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The recent spate of acquisitions by the Aditya Birla group could well have come as a surprise to many owing to two reasons. The first being that the group has traditionally grown only through greenfield or brownfield projects, and it is still perceived to be too docile to consider takeovers. Secondly, the ongoing economic recession has hurt the group's commodity- oriented businesses. Given this, it was least expected that the group would choose to deploy its resources in funding acquisitions.
However, acquiring existing manufacturing facilities in recessionary times makes excellent business sense for those who have the requisite funds. Entrepreneurs with limited resources, even those who have put up world-class facilities or have acquired a particular competitive advantage, face trying times in a recession and are often unable to sustain their businesses. They are, therefore, often willing to sell their businesses to larger players at substantially lower prices than the cost of setting up a similargreenfield venture. Thus, a recession provides an opportunity to pick up good assets at bargain prices.
Consider for instance, Dharani Cement, which possesses limestone deposits of over 90 million tonnes. The division, which has an installed capacity of 7.2 lakh tonnes, was acquired by Grasim from Dharani Sugar for a consideration of Rs 53 crore. To establish a greenfield unit of identical capacity, it would have cost Grasim at least three times this amount. Of course, the acquisition would have come with liabilities attached, but it is unlikely that these would exceed even the market value of the limestone deposits that Grasim has been able to get hold of.
What is really commendable about the group's acquisitions is the manner in which they have gone about making them. Unlike the takeover attempts by several other players, which resulted in flared tempers and a competitive- bidding process leading to higher acquisition costs, all of the Aditya Birla group's takeovers have been friendly ones.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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