In a masterstroke that made GACL the largest cement player in the country, the company outbid French transnational Lafarge and bought out the Tata group's stake in ACC for a total of Rs 910 crore. The valuation of about Rs. 6,000 per tonne of ACC is much higher compared to Rs. 2000-2,500 per tonne at other deals happened in 1999. The company however defended this decision claiming that they could get the immediate control of over 20 million tonnes of cement capacity and all India presence.

But the reality seems something different. Lets take the Tata's case. Even after being the main promoter and having a stake of 14.4%, the company could not go ahead with a rights issue of Rs.189 crores it wanted, due to the strong objection by the Financial Institutions (FIs). The situation is similar now. GACL also has a stake of 14.4%. The company plans to make use of ACCs network to GACL's benefit. Won't the FIs come into picture again? How far then is it possible for GACL to achieve the purpose for which it has acquired a stake in ACC?

There is another issue. In early 2000, SEBI had decided that the GACL-ACC deal was bound by the takeover code. The two conditions that have to be followed to abide the takeover regulations are: maximum acquisition should be 15 per cent and; the deal should not amount to taking control of a company by being in a position to appoint a majority number of directors.

Since GACL acquired only 14.4%, it satisfies the first condition. But is the condition exactly satisfied? SEBI had amended the takeover regulations Act in 1998 increasing the threshold limit to an open offer to 15% from the then existing 10%. And beyond that the company needs to get minimum of 20% of the voting capital of the target company. But the fact is that out of 100% of ACC’s capital, 10% capital was tainted in Harshad Mehta’s security scam in early 1990s, leaving the net capital at 90%. And 15% of this 90% comes to around 13.5% of the voting capital. Keeping this in mind, GACL’s acquisition of 14.4% is more than the requisite, which SEBI has not delved into and had given the positive sign to GACL.

For the second condition, there are 17 directors on the ACC board, inclusive of the managing director of GACL, Narottam Sekhsaria, nominated as one of the directors and vice-chairman of ACC, while A L Kapoor is the second nominee. SEBI also gave the permission to GACL for the right to appoint two more directors. The maximum number of directors allowed on the ACC board is 20 and GACL can have a maximum of four on the board. On the other hand, SEBI has declared that GACL would not have the right to appoint majority of directors or to control the management or policy decisions.

But there are companies which control the management inspite of having less than 15% stake. Tata’s themselves have less than 10% holding in Tata Steel, but they are controlling the management of the company. The decision of SEBI that GACL should not have control on ACC and that the role of GACL nominees has to be confined to attend the board meetings is absurd. GACL after investing Rs 900 crore would just nott want to take a back seat. Even if GACL occupies that place it is sure that GACL would control ACC from a back seat, which would be a big blow to the fledging corporate governance in the country for a leading company like ACC being managed by a back seat driver rather than coherent and transparent control. More so in a case where corporate governance seems to be absent in ACC. Consider this. The board of ACC was not at all informed and the investors were totally ignorant about the deal.

Another case where investors were ignored. GACL claiming that its acquiring stake is lower than the trigger rate, didn't go for the public offer. And hence though GACL offered Rs.370/- a share, inspite of the then existing value of Rs.110-135, the small investors and non-institutional investors, though they held over 35% (apart from the scammed shares) of ACC’s capital, did not have any advantage from the deal.