R. P. Goenka

Recalling R.P. Goenka 'The Takeover King'

The deal Homi Bhabha, Chairman of Spencer's, negotiated with Rama Prasad Goenka in 1989, was for the sale of 2,93,452 shares belonging to the Bhabha family and friends and associates at a price of Rs.175, about three times the market price and more than 17 times the face value. That was the entire Bhabha-and-friends stake in the Company, 73 per cent, and the price brought the holders approximately Rs.5.2 crore. The Bhabhas' share was Rs.4.6 crore. The price agreed was nearly three times the high the Spencer scrip had reached the previous November when rumours of a sale to a major North Indian group surfaced.

To this day, however, the argument rages on whether this was a fair price for the land-rich company. A fair price many thought at the time would have been Rs.15-20 crore. They point out that Spencer's assets were worth around Rs.30 crore at the time, mostly in real estate, that its turnover was over Rs.37 crore in 1987-88, and that it was maintaining its record from Durrant's* time of never reporting a loss; the turnover for the 18 months ended 31.12.1988 was Rs.37 crore and profit after depreciation (Rs. 65 lakh) and tax provision was over Rs.37 lakh. Business India's Sushila Ravindranath reported, "The general feeling in corporate circles was that the price paid appeared too low in the light of the present high value of the real estate owned by Spencer's all over the country." R. Nageswaran and Anil Mehta of the Economic Times were amongst those most sceptical about the transaction. Homi Bhabha still boils over at Mehta, a friend at the time, getting it all not merely wrong but nastily wrong, when he and his fellow-journalist wrote: "Going by today's trends and real estate prices, a Rs.5.2 crore pay-out for controlling such large assets is a steal." On the other hand, there was at least one financial journalist who reported that it was a "good price" for a share that even the least conservative analysis estimated as being worth hardly more than Rs.125.

Bhabha's contention then and now to all the snide comments is that the hotel properties tied up with the Taj, and the other major properties being developed, were not immediately realisable assets; the small pieces of real estate that were quickly realisable did not amount to much in this scenario. As for business and goodwill, neither were glowing nor did the prospects seem bright. Spencer's at the time was mainly a retailing operation and a none too successful one at that, with the neighbourhood 'department stores' and 'supermarkets' just beginning to open up and become popular in the era of Rajiv Gandhi's 21st Century vision. Its manufacturing operations were even less successful. Only its hotel agreement and real estate development plans were bringing in any notable profits. For such an operation, the price could hardly be expected to be nine figures, Bhabha clearly thought.

RPG's answer to the question why he bought Spencer's came in an interview he gave Gita Piramal and which appeared in the Economic Times on 24.1.1989, ten days after Mehta's piece. Said RPG, "Spencer's is a sleeping giant. If we breathe some life into it, it will come into its own." Sanjiv Goenka, the new Chairman, told Sushila Ravin-dranath, "We wanted an institution, and Spencer's is an institution with a tremendous fund of goodwill."

As for why RPG thought Bhabha might have been keen on selling, RPG confirmed the Bhabha thinking. "Bhabha did not want to get involved in Spencer's problems. He prefers tension-free work." T.S. Srinivasan of the Ananda Bazaar group, Calcutta, reported that Bhabha was in a hurry to wash his hands off Spencer's and it was the Goenkas who were the quickest to meet four stringent conditions Bhabha had laid down for the sale, namely: (a) no brokers and no resale; (b) negotiations to be completed in the shortest possible time; (c) delivery of the equity within 24 hours of signing the deal; and (d) down payment.

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The RPG family had wanted a company that was an institution, a firm with a lineage, and a business organisation that was respected throughout the country. And there could not have been a better choice than Spencer's. In turn, Spencer's got owners who belonged to a family that was a Calcutta institution, a family of respected lineage in what for nearly 150 years was the second most important commercial centre in the British Empire.

And he gained it starting as a subagent of Rallis, the agency house with Greek roots. As his wealth grew, he moved into industry, acquiring jute and cotton mills. Before the last quarter of 19th Century, he was a respected man of substance and an institution in Calcutta.

R. D. Goenka's reputation grew in the ruling circles with the heavy investments he made in the Imperial Bank (now the State Bank of India) and the renown he acquired by being described as "the major lender of Her Majesty's Government". The influence he wielded and their own talents and business acumen enabled R. D. Goenka's sons to establish the Goenka family as a Calcutta institution even more firmly. Badridas Goenka became first Indian Chairman of the Imperial Bank and he and his brother Hariram were the first Marwaris to be knighted. The knighthoods also made them familiar in the sahib's world and pillars of the Calcutta elite, the first Marwaris to break into that exclusive world of the Bengali sophisticates.

Sir Badridas had three sons. The eldest, the quiet Keshav Prasad Goenka, was a pioneer. He demonstrated to the family how takeovers should be successfully completed in the post-Independence world where industrial and commercial power was passing from British hands to Indian. "Slowly, slowly," is how K. P. Goenka described his technique. He began by quietly acquiring a 25 per cent share and a position of power in Duncan Brothers, an old Scottish agency house with large plantation holdings in the Dooars and Assam and the largest jute company in the country, Anglo Indian Jute Mills Ltd. He established the first local industry to be promoted in Bengal, Philips Carbon Black, and followed it up with others. He was among the first in the changing India to seek partners abroad to establish new businesses. While establishing a giant empire, he was also intent on leaving each of his three sons – Rama Prasad, Jagdish Prasad, and Gouri Prasad – as much as he had had to start with. And that was considerable. But the division of the empire did not take place till 1979.

To ready them for the tough world of business that was developing in India, K. P. Goenka insisted that his sons train by starting on "the lowest rung of the corporate ladder." RPG's rung was an assistantship, a trainee manager, at Duncan's in 1951.

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In 1979, KPG decided the family empire. RPG, at the time, appeared not to have been interested in the plantations and agri-manufacture, so he accepted Philips Carbon Black, Asian Cables, Murphy and, it is believed, a cash settlement for the rest which enabled his subsequent takeovers. This Rs. 70 crore Group was the nucleus for what is RPG Enterprises today, a Rs. 5500 crore conglomerate in less than 20 years!

Starting with Ceat in 1980, following his father's 'slowly, slowly' technique and shying away from hostility if there was any during his takeover bids, RPG built his empire: Ceat, Kamani Engineering, Searle, Dunlop (which was given up in 1988 because he felt the partnership was not working – not to mention that he got a handsome price for his holding), Calcutta Electric Supply Corporation, Harrison's Malayalam and, finally, Spencer's, all coming into the fold through the takeover route. In the mid-1980s, he took over five companies in as many years!

The growth was possible because the times were ripe for expansion by acquisition for those willing to dare. As Pradipta Mohapatra, who has played a major role in the Spencer's operations ever since the takeover, says, "No one else would have had the courage to cling to Spencer's, considering all the skeletons we kept finding in every closet and which kept us constantly in fear of court action."

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Those who know Rama Prasad Goenka say his biggest success has been his ability to woo senior professionals and get them not only to work for his companies but also to stay with them. Three major qualities RPG is said to have possessed are: always repaying loans on time, listening to advice, and giving his professionals a free hand in operations once a policy is decided on. To these should be added sobriety, a careful study of all proposals, a commitment to hard work, and a rare doggedness. In all this, his talent for public relations has played an important part… whether it was to establish a rapport with the powers-that-be or make friends with businessmen more powerful than him or establish a happy working relationship with his senior executives and other staff or as an organisation man in formal peer groups.

A senior executive in the Group puts it a little differently. "RPG is a people-friendly person. He has the unique ability to make people feel good. Spend ten minutes talking business with him and come out – and you will feel good, even if you don't really know why. This, his generosity in not scrimping on emoluments or designations for everyone in the Group, and his willingness to gladly empower those who work with him has kept loyal to the Group most of his managers, be they the Oxford graduates of the Walter Duncan days or the IIM and IIT graduates of more recent times." And adds Mohapatra, in a more pertinent context, "What a wind of change has blown through Spencer's! It's not merely that salaries much higher than anything in the past are attracting talent, but it's talent feeling it's been given wings to fly and the opportunity to say it like it is."

* The founder of the firm in 1863, Charles Durrant, to be joined later that year by J. N. Spencer.