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Why Reliance needs formal control of BSES
December 26, 2002
It is like the 'I love New York' campaign, if you substitute Reliance for New York.
For the last few months the Reliance group has pulled out all the stops in an aggressive self-promotion campaign that should be part of any PR executive's book of learning.
No, Reliance hasn't issued a single press advertisement or launched a television campaign. That will start on the D-day -- quite literally the late Dhirubhai Ambani's birthday on December 28.
Before that, Reliance has managed to garner acres of free space in the newspapers. Look at the business newspapers over the last few months and you will find that Reliance probably made front-page news at least four times a week.
The avalanche of good news has also buried some of the unsavoury bits like influencing the prices of Larsen & Toubro shares before Reliance offloaded a 10.5 per cent stake on the Kumar Mangalam Birla-managed Grasim Industries.
The stories have encompassed gas discovery in the Krishna-Godavari Basin, hike in its manufacturing capacities, its telecom venture and open offer for BSES.
Has Reliance been planting the good news stories? Yes and no.
The helpful little list of Reliance's achievements in 2002, which was sent to journalists before its publicity machine moved into high-gear gives away the fact that much of the glowing reportage has emanated due to its PR efforts.
On the other hand, it has had genuine headline-making announcements too. In fact, it all started with the October report about its natural gas find in the Godavari basin in Andhra Pradesh.
The story carefully appeared a few days before the first annual general meeting of the merged Reliance companies and without the late patriarch Dhirubhai Ambani.
The curiosity created by the leak was further flamed with a cryptic news release saying that Reliance would announce details at its AGM.
This ensured at least a fortnight of front-page coverage and big magazine spreads. It is another matter that the government's estimate of the find is a significant, 40 percent lower than Reliance's claim.
Since Mukesh Ambani was to announce the gas find at the AGM, the crowd of investors made it another show of strength for Reliance. In fact, a demonstration that the crowd-pulling ability of the inheritors was no less than the charismatic Dhirubhai.
In September, Reliance had already increased its holding in BSES to 43.4 per cent. But in mid-December, it decided to 'go for management control' with an open offer for another 20 per cent of the outstanding shares at Rs 230.10 each.
Few know that Reliance has waited a long 14 years to get control of BSES and the 'control' that it seeks today, is in fact just a technicality.
In 1987-88, I had reported in Business Standard, that Reliance has an 18 per cent stake in BSES. Those were the days before liberalisation and just after Reliance's controversial but abortive bid to acquire Larsen & Toubro.
The report was held back for several days until my boss got an unofficial confirmation from the Reliance patriarch. The holding never showed up in Reliance's name, but the story was never denied either.
Soon after, several key BSES officials found jobs in Reliance, including its then financial controller. Today, Reliance has two directors on the BSES board -- Amitabh Jhunjhunwala and Satish Sheth, who are part of the close inner circle of the Ambani brothers.
There is also the former power secretary and cabinet secretary S Rajgopal who is the Unit Trust of India nominee, but a known admirer of Reliance.
Between them, these three directors are on all the key committees of BSES. What was left of 'control'?
Meanwhile, the financial institutions that hold 35 per cent of BSES shares are apparently bargaining for a better price and dithering over whether or not to accept the offer.
If they don't, for whatever reason, it makes it easier for retail holdings alone to be absorbed as part of the open offer.
In fact, the market grapevine insists that Reliance has not left anything to chance and has already mopped up another 8 per cent informally to ensure a 51 per cent holding after the offer.
Far from being the key to Reliance getting control of BSES, financial institutions will only make it easier (and save RIL money) by not tendering their shares in the offer.
Typical of Reliance, they are not satisfied with a quiet takeover. They want to drum up a thunderous welcome, which will have the benefit of drowning out allegations about insider trading and price manipulation in their sale of L&T.
So, they have a press statement issued by BSES chairman and managing director S S Dua 'strongly supporting' Reliance's open offer for BSES.
It also had a similar release issued by the Consumer Education and Research Centre of Ahmedabad -- a consumer and investor group which I am associated with, and whose views in this case, I simply do not share.
The two releases have an uncanny similarity. They both express great confidence in the company doing very well and enhancing shareholder value in BSES.
Paradoxically enough, if investors do believe that BSES has a brilliant future under Reliance, then they should hang on to their shares, rather than submit them in the open-offer.
This only makes Reliance's overkill in getting endorsements from consumer and investor groups so incongruous.
But why does Reliance need formal control of BSES right now?
I can think of two reasons. First, BSES has bid for Enron's Dabhol Power Company, and only if BSES is formally a Reliance company will it make a serious bid to revive the power utility.
But we don't know whether that is good for the consumers of Maharashtra, because nobody is talking about lower tariffs yet.
Second, BSES has also entered into telecom.
Mukesh Ambani's recent interview about how Reliance's telecom growth would come from value-added niche services would probably make BSES Telecom (a 100 per cent subsidiary of BSES) whose optical fibre cables are linked to receiving stations and sub-stations a good route to providing Internet access to consumer homes.
BSES telecom had even planned its own gateway.
These investments will dovetail nicely into Reliance Telecom's grand vision for the India which is to be unveiled on December 27.
In fact, the entire PR effort is expected to reach a crescendo that day and the next (December 28), unleashing a mega advertising campaign reminiscent of its marketing efforts in the 1980s to sell its public issues.