The Case of insider trading (HLL-BBLIL Merger)

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Case Details:

Case Code : FINC014
Case Length : 8 Pages
Period : 1995 - 1998
Pub. Date : 2002
Teaching Note : Available
Organization : HLL, BBLIL, SEBI, UTI
Industry : Diversified
Countries : India

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

The merger of HLL and BBLIL had always been on the cards. The HLL group had started the process of consolidation with mergers of some Tea Estates with Brooke Bond, and then the latter with Lipton India.

With the formation of BBLIL, the question was not if HLL and BBLIL would be merged, but when.

After these mergers, it was clear that HLL wanted to follow in the footsteps of Unilever, its global parent, in India. As a result of the relaxation of controls after liberalization, the HLL group could operate in India in much the same way as Unilever did globally.

Besides, the operations of the two (HLL and BBLIL), when combined bestowed considerable cost advantages. In April 1996, HLL announced its merger with BBLIL. At the time of the merger, there was market gossip about insider trading.

In the days preceding the merger announcement, the BBLIL counter had seen heavy trading and SEBI was known to be making discreet inquiries about the spurt in BBLIL's trading volumes at that time.

It was only after about 15 months of detailed analysis that SEBI issued a notice to HLL asking why it shouldn't be slapped with an insider trading charge.

And then in March 1998, SEBI announced criminal prosecution of five HLL directors for insider trading and asked it to pay Rs. 3.04 crores to UTI as compensation.

(Refer Table I for chronology of events.)

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