SAB's Rushton: Off on a cheerful note

With Sabmiller PLC acquiring the Indian operations of Foster's Group, including the brand for $120 million or Rs 564 crore (it also acquired the company's Vietnam business for $105 million or Rs 493.5 crore), the stage is set for the beginning of the end-game in India's beer market, a fight for supremacy between the former's Indian arm sabMiller India and Vijay Mallya's UB. It seemed only apt that an acquisition should help bridge some of the gap: SAB entered the Indian market six years ago by acquiring Narang Breweries and has since acquired several breweries and brands, the most notable being its acquisition, in June 2001, of Mysore Breweries (with its Knock Out brand) and in May 2003 of Shaw Wallace's beer brands for Rs 300 crore.

The acquisition boosts SAB's market share in the 100 million cases a year (each case has 12 bottles, each with a capacity of 650 ml) Indian beer market to 39 per cent; market leader UB owns half the market with its flagship brand Kingfisher controlling almost a quarter. It comes at a time when the market is growing at a sluggish 7 per cent a year (India is definitely hard liquor territory). And, at another level, it comes at a time when SAB's Managing Director Richard Mark Rushton has moved on to an international posting (his successor Jean-Marc Delpon de Vaux was yet to arrive at the time this magazine went to press).

UB, along with its partner Scottish and Newcastle (the latter owns a 37.5 per cent stake in the former) were also in the race to acquire Foster's assets, and Chairman Vijay Mallya must be disappointed at losing out. Still, it must be said that Foster's will help SAB more than it could have UB. Although SAB is a strong player in the strong beer segment of the Indian market that accounts for more than 60 per cent of the whole, it is weak in the mild beer segment where profit margins are typically higher (Kingfisher has a stranglehold over the segment). Foster's is a relatively stronger player in the mild beer segment with its eponymous brand (it boasts a six per cent share in this segment). And the capacity the acquisition will add to SAB, 4.5 million cases a year isn't something to be sneezed at either. "Foster's has a very strong presence in the Mumbai and Delhi markets and has tremendous brand equity in the premium mild category," says Sandeep Kumar, Director, Corporate Affairs and Commmunication, SAB. "This is a very synergistic acquisition." He adds that the acquisition doesn't in any way change SAB's plans of investing $125 million (Rs 587.5 crore) over five years (starting 2005).

UB and SAB will likely go head to head again in the battle for Mohan Meakin's brewing business. The company, with its Golden Eagle brand, has a market share of around 9 per cent and should SAB acquire this, it will literally be breathing down UB's neck.

-Venkatesha Babu

Will You Buy BSE Shares?
BSE will do an IPO, and may even get a foreign partner.

Rajnikant Patel, managing Director and CEO of the Bombay Stock Exchange (BSE), is a busy man these days. No, it's not the volatility in the benchmark Sensex that's keeping him back at work long after trading hours. Rather, it's the slew of local and foreign visitors knocking on the door of his 26th floor office in the 29 storey Phiroze Jeejeebhoy Towers, headquarters of BSE. As the May 2007, the D-day for demutualisation approaches for the 132-year-old stock exchange-demutualisation essentially involves transforming a not-for-profit institution into a bottom line-oriented entity-a number of players across industry are showing their interest in acquiring stake in the exchange. Sources at BSE reveal these include six stocks exchanges-the Nasdaq, the New York Stock Exchange (NYSE), the London Stock Exchange (LSE), the Singapore Stock Exchange (SGX), the Australian Stock Exchange (ASX) and the Euronext-private equity players like Temasek of Singapore, the world's largest pension fund Calpers, and global investment houses like Nomura and Fidelity. They're all in the running for a stake in Asia's oldest stock exchange that is the world's 17th largest by market capitalisation. On August 4, the market cap of the BSE stood at Rs 27,37,821 crore.

Not bad for an exchange that began under a banyan tree. Demutualisation is the second step in the exercise to transform BSE from a cosy coterie of brokers into a professionally-run corporation. The exchange was corporatised last August. As a logical conclusion, BSE now has to dilute the 100 per cent stake of its broker members to 49 per cent (BSE's equity capital stands at Rs 67.7 lakh). There are various ways to do this: A mix of an offer for sale and an issue of fresh equity, bringing in a strategic investor, going for an initial public offering (IPO), or a combination of a strategic sale and an IPO. "At the board level (consisting of 12 members, including three broker representatives) we have decided to go in for a mix of strategic sale as well as an IPO. We have decided to offer 26 per cent to a strategic investor, while a 25 per cent stake sale will be through an IPO," says Patel, who took over as CEO in 2004 (he had joined BSE as Executive Director in 2001). "We would prefer to place the stake with one or two strategic investors, but if a financial investor of quality and the kind of integrity that is required emerges we may also consider them," adds Patel, a former banker.

However, there's still some spadework left to be done. A lot hinges on the disinvestment guidelines to be approved by the board of the Securities & Exchange Board of India. The BSE has, in the meanwhile, appointed Kotak Mahindra Capital Company as the financial advisor to identify a strategic partner and also to work out the modalities for the proposed public offer. Patel is confident about meeting the May 2007 deadline. His roadmap: A strategic partner by end-December, and the IPO by May 2007. Interestingly, BSE's demutualisation plan will follow the same model used by 20 regional exchanges for bringing down their stake in their respective exchanges. If the regional exchange makes business sense, BSE can even merge some of them with itself.

Despite losing its monopoly following the establishment of NSE, BSE still controls 35 per cent of the total trading turnover of the Indian equity market. A huge reserve of Rs 932.22 crore and investment in the form of property is also expected to help bankers in determining the exchange's valuation. Apart from the offices on the exchange, BSE also owns two other properties around Dalal Street. Foreign listed exchanges will form the benchmark for pricing the stock of BSE (see Suitors for the BSE...). Of the listed exchanges, Nasdaq enjoys a price to earning multiple of 33 times, while it is 29 and 20, respectively, for LSE and SGX. What could bolster BSE's valuation is that it has the highest number of listed companies amongst the world's exchanges. The number is 4,793 (of which 2,000 are actively traded). Will the number go up to 4,794 by 2007?

-Mahesh Nayak

Is Zee The New Star?
Not yet, but for the first time in six years Zee TV pips Star Plus.

Ever since Rupert Murdoch's flagship India channel, Star Plus, went Hindi in 2000, it's been dominating the viewership sweepstakes. With unfailing regularity Star Plus' Kaun Banega Crorepati and saas-bahu soaps would be all over the list of top 50 programmes, leaving pretenders like Sony and Zee way behind. Something's beginning to change finally, though. For the first time in six years, Zee TV has moved past Star Plus in the rating game, though for a short period, in the peak primetime band of 9-10 p.m. In the three weeks beginning June 25, July 2 and July 9, between Monday and Friday, Zee has stolen a march on Star on the ratings front, according to data collated by ACNielsen's TAM Peoplemeter System (see In Front, Finally). Says Ashish Kaul, Senior Vice President (Corporate Brand Development) at Zee Network: "We are now pushing unusual programming like Johney Ala Re to take on Star in the 10-11 space."

Yet another jolt for Star comes via Zee's DTH (direct to home) platform, on which Star has had to agree, following a TDSAT ruling, although it has filed an appeal with the Supreme Court at the time this magazine goes to press, to supply all its channels. "We have the first mover advantage in DTH. We will shortly beam all the Star channels through our DTH platform," adds Kaul of Zee Network. But clearly it's not celebration time yet for Zee since Star Plus continues to rule the roost in all-day programming.

-Anand Adhikari

The Demerger That Wasn't
The real reason why GE Shipping called it off.

It announced the demerger of its offshore division a year ago, but in the end GE Shipping just couldn't pull it off.

The company's aim was to delink its offshore services from the cyclical shipping business, while placing greater focus and managerial control on the separated entity, in the process unlocking value for shareholders. But GE Shipping, run by Bharat Sheth, could not demerge its offshore service business into a separate entity, Great Offshore, which was to have cousin Vijay Seth in charge. Reason: It wasn't able to fulfill the scheme of de-merger within the stipulated time of six months that was ordered by the Bombay High Court. The order said if the de-merger didn't take place in the said time then the scheme of de-merger would automatically lapse.

Company officials vaguely claim that "time constraints was the reason for the demerger lapsing." That may be just one part of the story. Analysts point out that the state-owned oil & gas giant ONGC might well have had a crucial role to play in spiking the restructuring. Says Huzaifa Suratwala, Research Analyst at Emkay Share & Stockbrokers: "The failure to receive approval from ONGC was the primary reason for the demerger being unsuccessful." The company's offshore services business receives 80 per cent of its business from ONGC, which wasn't quite comfortable with the weak balance sheet of the offshore business on a standalone basis. Apparently ONGC wanted GE Shipping to be the guarantor for Great Offshore and execute contracts in case the demerged entity wasn't able to. "GE Shipping did not agree to take the liability on its balance sheet. ONGC was not ready to sign a business contract with Great Offshore without GE Shipping's guarantee." Company officials rubbish these claim. Shareholders looking forward to more value-holders of five GE Shipping shares would have got four shares of the flagship and one of Great Offshore-would be a crestfallen lot, although the management has reportedly promised a new bout of restructuring. Investors may no longer be as eager any more.

-Mahesh Nayak