms—the CK Birla group’s Hindustan Motors Ltd and power utility CESC Ltd, the flagship of RPSG, to name a few.
Two years ago, he advised Goenka and his elder brother Harsh Goenka on the break-up of their businesses and private assets. More recently, he advised on the separation of 14 tea estates of Warren Tea Ltd between two estranged partners.
Pradip Khaitan says it is good for dynastic businesses to be carved up. “It unleashes competition between siblings and erstwhile partners, and leads to faster growth,” he says. “I have seen it in so many families.”
Sure, things can go “horribly wrong” as well, despite advice from the best arbitrators, he admits, citing the example of Soorajmull Nagarmull—a partnership between two families that controlled one of Kolkata’s oldest and biggest conglomerates. The value of the separated businesses has eroded to the extent that most of the businesses that Soorajmull Nagarmull once controlled have almost disappeared.
Partitions need to be orderly even if there are disagreements, according to the elder Khaitan, who follows templates for such situations, some of his own creation.
At the RPG group’s plantation company Harrisons Malayalam Ltd—the only unit that had to be vertically split between the Goenka brothers—he set up two management teams within the firm to help the separation of assets go through smoothly even before the division was legally concluded.
He followed the same model at Warren Tea, where he split the interests of two sparring partners. But here he had to join the board to hold things together amid bickering by both sides until the separation was legally consummated—a process that takes time because the approval of courts is needed.
As an additional measure, the elder Khaitan even opened an escrow account and through it took control of some of Warren Tea’s floating stock so that neither side could launch a hostile takeover bid.
“Pintu babu was the man that both the partners trusted,” says a key Warren Tea official, who does not want to be identified. “He had to come on board to herd them to a peaceful separation.”
The two co-promoters fought each other in the boardroom and then in courts. Had it carried on, the company could have run aground, this person added.
Rather oddly for a lawyer, Pradip Khaitan detests courtroom battles. “My job is to advice people on how to avoid court cases—our courts are not the most efficient in the world,” he says.
The younger Khaitan, in contrast, doesn’t abhor litigation. It all depends on the merit of the case, he says, recalling one long-standing dispute the regulator had with one of his clients, a firm he doesn’t want to name.
The promoters had almost made up their mind to sell the company because of their inability to cope with regulatory demands. Haigreve Khaitan advised them to fight in court. The company eventually won in the Supreme Court. “They are now doing very well,” he adds.
What helps instil confidence in clients is the younger Khaitan’s ability to cut through arcane, opaque legalese. He makes “complex things sound so simple”, says Sanjiv Goenka.
Pradip Khaitan couldn’t significantly expand his influence beyond Kolkata’s business community even as the city’s business families expanded out. “When the younger generations moved out of Kolkata, Pintu babu’s turf shrank,” says a Kolkata-based industrialist, who does not want to be identified. “It seems he chose to remain the proverbial adviser to the patriarchs, reluctant to keep pace with the younger people and new age businesses.”
But he ensured that the firm moved on.
Back when Haigreve Khaitan was born, in 1970, the law firm decided it was time to branch out of Kolkata, trailing the Marwari business families that left West Bengal at about that time. It set up its first office outside the city in Delhi that year. Later, it opened offices in Mumbai and Bangalore, and is now regarded as one of the most accomplished full-service law firms in the country.
Haigreve Khaitan gives credit where it is due, pointing to the 300 lawyers in the firm. Ownership has also been diluted. Of the 58 partners at the firm, there are several names that don’t end in Khaitan.