There is a tragic aspect to Indian non-fiction, especially business biographies and autobiographies. They turn out to be mostly hagiographies, with dollops of semi-myths and half-truths. Achievements are exaggerated, unsavory episodes excluded.
This is certainly the case in a new biography, The Nationalist, on Anil Manibhai Naik, the former chairman and now non-executive chairman, of Larsen and Toubro (L&T), which is written by the journalist-author Minhaz Merchant.
Media reports contend that during Naik’s almost two-decade tenure, the market cap of the construction giant skyrocketed 30 times to Rs 1,700 billion (US$26.6 billion) as L&T became a globally-renowned company in the area of building complex mega projects.
However, Naik’s recollection, and Merchant’s narrative, short-change the reader in their descriptions of two aggressive takeover bids on L&T. The predators were two of India’s most powerful businessmen, Reliance Industries’ founder, Dhirubhai Ambani, and AV Birla Group’s Kumar Mangalam Birla. Dhirubhai raided L&T, initially successfully, then unsuccessfully, in the late 1980s and early 1990s. Birla’s semi-successful – some would say entirely successful – bid was in 2001.
Media reports on the book launch have glorified Naik. A few headlines read: “The man who took on Ambani, Birla to ‘save’ L&T”; “Naik recalls blocking Ambanis and Birla from taking over L&T in biography”; and “Building the nation and thwarting take-overs: An excerpt from The Nationalist by Minhaz Merchant.” The coverage reveals only part of the truth. In fact, Naik wasn’t actively involved in one takeover, and gave in to the aggressor’s demands in the second. He didn’t take on or block either. Incidentally, Mukesh Ambani and Birla were present at the book launch.
Although Naik did not speak to Asia Times, a senior L&T official clarified matters. “During the Ambani takeover, he (Naik) wasn’t even on the board of the company.” The official, who did not want to be identified, agreed that Birla had walked away with his desired prize – the attractive cement division of L&T.
The Reliance tangle
As with many acquisitions, Lady Luck plonked L&T on Dhirubhai’s lap. In 1987, the Dubai-based takeover tycoon, Manu Chhabria, took a 1.5% stake in the construction company. Alarmed and unnerved, Narottam Desai, the then chairman, ran to Dhirubhai for help, asking him to become the company’s white knight. The Ambanis, who were secretively interested, quickly bought 12.5%. Desai had no clue that his knight in shining armor had other intentions.
In 1989, Dhirubhai became L&T’s chairman. Earlier, his two sons, Mukesh and Anil, had joined its board. Reliance’s avowed political enemy, VP Singh, became prime minister of India in late 1989, however. And in April 1990, L&T found itself with a new chairman, the former banker D.N. Ghosh, who dismantled the company’s financial-operational links with Reliance Industries. But after VP was booted out of office a year later, and was succeeded by Chandra Shekhar, Ghosh lost his job in February 1991.
Chandra Shekhar’s miniscule-minority government couldn’t put Dhirubhai back in the L&T boardroom, though. As the political pendulum swung, so did Dhirubhai’s designs on a takeover. Rajiv Gandhi’s assassination in May 1991 led to yet another new Prime Minister being installed, in the shape of Narasimha Rao. With the Congress party back in the saddle of power (albeit, in another minority regime), Dhirubhai felt that he had L&T in his bag once again, but it wasn’t meant to be. Rao balked and his finance minister – the future prime minister, Manmohan Singh – asked the state-owned financial institutions, who were L&T’s largest shareholders, to back off.
Dhirubhai got the message. By September 1991, he was reconciled to the fact that L&T would never be his. What was Naik’s role? During this period, he was only a general manager (GM). But Merchant hypes his role. He writes: “Throughout the tug of war between RIL (Reliance Industries) and L&T, Naik played the role of a mediator. He had the Ambanis’ trust. And L&T’s top brass reposed full faith in the man who was rising rapidly up the company’s hierarchy and whose loyalty to L&T over the past twenty-five years had been beyond reproach.”
Those who knew Dhirubhai, and were involved in the takeover imbroglio, would guess that neither of these conclusions can be entirely true. The Reliance patriarch must have surely made Naik feel that he was a part of the loyal coterie. But, in his mind, the GM would be a mere messenger, and a fly on L&T’s wall. For L&T’s top team, Naik was too junior to become an active participant in such a crucial, life-and-death matter. In fact, Ghosh would have mistrusted him.
The Birlas come calling
Over the next decade, until November 2001, the Ambani family remained silent, and passive, investors in the company. One morning, at 2.20 AM, Naik, who had now become the chairman, got a call from his colleague, who said, “Maalik badal gaya hai (The owner has changed).” Reliance had sold its residual 10.5% stake to Birla. Later, Anil Ambani, and KM Birla, called Naik, and confirmed the deal. There was a new predator knocking at L&T’s door.
As with the Ambanis, Merchant claims that Naik had “developed a rapport” with Birla. As Naik reveals in the book: “Aditya babu (Aditya Birla, the father of KM Birla) had given Kumar Mangalam only a few names with whom, as he said, ‘we should never lose a relationship’. When Kumar Mangalam got married, only family members were invited. From L&T, I was the only one invited. It was a close relationship and has remained so.”
Although Birla told Naik that he purchased the shares to make money, as the company was undervalued, the truth emerged three months later, when Birla picked up more shares from the market. It was obvious that he would make a bid for the company. As Naik told Merchant, he knew that the new buyer “had come in only to buy cement.” He added, “I wanted to sell our cement division anyway. It was not something we wanted to grow.” A deal was imminent.
L&T sold its cement division to Birla, and bought the latter’s 14.95% stake in the company for Rs 4.46 billion. It was a double victory for Birla. Although Naik claims he insisted on competitive bidding to extract the best price for the cement operations, that didn’t happen. The chairman actually accepted the political diktat. Instead of an auction, the bureaucrats in the finance ministry asked the government credit rating agency, ICRA, to do the valuation of the entire company.
ICRA valued L&T at Rs 310 per share against the market price of Rs 220. It was then left to Naik and Birla to figure out the worth of only the cement operations. Finally, cement was de-merged from L&T, and Birla got a majority (51.1%) stake in the de-merged firm for over Rs 22 billion. His 14.95% holding in L&T was sold to a new trust, L&T Employees Welfare Foundation. As Merchant observes: “Analysts agree that Naik’s innovative and complex financial engineering… will go down in Indian corporate history as an unprecedented achievement.”
Naik boasted to Merchant that now the employees controlled L&T – 15% with individual employees as stock options and nearly 15% with the employees’ foundation. And he told the shareholders at his last Annual General Meeting as chairman: “There is nobody else as a shareholder, neither Reliance nor Birla. This is totally owned by the Government of India and the employees. And, of course, one million shareholders like you.”
Of course, what he didn’t emphasize was the fact that L&T had also gained from the financial arrangement. Initially, it loaned Rs 2.75 billion, or almost 62% of the money required to buy the Birla shares, to the employees’ trust. This money was repaid by the Trust through dividends earned subsequently. So, in effect, L&T’s dividend ‘outgo’ was reduced by this amount. And, as long as the government was on its side, a new acquisition attempt was almost impossible.
There is another twist to the L&T-Birla saga. In the book, Naik paints himself as a David figure, forced to confront a Goliath in Birla. “I was a man from the village. I did not know a single secretary in the government or even the chairman of LIC (Life Insurance Corporation, the largest shareholder). I did not know any minister or politician, I knew nobody. I was sitting here, doing my job as a professional trying to change the company, make it entrepreneurial, (and) transforming the company.”
It seems unbelievable that a chairman of a well-known company, who knew Dhirubhai and Birla well, was in such a pitiable situation. This is important because Naik met prime minister Atal Bihari Vajpayee, deputy prime minister L K Advani, defense minister George Fernandes, and several secretaries and other officials in the finance ministry during the Birla-L&T episode.
The two men who helped him were S Gurumurthy and RV Pandit. Since the late 1980s, they had enjoyed considerable political clout, especially within the BJP and other opponents of the Congress party. Gurumurthy, an unknown chartered accountant, shot to fame with his virulent anti-Ambani articles in the Indian Express in the second half of the 1980s. He hobnobbed with prime ministers, senior political leaders, and powerful bureaucrats. He advised leading businessmen in times of their political and corporate crises. Pandit was a journalist with power. He too had taken on Dhirubhai. Both Gurumurthy and Pandit played significant roles in grabbing L&T out of Reliance’s clutches.