IFCI scraps stake sale to Sterlite-Morgan

Talks fail on demand for management control.

IFCI, India's oldest financial institution saddled with bad loans, today called off its stake sale plan after marathon talks with the Sterlite-Morgan Stanley combine ended in disagreements over the price and management control.

"Compelling conditions including management control were the reason for the deal not taking place," said an IFCI source, adding that the consortium had put conditions that were tantamount to a hostile takeover.

A press release from IFCI said since the bid was made on the condition that the consortium would take over the management of the company, it was decided not to proceed with it.

According to sources close to the development, the Sterlite-Morgan Stanley consortium was offered management control at Rs 145 a share, which it did not accept.

IFCI then quoted Rs 111 apiece with three of the eight board seats. The bidders, however, insisted on five board seats at this price. At this point, the deal was called off.

There have been ample indications from IFCI and government quarters that the strategic investor, which would have had to make an offer to acquire an additional 20 per cent in the company, would not be allowed to take management control.

The process to induct a strategic investor began in August.

Sources said management control to a private player would have created uncertainties about the fate of top functionaries of IFCI. This caused the deadlock.

"We have made the best bid to achieve the objective set out by IFCI in its offer document. The IFCI board decided not to accept the offer. We respect it," said a Sterlite executive.

It is learnt that IFCI will launch a fresh exercise to get a strategic partner. Insurance behemoth Life Insurance Corporation of India, IFCI's largest shareholder with 8 per cent, may be a surprise entrant.

IFCI has also decided not to pursue the stake sale plan with any bidders under the current format. Two other consortiums "" Shinsei Bank-Punjab National Bank-JC Flowers and Cargill Financial Services Corporation-Texas Pacific Group "" had also submitted bids for the stake, but had quoted a lower price than Sterlite and Morgan Stanley.

However, it seems IFCI was aware of the possible complexities and, therefore, was simultaneously in talks with International Finance Corporation (IFC) and Asian Development Bank for a possible stake sale.

IFC may take around 10 per cent in the company.