In the continuation of my previous article of Oct 28, 2012 titled ‘DLF-Vadra: Corruption on the record via Political Freedom fighters’ I am placing following example of Marvel8ed to understand legalized theft of corporate kleptocrats. This becomes possible due to the nexus between Onkareshwar Properties and Vadra’s Sky lights.
Before Satyanand Yajee and Sandeep Dahiya a close relative of Haryana Chief Minister Hooda was joined Onkareshwar Properties in the same day of 2008, the company was owned by Anil Bhalla and Gautam Bhalla of the Vatika group (in the photo below). In 2005, they bought the company, incorporated by Pardeep and Govind Kumar in 2004, with capital of Rs 100,000.
Some Facts about Onkareshwar Properties:
2004 Onkareshwar Properties incorporated with paid-up capital of Rs 1 lakh
2005 Anil Bhalla and Gautam Bhalla, father-son duo of Vatika Group, buy 5,000 shares each for a total consideration of Rs 1 lakh
2006 Current assets rise to Rs 2.6 crore, funded by short-term debt; books Rs 77,949 profit for FY06
Feb 18, 2008 Satyanand Yajee & Sandeep Dahiya become directors
Feb 19, 2008 Files FY07 balance sheet, showing current assets zoomed nine times to Rs 20.9 crore in one year, backed by loans
Mar 25, 2008 240,000 fresh shares of Rs 10 each allotted to Mr. Satyanand Yajjee
Dec 5, 2008 Files FY08 balance sheet, showing sundry debtor rose to Rs 7.95 crore from zero the previous year; current liabilities rise dramatically to Rs 87 crore.
Oct 2009 Finanical Year 2009 balance sheet shows that the company earned profits of Rs 43 crore. The Rs 7.95-crore sundry debtor not mentioned, which implies it was settled. Company is sitting on Rs 34 crore cash and has given Rs 12.5 crore as advances to other.
Media correspondent has the RoC record which shows the entry of Rs 7.944 crore book overdrafts entered in Sky Light’s books. The land price was Rs 7.5 crore, and the balance Rs 45 lakh could have been registration and stamp duty costs. At present Onkareshwar properties is owned by two individuals – Satyanand Yajee and Godavari Yajee.
Corporation Bank Chairman and Managing Director Ajai Kumar on Oct 18, 2012 in Ahmadabad said no funds by way of loan or overdraft has been given to Robert Vadra, son-in-law of UPA Chairperson and Congress President Sonia Gandhi.
Replying to a question as to whether the public sector bank had given over Rs 7.5 crore to Vadra, who is currently embroiled in a controversy over a real estate deal with housing major DLF Group in Haryana, he reiterated the bank’s position: “We have already denied it. There is nothing new to add. We don’t have any documents whatsoever to comment on this issue.”
Satyanand Yajee, who lives in Freedom Fighters Colony in South Delhi’s Neb Sarai, is listed as the General Secretary of the Freedom Fighters’ body on its website. Father of the Satyanand Yazee and the father of Haryana Chief Minister Hooda were jointly active in the politics and were running Freedom Fighters Association which in now in the hands of heirs of both families Hooda and Yazee.
This is the reason Hooda has given clean chit to the unethical or illegal if investigation gone the transaction made between Vadra’s Sky lights and Onkareshwar Properties.
In this way first entry of Vadra in the real estate is unethical or illegal with the help of DLF and Hooda and this is against the interest of the India if not the Italy.
Simple Mechanics of Legalized Theft:
Company A is sound financially, has a great future, employees 1,000 workers who are happy with their careers, has no debt, and great income. It is valued, by the worth of the stock it has issued, at $100 Million. The kleptocrats — er, Corporate Raiders, see Company A as a company that is “Worth more than the value of its stock.” This is code for “Can be hyped and sold to the gullible for more than it is worth.” But we’ll get to that soon.
The Corporate Raiders prepare for a takeover of Company A. Their first step is to borrow 75 percent of the money they need for the takeover, and use 25 percent of their own money. That’s right, they use borrowed money to buy it, often at a leverage ratio of 3 to 1 or higher. They offer above-market stock buyouts and pay somewhere around $60 Million to gain control of the company. Recall that once they have 51 percent of the stock, they have voting control. So they don’t even have to buy the company, just a bit over half of it.
Let’s do the math so far. The fair market value of the company, as determined by its stock is $100 Million. The Corporate Raiders gain 51 percent control of it; for some price around $60 Million, perhaps a bit less. They bought control using one-quarter their own money and three-quarters debt, so they got control of the company for about $15 Million of their own money! How would you like to fully control a $100 Million company for a measly $15 Million, or buy controlling interest of Microsoft for 25 cents on the dollar? Do you smell the rat yet?
Raiders, once successful, now have control of a company that was worth $100 Million and had no debt. But now it is worth $100 Million and has debt of $45 Million. That’s right, once they have control, the company assumes the debt with which they gained control of it. In effect, the law allows the raiders to force the company to pay for most of its own buyout. Its all perfectly legal. But is it good for the nation? We’ll soon see.
The Raiders are looking to raise the value of the stock. They do this by cutting the number of employees to the bone. Lower payroll costs are reflected — in the short term — as much greater profits. The stock value rises 50 percent, on the hype of a more efficient company with higher profits. But it isn’t more efficient, it just seems so because the balance sheet has far less labor expenses. So the company is now valued at $150 million. But the company is in trouble because most of its skilled workers and middle management have been fired. It is just a shell game, not a good investment. Nonetheless, the Raiders sell Company A for $150 Million to a competitor company who is all too glad to take over their competition. (Yes, dear reader, takeovers are anti-competetive, and tend towards monopolies.)
Now, the Raiders have their half (51 percent) of a $50 Million profit from the sale. For their original personal investment of $15 Million, they now have their investment back, and a tidy $25 Million profit — and they leave the $45 Million of debt with the company. How would you like to be able to offload your personal debt this way, and while putting your debt on the back of someone else also make 156 percent profit in 18 months to 2 years? Neat huh? (Warning: If you did this in your personal or business affairs, they’d jail you. But it is perfectly legal for the corporate raiders.
What is Company A’s position now? It has $45 Million of debt that has to be serviced, deeply cutting profits, a destroyed talent infrastructure — because so many talented workers and experienced middle managers were fired to make the profits look good, and a new owner who is interested in little more than ridding itself of pesky competition. To make matters worse, investors soon learn that the company is not able to maintian the high level of profit it showed for the short while when labor expenses were way down, and inventory was being depleated. So, the stock value tumbles, and the total company value is recalculated to about $75 Million; its old value minus the stolen $25 Million. In short order, Company A goes bankrupt. It simply could not make a profit after it serviced the debt that was foisted on it during the takeover. Neat how the Raiders, offloaded their personal debt to the Company. Wouldn’t you like to be able to do that too?
And what about the workers? All 1,000 of them are looking for new jobs. They take a terrible economic hit. And our government (which means you and me as taxpayers) picks up the tab for their unemployment and for retraining them. And the government loses all the tax income from this company and these 1,000 employee. The tax income from the company is gone forever, and from the 1,000 employees for a period of about 3 years, and most of them never again make as much as they did before.
And our government pretends that this is good business practice, and perfectly good for the nation, when it really is a matter of government authorized theft and government authorized destruction of perfectly viable companies. Makes one wonder who is buying our leaders’ silence?
And some economists continue to praise corporate takeovers. To me, they are either shills, knowingly lying; or they are ideologues who believe their errors despite what the data shows. As for me, I don’t really care if they are dishonest or just stupid. All that matters to a scientist is whether something is fact or error. And they make grevious errors. So let our politicians and our news media debate their dishonesty or stupidity. For me, they are just wrong.
Can this disastrous destruction of American companies be stopped? Sure. 1.) Simply forbid the use of borrowed money (leverage) for corporate takeovers. 2.) Insist that no debt of the Corporate Raiders can be assigned to the company’s books. Whatever debt they incur in a takeover must remain on their own books. If the Raiders have to spend their own money, the profit incentive goes way down, by factors, not simple percentages. 3.) Third, no reselling of the company for 10 years. You do a takeover, you’re in it for a decade. These are reasonable protections of people’s jobs and of good companies from the kleptocrats of our society.