Hostile takeover is as good as a misnomer in Indian corporate world, as history has taught us. If that is taken as a null hypothesis, Subhash Chandra-led Essel Group’s move to buy over 10 per cent stake in infrastructure developer IVRCL Ltd could be a futile effort. But the media magnate who has taken bold bets in the past (remember Indian Cricket League?) could yet be a serious contender for IVRCL with a high profile advisor Nimesh Kampani’s JM Financial.

For those who joined in late, Kampani (one of the big Ks of Indian investment banking) has deep reach with Andhra-based businesses, which could prove to be a clincher in this heavy fuelled duel. Earlier, in a mega deal in the media sector in the state which got mired in political cobwebs(and saw PE giant Blackstone pulling out of a done deal with Eenadu), Kampani managed to seal a multi-tiered transaction which eventually saw bulk of Eenadu come under the control of Mukesh Ambani-led Reliance Industries.

Ambani recently inked a deal which would see Reliance funding Network18 Group to buy its stake in Eenadu which could eventually see Reliance Industries becoming a key shareholder in Network18(more on that here and here).

Coming back to IVRCL, promoter group led by E Sudhir Reddy own around 11.18 per cent in the public listed firm which has a market cap of Rs 1,768 crore(~$340 million). This makes it a ripe candidate for takeover. But, then Reddys have steered through the company with a low holding for years.

And its holding is all set to inch up with an intra group restructuring involving Ascent Capital-backed public listed firm IVRCL Assets & Holdings besides RIHIM Developers and IVRCL TLT, which would see promoters stake moving up to 13.62 per cent. It would also see Ascent Capital get around 3.15 per cent of IVRCL Ltd as per VCCircle estimates.

Indeed, even after the group merger, the resulting promoter holding may not be sufficient to stave off a takeover bid if Essel Group manages to get the backing of financial institutions that hold bulk of shares of the company.

The biggest institutional investor in IVRCL is Norwegian sovereign wealth fund Government Pension Fund Global. It currently holds 9.47 per cent stake, making it the single largest investor in IVRCL outside the promoters and Essel Group. It is to be seen if it would side with any one of the two contenders by selling its holding to them.

Other large institutional shareholders, as of December 31, 2011, include HSBC Global Investments and ICICI Prudential besides Bajaj Allianz Life Insurance, Aviva Life Insurance, Tata Infrastructure Fund and Macquarie Bank among others. Another investor in IVRCL is Azim Premji.

There are already moves by Reddys to get support of other Andhra businessmen as white knights in case of a formal hostile bid by Essel Group. Essel Group on its own is holding its reins and is probably courting institutional investors before talking a deeper plunge. However, its intent is clear.

It wants to expand its infrastructure business housed under a string of firms including the flagship company. It has interest in roads, urban infrastructure, commercial & residential complexes, power projects, water management besides Special Economic Zones.

Institutional investors would tread cautiously before siding with Essel Group, which has a limited history and experience managing infrastructure business. But some analysts feel the backing of a financially powerful Essel Group could help de-stress the balance sheet of IVRCL.

But then again, seeing through a hostile bid is not easy. Almost all recent attempts have fallen flat including the two year old corporate takeover battle between Inox and Reliance ADA Group(read more about that here). We would watch out for an outcome. One thing is for sure, IVRCL will remain in the headlines in the near future.

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