Philips India - Labor Problems at Salt Lake

Selling Troubles Contd...

In tune with this decision, the employees were appraised and severance packages were declared. Out of 750 workers in the Salt Lake division, 391 workers opted for VRS. PIL then appointed Hong Kong and Shanghai Banking Corporation (HSBC) to scout for buyers for the factory. Videocon was one of the companies approached. Though initially Videocon seemed to be interested, it expressed reservations about buying an over staffed and under utilized plant.To make it an attractive buy, PIL reduced the workforce and modernised the unit, spending Rs 7.1 crore in the process. In September 1998, Videocon agreed to buy the factory through its nominee, Kitchen Appliances India Ltd. The total value of the plant was ascertained to be Rs 28 crore and Videocon agreed to pay Rs 9 crore in addition to taking up the liability of Rs 21 crore.

Videocon agreed to take over the plant along with the employees as a going concern along with the liabilities of VRS, provident fund etc.

The factory was to continue as a manufacturing center securing a fair value to its shareholders and employees. In December 1998, a resolution was passed at PIL's annual general meeting (AGM) with a 51% vote in favor of the sale.

Most of the favorable votes came from Philips NV who held a major stake in the company. The group of FI shareholders comprising LIC, GIC and UTI initially opposed the offer of sale stating that the terms of the deal were not clearly stated to them. They asked for certain amendments to the resolutions, which were rejected by PIL.

Commenting on the FIs opposing the resolution, company sources said, "it is only that the institutions did not have enough time on their hands to study our proposal in detail, and hence they have not been able to make an informed decision." Defending the company's decision not to carry out the amendments as demanded by the financial institutions, Ramachandran said that this was not logical as the meeting was convened to take the approval of the shareholders, and the financial institutions were among the shareholders of the company. Following this, the FIs demanded a vote on the sale resolution at an EGM.

After negotiations and clarifications, they eventually voted in favor of the resolution. The workers were surprised and angry at the decision. Kiron Mehta said, "The management's decision to sell the factory is a major volte face considering its efforts at promoting it and then adding capacity every year." S.N.Roychoudhary of the Independent Employees Federation in Calcutta said, "The sale will not profit the company in any way. As a manufacturing unit, the CTV factory is absolutely state-of-the-art with enough capacity. It is close to Kolkata port, making shipping of components from Far Eastern countries easier. It consistently gets ISO 9000 certification and has skilled labor. Also, PIL's major market is in the eastern region."

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Case Details

Case Code : HROB004
Themes: HR Problems
Case Length : 05 Pages
Period : 1992-2000
Organization : Philips India Videocon
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Consumer Goods & Services

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