Any sale short of all trust assets unfair to other shareholders: Lalit Modi

My father was clear that shareholder value is primary. He was clear that three engines can never run a company successfully, said Lalit Modi

Just months after his industrialist father K K Modi’s death, Lalit Modi is embroiled in a bitter battle with his family, which includes his mother Bina, brother Samir, and sister Charu, on what course the Rs 10,000-crore group should take. In an e-mail interview, Lalit Modi explains to Surajeet Das Gupta why he is pushing for an outright sale of assets. Edited excerpts:

The question many are asking is why are you pushing for an outright sale of all assets (Godfrey Phillips India, Indofil Industries, and Modicare) when the trust deed provides the option of sale of some assets, and the running of some companies as well as all the companies together?

Any sale short of all trust assets will be unfair to other shareholders and will be in contravention of the provisions of the restated trust deed. Therefore, I have no option but to reject this. The choice, however, is not mine to make; it is clearly set out in the trust deed. In case there is no unanimity amongst the four family members, a fact which was triggered in the November 30 meeting, it automatically leads to sale of the entire trust funds and family-controlled business. The process dictates that all assets will be put for sale by an investment banker. While external bids will come in, family members have the right to match the bid.

You have said family members can match the bid and keep the company. Will you do so and match it?  

My father was clear that shareholder value is primary. He was clear that three engines can never run a company successfully. He was also of the view if family members want to acquire, then they can acquire the entire stake. 

The reason why I put my weight behind sale is because I don’t believe that any of the members of the trust has the ability, vision or ambition to continue.  

Why did your father say three engines when the trust has four members?

He did not consider his wife as an option, maybe. Maybe only ‘he’ (Lalit) was expected to be the engine.  

Don’t you think the trust deed has not taken care of the interests of minority shareholders, as it was not disclosed to them?  

I have been pushing the trust, and it’s indeed the duty of the company to disclose this as it is appropriate. Remember, I am not on the board. My son Ruchir who is on the GPI board has also told the company to disclose this. He even apprised me of this and his apprehensions about non-disclosure.

Considering the ban on FDI in tobacco and the government policy to discourage a new player in this space, do you see potential of any player to buy GPI? Also, Phillip Morris (having 25.1 per cent shares) can always block a special resolution for sale of the company. Do you have an NOC from Phillip Morris?

The global company has diluted its stake in the company after attempts to take a majority stake did not work out. Sometimes there is a tendency to look at our companies, as if there was just one – only a tobacco company. We are also a gigantic distribution systems company with multiple touch points and multiple consumers across the country. The logistics and marketing capability is also valuable and unlocking its value for shareholders is important. Our value is not based on just products, but also our market reach in the hinterland of India, which we have serviced for three decades.

On the question of Phillip Morris — on the compliances as well as the statutory regulations — we and our legal team will work within the framework of what is appropriate and comply with the laws which are applicable. We believe that Phillip Morris, as shareholders and partners, will also like to see fair valuation, as it would also stand to benefit if a suitable big investor, global or local, was to step in.
 

What about Indofil Industries? 

Indofil has a strong domestic base and a well-recognised international presence. It will fetch a high price as we are top global player in the business. Many investors have shown interest in it.  

Will the asset sale include IPM India Wholesale Trading Pvt Ltd, a JV between Phillip Morris, GPI and K K Modi investment company which is involved in wholesale trading of Marlboro cigarettes? 

Yes, it will.