Never say Never

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 2^nd 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.