Dalmia faces hostile bid for GTL control

Dalmia faces hostile bid for GTL control

Kolkata: Delhi-based Pramod Jain, who describes himself as a serial investor and has interests in telecom and real estate, has launched a hostile takeover bid for Sanjay Dalmia’s Golden Tobacco Ltd (GTL), saying that he wants to prevent the stripping of assets, and sparking a scramble for the stock.

Dalmia, whose controlling stake in GTL has been frozen because of money he owes to Indiabulls Group, could not be contacted for his views on this story.

A spokesperson said in a statement that Dalmia’s shareholding in GTL was at a “comfortable level". “We aren’t anxious," she added.

Gagan Banga, chief executive officer of Indiabulls Group, declined comment.

GTL, which possesses substantial real estate assets in Hyderabad and Mumbai, sells cigarettes under the Chancellor and Panama brands.

Jain, who owns 6.5% of GTL’s shares through his firm JP Financial Services Pvt. Ltd, has made an “unconditional voluntary offer" to acquire 25% more of GTL’s shares at Rs101 apiece, which is 2,020 times the company’s earnings per share of 5 paise in fiscal 2009. In the year till March, JP Financial posted a net profit of Rs8.5 lakh on a turnover of Rs130 crore. If fully subscribed, the offer would cost Jain, who has an assessed net worth of Rs1.5 crore according to his offer announcement, a little over Rs44 crore.

GTL’s shares jumped 5% to Rs109.35 on the National Stock Exchange (NSE) on Thursday before trading stopped because of a circuit filter, or restriction on price movement. At that price, there was a bid for 240,000 shares on the exchange, indicating heavy demand. Just 25,000 shares were traded on NSE as there were very few sellers. GTL rose even as the key Nifty index declined 1% to 4,952 points.

The story was similar on the Bombay Stock Exchange, with GTL rising 5% to Rs109.40, with 24,520 shares traded. The benchmark equity index, the Sensex, fell 0.9% to 16,696.03. The GTL share has doubled in the past six months, according to data provided by Bloomberg.

Founded in 1930 by Narsee Monjee, GTL has been controlled by Dalmia since 1979, when he paid Rs6.5 crore for the stake in a deal that involved the leading stockbrokers of the time such as Bhupen Dalal and Harish Bhasin, recalls Ajit Day, a veteran stockbroker, formerly close to Dalmia.

While Dalmia, the firm’s chairman, and his family currently own 27.19% of GTL’s shares, the shareholding has been attached by a court-appointed arbitrator, which means the voting rights on these shares have been frozen.

In 2005, Dalmia secured a line of credit of Rs650 crore from the Indiabulls Group. Under the terms of that agreement, Dalmia was to pledge assets and provide collateral worth two-and-a-half times the total outstanding loan. Indiabulls has claimed in court that Dalmia currently owes it around Rs100 crore, and that he does not have clear ownership of a Rs50 crore property in Delhi that was offered as collateral. Indiabulls has initiated arbitration proceedings against Dalmia demanding replacement of the collateral, and the court-appointed arbitrator has attached all assets known to be owned by Dalmia.

Financial institutions own 5.8% of GTL’s shares and the public holding in the firm is 67%. Jain said his bid was aimed at preventing any further erosion in the firm’s assets.

“The immediate aim is to restrain Dalmia from alienating more assets of GTL," he said in an interview. “The management’s hands are now tied. GTL is an asset-rich company, and Dalmia has already mortgaged most of its assets."

GTL owns a 7.7-acre factory in Mumbai’s Vile Parle area, which, according to Jain, is “unencumbered and could be worth Rs500-600 crore".

“I am sure a lot of foreign companies, looking to enter India, would be interested in my stake if I manage to seize control of Golden Tobacco," Jain told Mint. “But I am not even counting on that just now." Jain was a director of GHCL Ltd (formerly known as Gujarat Heavy Chemicals Ltd)—another Dalmia-controlled firm—between January and April.

He quit following differences with Dalmia, and is now planning to launch a takeover bid for GHCL as well, according to stockbrokers, who did not want to be named.

Jain confirmed he held close to 5% of GHCL’s shares as well, but refused to comment on a possible takeover bid. “Can’t say now if I am going to launch a takeover bid for GHCL as well, but if I did I am sure I am going to get the support of a lot of aggrieved shareholders."

ITC Ltd, the country’s biggest cigarette maker, will closely follow the takeover battle for GTL. In 2001, ITC, in which British American Tobacco Plc (BAT) owns 32%, had thwarted a similar bid by a group of investors to take over Hyderabad-based VST Industries Ltd, another tobacco firm in which BAT owns a substantial stake.

ITC had launched a counter-bid for VST shares and had said that it did so to prevent frivolous investors from getting into the business. ITC’s spokesperson refused to comment on this story.

Some stockbrokers raised questions about Jain’s intentions. “It seems that Jain has a score to settle with Dalmia, but at the same time, it is unusual that a man whose net worth is Rs1.5 crore has launched a Rs44 crore takeover bid," said a stockbroker, who did not want to be named. “Regulators should take a close look at his resources before giving clearance to the offer."