Know why Fairfax Financial Holding's founder Prem Watsa eyes more equity in IIFL

Fairfax Financial Holding's founder Prem Watsa, who announced plans to buy Rs.1, 600 crore worth of IIFL shares, would increase his holding in the company from 9% to 35%.

Watsa told the Economic Times over phone from Canada that he intends to buy the IIFL shares through an open offer. If he succeeds, Watsa will acquire more equity in IIFL than mercurial founder and chairman Nirmal Jain and his long-time partner R Venkatraman. They together holds about 30% of the shares.

Experts are of the view that if Watsa gets more shareholding than Jain, control of IIFL will automatically shift to Watsa. This is generally how the script unfolds in Indian business.

But the story is different here as Watsa and Jain are categorical that management control will remain with Jain. "We don't intend to run IIFL," declares Watsa. "We back the managements at all times... If we're not happy with the management, we wouldn't have made an open offer," Watsa reiterates.

The offer, Watsa insists, is not to get control of IIFL, but merely to have a larger stake in it as an investment.

Fairfax Financial Holdings, Watsa's investment vehicle, generally prefers to have large shareholding in its investee companies. In Thomas Cook, for instance, Watsa holds a little over 74%, leaving just enough to stay within SEBI's minimum shareholding norms.

Fairfax bought 75% in Canadian sports goods retailer Sporting Life in 2011. In early 2015, Watsa acquired about 73% in British insurer Brit PLC for about $2.3 billion.

Jain sees Watsa as a large, but passive and benign shareholder. "Prem is happy being a financial investor," says Jain.

Such a scenario - in which a single outside investor acquires more shareholding than the original founder, but allows the latter to call the shots - is rare in Indian business.

Entrepreneurial founders normally do not relinquish the single largest shareholder status to a single outside investor, unless they are selling out. Not surprisingly, many stock market observers have interpreted Watsa's moves as a hostile takeover threat, something that both Watsa and Jain debunk unequivocally.

Only among new-age internet startups is it common for a single investor to hold more equity than promoters. But it is rare in older companies - IIFL is 20 years old - for a single outside investor to hold more equity than promoters and yet remain passive.

Watsa is an astute investor; not for nothing is he known as the Warren Buffet of Canada. "I invest in well-managed companies with high integrity and I always take a long-term view on my investments," he says, again reiterating his stance that he is only a financial investor in IIFL.

(Image: Reuters)