Speaking to Madhumita Chakraborty, CII president Arun Bharat Ram expressed concern over good managements being destabilised by corporate raiders. Excerpts: Mr Arun Bajoria is reportedly said that he has only bought the shares of Bombay Dyeing to make money and has no intention of acquiring the company.

I have only read about it (the acquisition of Bombay Dyeing shares by Calcutta jute baron Arun Bajoria) in the newspapers because I came back from Japan on Saturday.

There is one issue, however, of which I have also talked about in my Press note. There is a danger today of destabilising good managements. I must say our own stock exchanges have given much greater valuer to the new economy stocks and not such great value to the old economy stocks. So, what you are seeing today in the stock market is that, whereas you have got P/E (price to earning) ratios for the knowledge-based industries and IT companies ranging between 500 and 600, the P/E ratios of good, well-run old economy companies are going for 4 or 5 P/E or sometimes even lower.

There is no doubt that there are excellent companies today with very, very low valuation, lower than their book values. These companies then become great targets for hostile takeovers, for no fault of theirs. They have good managements, they are running their companies efficiently, they are rewarding their shareholders with dividends, they are performing well, but because the market is skewed in favour of new economy stocks, there are very few investors for the old economy stocks.

So, tomorrow there could be lots and lots of people who could takeover companies like Bombay Dyeing.... There could be a host of such takeovers because of the current situation that exists in the Indian stock market. So, it is a matter of concern for us.

And it is alright for financial institutions to say that they will support good managements but if, let us say, people do put in the money today to acquire a large amount of shares, I don't know really whether institutions could still support good managements or not.

Reports suggest that Mr Bajoria and Mr Wadia may come to an understanding under which he would sell the shares he acquired back to Mr Wadia. I don't know what is going to happen because, strictly speaking, as per the SEBI code, Mr Wadia cannot buy more than five per cent of his shares. He can only buy back five per cent shares through a creeping acquisition over a year. Do you think that the SEBI takeover code opens the door for a class of investors who make a killing out of vulnerable companies without giving the promoters of those companies a fair chance of protecting themselves?

I don't know about this. You are telling me that Mr Bajoria's interest is essentially to make money out of this (deal). This is basically known as green-mailing the promoters, by saying either you buy us out at a much higher price or we will go and offer it to someone else. There is an issue here. I think SEBI needs to look into it, the government needs to look into it, industry, the stock exchanges -- all of us need to put our heads together and see what solutions can be found.

Do you have a model takeover code in mind?
No, but I do think we do need to find answers for the situation we are in. I don't know whether there are laws against green-mailing in America or not...we need to know whether green-mailing is good for industry or not.

Are you opposed to hostile takeovers?
We are not saying that there should not be hostile takeovers and there should only be negotiated takeovers. We are not saying that. If the rules of the game are clear and transparent that yes, you should have a hostile takeover, then so be it, but the rules should be applied equally.

We (the CII) have stated that there is an existing SEBI guideline or code on how takeovers are to be done. As far as this particular instance is concerned, we have said that it must transparently meet the code as it exists.

From what I understand, the issue is whether the SEBI takeover code has been complied with or not. If the SEBI takeover code has not been complied with then we have one situation, if it has been complied with, the takeover as per the existing code is valid.

What we are saying is that if an outsider is purchasing shares in a company he is not required to make an open offer to the public till he has acquired 15 per cent shares, whereas a promoter has to make an open offer to the public after acquiring five per cent shares. And this, we believe is not a very fair system.

Did you oppose the clause when the takeover code was framed?
We had very categorically said that the promoter should also be allowed to buy shares to the same level as an outsider. Suppose a promoter has only 10 per cent shares. After he acquires five per cent shares he has to make an open offer, whereas an outsider can acquire upto 15 per cent shares before he makes an open offer.

What we are saying is that SEBI needs to re-look this, whether there should be some kind of a balance in this. Whether the norm for the open offer of shares should get triggered off irrespective of whether the buyer is a promoter or an outsider, after he has crossed the 15 per cent limit.

Do you think that competence or a proven record in a particular line of business should be the criteria for takeover bids?
Who is going to define that ? It is very difficult to define competence. I could be a very good manager and I could say that I could manage any business. I may be good at managing an IT company and I have tonnes of cash and because of the expertise I have derived in the IT business I could buy an old economy company without any problems because I know how to run companies. It is very difficult to define competence and what constitutes the ``same kind of business.''