Acquisitions and hostile takeovers make for interesting corporate drama. One such open offer that has hit rough waters is the battle for control at Religare Enterprises Ltd, a listed entity doing business in the NBFC and insurance space. The Burman family, which holds a controlling stake in Dabur India Ltd, an Indian multinational company in the Ayurveda and FMCG spaces, is looking to take a majority stake in Religare through an open offer – an offer that should have automatically been triggered once Burman’s stake in Religare crossed 25%, but it has hit several regulatory hurdles. What’s the connection here? We explain.
Burmans vs Religare: Where it all began
The core issue in this takeover battle between the Burman family of Dabur and Rashmi Saluja, chairperson of Religare is a dispute over the valuation and control of Religare. The genesis of this battle dates back to 2018, when Shivinder Singh and Malvinder Singh, promoters of Fortis Healthcare, Ranbaxy Laboratories and Religare, were indicted for financial fraud and lost control of the company. A new board was constituted, led by Rashmi Saluja as executive chairperson, who is also a doctor, lawyer and has an MBA degree, along with five independent directors – Hamid Ahmed, Malay Kumar Sinha, Praveen Kumar Tripathi, Preeti Madan and Ranjan Dwivedi.
Around 2018, the Burman family began increasing its stake through the open market, first acquiring 9.9% in April 2018, increasing it to around 14% in June 2021. Between 16 August 2023 to 25 September 2023, the Burman family stake in Religare went from 14.38% to 21.57%. On 25 September, the Dabur promoters placed orders for an additional 5.27% through JM Financial Services, which automatically took their stake to over 25% and triggered SEBI’s Substantial Acquisition of Shares and Takeovers (SAST) guidelines, and hence the open offer.
Also read: Apply for open offer by July 22 says SAT to Religare
The Burman family made an open offer for an additional 26% in Religare for Rs 2,116 crore, which could eventually take their shareholding in Religare to over 53%, offering them control over the company. This stake would come through four entities – Puran Associates, Vic Enterprises, MB Finmart, and Milky Investment & Trading Company.
Yet, a takeover of Religare isn’t that simple. Being in the insurance and the banking business, this offer needs the approval of India’s most hawk-eyed regulators – the Reserve Bank of India (RBI), the Securities and Exchange Board of India (Sebi), the Competition Commission of India (CCI) and the Insurance Regulatory and Development Authority of India (IRDAI). The regulators are usually looking for squeaky clean track records of the promoters and acquirers.
Also read: INTERVIEW: We are still open to ‘amicable resolution’, says Dabur India Chairman
Why are the Burmans interested in Religare?
Dabur has primarily been in the FMCG and Ayurvedic products business, although it has dabbled with financial services in the past. This it sees as an opportunity to expand. While building its own services would take time, a company like Religare presents itself as a pretty attractive turnaround story since Saluja took over (the share price went from around Rs 31 per share in August 2019 to Rs 244 per share in August 2024). Burmans’ offer is at around Rs 235 per share. This would tie in well with the Burmans’ financial services business ambitions. Dabur already has investments in insurance through joint ventures with Aviva Life Insurance and Universal Sompo, while looking to expand beyond just FMCG businesses.
It is interesting to note, however, that Dabur did dabble in financial services until 1999-2000, when it decided to exit the business (Dabur Finance Ltd) by 2002-2003. At that point of time, the company had put out a statement that it thought finance was not a core business and it did not intend to be in the business, focusing instead mainly on FMCG. Now, two decades later, it appears ready for another shot at financial services and insurance through the stake increase in Religare. The Burmans are the single largest stakeholder in Religare now, but don’t have any director on the board yet.
Religare’s coveted licenses in lending, insurance, and stock market operations make it a lucrative target for acquisition. Religare Enterprises clocked a consolidated net profit of Rs 114.5 crore in FY24, up from a net loss of Rs 932.47 crore in FY2019-20, making it a significant turnaround story.
Why is Religare going slow on Burmans’ offer?
The primary issue is with the valuation of the company. Saluja claims Burmans’ offer undervalues the company, and suggests fair value would be at least Rs 300 per share instead of Rs 235. Also, having turned around the company in the past 5 years, Saluja isn’t happy with having a new large shareholder take a controlling stake. Saluja alleges that during challenging times (Covid-19 pandemic), there was a noticeable absence of initiative from any party to assume responsibility, but when prospects have improved, the offer is being made at a seemingly low value.
The Religare board also did not see the new challengers as being “fit and proper,” citing past allegations against the Burmans, such as the Mahadev betting scam case in which the family was named. However, SEBI recently directed Religare to go ahead with the Open Offer proposal (the target company has to always inform the regulator).
Also read: Burmans’ open offer proposal for Religare runs into RBI wall
What’s next in this deal?
The Dabur-Religare takeover battle could have several far-reaching implications. The long-drawn-out battle, could have a bearing on valuation and hence impact shareholders, as it would lead to valuation uncertainty. The regulators also have to keep a close watch for any corporate governance issues or other takeover bits. Prolonged uncertainty can impact the stability of the sector. The battle underscores the importance of balancing the interests of shareholders, creditors, and other stakeholders.