VR Logo

A Hospitable Takeover?

The spat over control of EIH is getting increasingly strident

This article first appeared in the December, 2009, issue of Wealth Insight magazine that analyses the impact of the tug-of-war over control of the hospitality company.

The East India Hotels (EIH) Ltd-Analjit Singh versus ITC spat over the control of the hospitality business of the former is fast turning from a bout of gentlemanly disagreement to one of an open row. EIH owns and operates luxury hotels and resorts in India, while abroad its focus is on the middle-level properties. EIH Ltd is  the holding company of Oberoi Hotels.

The brinkmanship is evident from Y.C. Deveshwar, chairman ITC, moving from his initial position on the sidelines indicating that ITC is against any hostile takeovers, to the current one, where he has warned that if others (implying Singh of Max India) enters the fray with an open offer, then he would rethink his approach.

The struggle was initiated by EIH’s P.R.S. Oberoi and Singh, when it was revealed that both had agreed the latter was going to increase his stake in EIH with the Oberois selling him 17 per cent of their total 43 per cent holding in EIH for Rs 1,250 crore — it valued the company at more than Rs 7,200 crore. Singh already holds a 5 per cent stake in EIH. With the new stakehold, he would be in a position to make a mandatory open offer for 20 per cent more, as per SEBI rules. If all goes as per plans, Singh would become the largest stakeholder, surpassing the Oberoi family’s reduced stake of 26 per cent with his own plus-40 per cent.

However, ITC has warned that in case that happens then it will come out with its own open offer. Together, the Oberoi-Singh partnership will boast of an insurmountable over 50 per cent stakehold in EIH, ensuring safety from takeovers.

As things stand, ITC has a 14.98 per cent stake in EIH, which is just a whisker away from a stakehold (15%) that will trigger an open offer for 20 per cent more. If this gets fully subscribed then ITC will end up with a 35 per cent stake.

In effect, the whole deal-making exercise has come as a result of Oberois perceiving a threat from ITC of a hostile takeover. Unwilling to let that happen, they roped in Singh, who is an old family friend . Earlier, the Oberois were quoted as saying they could take their own stake to 50 per cent and beyond, but clearly funds are scarce.

But the extending of the relationship to the business level is being objected to by ITC, unwilling to let an opportunity to control one of the best hotel chains in India pass by. In fact, ITC had sent feelers to the Oberoi family saying they had no objections to the family continuing as the promoters/owners, but they should let a professional management handle the business side of it.

Other stakeholders have not voiced their intentions. LIC, New India Assurance and GIC own around 10 per cent stake and can play a crucial role in how the final deal plays out.

For shareholders the coming months may be interesting. Whether it is Singh or ITC that makes the open offer, they can look for booking major profits. Reportedly, Singh has considered a per share price range between Rs 165 and Rs 185.

Analjit has a reputation of being an opportunist investor who buys and sells stake in companies that fetches maximum gain, as is evident from a string of his deals in the cellphone space. This raises the possibility, remote though it seems, of Singh and the Oberois getting together to drive a hard bargain vis a vis ITC. If ITC finds itself in a tight spot over the duo’s deal, then it would be forced to pay top money to control EIH. Of course, nothing, except an old family tie, stands between Singh and the sale of his own stake to anyone willing to pay his price.

To read the full story, and more, subscribe.