Sixteen years ago, the Mansha group made the first and perhaps the only successful hostile takeover bid in the country’s corporate history.

Adamjee Insurance had been a family-owned entity for over 50 years. It stood out as the largest insurance company in Pakistan commanding a 40 per cent share in the non-life insurance business. But its ownership and control slipped through the fingers of the family into the hands of Mian Muhammad Mansha who is considered one of the wealthiest Pakistanis.

He held a 38.5pc stake in Adamjee Insurance. His group-controlled bank, MCB Bank Ltd, held 29.5pc shareholding in the insurance company while he controlled another 9pc stake indirectly through employees’ provident and pension funds. The corporate raider was thought to have acquired 8pc shareholding from the floating stock in the market. He gathered 5pc ‘proxies’ from the 30pc shareholding that individuals held.

It was, therefore, an effortless move by Mr Mansha who ended up securing six seats on the nine-member board. Three seats remained with the Adamjees. The election to the board took place after the Supreme Court set aside the 16-month-old stay order to hold a members’ meeting.

In the run-up to the annual general election, the price of the share climbed to Rs93 from Rs20 in a couple of months. Punters expected windfall gains in case of a proxy war between the contesting groups — which was not to be. But that was not the first attempt that the owners were battling. It was the third. The first two attempts to seek control of the company — one by a local stock brokerage firm and the other by an individual investors’ group — miserably failed.

Family-controlled companies relinquish their holdings in friendly buyouts as familial bonds weaken over decades

Another corporate takeover raid was made in 2003 when the Dawood group — the sponsor of Dawood Hercules — attempted to seize control of Engro Chemical Ltd, a fertiliser company. In an out-of-court settlement, the Engro board reached an understanding with the corporate raiders. The Dawood group took two seats on the board that they wanted along with the control of the company. It is believed that the suit filed in the Sindh High Court was vacated and it was left up to the regulatory authorities, the Securities and Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan (SBP), to settle the dispute that was brought to an amicable end.

In Pakistan, there was no law to deal with takeovers — both friendly and hostile — prior to Takeover Ordinance 2002. Companies Ordinance 1984 made no mention of the subject. A corporate lawyer said it was during the Musharraf era that a takeover law was placed on the table. However, Abdul Razak Dawood, who was commerce minister from 1999 to 2002 in Pervez Musharraf’s cabinet, objected to certain clauses, which led to the reframing of the law and Listed Companies (Substantial Acquisition on Voting Shares and Takeover) Ordinance 2002 was promulgated on Oct 29, 2002.

The ordinance also came under biting criticism for its lack of adequacy. One of the lacunas pointed out by a legal expert was that while in the English law anyone acquiring “substantial shareholding” of 30pc had to make an open bid to buy from all shareholders who wished to sell, our law was devoid of such an equitable treatment.

On Dec 2, 2016, the SECP notified Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations 2017, which replaced the earlier regulations, purportedly to address the issue of public offer beyond 30pc. Under Sections 25 and 26 of Takeover Ordinance 2002, the SECP has been given wide powers.

Khalid Mirza, former chairman of the Policy Board of the SECP, says the takeover law had little utility for Pakistan as in most cases sponsors held 51pc shares tightly and grudgingly to guard themselves against predators.

Mr Mirza, who in the past chaired the boards of the SECP and the Competition Commission of Pakistan, said that corporate entities did not usually disclose the true worth of the companies and the stock prices were generally very low as opposed to the book value. He said that as an official of the International Finance Corporation (IFC) in 1985-86, he had recommended to the government that sponsors should be obligated to pass on their company’s control to any person/party that offered four times the quoted value of its shares.

India has also had a few hostile takeovers. The most widely known case is that of Swaraj Paul. In the 1980s, London-based non-resident Indian Swaraj Paul sought management control of two Indian companies — Escorts Ltd and Delhi Cloth Mills Ltd — by picking up their shares from the stock market. Though Mr Paul failed to do that, he was successful in highlighting how particular families were able to exercise managerial control over large corporate entities despite holding a minuscule shareholding.

“He finally retracted his bid, but his hostile threat sent shockwaves through the otherwise complacent Indian business world,” said a person familiar with the issue.

He said the world’s most spectacular case of hostile takeover emerged in September 2009 when Irene Rosenfeld, CEO of Kraft Foods, publicly announced her intention to acquire Britain’s top confectionery company, Cadbury. Kraft offered $16.3 billion for the maker of Dairy Milk chocolate — a deal rejected by Sir Roger Carr, Cadbury’s chairman. Even the government entered the fray and the United Kingdom’s business secretary, Lord Mandelson, said the government would oppose any offer that did not grant the famed British confectioner the respect it deserved. But Kraft was undeterred and increased its offer in 2010 to about $19.6bn. Eventually, Cadbury relented and the two companies finalised the takeover in March 2010.

Companies that want to grow and diversify often opt for mergers and acquisitions. There have been friendly takeovers where one corporation acquires another with both boards of directors approving the transaction. Often family-controlled companies relinquish their holdings in friendly buyouts after the disintegration of the family over decades.

Dr Mahbub ul Haq had identified 22 families in the late 1960s that, he said, controlled two-thirds of industries in Pakistan. Most of those families have disappeared owing to family feuds in later generations. As a Chinese sage once said, big fortunes do not see third generation.

Published in Dawn, The Business and Finance Weekly, August 17th, 2020