|
CASE : TAKEOVER TURMOIL
Northern Airlines Flight ALC-321 from Delhi to Shimla is a short haul. Moments after take-off, Rajinder Singh Bhoruka pushed back his adjustable seat and started dreaming of the Mail in the Himachal capital. of the meadows and the flower beds in Dalhousie, a place he had returned to several times in the past 15 years. He always found the unspoilt beauty of Dalhousie soothing: it helped Bhoruka to clear his mind. That`s why the managing director of the Delhi-based Lobe Steel and industries (Lobe Steel) had chosen this picturesque hill-station as the venue for a crucial meeting of the committee of directors.
For a long fine, Lobe Steel had remained a mid-size player in the steel pipes and tubes industry. Eight years earlier, A.K. Agarwal, the 45-year-old chairman of the board, had seen the merit of integrating backwards to attain the benefits of a fully-integrated steel-making operation. He first set up a hot-rolled coils (HRQ and strip-making unit, following it up two years later with a sponge iron unit in the precincts of Lobe Steel`s facilities. In doing so, Agarwal ensured that the company`s gearing was low, and placed equity with his Non Resident Indian a premium commensurate with the growth potential of the company.
------------------ Preview not available----------------------
QUESTIONS
After the discussions continued for a while, Bhoruka summed up the situation : "Gentlemen, there are several issues that you will have to take into account before you reach a decision. Firstly, should we treat Era Steel as a separate entity ? In which case, would it not be a better idea to set up a greenfield project ? On the other hand, a greenfield project would have `a gestation period. Is it worth the wait ? And should the company be merged into Lobe Steel ? The advantages of a merger are mainly financial since it is difficult to rationalise personnel at the lower levels."
"So, the advantage to Lobe Would be a binger balance-sheet, with an overnight increase in net worth and sales and, possibly, a reduction in share-capital. But there are other aspects to be taken into account. In the case of a merger, personnel policies would have to be fine-tuned and the work culture at Era Steel changed to suit that of Lobe Steel. This could be time-consuming. even disruptive, Thank you, gentlemen for your time. We adjourn until tomorrow morning, when we will put the matter to vote." What should the directors of Lobe Steel do ?
Ans. Preview not available
|