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One corporate battle which Dhirubhai did not win was the battle for control of
Larsen & Toubro. In 1988, L&T was in bad shape, and the Ambanis thought that
the time was ripe for an acquisition. Having secured the support of L&T's
chairman, who saw Dhirubhai as a white knight in the battle against the raider
Manu Chhabria, Mukesh and Anil Ambani became directors of L&T. By April 1989,
Dhirubhai became chairman of L&T.
Reliance, L&T's biggest private-sector customer, bought 12.4 percent and got
two nominees on the L&T board. L&T later won a substantial contract to build
Reliance's Hazira petrochemical plant. Meanwhile a state-linked financial
company bought L&T shares from India's biggest mutual fund and largest
insurance company. It then sold the shares to a little-known investment company
connected with Reliance. Desai surprised the L&T board by stepping down, and
Ambani took over as chairman. Bombay's clubby corporate world was shocked at
what seemed to be a behind-the-scenes takeover.
The matter moved to the courts. Sensing defeat, the Ambanis reversed the
transaction, taking a substantial loss. An extraordinary general meeting was
called to decide whether the Ambanis would remain on the L&T board. Dhirubhai
resigned. Eleven years later, Reliance sold its holdings in L&T to Grasim. Even
that transaction was not free of controversy, as the Securities and Exchange
Board of India felt that Reliance should not have bought L&T shares from the
market a few months before deciding to sell its stake. The insider trading charge
was settled with Reliance paying a nominal fine.
It can best be argued that hostile takeovers are ethical. Usually, only weak companies face
hostile takeovers, and, typically, shareholders and customers of the company benefit from the
new organization. Most employees and managers benefit, too, but some employees and top
managers usually lose their jobs when the takeover is consummated. From this angle, some of
you may argue that hostile takeovers are unethical.