Oct. 22: The predator has turned prey. In one of the most dramatic turnarounds in corporate warfare, Asian Paints, the homegrown paints multinational, today expressed interest in picking up the 9.2 per cent government holding in ICI Ltd, the fourth largest paints maker in the country and a subsidiary of ICI plc of the UK.

The development marked a startling denouement to a takeover plot that was scripted a little over six years ago in August 1997 when ICI plc mounted a bid for Asian Paints by seeking to buy out one of the founding families of India's top paints maker made famous all over the country by its impish, Tom Sawyer-like mascot, Gattu.

The ICI bid floundered for want of regulatory approvals — but it drove a sharp wedge between Asian Paints and ICI.

It's time for revenge now. Asian Paints' gambit to snap up the government's rump holding in ICI is driven by its deep desire to consolidate its position as the numero uno paints maker in the country even as it aggressively charts its growth in the foreign markets by acquiring controlling stakes in foreign paints companies.

The government is selling its stake in ICI in line with its decision to divest its holdings in non-strategic, non-core companies.

Senior officials at Asian Paints, including Jalaj Dani, son of vice-chairman Ashwin Dani, declined to comment on the move saying it was still at a preliminary stage.

“We have just expressed interest, that's all. I am afraid I cannot say anything more at this moment,” he said.

The government owns 37.6 lakh shares in ICI India which, at today's market price of Rs 160 per share, is valued at over Rs 60 crore.

The ICI India management chose not to comment on the Asian Paints' bid for the government's holding in the company. Asked whether ICI India would oppose the bid, executive director M. R. Rajaram said: “We can't comment on that now.”

Startling coincidence

Corporate mavens are struck by the irony of the latest development and the startling coincidence in this drama of corporate skulduggery.

The government stake that Asian Paints is eyeing is 9.2 per cent, which is exactly the stake that ICI had tried to acquire in Asian Paints from Atul Choksey back in 1997.

Choksey, who belonged to one of the four founding families and was at that time regarded as the best recognised face of the company, had decided to quit the decorative paints company because of serious differences with the three other partners.

That's when ICI plc, which currently holds a 50.83 per cent stake in ICI India, decided to fish in troubled waters by trying to acquire Choksey's 9.2 per cent stake in Asian Paints.

The three other promoter families in Asian Paints — the Danis, Choksis and Vakils — decided to stick together and stave off ICI's aggressive bid to gain a foothold in the Indian paints company.

Atul Choksey's stake sale in Asian Paints was fraught with controversy. Choksey first struck a deal with two leading foreign institutional investors — Capital International and Morgan Stanley. Even as the deal brokered by DSP Merrill Lynch was cancelled, a new suitor stepped in.

ICI plc advanced $35 million in loan funds to Kotak Mahindra Capital Company (KMCC), which eventually brokered the deal, long before Choksey and KMCC had inked their agreement for the sale of Choksey's stake in Asian Paints.

The Reserve Bank cleared ICI plc's loan under the automatic approvals route. But it met with opposition from the Asian Paints board and it was then that ICI realised that it had bitten off more than it could chew.

Indian regulations stipulated that any foreign investment from a foreign company could be allowed only with the consent of the board of the Indian company.

The Asian Paints board refused to clear ICI's investment.

It was then suggested that Choksey could not have been totally unaware that ICI plc would be the eventual buyer of his stake.

Industry sources said it was very unlikely that Choksey would not have cared to ascertain from KMCC its capability to honour its commitment and check the source of the funds, especially after the soured deal with DSP Merrill.

Industry sources also said that a conservative company like ICI plc would not have taken an investment decision, involving $35 million, without due deliberation.

After 15 months of high drama, Kotak Mahindra sold half of the shares it held to Unit Trust of India, and the other half, to the present promoters of Asian Paints — the Choksi, Vakil and Dani families.

Kotak Mahindra sold the first tranche of shares to Unit Trust at a discount to the price at which they were bought, but managed to get a premium for the other half.

Brace for the big fight

The fight could turn ugly and spread to corporate boardrooms and even spill over into the courtrooms.

To be fair, ICI would well argue that the government should give its foreign parent the right of first refusal to buy the stake before it gives its competitor a chance to bid. The government had done just that when a beleaguered Asian Paints was fighting off ICI's takeover bid.