Videocon's Dhoot: Wants DEC

It's never over till it's over-that's the message flashing loud and clear for Indian promoters on a hunt for global assets. The Tatas realised that when their bid for British steel maker Corus was pipped at the post by a counter-offer from Brazilian giant CSN (at the time of writing the Tatas appeared poised to put in a fresh bid). Last fortnight it was the turn of Videocon Industries to face turbulence on the last lap of its proposed buyout of Daewoo Electronics Corporation (DEC) of Korea. The initial agreement inked late last year between DEC's creditors and the Dhoots of Videocon along with RHJ International, a us buyout fund, was for an acquisition of 97.5 per cent stake in the ailing DEC for $730 million (Rs 3,285 crore). DEC has been in financial trouble for a few years now and the company has over 40 creditors which are being led by Woori Bank and Korea Asset Management Corporation. DEC's financial turmoil coincided with the collapse of the $80 billion Daewoo Group in the late 90s.

Consequent to the signing of the initial agreement, the Videocon-rhj consortium became the preferred bidder for DEC. Videocon then embarked on a due diligence exercise of DEC's assets, after which it asked for a 13 per cent discount on the total deal size. The offer was duly rejected by DEC's creditors. The Dhoots and RHJ went back to the drawing board, and subsequently reduced the discount to 10 per cent. But that's not cutting any ice with the creditors, who appear set to rekindle the bidding process, which means all the initial bidders-which include Whirlpool and Vestel Elektronik of Turkey-will once again get a shot at DEC.

Unless, of course, the Dhoots can end the stalemate. "We have only lost the status of the preferred bidder. Daewoo Electronics' creditors continue to be in discussion with us," says Venugopal Dhoot, Chairman, Videocon Group. He clarifies that the price will now be decided after the next round of negotiations. Discussions between DEC's creditors and the potential buyers are expected to commence in a few weeks. Any bid that is accepted will have to receive approval from 75 per cent of DEC's creditors. According to reports in the international media, Woori Bank's spokesperson termed Videocon's revised offer "unacceptable" and that they had lost their status as a "preferred bidder."

For Videocon, the next couple of weeks will be interesting from the point of how much they will revise their bid by, and whether the creditors will be in a mood to agree to the discounted offer. According to a Mumbai-based investment banker, Videocon is still in the race and it now depends on the value of DEC from this stage. "It will come down to how much of value the other bidders see in Daewoo Electronics," says the banker.

There's little doubt about the benefits that Dhoot can leverage if he is able to bag DEC, which would work as a gateway to the global markets for Videocon. DEC, after Samsung and LG, is the third-largest Korean consumer electronics company. It manufactures and sells a gamut of products that include televisions, DVD players, refrigerators, air-conditioners, washing machines and car audio systems. DEC has a presence in over 100 countries. It has five factories in South Korea apart from regional headquarters that are spread across Europe, us and the Middle East. Overall, the advantage for any buyer is on three fronts-a global presence, large product category and finally technology.

This isn't the first international acquisition being made by Videocon, and to that extent it's no greenhorn on the global M&A stage. In 2005, it took over the colour tube manufacturing facility of Thomson, which enabled the Dhoots to emerge amongst the largest colour tube manufacturers in the world. Thomson also provided Dhoot with manufacturing units in countries such as Mexico, Poland and China. Dhoots' hard-nosed negotiation tactics came to the fore during the buyout of the Indian arm of Swedish consumer electronics major Electrolux, which Videocon purchased for Rs 330 crore amidst stiff competition. DEC may make a perfect fit for Dhoot, but for the moment he's got to ensure that he works out the price to value equation just right.

In The Right Zone
Anand Jain is Mukesh Ambani's SEZ man.

The two men who will have the biggest roles to play in determining how Mukesh Ambani's growth ambitions play out are the men in the shadows: Manoj Modi, who is spearheading the retailing venture; and Anand Jain, Ambani's pointman for the Reliance group's special economic zone (SEZ) projects. Also a director on the board of group company IPCL, Jain has the mandate of developing SEZs in Haryana and Jamnagar, as well as two proposed on Mumbai's outskirts: The Navi Mumbai SEZ and the Maha-Mumbai SEZ. It was Jain who signed the MoU on behalf of Reliance for the Haryana SEZ, and it was Jain who was involved in acquiring stakes in the Mumbai SEZs from Sea King Infrastructure (SKIL), promoted by Nikhil Gandhi. Today, Anand Jain is the CMD of SKIL Infrastructure.

Jain has been raising money for these projects through his family-run company, Jai Corp, in which he owns 2 per cent, and the Jain family 88 per cent. In early 2006, Jai Corp incorporated two wholly-owned subsidiaries-Urban Infrastructure Trustees and Urban Infrastructure Ventures; the latter Rs 5000 crore through a seven year close-ended fund called the Urban Infrastructure Opportunity Fund (UIOF), in which Reliance Industries too is an investor, of Rs 200 crore.

Unsurprisingly, the stock of Jai Corp, which is in the business of steel, plastic processing and spinning, has surged over 2,900 per cent in the last one year to Rs 3,373 on January 5, 2007, from Rs 112 in January 2006. The stock of Jai Corp is trading at a P-E multiple of 260 times. For the 12 months ended September 30, 2006, Jai Corp reported a profit of Rs 11.3 crore, on revenues of Rs 280 crore. That Urban Infrastructure Ventures and Urban Infrastructure Trustees are no more wholly-owned subsidiaries of Jai Corp hasn't made the stock less attractive. Says a Reliance group spokeperson: "The Reliance group has the controlling stake in these companies." But it's Jai Corp's residual stake in these subsidiaries-and thereby in Ambani's SEZ ambitions-that make it so alluring to punters.

-Mahesh Nayak

Refined Perceptions
Essar's refinery begins to hum, finally.

Essar's Ruia: Back with a bang

Essar oil's refinery in Vadinar in Gujarat is an adequate reflection of the group's progress over the years. The project was conceived in 1998, but work stopped a year later when the financial institutions (FIs) tightened the purse-strings, refusing to disburse funds to the group, which was caught in a cash bind. The promoters, the Ruias, were looked upon either with suspicion or as incapable businessmen, or both. Today, the Vadinar refinery is finally humming, and the group's perception has altered significantly, what with banks willing to throw it a $25 billion (Rs 1,12,500 crore) line of credit for an acquisition (see Who'll Win Hutch? on Page 58).

The refinery has an installed capacity of 10.5 million tonnes, although currently trial production is underway, at 7.5 million tonnes per annum (TPA); the company expects to hit full capacity in the next two quarters. "It is a good time for a refinery to come up. There has been no new refinery in the world for the last two years," says Prashant Ruia, Director, Essar group. It's such prospects that may tempt the Ruias to further expand the refinery to 32 million tonnes, although the Ruias aren't committing anything yet.

The 10.5 million tonnes capacity had a project outlay of Rs 10,800 crore. Essar Oil plans to export 30-35 per cent of its output. "Depending on the oil prices, we are looking at a turnover of Rs 20,000-25,000 crore for fiscal 2008. Our gross refining margins will be $6-8 per barrel," adds Ruia.

-Krishna Gopalan

Bull In The KPO Shop
Rakesh Jhunjhunwala is funding a start-up.

Rare Enterprises' Jhunjhunwala: From investor to venture capitalist

Rakesh Jhunjhunwala is best known as an investor who's made a fortune by buying stocks at ridiculously low values-well before the current bull run began, when the Sensex was trading below 3,000 levels. Of late, though, the big bull has been attempting to don a new avatar, that of venture capitalist, by buying chunks of equity in companies like Aptech and Viceroy Hotels. Last fortnight Jhunjhunwala announced he would pour $5 million (Rs 22.5 crore) in Inventurus, a start-up in the knowledge process outsourcing (KPO) arena, which will focus on two verticals-legal and healthcare.

"Health is the largest but least automated industry in America. There is great potential for outsourcing in the legal and healthcare outsourcing space," says Jhunjhunwala, who is the primary investor for the newly-founded company. Industry bodies like Nasscom have estimated that addressable market potential for outsourced legal services from the US alone to be around $3-4 billion (Rs 13,500-18,000 crore). Barely 3 per cent of this market has been tapped-a fact not lost on Inventurus Managing Director Nitin Gupta.

"There are no 800-pound-gorillas like Infosys in the spaces where we are playing (healthcare and legal)," says Gupta. "We would like to come into this market and get an unfair share of the market as we call it," he adds. The legal outsourcing space is, however, not without players. Companies like Office Tiger, Pangea3 and Atlas Legal Research offer a spectrum of legal BPO services.

It is still early days for Inventurus with its top management and delivery centre in place in Mumbai. The company initially plans to target the US market with its services and jack up its headcount to 1,000 employees in two years. To do that, it will have to hire lawyers, doctors and other highly qualified professionals. Inventurus plans to offer end-to-end services in both the legal and outsourcing space. "Our focus largely would be on providing high-end services like legal discovery, legal research, case preparation, contract drafting in the legal outsourcing space. Similarly, in the healthcare space, we would target our offerings around hospital outsourcing rather than services for physicians," says Gupta.

For Jhunjhunwala, the main motive as an investor is-as he puts it succinctly-to 'make money'.

-T.V. Mahalingam