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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Please note:

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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Background Note

By the early 1990s, Gesco had consolidated its position in the shipping and offshore operations. In 1991, Gesco entered into real estate and property development.

In 2000, the real estate division was hived off as a separate company, the Gesco Corp Limited as part of the corporate restructuring effort.

Said Sheth, "The restructuring will lead to a greater focus and enhance shareholder value."

It was felt that through the demerger, Gesco would be able to substantially reduce its property exposure by the financial year 2000-01, and the parent company's focus would be its core business-shipping and offshore services.

Strategic Moves by Dalmia Group

In October 2000, ASK-Raymond James, the investment banker for Dalmia group involved in acquiring shares of Gesco Corp was eyeing the Global Depository Receipts (GDRs) holders for increasing its client's holding in the target company. GDR holders had 6% stake in Gesco and there was hardly any trading in these shares.

These GDRs came into existence after the de-merger of the real estate business of Gesco (which had issued GDRs) when all the shareholders, including GDRs holders, were given stake in Gesco. Commented, John Band (Band), CEO, ASK-Raymond James, "We have written to the Securities and Exchange Board of India (Sebi) about our intention to acquire the six per cent share in the form of GDRs." Band in the letter written to Sebi, stated that the GDR holders be given the choice to convert their holdings into domestic shares so that they could also participate in the open offer given by Renaissance Estates Ltd. The letter further said that Raymond James, London, one of the partners of ASK-Raymond James, was keen to buy the GDRs from the holders.

Band said no prices have been fixed at which Raymond James would buy from the GDR holders, but stated that it would be at a discount to the proposed domestic open offer of Rs 27.

According to him, the discount in the offer price to GDRs holders made sense, as they would get the money immediately. If they went through the usual process for coverting them into domestic shares, it would take at least three months...

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