Burmans take effective controlling stake in Eveready

The owners of the Dabur group, the Burman Family, have informed the exchanges that they had acquired another 14.3% stake in Eveready Industries. The Kolkata based manufacturers of batteries, was formerly owned by the Khaitan group. With this acquisition, the stake of the Burman family stands enhanced to 38.3%, giving them effective control of Eveready Industries. The 14.3% was acquired through the process of open offer. Incidentally, just a couple of months back, Khaitans had handed management control to the Burmans.

How did the Khaitans lose control of Eveready Industries?

There is an interesting background to how the Khaitan family lost control of Eveready industries. The problems began for the Khaitan group when two of its group companies viz. McNally Bharat Engineering and McLeod Russel got into financial problems. While McNally Bharat is an infrastructure company, McLeod Russel is a tea company. Both the companies had made huge losses and were not able to service their debts.

This led them to the bankruptcy courts when Khaitans bailed them out by pledging Eveready shares.
For fiscal 2019, McNally Bharat reported a huge net loss of Rs466 crore while McLeod Russel reported losses even after selling many of its tea estates to improve its cash flow. Problems began in the end of 2019 when Yes Bank moved NCLT against McLeod Russel on account of a loan default.

But, things actually came to a head for Khaitans when Aditya Birla Finance sold 25 lakh shares of Eveready, which were pledged by the Khaitans. This resulted in dilution of the promoter stake in Eveready from 27.39% to below 5%.
 

These shares of Eveready had been pledged by the Khaitan family to give comfort to the creditors against the existing dues of McNally Bharat Engineering and McLeod Russell. At that time, the Burman family had intervened to pick up part of the stake from the open market to help the Khaitans retain control. Later in mid-2020, the Burman family acquired another 8.48% stake in Eveready Industries to take their total stake to 19.84%. This had made the Burmans the single largest shareholder in Eveready.

In early 2022, the Burmans moved in to take full control of Eveready after they decided it was time to take over the management of the company to protect their own investment and also the investment value of other shareholders. Accordingly, the Khaitans resigned from the Board of Eveready and the Burmans officially took charge. The Burman family had then mandated JM Financial to buy the requisite shares from the open market and then make an open offer to minority shareholders in accordance with extant SEBI regulations.

End of the road for Khaitans at Eveready

In a sense, this is the end of the road for the Khaitans with respect to their ownership in Eveready Industries is concerned. Burman group has already said that they now wanted to take full management control of Eveready.

Khaitans are likely to have a limited role to play considering they just have a small stake in Eveready now. As of March 2022, the Khaitans owned just about 4.9% in the company. With this move, the company effectively goes out of the control of Khaitans and into the hands of the Burmans of Dabur.

There is an interesting background to how Khaitans had won the bid for Eveready Industries against all odds. After languishing for 9 years post the Bhopal gas leak of 1984, Union Carbide was finally sold in 1993. At that time,

Khaitans had beaten the powerful Wadia group of Bombay Dyeing to assume control of Union Carbide, which was later christened as Eveready Industries. This will go down as one more case of pledged shares forcing the promoter to lose control of its crown jewels.