Compaq-Digital"Synergistic" is one word which aptly describes Compaq Computer Corporation's recent acquisition of Digital Electronic Corporation. While globally the merger should, from a competitive standpoint, create an IT player rivalling the might of Hewlett Packard, there still remain some unanswered questions in the Indian context.Primarily Compaq has essentially been a PC company and its Indian operations derives revenues from the same line of business. Here the worldwide acquisition of Digital should undoubtedly help Compaq's drive to become the global leader in enterprise computing solutions. Globally, the acquisition of Digital's strategic assets such as - the Alpha range of microprocessors, Digital's flavour of UNIX and the Open VMS software for minicomputers complement Compaq's existing strengths. But in India, PC sales account for a large chunk of Digital's revenues.
Thus in the Indian context, Compaq could be faced with a possible cannibalisation of market shares from Digital's rangeof PCs. This could force Compaq to review its options of discontinuing Digital's PC line or utilising a dual brand strategy to capitalise on current market shares.Then there is also the question mark surrounding the 51 per cent equity stake held in Digital Equipment (India) by its Amercian collaborator. This issue assumes greater importance given the fact that the Indian arm is the only publicly listed subsidiary of Digital outside the US. Since Compaq is doling out $ 30 in cash and approximately 0.945 shares of Compaq stock, the valuations in the Indian context should be interesting.
But with crashing PC prices, information-technology has now become a commodity business, where only companies with aggressive marketing and a unique product-mix would survive. Given this, the Compaq/Tandem/Digital combination - with their inherent strengths in PCs, high-end and mid-range servers should help enhnace the competitive advantage in enterprise applications.
AIR INDIA A read between the lines reveals thatthe attempted intervention by the DGCA in the on-going airline fare wars, is definitely a last ditch effort for salvaging Air India's (AI) bottomline. The national carrier's role in recent years had been relegated to that of a small regional player. The total losses exceeding Rs 600 crore came as no surprise.
Mounting losses and its precarious financial position (highlighed by a debt equity ratio of 4.99:1 and total short term borrowings almost in excess of Rs 1100 crore for 1997-98), limits the possibility of AI being able to service a foreign loan or domestic debt. This cash crunch has led to another internal failure, which is the company's inability to cope with the rapid expansions of fleet strength in the airline industry. Consider this - AI has a 28-aircraft fleet, while the US-based United Airlines has 566 aircraft.
Small wonder then that India's national carrier has been overtaken even by Asian players like Thai Air, Singapore Airlines and Cathay Pacific. This shortcoming also exposes AI to thevagaries of a fare-war such as this, which undoubtedly would further marginalise its role even in the Asian markets.
Given this background, which clearly accentuates AI's competitive disability, a possible divestment and a subsequent privatisation of the airlines looks to be an absolute must. A VRS for manpower optimisation also does not seem a bad idea. AI would also do well to increase its destinations via new code share or block space agreements. More importantly, most of AI's problems seem to stem from its ownership pattern, which like any other PSU does nothing to improve the operational efficiencies of the carrier. This is where professional management expertise is required to fill the void.
Sesa GoaThe controversy as to whether an open offer should be made to the shareholders of Sesa Goa because the parent company was taken over, continues. After the contention of a minority shareholder, turned down by the finance ministry, the matter is likely to be taken to court.
The badly framed SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1994, does not require an offer to be made. The deal was done before February 20, 1997, the day from which the new takeover code is applicable.
In the takeover code, this aspect has been covered and indirect acquisition as a result of acquisition of holding company (listed or unlisted, Indian or foreign) requires an open offer to be made. A loophole which has not been covered is Section 81(1A) of the Companies Act or the preferential allotment route. The argument being that the price advantage is no longer available. The point being missed is that at least those who have utilised the route once should not be allowed to take advantage again to protect themselves, that is, to hike the stake.
Bank mergers and acquisitions Mergers and acquisitions have touched an unprecedented high of $ 258 billion in 1997. Banks, insurance companies and brokerages have started consolidating, perhaps as a consequence of the realisation that sheer size andscale do matter in today's environment. Consider the UBS-SBC merger; Dean Witter, Discover and the Morgan Stanley group; Nations Bank with Barnett; Bayerische Vereinsbank with Bayerische Hypo-Bank; First Union with CoreStates Financial.
North America leads the pack with transactions totalling $141.9 billion, while Europe saw transactions worth $113 billion in the year. Only a handful of dominant institutions will be left in the fray.
While banks globally are preparing themselves to deliver better value by providing the lowest cost total solutions and world class products, much action does not seem to be taking place on the Indian scene. Exceptions apart, most Indian banks (including the better performing ones) are still riddled with obstacles on the path to becoming truly competitive. A few judicious mergers would help the process.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
