Birth of a Tycoon

How Rama Prasad Goenka got baptised by fire in the acquisitions game to emerge as India’s ‘takeover specialist’

Rama Prasad Goenka was born on 1 March 1930, in Calcutta, the eldest of five children, to Rukmani Devi and Keshav Prasad Goenka. The Goenkas are blue-blooded members of Calcutta’s Marwari aristocracy. “In our community, we regard them as royalty,” gushes BM Khaitan, India’s tea maharaja and one of RP’s closest friends. By Indian standards, RP grew up in a rather Westernised household. The Goenka family fortune was founded on links with the British. Both RP’s grandfather, Badridas, and uncle, Hariram, were knights of the British Empire; and Sir Badridas was the first Indian chairman of the Imperial Bank.

Marwaris are better known for their commercial enterprise than for producing scientists, but Sir Badridas was a physics and chemistry student, possibly the first of his community to graduate from Presidency College. His grandson, RP, an MA in economics, hungered for a doctorate from Harvard. “I spent 15 days in 1968 in Athens and three months at Harvard, researching. I wanted to do a comparison between Pericles and Chandragupta Maurya but they found too many lapses in my thesis,” he says.

Despite his liberal background, Goenka is an orthodox Marwari at heart. He expects those younger than him to greet him by touching his feet. The Goenka women stay at home, looking after the children, and RP brought up his sons to think in the same way. Lately, change seems to be in the air. In early 1996, Mala (Harsh’s wife) started looking into the affairs of HMV, a music company.

In speech, Hindi phrases slip into RP’s uneasy English. At home, and where appropriate, he wears a traditional cream silk kurta above a finely pleated Bengali-style dhoti. In the office, he prefers half-sleeved white safari suits, typical of Marwari businessmen of his age. For many years, however, Goenka wore a jodhpuri jacket over Western-style trousers. It was a silent protest against the subtle racism he experienced in his first job. After Independence, racism between the British and the Indians would be substituted by that between Bengalis and Marwaris. In 1991, Sanjiv would be refused membership of the swanky Calcutta Club amidst snide cracks about the need to stop the “Bengali tiger [from] being cornered by the pot-bellied Marwari in the safari suit”, but those incidents lay in the future.

At the close of the nineteenth century, the Goenkas practised the traditional Marwari occupation of money lending.

During the Raj, they acted as banians (commission agents) for European managing agency firms such as Rallis India (Armenian), Kettelwell Bullen and Bird Heilgers (English), and Duncan Brothers (Scottish). It was in the latter firm that Keshav Prasad obtained a job for RP as a covenanted assistant on the princely salary of Rs 350 per month.

Describing his first day at work, RP recalls: “It was 1 May 1951. I went to the dining room. There were many tables. There were eight Englishmen and one Indian. One Englishman called out to another, ‘I say, old chap, do we allow people to have tiffin without a tie?’ He answered, ‘No.’ ‘Then should we not ask him to leave?’ I tendered my resignation and went home.”

Keshav Prasad was furious. “Why did you go against the traditions of Duncan Brothers? They did not say anything to you. They were talking among themselves,” he railed. RP was forced to retract his resignation but all through the fierce Calcutta summer he wore a jodhpuri.

Behind Keshav’s recriminations lay dreams of heading Duncan Brothers, which, besides its flourishing trading activities, owned Anglo-India Jute and Birpara Tea. “My only business ambition was to chair the board, own the company and totally Indianise it,” he told reporters many years later. Through a series of judicious loans and quiet tactics—Keshav Prasad liked to describe his management approach as “ahista, ahista”—he fulfilled the first part of his dream in 1957. Six years later, he achieved it in full. The event was described by the press as ‘one of the biggest corporate coups’ of the time.

As tea profits increased, Duncan Brothers became a rich war chest. With his sons by his side, Keshav Prasad hit the acquisition trail: Coorla Mills (1966), Asian Cables (1966), Jubilee Mills (1969), Swan Mills (1971), BN Elias Group (1973, including Agarpara Jute and National Tobacco), and Murphy India (1974). Among the trophies were a few failures: Rallis India, Balmer Lawrie, Remington Rand (which the elder Goenka bagged in a second attempt, from Keshub Mahindra, in 1991, but which was subsequently sold off for Re 1) and Bombay Dyeing.

The Bombay Dyeing deal was totally RP’s idea, and in making a play for the venerable Parsi institution, RP displayed an odd mixture of audacity and naivete. Bombay Dyeing has been owned by the Wadia family for decades. Goenka’s play for Bombay Dyeing wasn’t a hostile move. Bombay Dyeing’s then chairman, Neville Wadia, in 1971 put it on the auctioneer’s block. Reportedly the company was in a financial mess, and the Wadias did not have enough resources to set things right. Unaware of his father’s intentions, Nusli Wadia arrived in Bombay after completing his graduation abroad, expecting to find a job in the mill.

“We had signed the deal with Neville Wadia,” recalls Goenka. “The contract is still lying in Jaswant Thacker’s office. But after Neville Wadia had signed, Nusli baulked. Neville Wadia offered me Rs 5 lakh to return the contract. Pallonji Mistry assured me that if the matter came to court, he would vouch for the legality of the sale and the presence of the contract. Like an idiot I told Neville: ‘If you offer me a drink, I’m prepared to cancel the deal.’ He rushed off to get the finest bottle of Royal Salute. But I was an idiot. There is no room for emotions in business.”

Pressure on Goenka to pull out of the deal came from other sources also. Among them JRD Tata, who rushed to Nusli’s rescue. The childless Tata’s affection for Nusli was well known, as was his estrangement from Pallonji Mistry, a construction magnate whose shareholding in Tata Sons, a core holding company, was larger than that of the Tatas themselves. Mistry owned 40 per cent of Nowrosjee Wadia & Co, which in turn controlled 7 per cent of Bombay Dyeing. Fortified by Tata’s backing, Nusli drummed up support from within the company. He mustered 11 per cent of Bombay Dyeing’s equity, some of it from his sister and their mother Dina, who were equally aghast at the prospect of Wadia losing his inheritance. The management cadre rallied round him and about 700 officers signed a joint statement saying they had saved money for a rainy day and were willing to offer this for buying the company’s shares. The company union declared its intention to back the young master. With these four aces in his hand, Nusli flew to London for a showdown with his father. Goenka and the two Wadias met at the Ritz, where Neville was staying. Meanwhile, in India, JRD warned senior government and Reserve Bank officials that he would lead a public campaign if the government did not stop the sale from going through.

Did the controversial deal split businessmen along community lines? According to the Business Standard, a ‘number of Parsi businessmen [came together] in Bombay to prevent a Marwari takeover of a Parsi concern’. Goenka shrugs off the comment. “If there had been any anti-Marwari feeling, respected Parsis such as Pallonji Mistry and Pettigara of Mulla & Mulla would not have supported us.”

Later successes such as the acquisition of Ceat Tyres and Calcutta Electric Supply Company (CESC) have made Goenka philosophical about petering out of the Bombay Dyeing bid. At the time, his failure rankled. In a sense, the abortive offer symbolised the stagnant phase the group was passing through in the 1970s. In the 1960s, Keshav Prasad and his three sons had acquired several mills and established a beachhead in Bombay through Asian Cables. This decade saw few accomplishments apart from the takeover of the BN Elias group of companies. RP felt stifled and wanted to set up his own office, independent of his brothers. In the process, he engineered the splintering of the entire Duncan Group.

“The separation was requested by me. My brothers did not want it,” says RP. The friction among his three sons about the direction and pace of growth threw Keshav Prasad into a deep depression. The constant bickering wore Keshav Prasad down until he finally yielded. Some time in early 1979, at his opulent flat on Bombay’s Carmichael Road, the disheartened father drew up three lists. He called in his youngest son, Gouri, showed him the three columns, and asked him to take his pick. Jagdish, the middle son, chose next. The last list was given to RP. In 20 minutes, 15 companies with an estimated combined asset base of Rs 1.45 billion changed hands. Each felt he had been given the short end of the stick. Particularly RP. Mingled with regret, however, was relief. He could now put his past aside and start afresh. From now on, he wouldn’t have to consider anybody else’s sensibilities but his own, trust no one else’s judgement but his own. He was free to make his own deals.

After 1979, RP was a driven man. According to the terms of the settlement drawn up by Keshav Prasad, all three brothers started out with a clutch of companies totalling roughly the same sales turnover: Rs 750 million. Each group contained a carbon black company, an input in tyre manufacturing and an industry in which the Goenkas held over 60 per cent of market share. Otherwise the companies in each group varied hugely in terms of profitability and potential. RP’s leftovers consisted of Phillips Carbon Black, Asian Cables and two duds (Agarpara Jute and Murphy India). Jagdish picked the textile interests and Anglo-India Jute. The prize, Duncan Agro Industries, went to Gouri. Both RP and Jagdish felt this keenly. The tea and cigarette manufacturer, with assets of Rs 540 million, was ‘an industrial status symbol like Birla’s Century [and] the only Goenka company to figure in the list of one hundred top private sector companies,’ according to Business Standard.

The split freed RP and he became more entrepreneurial. “When we were together, the desire for business was not greater. But I was more careful. I think there is more adventurism in me now,” RP says. “Also, when you are on your own, you can make faster decisions.” And fleet-footed he was. Selling off Agarpara Jute to generate some cash, RP went shopping. His first purchase was Ceat Tyres of India in 1981, acquired just in time for RP to bead its silver anniversary celebrations. It was then India’s third biggest tyre company after Modi Tyres and Dunlop India. Profitable, rich with cash reserves and real estate, well-run and possessing strong brand equity, it was a dream company. A subsidiary of Italy’s Ceat, it came on the market because the parent company was in a financial bind. Yet there were no takers. Ceat Tyres of India was first offered to the Tatas, the company’s original promoters. Moreover there was some synergy between the tyre manufacturer and Telco, the Tata Group’s truck company. Telco’s chairman, Sumant Moolgaokar, however, was uninterested and so it appears was JRD Tata. When the Tatas turned it down, it was then offered to the Modis, an aggressive Delhi-based group which had entered the tyre business in 1971, but the Modis were in no position to purchase it.

Other possible buyers were put off by the uncertainty in the tyre business. During the 1960s, tyres had commanded huge premiums, encouraging large investments in this sector. By the next decade, installed capacity had shot up. At the same time, the prices of raw materials had ballooned in the wake of the oil crisis of the mid-1970s. Overnight the premiums vanished. Ceat Tyres of India’s future was bright but its prospects were decidedly chancy. Unperturbed, Goenka snapped it up. The deal, signed and sealed in Turin, Ceat’s headquarters, was so discreet that not a ripple was felt in India. Even after documents were exchanged, the only information which either party would release in India was that various investment companies belonging to Goenka had bought 11 per cent of Ceat Tyres of India’s equity for Rs 205 per share (or Rs 12 million); and that its 39 per cent foreign holding was still held by its Italian parent. The Goenkas would, however, manage the company, and on 15 October 1981, RP’s son Harsh joined the board as a director. The announcement immediately aroused considerable speculation about why the Italians had virtually gifted the management of the company to the Goenkas. That question remains unanswered till today, though the Goenkas are known to have strengthened their holding. Goenka’s gutsy decision more than paid off. The parting from the parent company galvanised its Indian managers into performing better. RP was also lucky. The sector turned the corner. Once Ceat Tyres of India (later renamed as Ceat Ltd) started performing exceptionally well, Goenka had no hesitation in dipping into its impressive reserves. He bought KEC (in 1982), Searle India (1983), Dunlop (1984, in partnership with Manu Chhabria), Bayer (1985, a minority stake which was subsequently sold off), and HMV (1988). The year 1989 was particularly spectacular for India’s hungriest takeover specialist. Analysts watched breathlessly as he swallowed up a power company, two plantations and a computer hardware concern (CESC, Harrisons Malayalam, Spencer & Co and ICIM).

These acquisitions added almost Rs 10 billion to group sales of Rs 7.7 billion in 1988, and propelled RPG Enterprises up from thirteenth to fourth rank in terms of size. The 1979 split had left Goenka with a Rs 700 million group. In 1992, RPG Enterprises joined the $1 billion club. By 1995, group sales were Rs 45 billion with profits of Rs 7 billion.

Rama Prasad Goenkatakeover specialisttycoon