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Raghuvir Srinivasan

IT is a game where there are no winners. Whether it be the Birlas, the Securities and Exchange Board of India (SEBI), the investors that the latter claims to represent, or the investment bankers — all have lost something in the drama following Grasim Industries', now aborted, open offer for Larsen & Toubro.

The Securities Appellate Tribunal's (SAT) Thursday order confirming SEBI's decision to stall the open offer is, to be sure, only the first round of a long legal game waiting to be played out. The next round will begin as the Securities Appellate Tribunal (SAT) begins hearing the main appeal of Grasim seeking quashing of SEBI's investigation into whether there has been a change in control of Larsen & Toubro (L&T). But even now it is becoming clear that there are going to be no winners, and the biggest losers will be the investors of Grasim and L&T.

When Mr Kumar Mangalam Birla was appointed to head SEBI's Committee on Corporate Governance back in 1999, indeed, he was seen as the logical choice. The Kumar Mangalam Birla Committee came out with some excellent statements on corporate governance.

Sample this: "... the imperative for corporate governance lies not merely in drafting a code of corporate governance but in practising it... " And again, "... corporate governance extends beyond corporate law. Its fundamental objective is not mere fulfilment of the requirements of law but in ensuring commitment of the board in... maximising long-term shareholder value... "

Sadly, the Birla group headed by the same Mr Kumar Mangalam Birla, is today forced to defend itself saying that it had satisfied the Takeover Code in all respects. Satisfied the letter of the law, yes, but what about the spirit? Of course, Grasim Industries has stuck to the legal requirements but has it done the right thing by the shareholders of L&T? Indeed, even shareholders of Grasim Industries, in whose best interests the move ostensibly is, have reasons to complain— the stock has fallen by 9 per cent in the last week and appears to be in for further rough treatment at the bourses. Importantly, the events of the last fortnight could rub-off negatively on Grasim's brand equity, which has been high in the market till now.

This is bound to have an impact on the overall costs of doing business, including raising funds. Even if the group were to win in the higher courts, it would have lost in the court of public opinion.

Now, to the capital market regulator, SEBI, which has to be complimented for standing up and being counted on this issue. Yet, it appears to be in an embarrassing situation of being forced to review its own decision on the same issue within a year. This, when there has been no overt change in the circumstances of the case, except the landmark judgment of SAT on the Gujarat Ambuja-ACC issue. SEBI's decision last year would, in retrospect, appear to have been taken without due consideration of all facts. The only difference between then and now is that the head has changed — if it was Mr D. R. Mehta then, it is Mr G. N. Bajpai now. It must be little solace to Mr Bajpai that SEBI's apparently erroneous judgement came when he was not the chief. SEBI's image as a fair regulator would appear to have taken a hit in this controversy.

The role of JM Morgan Stanley has also come under a cloud, what with the investment banker failing to promptly disclose the receipt of SEBI's letter asking Grasim to put the public offer on hold. This is bound to make the public more cynical of the investment banking community post-Enron.

Losers all, but the ones to lose most are the investors. Shareholders of L&T have genuine reasons to feel aggrieved. Grasim has stuck to the requirements of the Takeover Code in pricing the public offer, but that is of little solace to these shareholders who have been offered about 39 per cent less for their holdings than what Reliance Industries got. And for no fault of theirs. Similarly, for reasons discussed above, Grasim shareholders also appear set to end up on the losing side.

Yet, the whole controversy would have served a purpose if it leads to clarification of the Takeover Code regulations and deters others from doing a Gujarat Ambuja or a Grasim in future.

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