Takeover of Raasi Cements by India Cements

The Takeover of Raasi Contd...

Commenting on the sell-out, Srinivasan said, "We are happy that Dr B V Raju and his associates have agreed to sell their stake in Raasi Cement. The consolidation process will be beneficial to both companies as it would result in production, marketing and distribution synergies." "At a later date, we plan to merge both the companies"¹¹, he added. The takeover of Raasi by ICL led to a new controversy over the ownership of SVCL. SVCL was of strategic importance to both ICL and Raju (See box). In early 1998, when ICL made known its intention to take over Raasi, it was believed that SVCL, in which Raasi had a 39.5% stake, would be part of the deal. However, when ICL came up with its open offer for Raasi, it discovered that the latter's entire stake in SVCL had been sold to some of the promoter's group companies.

In late 1997, Raasi had convened a couple of board meetings and its shares in SVCL were divested at Rs10 each, allegedly to Raju's friends and relations. Till the eventual takeover was complete no one questioned this deal.

After the takeover of Raasi, ICL examined Raasi's books and found that it had violated the Securities & Exchange Board of India (SEBI) takeover guidelines which prohibited the target management from disposing off any asset during the open offer period. ICL complained to SEBI that Raasi had divested its 39.5% holding in SVCL in favour of nine firms controlled by Raju, in violation of the SEBI takeover code and the Companies Act.

SEBI ordered an investigation into the legality of this share transfer and the Hyderabad City Civil Court was to judge how fair the transfer was to the shareholder of Raasi. Company sources said that Srinivasan would try to convince the courts that the shares were sold at a throwaway price of Rs 10.

This would make the deal detrimental to shareholders'interests under Section 397 of the Companies Act, 1956, which dealt with "prevention of oppression," and defined oppression as "lack of probity and fair dealing in the affairs of a company to the prejudice of its members."

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11] Financial Express, April 7, 1998.

Case Details

Case Code : BSTR001
Themes: Mergers Acquisition and Takeovers
Case Length : 8 Pages
Period : 1998-1999
Organization : Raasi Cements Sri Vishnu Cements Limited
Pub Date : 2001
Teaching Note : Available
Countries : India
Industry : Construction - Building Materials & Equipment

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