It was two in the morning when Ratan Tata's Falcon jet touched down at the Luton airport in London after a transcontinental journey. On the way to St James Court, he read the briefing papers provided by the Tata Steel team. After barely an hour's shut-eye, the Tata Chairman met Jim Leng, Chairman of Corus Steel, at around 5 a.m. The previous day, the Corus Steel board had approved of the Tata Steel offer at 455 pence (Rs 388 approximately) per share but the deal needed the Tata Steel board's approval too. At around six in the morning as the large team waited outside the Deutsche Bank conference room, the Tata Steel board met and ratified the acceptance of the Corus board of the Tata Steel bid. At $8.23 billion (Rs 37,858 crore), the biggest cross-border deal for an Indian company was twice the fdi India received last year. Even as London was waking up at around 7 a.m, history was made.
|TATA SONS |
RATAN TATA, CHAIRMAN
RECENT TAKEOVERS: Since February 2000, companies across the group have bagged 21 overseas targets for over Rs 50,000 crore, many for undisclosed amounts
TOTAL INCOME: Rs 96,723 cr
INTERNATIONAL INCOME: Rs 29,017 cr (30%*)
% is share of international income in total income
VENUGOPAL DHOOT, MD
RECENT TAKEOVERS: Has bid for Daewoo at $750 million. Bagged three manufacturing facilities abroad for Rs 4,643 cr since 2005
TOTAL INCOME: Rs 13,000 cr*
INTERNATIONAL INCOME: Rs 6,000 cr (50%)
*When the Daewoo deal is through it'll add Rs 9,000 cr to the turnover
ANAND MAHINDRA, MD
RECENT TAKEOVERS: Has acquired assets in China, Europe and the US, where it is the fourth largest tractor maker. This year too, it is in the midst of bidding for a German company
TOTAL INCOME: Rs 16,800 cr *
INTERNATIONAL INCOME: Nearly Rs 4,000 cr
*Annualised from Q1 results of 2006-07
|A.V. BIRLA |
KUMAR MANGALAM BIRLA, CHAIRMAN
RECENT TAKEOVERS: Clinched five deals for undisclosed amounts last fiscal including a paper mill in Canada, copper mines in Australia and a VSF plant in China.
TOTAL INCOME: Rs 38,000 cr
INTERNATIONAL INCOME: Rs 8,500 cr (22%)
MALVINDER SINGH, CEO & MD
RECENT TAKEOVERS: India's largest pharma company has popped 14 companies for over $500 million since 2004 to enter the league of top eight global generic drug makers
TOTAL INCOME: Rs 5,188 cr
INTERNATIONAL INCOME: Rs 3,907 cr (75%)
AZIM PREMJI, CHAIRMAN
RECENT TAKEOVERS: Has bought nine companies for Rs 1,490.8 crore which have helped boost the company's scale and income
TOTAL INCOME: Rs 3,546 cr
INTERNATIONAL INCOME: Not available
H.F. KHORAKIWALA, CHAIRMAN
RECENT TAKEOVERS: After it snapped up four foreign drug companies for $209 million, half of its sales come from Europe
TOTAL INCOME: Rs 1,400 cr
INTERNATIONAL INCOME: Rs 840 cr (60%)
|DR REDDY'S |
DR K. ANJI REDDY, CHAIRMAN
RECENT TAKEOVERS: Has been on the prowl right from Europe to North and South Americas where it has bought out four companies for $654 million
TOTAL INCOME: Rs 2,427 cr
INTERNATIONAL INCOME: Rs 1,600 cr (66%)
|BHARAT FORGE |
BABA KALYANI, CHAIRMAN & MD
RECENT TAKEOVERS: Has been buying assets overseas at a hectic pace. Has invested in five companies across Germany, the US, China and Sweden to gain both capacities and market access
TOTAL INCOME: Rs 3,085 cr
INTERNATIONAL INCOME: Not available
|UB GROUP |
VIJAY MALLYA, CHAIRMAN
RECENT TAKEOVERS: After the no-show for champagne maker Tattinger, the drinks-to-airline conglomerate acquired a French wine maker for Rs 66 crore this year. UB has now bid to acquire Scottish whisky major Whyte and Mackay
TOTAL INCOME: Rs 7,000 cr
INTERNATIONAL INCOME: Rs 1,500 cr (20%)
|ASIAN PAINTS |
ASHWIN DANI, VICE-CHAIRMAN & MD
RECENT TAKEOVERS: Shopped from Sri Lanka to Australia and Fiji to Egypt having spent over Rs 100 crore for six companies over the last seven years
TOTAL INCOME: Rs 7,000 cr
INTERNATIONAL INCOME: Rs 3,021 cr (20%)
Not many would have realised but it was a poignant moment for India. In the 1890s, the British Government had refused Jamsetji Tata permission to raise funds. He had then raised the funds at home from Indians including Motilal Nehru and Mohammed Ali Jinnah to set up Tata Steel in 1907. Ninety-nine years later Tata Steel proved the point once again when the relatively small outfit which produced just 5 million tonne of steel a year bought over Europe's second largest steel company Corus with an annual steel making capacity of 18 million tonne to emerge as the world's fifth largest steel producer.
It wasn't an easy deal. In early July, Jim Leng and the chief executive of Corus Philippe Varin met Ratan Tata in Dubai where the idea was first broached. Over the next 100 days, a team of 60 officials including investment banking advisers from ABN Amro and Deutsche Bank thrashed out the issues. Code-named Operation Colour, the Tata Steel team tagged the Green Team, logged long hours in the warren-like conference rooms of law firm Slaughter and May and Herbert Smith in London. Every comma and semicolon in the deal was subject to the rules of the Takeover Panel and when the deal was done it was presented in a 55-page document called Press Note 2.5. As stock exchanges in Mumbai, London and New York were intimated, it was just past noon in India and the deal was 'breaking news'.
Celebrations were limited to the softly uttered "well done" and a few affectionate hugs from Tata. It was but par for the course of globalisation that he has set for his group. There was of course a small dinner with Jim Leng on October 20 after which he flew back to the US. Even as the world spent the weekend debating the "reverse colonisation" on Monday afternoon, Videocon Chairman Venugopal Dhoot landed in London to announce yet another takeover bid. His company bid $750 million (Rs 3,400 crore) bid for the ailing Korean giant Daewoo Electronics. This was Dhoot's second big bid after his takeover of electronics giant Thomson's colour picture tube plants spread across four continents in 2005. Elsewhere in Britain, UB Group Chairman Vijay Mallya had bid an undisclosed sum for Scottish giant Whyte & Mackay. It would seem a wave of raiders from the lost ark that India once was to the developed world, is now targeting the empire.
Truth is acquisitions have been steadily increasing since 2000. A ficci study reveals that between 2000 and 2006, there have been 307 acquisitions worth over $20 billion i.e. over Rs 90,000 crore (and the Videocon, UB deals are not yet logged on) but the fact is that they are growing bigger. Acquisitions rose from 46 in 2004 to a whopping 130 in 2005. This year too promises a new high. This year's deals, for instance, account for over half the value of the $20-billion pacts in five years. True. To begin with, it was the it and ites companies which led the tide with over 92 acquisitions since 2000. But the wave of 8 per cent plus growth for three successive years has enabled the highly competitive pharma sectors and traditional brick and mortar companies to aim their sights at bigger targets of higher valuations in developed markets such as the US and Europe. K. Anji Reddy, chairman of Dr Reddy's Laboratory, says, "India is unstoppable. What is driving the acquisitions is the fact that we have grown gutsy, ready to take risks and move forward." Wockhardt Chairman H.F. Khorakiwala agrees. "The tiger is out of the cage. These takeovers reflect the freedom to operate in the global space. Indian corporates are showing traditional risk-taking ability along with the confidence to take on global opportunities."
The impact is in the books. In January 2003, the Tatas were a $10-billion group. In the three years since, they have doubled to $22 billion turnover, and post-merger the group income will exceed $40 billion (Rs 1,81,000 crore). In September 2005, Videocon was a Rs 5,000-crore company. Thanks to its acquisition of Thomson's plants, its turnover in September 2006 read Rs 13,000 crore and income from overseas operations rose from a few hundred crores to Rs 6,000 crore. What's more if the Daewoo deal goes through, it would add another Rs 9,000 crore to its overseas income and its topline. Pharma companies too have recorded similar growth profiles. The overseas income of Ranbaxy now accounts for over 75 per cent of the total income while that of Dr Reddy's, which was 66 per cent last year, is expected to touch 83 per cent as per first quarter results. Ditto with Wockhardt, which has overseas business of 60 per cent of its sales.
"HAVING SURVIVED DOMESTIC COMPETITION, INDIAN COMPANIES ARE NOW LEARNING TO BE
NANDAN NILEKANI, CEO, INFOSYS TECHNOLOGIES
"INDIAN RAIDERS COME WITH WELL-HONED COMPETITIVENESS, QUALITY CONSCIOUSNESS AND PEOPLE STRUCTURES."
K. V. KAMATH, CEO, ICICI BANK
"FOR MANY INDIAN COMPANIES, ACQUISITIONS HAVE BECOME AN INTEGRAL PART OF THEIR GLOBAL STRATEGIES."
RAJIV MEMANI, CEO & COUNTRY MANAGING PARTNER, ERNST & YOUNG
|"INDIANS HAVE SUPERIOR MANAGEMENT SKILLS. ACQUISITIONS ARE ESSENTIAL TO MAKE A GLOBAL IMPACT." |
MONTEK S. AHLUWALIA, DEPUTY CHAIRMAN, PLANNING COMMISSION
There is a clear economic imperative driving the acquisitions. As India globalises, Indian companies have to acquire size, market shares and valuations to stay afloat. Sanjiv Shelgikar, financial guru and adviser to Videocon, says, "We may not be a borderless world yet, but costs and competition have no borders." Anand Mahindra, deputy chairman and managing director of Mahindra & Mahindra, lends perspective. Very simply: You are not safe at home unless you are globally competitive. And to get there, companies have to acquire scale. Given the high hurdles set in India for greenfield projects, overseas acquisitions afford a quick route to inorganic growth. As Mahindra says, "Indian companies now have a gigantic opportunity, a window in which they can leapfrog to create a global footprint by acquiring distribution channels, brands and global customer bases." It is precisely what M&M has done in the past three years. Its acquisitions of assets in the US and in China have opened up new markets, topped up its sales and bettered its valuation.
| INTERVIEW | RATAN TATA |
"Scepticism about Indian companies declining"
Tata Sons Chairman Ratan Tata responded to questions on acquisitions, the way the world is looking at India and his quest to make the Tatas a truly international group.
Q. The acquisition of Corus takes you to a new level with a group size of over $40 billion. What next?
| PICTURE SPEAK |
|STEELING THE DEAL: Tata (second from left) seals the bid for Corus |
A. We will continue to focus on enhancing the competitiveness of our Group companies in an increasingly globalising world. We want to expand markets for our existing products overseas. While in India, we are trying to break new ground in addressing the needs of the mass market.
Q. You once said Indian companies can't afford not to export. Have we now reached a point where Indian companies must acquire to get scale and exponential growth?
A. I would not make such a definitive statement. Scale and growth need to be linked with a company's need to remain competitive. Acquisitions for the sake of acquisitions will not necessarily yield the desired results.
Q. What is driving the spree of acquisitions? Need for exponential growth or acquisition of capacity?
A. As I said, acquisitions for the sake of acquisitions will often not yield the necessary results. We need to link each acquisition with the industry in which a company is operating, and the strategic context of that industry. The ultimate objective is to leverage opportunities and resources, wherever in the world they may be resident, to improve the competitiveness of our companies.
Q. Do you have a personal benchmark for the group in terms of size, turnover and profits?
A. Not really. Around a decade back, we tabled some numbers, but those were primarily to illustrate what might be possible to our managers. Then a few years back, we set some targets for revenue and profitability growth for our companies; these, however, did not fully capture the issues some companies might face in their quest for growth. I feel what should drive each company is the need to constantly improve their ability to compete. In a measured way, they should seek to achieve market leadership in India and where relevant, establish a market presence and ability to compete effectively overseas.
Q. Is there a blueprint that the group is following in terms of strategy for its acquisitions?
A. We want to expand into geographies where, as a group, we can have a meaningful presence. First, we have chosen countries where we felt we could make an impact and, secondly, where we are able to participate, as we have in India, in the development of that country.
When you visit a country or examine a particular company, I think you intuitively know if there's an opportunity, and then you flesh out that opportunity in one form or other. If we get to the stage of justifying assembly or manufacturing operations, we will seek either to contract them or to invest in facilities in that country.
Q. Would you call the acquisition of Corus among your major achievements?
A. Our offer to acquire Corus has resulted after a long period of evaluation of the opportunity and discussion between the two organisations and the proposed union has been built on a global strategy and the prospects of the combined entity look promising.
Q. Have things become easier for Indian companies since your acquisition of Tetley in 2001?
A. Things have definitely changed for the better. Managements of Indian companies are more prepared to take risk. Global finance is available to them and scepticism about their ability to manage global enterprises is declining.
Q. Where do you see Tatas, say, at the end of the decade?
A. We will be a group that probably has an equal division of businesses within India and overseas. With a large multinational workforce, our outlook as a Group will hopefully be truly international, so that wherever we may establish operations in overseas markets, we would come to be regarded as a local enterprise that merely happens to be owned by an Indian corporation.
Take Tata Tea. Vice-Chairman Krishna Kumar strategised to turn what was a plantation business into a brand by acquiring Tetley to emerge as the world's second largest tea company. Now by acquiring a 30 per cent stake in the US beverages giant Glaceau for $677 million, it has not only de-risked itself from the commodity cycle of tea but has also set a new benchmark for growth. For Kumar, this is part of the focus on globalisation: "If you want to be a strong domestic player, you can't not be a global player." It is obviously group philosophy trickling down. Tata Steel md B Muthuraman sees his company as a 40-mtpa entity inclusive of acquisitions and greenfield projects by 2011-12 with a turnover of around $32 billion (Rs 1,45,000 crore). To get a sense of the scale of the ambition, juxtapose this to the current group turnover of $22 billion.
It is also about opportunity. The world is witnessing a change in the demography of consumption. As Commerce Minister Kamal Nath so famously put it, "The economic gravity of the world has shifted from the Atlantic to the Indian Ocean." An 8 per cent gdp growth actually lends itself to returns of over 30 per cent for companies. This kind of performance boosts share values and attracts capital. Nandan Nilekani, ceo, Infosys Technologies and the author of the phrase "the flat world" analyses that Indian companies have survived competition at home and have emerged competitive and confident. "Like in the 1980s when the Japanese went and bought assets abroad such as the Rockefeller Centre and the Pebbles Beach, and then the Koreans in the 1990s, the world is looking at India through the prism of high growth potential," he says.
|RAIDERS FROM THE LOST ARK |
|2006 ||2005 ||2004 ||2003 |
|TATA MOTORS |
Country: S. Africa
Country: Europe, China
36 oil fields
ST ANNE NACKAWIC
2 steel mills
EXPERT INFO SERVICES
Thanks to the market size and the growth potential, companies are able to flog the acquisitions well as offshore enterprises as also a base to offshore manufacturing activity. Videocon, for instance, sources part of its needs for colour picture tubes from Thomson's plants. Tata Steel sees synergy in operations as its cost of slabs is far lower than what Corus sources. In return it could use Corus' specialisation in automotive and special steels to feed its requirement in Tata Motors and for other clients.
The Government too is backing them to the hilt. Although it has specified that companies can spend up to 200 per cent of their net worth for acquisitions, the fact is they have to still go through the permission process. But the Government is proactive. Finance Minister P. Chidambaram personally assured Tata a carte blanche for acquisitions and the same has been promised to other Indian raiders like Dhoot or Mallya. Money may be easier to access but it still has to be raised.
Markets want numbers. Tatas can do it because their businesses have survived competition at home to emerge as global competitors. For instance, everyone speaks about the minnow-sized Tata Steel acquiring Corus, fact is that in terms of profitability the former is far better as it is one of the world's lowest cost producers of steel. Its net income on production of 5.3 million tonne of steel is $840 million (Rs 3,800 crore) while that of Corus-on a capacity of 18.2 million-is just a bit more at $861 million (Rs 3,900 crore). Ranbaxy became one of the world's most cost-effective drug manufacturers before crossing the borders. Asian Paints had already reduced its working capital turns to levels of the world's leading paint companies and ICICI Bank made more money on small transactions than did the world's best institutions.
But naturally performance has boosted the confidence of Indian companies. As Arun Maira of Boston Consulting Group points out, "Balance sheets have become stronger and share prices have risen" making it more attractive for banks in India and abroad to fund ambitious raiders. Standard Chartered and ABN Amro Bank are sharing the $1.8 billion (Rs 8,100 crore) debt being raised for the Corus deal. The overseas float too has takers including Credit Suisse and Deutsche Bank. Add to this innovative funding designed by Indian companies. Videocon's expenditure in the buyout of Thomson SA, for example, came back as equity in group companies. Bharat Doshi, cfo, M&M, adds: "Indian companies' ability to leverage cash flows of acquired companies and the confidence of capital providers in Indian management is a major plus point."
Buyouts could be driven by all equity swap which is a merger where the shareholders of the target get shares in the new entity. It could be part equity and part cash or all cash. Even in all cash deals, Indian companies have managed to leverage funds. The cash flow of the acquired entity is a tempting target for leverage. Simply, companies set up a special purpose vehicle to host the equity of the acquired entity against which banks are willing to lend. The combination of strong balance sheets and growth potential allow Indian companies to tap funds at costs between interest rates of 7-10 per cent.
Much of this-government backing, funding architecture and targets-was available even earlier. What has changed is the outlook of the world about India thanks to the high growth trajectory of the economy. But as Maira says, acquisition is only the beginning. Companies need to manage their foreign acquisitions effectively, which is not an easy task. "The task before these ambitious acquirers is to concentrate on the assimilation of these acquisitions; else it could be a drag on their performance." Japanese giants like Sony, Chinese companies like BenQ and Lenovo have not had an easy time post acquisition. Integration is a major challenge for most corporations globally. Recent history though suggests Indian companies have not done too badly. As ICICI Bank md & ceo K.V. Kamath says, besides the strong financials and scale, "it is the ability to marshall people structures that makes Indian companies potent raiders". Be that as it may, truth is that failure is built into the phenomenon of acquisitions. It is thus imperative that Indian raiders follow through on their acquisitions and build on the window of opportunity in their march towards globalisation. Markets are unforgiving and raiders could well find themselves looking for suitors.
with Puja Mehra, Amarnath K. Menon, Nandini Vaish and bureaus