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JANUARY 14, 2007
 Letter From
 Message From
The Prime Minister
 Editor's Letter
 The Great Indian
M iddle Class
 India'S Poor
 The Next 15 Years

Flying High
The Indian aviation industry is growing at a rapid pace, thanks to air transport deregulation, emergence of new operators, lower fares and large untapped demand for air travel. The numbers tell an interesting story: India will require an estimated 1,100 aircraft. The average annual passenger traffic growth in India through 2025 is estimated at 7.7 per cent, well above the world average of 4.8 per cent and China's 7.2 per cent.

Bars Of Gold
The global gold industry is flourishing, largely fuelled by Asian demand and a weak US dollar. The boom is probably only halfway through since prices bottomed out in 2000. Since 1800, the boom and bust cycles have averaged about 10 years. While production is down, the value of gold purchased today is up 47 per cent from a year ago. The super-cycle of high metal prices is seen to be spurred largely by demand from China and India. An analysis.
More Net Specials
Business Today,  December 31, 2006
Year Of The (BIG) Deal

India Inc.'s rising confidence level was evident from the sizes of its M&A deals; and 2006 may have just been the inflexion point between adolescence and adulthood.

The year 2006 could well go down as the year in which Indian business finally got on top of the M&A game. It was characterised by several large deals, both within the country and outside, that could well set the pace for all future M&A activity. Obviously, India Inc. has learnt both the fine art of putting together large war chests in its pursuit of inorganic growth, as well as the secret of cashing out when valuations are good.

A quick peek into Deal Street 2006 offers interesting insights into both-and more. Chevron picked up a stake in Reliance Petroleum, Ranbaxy bought over Terapia, Merrill Lynch acquired Hemendra Kothari's stake in their Indian JV, and Holcim took over Gujarat Ambuja Cements and, effectively, acc, too. Between January and October 2006, the total value of all M&A deals-both inbound and outbound-was $24.4 billion (Rs 1,09,800 crore). About $10.73 billion (Rs 48,285 crore) took place in September and October. A caveat: Tata Steel's pending, and contested, $9.2-billion (Rs 41,400 crore) acquisition of Corus is a part of this; and the figure could change quite dramatically if the Tatas back out, or go through with the deal at a higher price. The final word will be said about it only in the new year. But the mother of all Indian M&A deals (at least till date) must be the fight for Hutchison Essar. UK's Vodafone could soon launch a $13.5-billion (Rs 60,750 crore) bid for the company; the Anil Dhirubhai Ambani Group has also shown an interest in the company, as has Malaysia's Maxis; and the Ruias of Essar, who own 33 per cent in Hutchison Essar, haven't yet shown their hand. This game, too, will be played out in 2007.

The action will cut across industries-oil & gas, FMCG, pharmaceuticals, paper, manufacturing, telecom and it. If 2006 was a landmark year for deals, the year ahead will be even more exciting.

Outbound Action

Steeling for the Final Round

It was seen as a done deal-and India's biggest cross-border acquisition-when it was announced in October. Ratan Tata's Tata Steel had been negotiating with the management of Corus for over a year, but its 455 pence per share bid, valuing the company at $7.98 billion (Rs 35,910 crore), was seen by some shareholders as too low. Brazilian steel maker Companhia Siderúrgica Nacional (CSN) jumped into the fray and bid 515 pence per share, 3 per cent over Tata Steel's revised bid of 500 pence. Tata will now have to fork out $10 billion (Rs 45,000) or more to clinch the deal.

ONGC Videsh Buys Stake in Brazilian Oilfield

ONGC Videsh paid $1.5 billion (Rs 6,750 crore) for a 15 per cent stake in Brazilian oilfield bc-10 block, located in the Campos Basin, which is believed to have massive oil reserves. The joint venture will have, apart from ONGC, Shell holding a 50 per cent stake and Petrobas the remaining 35 per cent. The bc-10 block is at a development phase and production is expected to start from the last quarter of 2009. ONGC Videsh is an ONGC subsidiary and is charged specifically with the mandate to scout for and acquire hydrocarbon assets abroad.

Another Hurrah for Videocon

Videocon's ambitions of emerging as a major player in the global consumer durables market came a step closer to fruition when it clinched the $729-million (Rs 3,280.5 crore) deal to buy South Korea's Daewoo Electronics in partnership with Ripplewood Holdings, a US-based private equity fund. The acquisition will be the largest ever that the group has undertaken and will bring to the table a host of manufacturing and R&D facilities spread across the world. Earlier, in 2005, Group Chairman Venugopal Dhoot had bought out Thomson Electronics' colour picture tube manufacturing facilities; this was followed by his acquisition of Electrolux's Indian operations.

Tata Tea Heads for US

There seemed no limits to the Tata group's M&A ambitions. Tata Tea acquired a 30 per cent stake in US-based Energy Brands Inc. for $677 million (Rs 3,046.5 crore). The deal gives the Indian company a comfortable foothold in the US market for tea, vitamin water and fruit juices. For Tata Tea, the acquisition of Tetley in 2000 gave it a crucial presence in the UK market; the acquisition of a stake in Energy Brands will be the vital cog in Vice Chairman Krishna Kumar's agenda of going global.

Dr Reddy's Gobbles up Betapharm

Dr Reddy's Laboratories' Chairman K. Anji Reddy pulled off the largest outbound pharma deal of 2006 when he acquired Germany's Betapharm Arzneimittel GmbH for $572 million (Rs 2,574 crore).

Betapharm has a share of more than 3 per cent in the German market for generic drugs and is among the fastest growing generic companies in that country. For Dr Reddy's Laboratories, the European journey started in 2002, when it bought UK's BMS Laboratories. These acquisitions have taken the company a step closer to realising its ambitions of becoming a mid-sized global pharma company with a presence in all major pharma markets.

SFI Buy Lifts BILT to Asia Top 10

Ballarpur industries (BILT) is on a roll. It acquired Malaysia's Sabah Forest Industries (SFI) for $261 million (Rs 1,175 crore) in June, and barged into the list of the 10 largest paper companies in Asia (excluding Japan). The deal will give BILT additional paper capacity of 1.44 lakh tonne and incremental pulp capacity of 1.2 lakh tonne. The company will use the 289,000 hectares of forests owned by SFI to feed its Indian operations. BILT's Vice-Chairman Gautam Thapar described the acquisition as a good "strategic fit" for his company.

Suzlon Integrates Backwards

Suzlon energy's buyout of Belgium's Hansen Transmissions International NV for $565 million (Rs 2,542.5 crore) catapulted the company into the ranks of the world's largest manufacturers of integrated wind turbines. Suzlon Chairman Tulsi Tanti says the acquisition of gearbox technology will enable him to provide customers with a more cost-competitive product. Suzlon and Hansen will also work together to expand capacity in Belgium and in the emerging markets of Asia. Are more buyouts in the offing? Very likely.

Aban Lloyd buys Sinvest for $445 m

This was another deal that propelled an Indian company into the global league. Aban Lloyd Chile Offshore bought a 33.76 per cent stake in Norwegian drilling company Sinvest for $445 million (Rs 2,002.5 crore). Sinvest, a listed company, has two operational drilling rigs both of which are on contract in India. The deal will make Aban Lloyd the largest drilling company in Asia and among the top 10 companies globally. It will effectively give Aban Lloyd's Managing Director Reji Abraham control over Sinvest's drilling assets.

Ranbaxy Gets a Beachhead in Europe

Ranbaxy laboratories has never made a secret of its global ambitions or appetite, and, accordingly, made a string of acquisitions in 2006. The most important: the $324 million (Rs 1,458 crore) takeover of Terapia, the largest independent generics company in Romania. The deal gives Ranbaxy access to European markets, yet another low-cost manufacturing base and state-of-the-art R&D facilities. Most importantly, the deal, at one stroke, establishes Ranbaxy as a high-quality generics company in Europe with a large and robust distribution network and a large battle-hardened sales force. The takeover is in line with Managing Director Malvinder Singh's vision of making Ranbaxy "an international company that happens to be headquartered in India".

Inbound Action

Vodafone's Bharti Stake Proves a Red Herring

Global telecom major Vodafone acquired a 10 per cent stake in India's largest wireless services provider, Sunil Mittal's Bharti Airtel, for $1.5 billion (Rs 6,750 crore) in October, in 2006's single largest inbound deal. It was speculated then that Vodafone would, in future, hike its stake in Bharti, but this proved a bit of a red herring in the end. Vodafone's CEO Arun Sarin has since set his sights on Hutchison Essar, India's third largest mobile operator; and Mittal has given him the NOC he needs to pursue his ambitions. It is being speculated that Sarin may sell his company's stake in Bharti if the Hutch deal goes through.

Citigroup Buys into HDFC

Citigroup's acquired a 9.27 per cent stake in Deepak Parekh-led HDFC for $671 million (Rs 3,019.5 crore), giving it a big foothold in India's largest housing finance company. The 9.27 per cent holding in HDFC was earlier held by Standard Life. Citi is looking at the investment as a long-term one and confirms its commitment to India. Couple this holding with the 3 per cent that Citi holds through the FII route, and its stake in HDFC comes to a little over 12 per cent. Does it mean that it is setting up the Indian company for a future takeover (when regulations permit)? Aha! But no one's talking.

Maxis, Apollo Promoter Take Over Aircel

C. Sivasankaran had been scouting for a buyer for Aircel for quite a while; and a few large players like Hutch and Idea even came close to striking a deal. But these fell through at the last moment, reportedly because of disagreements over valuation. Finally, Malaysian telecom major Maxis and Prathap C. Reddy, promoter of Apollo Hospitals, bought over Aircel lock, stock and barrel for $1.08 billion (Rs 4,860 crore). While Maxis acquired 74 per cent of Aircel-in line with telecom regulations that FDI holdings should not exceed 74 per cent-the rest was bought by Reddy. Aircel operates in seven circles, including the lucrative Chennai and Tamil Nadu ones.

Holcim Cements its Position in India

The deal marked the largest FDI inflow ever into India's cement sector. Swiss cement major Holcim acquired a 67 per cent stake in Ambuja Cements India Limited which gave it a controlling stake in Gujarat Ambuja Cements Limited (GACL) and a large holding in acc. The $800-million (Rs 3,600-crore) deal was struck at an enterprise value of around $180 (Rs 8,100) per tonne and will give Holcim a pan-India presence and pit it directly against other large players like Ultratech and Lafarge. For the $15 billion (Rs 67,500 crore) Holcim, which appointed GACL's Anil Singhvi as CEO of its Indian operations, the India story may have just started.

Matrix Sells out to Mylan

The Indian pharmaceutical story has been in play for a long time now, but this one comes with a twist, and a reversal of roles-us-based Mylan Laboratories picked up a 71.5 per cent stake in N. Prasad's Matrix Laboratories for $736 million (Rs 3,312 crore), the first time an mnc has taken over a large Indian pharma company. The deal will give Matrix access to Mylan's products, technologies and world-class manufacturing skills and also signals the willingness of Indian promoters in the pharma industry to sell out at the right valuation.

Oracle Picks up 41 per cent in i-flex

There has never been any doubt really that the Indian it story is on a solid growth path. So, when global it major Oracle picked up a 41 per cent stake in i-flex Solutions for $593 million (Rs 2,668.5 crore), the markets weren't particularly surprised.
's forte is banking software and this is the reason behind Oracle's interest in it. The 41 per cent stake was originally held by Citigroup. According to estimates, the global market for banking software is $80 billion (Rs 3,60,000 crore) and a foothold in that will come in handy for Oracle.

Merrill Lynch Buys Kothari out

Hemendra Kothari, chairman of DSP Merrill Lynch, sold his stake in the decade-old joint venture to his foreign partner for $500 million (Rs 2,250 crore). "When I started my business 30 years ago, my objective was to be a leading financial services house," Kothari told BT after the deal was inked. He's certainly succeeded in meeting his goals. DSP Merrill Lynch is among India's leading players in equity research, broking and investment banking. But despite selling out, Kothari continues to remain Chairman of the company and Merrill Lynch will need his expertise and guidance, given his connections and personal relationships with the top decision makers of Corporate India. Does this presage more such buyouts in the financial services space? The grapevine is abuzz, so we're waiting with bated breath.

Hindujas Exit Hutchison Essar

This deal set the ball rolling for Hutchison Essar's stupendous valuations. The Hindujas, who held a 5.11 per cent stake in Hutchison Essar, eventually sold it to Hutchison Telecom International, the holding company for the Indian operations, for $450 million (Rs 2,025 crore), thus, valuing Hutchison Essar at $8.8 billion (Rs 39,600 crore). The other partner in the joint venture-Ravi Ruia's Essar Group-was also in the fray to acquire the Hindujas' holding, the acquisition of which has given Hutchison Telecom International a 67 per cent stake in Hutchison Essar; the Ruias own the balance 33 per cent.

Mphasis Buyout Gives EDS a Foothold in India

This deal gave Electronic Data Systems (EDS) a much-needed conduit into India. The Texas-based EDS paid $380 million (Rs 1,710 crore) for a 52 per cent stake in Jerry Rao's Mphasis BFL. It was a win-win deal for both sides. It allows Rao's mid-tier ITES company to take a shy at entering the big league, and gives EDS a meaningful presence in the world's largest IT/ITES outsourcing hub. Together, as Rao puts it, the two parties can now be considered for larger contracts that otherwise would have been difficult to bag. The whole outsourcing services game is about synergy and, quite obviously, both Mphasis BFL and EDS seem to have understood that very well.

Providence Bets on Idea

Idea cellular was in the news almost througout 2006. First, the Tatas and the Birlas fought over control of the company; this ended with Kumar Mangalam Birla, Chairman, A.V. Birla Group, buying out the Tatas. Thereafter, he sold a 33 per cent stake in the GSM major to a clutch of investors. Providence Equity was the single largest of these investors; it paid $400 million (Rs 1,800 crore) for a 16 per cent stake. Citigroup, TA Associates and ChrysCapital are among the other non-promoter investors in Idea.

KKR Opens its Account in India

In the largest private equity deal involving India, Kohlberg Kravis Roberts (KKR), a New York-headquartered private equity giant that focusses largely on leveraged buyouts, acquired an 85 per cent stake in Flextronics for $900 million (Rs 4,050 crore). Like many other global it players, the India story is a big one for Flextronics too. Over two-thirds of its revenues come from here; it also has a presence in the US, China, Germany and Italy. The KKR-Flextronics deal size exceeded the $500 million that General Atlantic Partners and Oak Hill Capital paid in 2004 to buy a 60 per cent stake in GE Capital International Services. KKR is best known globally for its leveraged buyout of RJR Nabisco in 1998.

Chevron Invests in Reliance Petroleum

The timing was quite uncanny and quite typically Reliance. A couple of days before Mukesh Ambani's Reliance Petroleum (RPL) was set to go public, international energy major Chevron acquired a five per cent stake in it for $300 million (Rs 1,350 crore). Importantly, there is a clause that allows Chevron to increase its holding in RPL to 29 per cent. RPL's deal with Chevron was preceded by a private placement of 45 crore shares at Rs 60 per share to about 15 financial investors. For Chevron, RPL's 27 million tonne project seems the best possible way of gaining a toehold in the Indian market. Reliance's new refinery is a 100 per cent export-oriented project.

Temasek Picks up 10 per cent in Tata Tele

Tata Teleservices is the second largest operator of CDMA-based telecom services in the country and has a subscriber base of more than 14 million. Following the Tata Group's exit from Idea Cellular, its focus on CDMA has increased manifold. Shorn of corporate gobbledygook, that means more investments. So, it came as little surprise when Tata Teleservices sold a 10 per cent stake to Temasek for $330 million (Rs 1,485 crore). The deal is the first instance of foreign investment-by either a strategic or a financial investor-flowing into the CDMA telecom space.




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