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Something almost tore the Mariwala family apart. A timely IPO saved it from hostile takeovers

Harsch Mariwala | Twitter | @hcmariwala

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The Mariwala family had stayed together for generations, parents with children, siblings with siblings in the same mansion. Her ancestors and fathers had cleverly kept family fortunes and fortunes in legally bound and registered cross-holding companies, as did many other entrepreneurial families at the time. They had followed the practice of cross-shareholdings to ensure that future generations would continue to stick together. Under the given circumstances, a separation of the family was very difficult and a division of property could only take place by mutual agreement.

It so happened at one of the quarterly meetings in 1992 that disturbing information emerged that one of the joint ventures had lost much more money than was announced. It was natural for it to create doubts in the minds of others. The Family Charter, launched in 1990, had created a framework for transparency, but the arrangement seemed to have dissolved. Family members were deeply shocked by this breach of trust. If the people in charge of the various companies in the group could not be trusted, the basis of restructuring was threatened and threatened to crumble at the seams.

Also read: Building a business from scratch has helped me on my journey, says Marico founder Harsh Mariwala

Negotiations and mediation

The pursuit of separate ownership led Harsh to negotiate with a branch of the family to buy their shares in Marico. Since Marico was the highest rated company in the group, Harsh had to pay a very high consideration for each share swap. Harsh learned that he had the backing and innate trust of his uncle Kishore, who told him to negotiate on his behalf as well. In 1992-94 negotiations between the family members continued. With several family members involved in negotiating the various businesses and other assets such as real estate, the process became extremely complex. Each asset had to be listed and a fair value determined. The only way to solve this problem would be to seek mediation from an outside person whom everyone trusted.

Two years of negotiations and still no agreement on Marico’s valuation was reached. Eventually the family decided to appoint a renowned appraiser, YH Malegam. An agreement was signed giving Harsh and his uncle Kishore 18 months to buy off the shares of the other two families at a value determined by the third party. Until then, they would put their own shares on deposit as collateral.

In May 1994, Malegam finished the assessment. A family reunion was called at the Belvedere Club at The Oberoi Hotel in Bombay. Because of his inquiries with some financial experts, Harsh had a rough idea of ​​how much the deal was worth. However, when the third party rating was twice what he expected, he was stunned. When he heard the figure, blood flowed from his face.

Due to the very attractive valuation, the second branch of the family decided to sell their Marico shares. This meant doubling the cost that Harsh and Kishore would have to pay in a short period of time. Both argued for a long time about whether such payments were within their reach. Finally, they found that it would be risky, but economically viable, to also acquire the shares in the second branch. They agreed that Harsh would continue as Marico’s MD while Kishore Mariwala’s family would serve as joint promoters with no active involvement in the business.

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Finance the buyout

Harsh was between a rock and a hard place. He had hardly developed a strategy to raise funds for the expected valuation – which in itself was a major effort. Now having to raise twice as much was a task for which he had neither a plan nor the necessary change. . . And the clock was ticking. If Harsh and his uncle Kishore couldn’t raise the money on time, they risked losing the company.

Again, Harsh turned to someone he trusted for advice and guidance. Harsh asked Uday Kotak, his friend and founding partner of Kotak Bank, if his bank would borrow the funds to run the family business. He stressed that he was not soliciting any favors due to family ties and that his shares and those of his uncle Kishore would be pledged as security. While they were talking, Kotak noticed the physical toll the breakup process had taken on Harsh. Kotak knew that many other family businesses were facing the same difficult process of unbundling – and quite a few had handled the breakups poorly. Decision often[1]The doing bordered less on rationality and more on what the other party would receive. Uday later said, “I have to give Harsh credit for his maturity. The separation from Mariwala went better than many family business experiences I have witnessed. ‘ A statement that underscores the professional and open approach that Harsh has brought into the situation. Along with Uday Kotak, Harsh also turned to Sajjan Jindal to rescue him through loans. Sajjan was aware of Harsh’s integrity and agreed to stand by him without hesitation. Here, too, as with the bank, the shares were used as collateral.

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Take the bull by the horns

Another way that Harsh and Pranab discussed was to get Marico public, something they would have liked to have done much later, at a better time, rather than with a gun on the head. When they raised the idea with commercial bankers, they were advised that the capital markets were not conducive to an IPO announcement – and the expected valuation.

Talks with Kotak convinced Harsh that the time was right to take the plunge and get Marico public, even if it meant risking a lower valuation. Harsh had extensive discussions with prospective buyers, commercial bankers and FIIs, both in India and abroad. He decided to sell part of his own shares and those of his uncle Kishore in addition to going public. In March 1996, Kotak and Enam helped create a listing and put Marico on the public market at a very highly regarded valuation. In a declining market, Marico stock was valued at a premium of ‘165 ($ 2.35 in 2019) per share to a face value of ’10 (15 cents in 2019) per share.

In a little over twenty-four hours the joys are full. The public edition met with a rousing response: It was oversubscribed. Harsh’s joy knew no bounds. He was confirmed. All those years of unacknowledged, unacknowledged effort, tireless work, followed by a mountain of debt, were abolished in one fell swoop. Harsh had overcome all of his obstacles. And now he was standing upright with the faith the public had placed in him.

It was a simultaneous sale offer by the promoters and an IPO of the company. The Harsh and Kishore families sold $ 46 billion worth of shares ($ 6.6 million in 2019) and Marico raised $ 17.5 million in equity ($ 2.5 million a year) 2019). Harsh had resolved his personal debt problem and had also given Marico some funds that were then used to ease the pressure on working capital. After the IPO, the von Harsh and Kishore family together owned around 65 percent of Marico’s shares. At the same time, his sense of fair play was pleased that the other two branches of the family received more than a fair rating.

After going public in 1996, Marico’s market capitalization was $ 236 billion ($ 34 million in 2019). By mid-2020, the market capitalization had multiplied 190 times.

Buying out the other branches of the family turned out to be a difficult decision not only financially at the time, but also a decision in which he finally mastered his own fate.

AFTER ALL.

A trip ended.

Another began.

This excerpt from ‘Harsh Realities: The Making of Marico’ by Harsh Mariwala and Ram Charan is published with the kind permission of Penguin Random House.

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