Billionaire brothers Shashi (pictured) and Ravi Ruia's pursuit of Essar Energy has been described as ruthless by some 

When the Ruia brothers decided to delist Essar Energy from the London Stock Exchange, they must have known it would be a long and arduous process. Hostile takeovers are seldom straightforward, but if there ever was a team up for the challenge, the billionaire brothers were it.

The Ruia family retained a controlling share of Essar Energy – India’s second-largest power generation company – when they listed it on the London Stock Exchange in 2010. From the beginning of 2014, it became apparent that the brothers would aggressively pursue the acquisition of the Essar Energy share they didn’t already own, with the view of delisting the company altogether.

Shashi and Ravi, the two brothers who founded and continue to head the Essar Group, have been at the helm of the conglomerate since its inception in 1969, but since listing the energy arm of the business, their leadership has been fraught with contention. Troubles started with the IPO in 2010, when Essar Energy debuted with the worst performance in eight years. At the time, the bothers retained 72 percent of the shares through their investment vehicle Essar Global Fund (EGFL). For some time, the brothers had been campaigning with the minority shareholders to delist Essar Energy, but when their plan was met with resistance, they did not hesitate and moved for a hostile share acquisition.

Essar Energy has struggled over the past few months from a combination of industry-wide low prices and “operational and Indian macroeconomic challenges”. Due to production constraints in oil refining, activities have taken a hit, and to add insult to injury, one of its UK refineries was hit by fire, slowing production to a crawl. Essar Group is also not in the finest financial health, with soaring debt and struggling assets in iron ore. “Such snapshots are an unfair measure of the health of industrial groups, given they show just the cost of investments, not the future income from these investments,” the company said in a statement in 2007 when its debt started spiralling out of control.

Difficult conditions
At the time of their original offer, shares in Essar Energy had plummeted to about half of what they were worth just one year before. Taking advantage of poor confidence in the markets and the bad luck which had engulfed the firm, the Ruia brothers made their move. EGFL offered a premium of 17 percent on the shares the brothers didn’t already own. At 60p per share, this marked their value at 70.2p each. Despite forecasts which predicted Essar Energy would remain in the red for at least another year, it was still considered a low-ball offer and an indication of strong-arm tactics. After the first offer was made, an independent panel made up of five advisors concluded that the bid “clearly undervalues the company and its long-term growth prospects.” However, within a couple of weeks, and with deadlines for the deal on the verge of expiring, the independent directors were forced to reconsider and “reluctantly” recommended that the minority shareholders accept the offer. At 70p a share, the buyout will be worth £900m – well short of the £1.3bn raised by the IPO four years ago. When the deal goes through, the Ruia brothers will have made a tidy half a billion pounds.

“Despite our view on the valuation, because the shares offer is now wholly unconditional, Essar Energy shareholders who do not accept the offer will be faced with the risks and uncertainties associated with delisting, re-registration and refinancing,” said the independent advisors in a statement. “Reluctantly, the independent committee therefore believes that Essar Energy shareholders should seriously consider accepting the shares offer.”

There has been little detail about what the Ruia brothers plan on doing with Essar Energy, apart from a promise to invest an unspecified amount on Essar Petroleum. There is very little question about the need to spend some money on the loss-making company, especially since the fire in the Stanlow refinery in the UK – one of the company’s biggest oil assets – harmed its production output. Though initially Essar Energy stated improvements would be made at the refinery, it now appears as though the group will actually sell it on, parting with yet another valuable asset.

As of the start of June, the Ruia family had raised its stake in Essar Energy from 72 percent at the time of its IPO to a near complete 99.11 percent of shares. According to the Financial Conduct Authority’s regulations on the matter, majority shareholders only need an 80 percent stake in order to start delisting proceedings. EGFL has already submitted a request to take the company back into private ownership.

The deal has been almost universally criticised, and some shareholders have even attempted to use legal challenges to bring it to a halt. In the end though, EGLF succeeded in persuading the independent board to recommend minority shareholders accept the Ruia’s offer. When the brothers insinuated that they would proceed with the delisting by hook or by crook, many of the minority shareholders were weary of a fight and chose to settle instead. Philip Aiken, Chairman of the Independent Committee of Directors was forced to concede defeat: “The UK listing rules are such that there’s not a lot of things you can do.”

Keeping business personal
Those familiar with the Ruia brothers’ history would not be surprised to see the brothers deploy such ruthless tactics. Shashi, the eldest, has relentlessly worked on his father’s construction business since 1965, and along with younger brother Ravi, had the foresight to invest in infrastructure. By 1976 the brothers had developed the company so far it was incorporated as Essar Construction – a name derived from the phonetics of each brother’s initial S and R.

In the decades since, the two have led Essar through a series of successful ventures, breaking into the oil and gas, shipping, power and telecoms markets to become a revered conglomerate. It takes pure courage and ambition to break into industries traditionally controlled by the public sector in India, but the brothers did it with aplomb. Today, the Essar Group functions as a highly diversified series of incorporated companies, operating in Asia, Europe, Africa and North America, employing over 75,000 workers.

The Essar Group has been instrumental in the making of modern India, and Shashi is often referred to as one of the country’s architects. Today, the Ruia brothers are the richest people in India according to Forbes, though it has not always been a smooth ride. In 2011, Ravi was charged with criminal conspiracy and cheating by India’s Criminal Bureau of Investigation after a month-long inquiry into corrupt deals in the country’s telecoms industry. The court case is still ongoing, but Ravi and his nephew Anshuman Ruia – also accused – have vehemently denied any wrongdoing, and are considering legal action of their own over the allegations.

Essar Group has been largely unharmed by the court case against Ravi, and hasn’t taken action to distance itself from the accused who remains vice-chairman of the board. At the time the company said: “Essar Group is a responsible and corporate citizen and has always complied with all governmental guidelines and the law of the land.” The criminal charges are, unsurprisingly, not a good omen for the Ruia family, and when taken in conjunction with the ruthlessness with which they conducted the recent Essar Energy deal, things begin to look quite alarming. There is absolutely nothing wrong with the pursuit of the shares, yet the sheer ruthlessness and pressure exercised by the brothers in the process was questionable. Although Ravi is still far from being convicted of any wrongdoing, a number of red flags are being raised about how far the Ruias are willing to go to achieve their ends.