The Tug of War over Gesco Corporation


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Case Details:

Case Code : BECG028
Case Length : 9 Pages
Period : 2000 - 2002
Pub. Date : 2002
Teaching Note : Available
Organization : Gesco Corporation, Renaissance Estates Ltd, HDFC
Industry : Financial Services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Tug Of War Loosens

In January 2001, a leading business daily wrote, "Even as the stock markets and Corporate India wait with bated breath, the bidding war between the Sheths-Mahindras combine and Dalmia group for the control of GESCO Corporation is unlikely to continue for long".

Analysts' felt that with the Dalmias increasing their offer price to Rs 45 per share, the battle had been taken to altogether another level, one where economic and corporate sense would have to prevail. With the Dalmias making it clear that they too had deep pockets to match the might of the Sheths-Mahindras combine, chances were that if the bidding war continued, both sides might end up with substantial stakes. This would make running of Gesco Corp virtually impossible for both, leading to a stalemate. Thus, all signs pointed to the fact that the tit-for-tat bidding game might actually get over soon and the battle for control might come to an end. Both offers would end on January 24, 2001. The last day for revising the price by any of the two sides was January 15...

The Truce

As expected, on January 8, 2001, the Sheths-Mahindras combine and the Dalmia group announced they had reached a settlement in the battle for Gesco Corporation, with the combine buying out the Dalmias' 10.5% stake at Rs 54 per share. The deal amount worked out to Rs 16 crore.

Following the deal, the combine's stake in Gesco Corp went up close to 30% (MIRD 17% and the Sheths 13%). After the completion of the open offer for 33.5%, and assuming it would be successful, the combine's stake was expected to stand at close to 65% of the company's paid-up equity capital. The open offer price of the combine automatically stood revised from Rs 44 per share to Rs 54 per share, which was the price at which the Dalmias sold to the combine. The Dalmias' open offer, however, continued, and the Dalmias' were willing to pick up whatever shares might be tendered under its offer, which was at Rs 45 per share. The Dalmia group was expected to own about 5% equity stake in Gesco Corp even after it reached an agreement with the Sheth-Mahindra combine...

Exhibits

Exhibit I: Chronology of Events
Exhibit II: Offer Guidelines


 

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