Dadiseth knew how to apply direct and indirect pressure, and how to skilfully stoke fear to close a deal. He was confident they could add Marico to their own portfolio.
As the weeks passed, Harsh saw that the situation had built itself to another unhappy consequence. Marico’s stock price fell sharply, with the PE multiple slipping to a single digit. The market believed that if Harsh sold Marico, the share price could rise again. Undeterred, he stayed the course.
One evening, Harsh received a phone call at home. ‘I am Dadiseth,’ the caller announced. He had never met Dadiseth before. A startled Harsh asked, ‘How did you get my home number?’
Dadiseth brushed aside the question and made his case. Hindustan Lever was making a compelling offer. Dadiseth hinted at a lucrative sale of Marico with significant benefits for Harsh’s family. ‘The consideration will ensure that you and the next generations will be well cared for,’ he told Harsh. ‘You know that we’re in the coconut oil market. We’re very serious about this. We have a far superior and deep penetrating distribution network,’ he continued. ‘I’m giving you an opportunity to sell out.’ Harsh demurred, but Dadiseth would not take no for an answer. He backed up his offer with a not-so-veiled threat: if Harsh didn’t sell, he would lose everything he had struggled to build. ‘Marico will be history,’ he told Harsh. Even worse, Harsh’s family would pay the price. ‘Sell,’ said Dadiseth. ‘If you don’t, you will live to regret it.’
At the end of the five-minute call, Harsh hung up the phone. He was rattled that evening. Sleep eluded him. He had built Marico himself. His vision for it was just as long-term as any multinational’s plan. He wondered about the nerve of the caller. So far, he had received only hints and innuendos. But now here was a direct threat from the antagonist himself.
Harsh woke up the next morning, his mind made up. The threatening call had had the opposite effect: there was no question of selling out. He and his uncle held 65 per cent share holdings. The only way Hindustan Lever could hurt Marico was by causing it to bleed in the marketplace. Harsh was hell-bent on taking them on, well aware that it would be a long-drawn battle. As is very human, determined though he was, waves of self-doubt assailed him every now and then. The acquisition of Thums Up (a market leader) by Coca-Cola weighed on his mind. Even in his conviction, he realized that most people would think him a fool—maybe even a proud fool. He wondered how he would convince the key people that fighting the predator would be the right step.
Harsh’s conviction was further bolstered by the fact that his team, like him, believed that Marico could take on a giant like Hindustan Lever. Strong rationale lay behind this conviction. Parachute was a high stakes game for him and Marico, comprising about 61 per cent of the company’s revenues at the time. A huge advantage for Harsh was his in-depth knowledge of branded coconut oil: consumer insights, sourcing expertise, a well-established distribution and marketing set-up, and the significant cost optimization achieved across the value chain. In contrast, for Hindustan Lever, this was one among several product categories that they had in India and it was far from being a significant component in their portfolio. Harsh’s grip of the coconut oil business and his relationships in the trade, honed through decades of engagement, was overwhelmingly more than the knowledge of a man focused on acquisitions. He was confident that he could outmatch the high marketing spends that the competitor would throw into the game.
Parachute was a pure coconut oil and there wasn’t much differentiation that Hindustan Lever could make in this category. It would be a ‘me too’ at best. With a combination of well-sourced copra and the right tweaks to perfect the extraction process, Parachute offered a coconut oil high on clarity—not easy to better. Also, Parachute had a distinctive aroma—also not easy to replicate. Perfected over time, this entailed selecting premium quality copra and treating it at a precise temperature in order to exude a nutty aroma. Both these features were highly regarded by consumers. The scope for Hindustan Lever to offer a superior product was limited if not altogether absent. The best Lever could do was to battle it out in the market. Marico already had plans to cover this angle too.
Still, a direct threat from a powerful opponent was deeply unsettling. Hindustan Lever intended to destroy Marico—of that there was no doubt. Hindustan Lever had an extensive sales and distribution network with the largest outlet reach among FMCG companies in India. They were known for their marketing capability and of course deep pockets to outspend and outshout most competition, most certainly Marico. Harsh was anxious at the prospect of a face-off with a pedigreed and battle-hardened Hindustan Lever team backed by big budget firepower.
Harsh reached out to Prof. Ram Charan. ‘Protect your resource generating engine,’ said he, referring to Parachute. ‘You have the capability to take them on. You may have to increase investments in advertising, improve distribution and match Nihar’s price. But at the end of it, you will have a stronger brand and a bigger reputation,’ the veteran business coach told Harsh. Encouraged, Marico would ready a war chest and take a planned short-term squeeze in profits.
Marico’s steepest challenge stood before Harsh. He gathered his team for a work session with Prof. Ram Charan to review whether all bases had been covered for the battle with Hindustan Lever. The professor endorsed the views held by the Marico team. He agreed with the central assumption that the Marico team knew the business inside out, including a deep understanding of the cost structure. Harsh added, ‘We have twenty-five years of insight in that category—something that they lack.’
Prof. Ram Charan reiterated that Marico held an unexpected advantage in management strategy too. Dadiseth would have to delegate the fight to a manager two or three levels below him. Continued he, ‘When the threat does come, do not just take the CEO’s word at face value. Dig in to see: who is the person on the opposing side to wage the campaign? And find out at what level that person is placed in the hierarchy, as well as the authority and resources at his disposal.’ In fact, as anticipated, Harsh discovered that his real competitor inside Hindustan Lever was two levels below Dadiseth. A manager at that level had limited flexibility over his budget—only the CEO could dedicate the budget needed for such a campaign, redirecting resources from other divisions of Hindustan Lever. That meant the multinational could not respond as nimbly as Marico to shifting conditions and tactics. Harsh, on the other hand, could mastermind his game plan, and manoeuvre tactics as per need.
Commenting on this takeover bid, Prof. Ram Charan said, ‘In the overall scheme of things, there is no such thing as a straight-line linear win; challenges and successes will come. The more successful you are, the more vulnerable you are to takeovers. India will see a trend towards more such transactions. What matters is your conviction and ability to seek help from the right people and finally, the tenacity to overcome the adversity.’
In the months that followed, Hindustan Lever intensified the brand war with Marico and aggressively upped its advertising and trade spends for Nihar. Lever acquired Cococare, a regional coconut oil brand owned by Recon. Lever had upped the Marico bid for Cococare to pre-empt a future pincer attack from Marico, showing its formidable capacity to throw money behind its threats.
This excerpt from Harsh Realities: The Making of Marico by Harsh Mariwala and Prof Ram Charan has been published with the permission of Penguin Random House.
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