Indal shareholders can hardly believe their luck -- the scrip, ruling at Rs 60 three months ago, is now being offered a phenomenal Rs 221. Takeovers, especially contested takeovers, have proved to be a bonanza for shareholders of target companies. There is no reason why they shouldn't cash in on the opportunity, and sell out to the highest bidder. The same goes for the financial institutions. There may be instances where financial institutions should, in the national interest, take a stand against a predatory acquirer.This would be necessary if the acquirer has a track record of asset-stripping or siphoning off funds. But in most takeover attempts, including the Sterlite-Alcan bids, FIs have little reason to be alarmed by the new management. In the Sterlite-Alcan face-off, the Indal management and employees have been stridently against Sterlite taking over the company.
Existing managements often have a vested interest in the status quo, but for other employees, there is no reason why a change inownership should be viewed with such trepidation. To be sure, employees may worry about downsizing, but, given the economic realities, even existing managements will have no option but to rationalise their work force. In fact, by cutting out unnecessary expenditure in an effort to make the acquisition pay, new managements may very well ensure that job cutting is reduced to a minimum.
In any case, in the Indian context, the scope for wholesale sacking is much reduced.On the other hand, while shareholders of the target company gain, there could be reason to believe that the astronomical prices being paid for acquisitions may be detrimental to the interests of the corporate raider.
All that we can hope for is that firms will learn from experience and get better at pricing acquisitions, as has happened elsewhere.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
