The Art of Letting Go

Indian business groups are learning to separate emotion from valuation. For shareholders, this can only be a good sign.

Indian business groups are learning to separate emotion from valuation. For shareholders, this can only be a good sign.

Malvinder and Shivinder Singh have done it again. Two years after shocking the corporate fraternity by selling blue chip pharma giant Ranbaxy to Daiichi Sankyo, the Singh brothers have now announced they will not sit on the board of their financial services flagship Religare Enterprises. Instead, they will focus their energies on growing the healthcare business in which they have been investing funds and energies of late.

Not surprisingly, the decision has become a topic of intense discussion in corporate and market circles. How do the Singhs manage to do this again and again, surprising markets and demonstrating they are capable of separating emotion and ego from their business decisions? While some analysts say this is a signal of the maturing of Indian businesses—where stakeholders will increasingly be able to distance themselves from existing businesses to focus on creating value for shareholders in new businesses—others reckon that in Religare’s case, this could also be a big step forward should laws be relaxed to let new entities acquire banking licenses. Not having promoters directly running the day-to-day operations of the financial services firm may prove to be a big plus should the Reserve Bank of India at all consider granting new licenses.

Whatever the case, letting go is an art the Singhs have become known for. They do it with ease, and their track record so far has been enviable. After letting go of Ranbaxy, they have successfully created a large financial services brand in Religare. And Malvinder promises he will give India two more brands bigger than Ranbaxy.

From a shareholder perspective, any move which is value-accretive will be welcomed, even if it means owners moving away from running businesses operationally. As Indian business matures, valuations become the prime driver of business decisions, and new opportunities pop up in an increasingly globalised business environment, shareholders may find themselves pleasantly surprised by more people joining the ranks of Malvinder and Shivinder Singh, whether it is to create more value in existing businesses by distancing themselves, or merely moving on to new vistas to create value elsewhere.

When owners realise their continuing presence operationally is no longer essential to the process of value optimisation, the prudent among them will not hesitate to separate ownership from managemen,t and focus their energies elsewhere, to generate value for themselves and shareholders at large. So the Singhs’ other venture, Fortis Healthcare, also bought a 24 per cent stake in Singapore healthcare firm Parkway for $687 million, and before that, it had acquired 10 Wockhardt hospitals for just over Rs 900 crore. It is now time, they feel, to invest in this side of their business and generate greater value.

It is true that corporate India has not seen too many instances of owners letting go of businesses. Some important, high profile examples which readily come to mind are the Sekhsarias moving out of Ambuja, the Tata Group exiting Tomco and, more recently, Energy Brands Inc, and the GMR Group exiting Vysya Bank. But so far, they have been few and far between.In many cases of this kind, promoters almost always have been able to sense that their continuance in a venture or their presence in day-to-day management would no longer add any significant value to the business, and moving on to a new venture by deploying the cash generated by the decision to let go will be more value accretive. Typically, the value created by investing the funds generated by the sale of strategic stakes has been enough to justify the decisions.

Letting go is something Indian businesses are learning even in the realm of M&As. When is the time to walk away from a deal? Is there any benefit in continuing negotiations beyond a certain point? Of late, Indian promoters have been able to negotiate these tricky questions, and more often than not, they have been right, walking away from deals which would have probably been hugely burdensome for the balance sheet, or from acquisitions which simply did not make strategic sense above a certain price. The Bharti-MTN and Sterlite-Asarco ‘deals’, where talks broke down after a point, are examples of how Indian businesses are able to let go, walk away.

In business, moving away is seldom about losing out. In fact, it’s almost always the opposite. Indian business is realising this. And shareholders aren’t complaining.

These are the author’s personal views.

Malvinder SinghRanbaxyReligareShivinder Singhvaluation