Home / Companies / People /  How Vijay Mallya tipped the scales in MCFL takeover battle

Kolkata/Mumbai: He might have had to step down as chairman of Mangalore Chemicals and Fertilizers Ltd (MCFL) yielding to pressure from lenders, but it was UB Group chairman Vijay Mallya who, in the end, turned out to be the deciding factor in the two-year battle for the takeover of his firm.

Last May, Mallya joined forces with his friend from Kolkata, industrialist Saroj Kumar Poddar, to ward off a hostile takeover bid from Pune-based Deepak Fertilisers and Petrochemicals Corp. Ltd.

The predator didn’t back off immediately. It nibbled at every opportunity, but in the end couldn’t break into the combine’s dogged defence, the key strength of which was UB Group’s 22% stake in Mangalore Chemicals.

On Monday, Deepak Fertilisers sold a substantial part of the stake it had built in Mangalore Chemicals over almost two years, signalling that it is now looking to liquidate its investment.

“The battle is over," a close associate of Poddar said on Tuesday. “Within a month, Zuari will take majority control of Mangalore Chemicals."

This person, who did not want to be identified, was referring to Zuari Fertilisers and Chemicals Ltd, part of the Adventz Group of which Poddar is the chairman.

Zuari, which currently owns 16.47% in Mangalore Chemicals, has launched an open offer for 36.56% more.

All regulatory clearances have been obtained, and Zuari’s open offer is set to open for subscription on 21 April.

What tipped the scales in favour of Poddar was his agreement with Mallya, allowing him a significant say in the management of Mangalore Chemicals, said a key official at Deepak Fertilisers. “In our view, it was too big a price to pay," this person said, referring to the pact between Poddar and Mallya.

The Pune-based firm was looking to oust Mallya and wouldn’t have anything to do with him even if that meant giving up the fight, according to this person, who did not want to be named.

It was impossible for Deepak Fertilisers to take control of Mangalore Chemicals without Mallya selling UB Group’s 22% stake in it. Poddar managed to persuade Mallya to back him, and on the combined strength of his own 16.4% stake, made sure Deepak Fertilisers didn’t get close to the majority mark.

With an aggressive bid, Deepak Fertilisers managed to raise its stake to 31.25% last November, but there was no way it could get any further. And after Zuari made a second bid for Mangalore Chemicals’ shares in December, it decided to cash out.

In the bidding game, too, Deepak Fertilisers was comprehensively outplayed in the market. Despite offering 93.60 a share, which was way above the minimum it was legally required to offer, it managed to buy only 6.79% of Mangalore Chemicals’ shares.

“We aren’t complaining... the return on investment more than justifies the management bandwidth spent on the pursuit," said the Deepak Fertilisers official cited above.

The company did everything it could have, said Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd. The management of Deepak Fertilisers must have now realized that there is not much merit in fighting on and so they are cashing out, he added.

Deepak Fertilisers continues to own around 17% of Mangalore Chemicals’ shares, which it is likely going to sell in the market or tender in Zuari Chemicals’ open offer, according to Kejriwal.

Based on the success of its open offer, Zuari will discuss with UB Group, the restructuring of Mangalore Chemicals’ board, according to Poddar’s associate cited above. The company currently doesn’t have a chairman after Mallya stepped down last December.

“The scenario will change significantly if Zuari manages to acquire 51% in Mangalore Chemicals," this person added.

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