By Chhaya

The battle of attrition between these friends-turned-foes, Kishore Rajaram Chhabria (KRC), the 43-year-old vice-chairman of the Rs 246.86-crore Herbertsons, and the 42-year-old liquor baron, Vijay Mallya, CEO of the Rs 2,848-crore UB Group, over the ownership of the company is in its final phase.

Undeterred by the prospect of having to make an open offer against his gradual acquisition of a controlling 43 per cent stake in Herbertsons, KRC sweeps away objections with a blithe: "I have nothing to worry about." His adversary, Mallya, who, despite the 40 per cent stake he holds along with his associates, stands to lose control over the company if KRC's stake hike is accepted, is agitated: "There was a clear understanding that KRC would not increase his holding in Herbertsons."

In retrospect, it seems that Mallya was always confident that he would buy back KRC's shares at a later date. But Chhabria had larger designs--of either taking over Herbertsons, grabbing management control, or demanding his pound of flesh, which amounts to Rs 100 crore (or Rs 245 per share, against the current ruling price of Rs 70). However, KRC insists that he always wanted active management participation. "I didn't invest in Herbertsons as a mere shareholder," he adds.

What is intriguing is that, in May, 1996, the Herbertsons' board itself allowed KRC to increase his stake. It passed a resolution allowing the transfer of the 17 per cent equity stake that had been bought indirectly by KRC's investment companies. It is only the 4.50 per cent stake purchased thereafter that has not been transferred in KRC's favour.

The obvious question: why did Mallya allow KRC to become the single-largest shareholder? KRC's entry into Herbertsons and his gaining a 43 per cent stake were part of two separate deals with Mallya. As per the first deal in December, 1993, Mallya sold a 26 per cent stake to KRC in return for turning the Rs 42-crore BDA Distilleries--which KRC took away from his brother, Manohar `Manu' Rajaram--into a subsidiary of Herbertsons.

But it was the second deal, in December, 1995, which proved to be more dangerous for Mallya. At that time, Mallya was keen on transferring back Bombay Breweries, a Herbertsons subsidiary, to the group's beer-making company, the Rs 267-crore UB. The company, which manufactures the Kingfisher brand of beer, was important to UB because it had invested Rs 44 crore in the beer project between 1992 and 1995.

KRC, with his 26 per cent stake, had veto power over Herbertsons' board decisions, and resisted the transfer of Bombay Breweries to UB. And as a quid pro quo for KRC's allowing Bombay Breweries' transfer, the Herbertsons board allowed the transfer of an additional 17 per cent stake to KRC in May, 1996.

Apart from the thorny issue concerning the brewery, there were ego clashes between the two partners. For instance, KRC says that Mallya, in a letter written in August, 1992, had promised to give him an active management position in Herbertsons which he didn't, and the company's managing director, Sammy D. Lalla, 55, continued to report to Mallya. Defends Mallya: "I gave him the letter because KRC wanted status. He said, `Please make me a vice-chairman, and give me a cabin.' "

Now, the battle will be resolved by the Securities & Exchange Board of India (SEBI), which will decide whether KRC's acquisition was illegal, and whether he has to make an open offer. KRC, of course, contends that he acquired the shares in 1995, when the 1994 Takeover Code was in force. Under the code, acquisition of shares of an unlisted (investment) company--which may have a holding in a listed company like Herbertsons--by KRC did not force him to make an open offer. The rules were changed in 1997 to put unlisted companies at par with listed companies so far as takeovers are concerned.

But Mallya is not going to give up easily. While maintaining that "Kishore is only trying to find a loophole in the law," he is confident of buying the shares "at a reasonable price, and as per SEBI guidelines." But with both sides adamant, Mallya will need more than wild spirits to get his company back.

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