'Modern Foods was sold at higher than valuer's estimate'

NEW DELHI, MAY 30. The Government's decision to sell off 74 per cent stake in the public sector Modern Foods Industries Ltd. (MFIL) to Hindustan Lever Ltd. (HLL) ensured a cash flow of more than 100 per cent above the global advisor's valuation and saved the company from turning sick.

The global advisor for the disinvestment, ANZ Grindlays Bank, had valued the entire company at Rs. 78.55 crores only, while HLL had valued the bread making company at Rs. 165.47 crores, official sources said.

The Government, HLL and MFIL signed a joint shareholders' agreement on January 31, envisaging transfer of management control and 74 per cent Government equity to HLL, following a decision of the Cabinet Committee on Disinvestment earlier.

However, the entire deal had come up for criticism with the opposition parties and MFIL employees unions accusing the Government of selling off the public sector company 'cheaply.' HLL made an upfront payment of Rs. 105.45 crores for the 74 per cent Government equity in MFIL, besides agreeing to infuse Rs. 20 crores for technology upgradation and modernisation.

Sources claimed since HLL was the only bidder which submitted a formal proposal and offered a higher premium over and above what was valued by the global advisor, the best option before the Government was to sell majority equity to the FMCG major and save the company from coming under the BIFR net.

Sources said the finances of MFIL had come under serious strains with its net worth recording an erosion of 20 per cent in 1998- 99, and efforts to turn it around would have required fresh capital infusion to the tune of Rs. 80 crores.

The privatisation was also prompted by the lack of strong interest in the sale process by other bakery products manufacturers. Nestle, which had evinced some interest had pegged the value to HLL at Rs. 65 crores after the due diligence process.

The sale was concluded at Rs. 11,490 per share against its face value of Rs. 1,000, sources said.

While the capacity utilisation of the popular bread maker was a dismal 15 per cent at the time of HLL take-over, it is expected to substantially improve in the near future with the FMCG major planning a major brand building initiative for 'Modern,' sources said.

The Department of Food Processing officials said with an enhancement in capacity utilisation to about 75 per cent, a total of about 5,000 employees would be required as against the current strength of just 2,000.

``The employees have gained as they are no longer employees of a potential BIFR company, but are employees of a highly profitable group with no threat to their jobs," they added.

- PTI

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