Philips sells a unit to Videocon, but the union puts up a higher bid
IT'S going to be quite a fiery Christmas for Philips India Ltd, the Indian subsidiary of the Dutch consumer electronics giant. The company's decision to sell its Salt Lake, Calcutta factory has pitched it into a legal battle with its workers, who now want to buy the unit off the owners.
Philips India had decided to sell the Salt Lake unit to the Videocon group. At an extraordinary general meeting on December 4, the management moved a resolution seeking shareholders' approval to sell the unit to Kitchen Appliances India Ltd, a part of the Videocon group, for Rs 9 crore. Despite strong opposition from representatives of the workers' unions, the resolution was carried, thanks mainly to the 51 per cent proxy voting power of Philips' overseas parent.
The unions had two main arguments against the sale: the price, which they claimed was 'ridiculously low', and the sale, which they said would go against the interests of workers and shareholders. Significantly, the three financial institutions, LIC, GIC and UTI—which hold about 21 per cent of Philips India's equity and from whom the company has borrowed Rs 30 crore—had also voted against the resolution.
The unions have now topped Videocon's offer by one more crore. According to Kiron Mehta, president of the Bombay union, the unionised workers would raise the required funds by borrowing Rs 50,000 to Rs 1 lakh each from their provident funds. Philips has about 5,500 unionised workers including the 359 employed at the Salt Lake unit.
Interestingly, the management has not accepted the unions' bid despite the higher price, citing "a legally binding agreement" with Videocon. The union has challenged the management's contention, saying there are sufficient causes to abort the sale agreement. Accordingly, they have filed an appeal in the Calcutta High Court challenging the sale agreement. The matter is scheduled for hearing on December 21.
Videocon is interested in buying the unit because it has big plans in West Bengal—it intends to make a big splash with its Sansui colour TV brand and will even invest Rs 60 crore in the state. As a result, the Videocon offer has received strong support from the Marxist state government.
In a strange twist of events, therefore, the Philips unions' plan is not being supported by CITU, CPI(M)'s trade union. Chittabrata Majumdar, CITU general secretary, has stated: "The unions buying the Salt Lake unit is really not as good an idea as it sounds. The consumer electronics market is fiercely competitive and it requires a very efficient management to succeed against this competition." Even the Congress-controlled INTUC has joined issue with CITU. Commented a senior Calcutta industrialist: "I feel that, for a change, the Marxists have taken the right stand."
While Kiron Mehta is acknowledged as a powerful and shrewd union leader with access to considerable funds, industry circles wonder if there is more to his offer for the Salt Lake factory than meets the eye. Justifies Mehta: "Our offer is serious and we have been in touch with some top ex-Philips managers who are willing to run this company on behalf of the unions." That, company circles say, might also mean there's an interested group manipulating to take over the unit through the union leaders.
But is Rs 9 crore a fair offer for this state-of-the-art unit? K. Ramachandran, Philips India managing director, says that the Videocon offer is above board and transparent, besides being the best offer received. "Our decision to sell the unit is a part of the group's strategy to centralise operations at our main production centre at Pune. Hongkong Bank was appointed to find a buyer who would continue to employ the 359 workers at the Calcutta unit on current wages and other benefits, continue manufacturing, and also give a fair value to shareholders by providing a solution that would minimise the cost."
According to the Philips management, Rs 31 crore has been invested over the years in the Calcutta unit. Its current net asset value is Rs 17 crore. Ramachandran confirms that the market price of this unit, without the severance liability of the workers, would be about Rs 28 crore. But the voluntary retirement scheme and other liabilities would amount to over Rs 21 crore. Which makes Videocon's offer eminently acceptable. Mehta, on the other hand, counters that the severance liability has been inflated by the management. Secondly, Philips' pay package is about three times higher than the market norm, a fact Ramachandran confirms. Therefore, if Video-con continues to maintain these wages, it will lead to the demand for a wage hike in the rest of the consumer electronics industry in the state.
The plant has a monthly running cost of about Rs 85 lakh and a working capital of Rs 30-40 crore. Manufacturing operations ceased in June, resulting in an unproductive expenditure of over Rs 5 crore so far. If Philips actually enters into a court battle with its unions, this unproductive expense will only mount. Casting a long shadow on the deal and giving round one to the unions.