Reading this article on
Aditya Birla Group’s (ABG) decision to buy, or more importantly, Mr. Kishore
Biyani’s decision to sell Pantaloons took me 6 years back in time when I was
doing my MBA.
We had a course
on M&A in the 2nd year and one of the major course evaluation
components (50% weightage) of the course was a presentation which involved
choosing a company, making a case for M&A - either it acquiring a company
or it getting acquired - and then undertaking the valuation exercise. Now the
faculty for the course was a very senior professional from the industry who,
among other things, had the distinction of playing a pivotal role in the
Hindustan Zinc acquisition by the Anil Agarwal led Vedanta Group. Needless to
say, he was extremely well networked and hobnobbed with the who’s who of the
industry. So, for our presentations, he decided to go the extra mile and give
us contacts from our chosen companies. This was intended to help us get some
management perspective on our chosen companies so that the analysis and presentations
turned out better than the end product coming from a complete outsider’s
understanding of the company.
We decided to
choose Pantaloons - an easily justifiable choice when one considers the year in
question - 2006. Lehman Brothers was years away from collapsing and the India
story was still going great guns. Research report after research report
analysed the Great Indian mall dream, how footfalls were continuously
increasing, how Indian consumers were increasingly visiting malls and how they
were expected to shop (till they drop). It was hard to find a flaw in this
reasoning - after all, that’s what you and I were doing and hopefully that’s
what the entire country would be doing too. One could almost visualise the glee
on the real estate and store owners’ faces.
Meanwhile, Reliance
had entered into the retail sector and reams were being written between the
Goliath Reliance and the David Pantaloons - how Pantaloons would continue to
have the first mover advantage by dint of locking in real estate at cheap
prices years before the property boom, Reliance’s deep pockets notwithstanding.
ABG Group also soon entered the fray with pundits professing that the pie was
big enough for more players. However, talks had already started of a possible
sellout by Pantaloons to Reliance or a strategic alliance between the two. All
in all, the retail industry was (and probably still is, opposition to FDI in retail notwithstanding) the ‘sunrise’ industry to be in. With this background and having done our
homework on Pantaloons, our group prepared to call our contact at Pantaloons -
a very senior non-promoter, who also had a sizeable stake in the company. Our
brief was simple - among other things, we were supposed to ask our contact his
views if the company in question was to be acquired and who he thought would be
the best acquirer. The following conversation ensued after pleasantries had
been exchanged and we had explained the purpose of the call
Us: Sir, if at all you had to sell Pantaloons, who
would you want the buyer to be?
Mr. Investor: Sell?!? (Angrily) Are you out of your mind?!?
Us: (Oh ho… wrong question…we tried to pacify him):
Err Sir, this is just a conjecture…as we explained you, this is a part of our
project.
Mr. Investor: So what?!? Why would we ever sell
Pantaloons? That day is never going to come. Don’t ever think that such a
possibility will ever materialize
Us: (in full damage control mode): Err Sir, you are
getting us all wrong. Pantaloons is a great company and we are sure the
promoters are never going to sell out. But, this is just a view that we are
seeking: if say Pantaloons were to merge (please
note the complete absence of the word acquisition) with another entity, who
do you think the other partner could be?
Mr. Investor: Look, we will never allow any company to
acquire or even merge with Pantaloons. So your conjectures and assumptions are
all balderdash.
The conversation went downhill from there and we
quickly decided to call it a day and thanked the gentleman for sparing his
valuable time. But we couldn’t help wonder at the strong sense of ownership he had
with the company, inspite of being a non-promoter. So, one could only
conjecture what Mr. Biyani views would be like :)
As it turned out, the Indian story went into a
tailspin. People did come to malls as predicted, but who said anything about
buying stuff. Footfalls just didn’t translate into sales. The same Pantaloons,
now saddled with the burden of high debt it had used to expand, was frantically
trying to find a way out. Eventually, Mr. Biyani chose to give a controlling
stake to the Aditya Birla Group. This incident only reaffirmed something that I have come around to believing - in business,
politics and life in general, never say never.
Just how Mr. Kumar Mangalam Birla convinced Mr.
Biyani is again a nice lesson in people management.
