Mallya set to lose control of Mangalore Chemicals

Bidding war likely between Zuari, Deepak Fertilizers

By R Chandrasekaran

CHENNAI: Troubled business tycoon and liquor baron Vijay Mallya is set to lose the management control of Mangalore Chemicals and Fertilizers Ltd. The businessman had lost management control of United Spirits to Diageo after the latter acquired majority stake.

Ever since Kingfisher Airlines was grounded, the UB group and its chairman Mallya have been facing heat from lenders since the airline owes over Rs.70 billion.

While Mallya himself sold majority stake in United Spirits to United Kingdom-based Diageo, it is a different case as far as Mangalore Chemicals (MCF) is concerned. His group company has pledged shares with financial institutions and Saroj Kumar Poddar-managed Zuari Fertilizers and Chemicals acquired 10 percent in April this year from State Bank of India.

However, another company Deepak Fertilizers have purchased 24.46 percent stake in MCF thus triggering a possible take-over bid. Interestingly, both the companies have acquired the stakes with the current MCF’s promoters’ knowledge only.

While both Zuari and Deepak have acquired stakes from financial institutions and mutual funds, Zuari acquired another 3 percent stake a few days back from the open market to indicate its willingness to enter a bidding war on MCF.

UB Group, which had a 22 percent stake in MCF, had pledged a little over ten percent of the shares with lenders that include SBI. Now that SBI had sold ten percent of shares to Zuari, Vijay Mallya’s group stake should have also come down. This means that Deepak Fertilizers is the single largest stakeholder in MCF.

The current stake position should naturally allow Deepak Fertilizers to take control of the management. However, if the company chooses to allow the existing management to continue it can. But this could defy the logic of investing in a company without having to control it, despite being the single largest holder.

Zuari, which picked up its take from SBI in April, seems to be interested in control of the management and hiked its stake in MCF a few days back. Financial institutions are holding approximately nine percent of MCF shares. If Deepak could increase its stake to 25 percent, then it will trigger an open offer from the company as per the norms prescribed by the regulator.

While the current MCF management does not see any bidding war, Deepak Fertilizers is not likely to remain silent as a major stakeholder. This will effectively put Vijay Mallya group on the mat. In any case, Mallya is set to lose the management control of MCF whether there is a bidding war or not.

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