Ratan Tata says he is a nice guy who does not believe in hostile takeovers. But this has consequences. It means that a takeover target can spit in your face and say that mere association with you will be demeaning, leaving you looking like an oppressed Harijan. This is the situation Tata faces after being spurned in no uncertain terms by Orient-Express Hotels, the international luxury hotel chain.
Till now, Tata has negotiated several friendly global takeovers, ranging from Tetley Tea to Corus. However, his group ran into rough weather after Indian Hotels, its group company, wooed Orient-Express Hotels. Indian Hotels built up a double-digit stake in the multinational, and then proposed a strategic alliance. This looked like the first step in an acquisition.
Orient-Express bristled at the proposal. It declared that any association of its brands and hotels with a predominantly domestic Indian hotel chain would hurt its brand image and hit its ability to charge premium rates.
This was quasi-racism, barely camouflaged in the language of branding. However, berating Orient-Express is somewhat beside the point. If global business was a white racist citadel, then Orient-Express’ slur, no matter how hurtful, would be factually accurate. In fact, global money today is largely, though not totally, colour-blind.
This was proved when Lakshmi Mittal bid last year to take over Arcelor, the top European steelmaker. Arcelor’s chief, Guy Dolle, declared that his company produced perfume, whereas Mittal merely produced eau-de-cologne. But this supposedly suave put-down fell flat on shareholders more interested in future profits than a perfumed balance sheet, and Mittal won the battle.
The company’s share price skyrocketed after takeover. The very name Mittal now smells of money, and hard-headed investors prefer it to French perfume.
Cultural attitudes are not easily changed, but money can do the job. In the days of apartheid, South Africa gave visas only to white businessmen. But when the Japanese became too powerful to be ignored, South Africa bestowed ‘‘honorary white’’ status on them.
In the last decade, the US has become dependent on Asian countries to buy its treasury bills and finance its huge trade deficit. After the recent financial crisis arising from sub-prime mortgages, Citibank turned to Abu Dhabi for a $ 7.5 billion bail-out, and UBS (of Switzerland) to Singapore for $10 billion.
Nothing drives home the end of white supremacy more than the appointment of Vikram Pandit to head Citibank. After sinking into the quicksand of the subprime mortgage crisis, the world’s biggest bank has turned to a non-white for rescue.
But while global finance is mostly colour-blind, white snobbery still lurks in luxury goods. Ford is selling its Jaguar and Land Rover brands, and the three bidders are Tata, Mahindra and One Equity Partners. The association of US car dealers says a sale to Tata or Mahindra will affect the brand value of these luxury brands. This is on par with the racist slurs of Guy Dolle and Orient-Express. Yet, it is clear that the once-proud Jaguar brand has sunk close to termination under a series of white owners, including Ford.
Scotch whisky is a luxury item associated with Scots in kilts. Vijay Mallya, India’s liquor baron, has taken over Whyte and Mackay, which has 9% of the scotch market. Its sales have boomed after acquisition. The colour of the owner has nothing to do with the success of a luxury brand.
Let’s return to the Orient-Express slur. Tata can claim that the Taj – the brand name of its hotel chain – has more cachet than the Orient Express. That’s why Donald Trump named his mega-casino resort in Atlantic City the Trump Taj Resort.
But the Orient-Express management is not listening. It has a controlling shareholding in the company, so a hostile takeover is not technically possible. But it will be possible in future cases. Learning from this episode, Ratan Tata would do well to re-examine his opposition to hostile takeovers. Such timidity is a weak foundation for a global empire.
Tata’s philosophy is doubtless influenced by his Indian experience. Tata Sons, the holding company of the group, has historically held a minority share in various Tata companies, and is fearful of being ousted by a hostile bidder.
However, this historical defensiveness sits ill with the requirements of a global multinational. Tata managers tend to talk in disparaging terms about Mittal and his business tactics. Yet, the Tata group itself would not be where it is today but for the pathway cleared by Mittal. By becoming world No 1 in steel, he gave Indian business a cachet it never had earlier. But for this, Tata would not have been able to acquire Corus.
Hostile takeovers are only one of many routes to global expansion. For a limited period, any company can steer clear of hostile battles. But if you give up a crucial weapon available to others, the gap in your armoury will leave you vulnerable in the inevitable battles of the future. The history of business is littered with the corpses of nice guys. To flourish as a global multinational, Tata needs to become more like Mittal. He needs to inspire fear no less than respect.