Y2K -- Enter the era of M&As

Y2K -- Enter the era of M&As
George mathew & Dev chatterjee

The closing days of the millennium set the Corporate India on fire with almost a mega deal per day. Corporate board-rooms are now abuzz with activity promising more excitement in the new millennium. The corporate restructuring activity has reached its peak with the advent of mergers and acquisition (M&A) era in a country which was known for family-run businesses and protectionism.

It's not only the multinationals which are on the prowl for Indian companies, local business czars like Subhash Chandra of the Zee group and Narotam Sekhsaria of Gujarat Ambuja Cement also played a key role in changing the destiny of India Inc. Analysts predict that the pace of M&A will only increase in the future and once tasted the blood, it's unlikely that corporate chieftains will look back. The M&A business has finally caught up with the Indian industry. Companies have started shedding excess flab and started the process of consolidation and expansion through the merger/takeover process. Top merchant bankers like DSP MerrillLynch, JM Morgan Stanley, Kotak Mahindra and Jardine Fleming are said to be involved in ``several M&A deals'' which are in the pipeline. Deal makers like Hemendra Kothari of DSP, Nimesh Kampani of JM and Uday Kotak have become key players in the M&A business which is expected to show a 100 per cent rise in the coming year.

From power, telecom, cement to information technology, the M&A process covered the entire gamut of the industry. Even the government also started thinking in terms of M&A with its plan to merge NHPC with National Thermal Power Corporation. While the industry had several ups and downs in the last 50 years, the current restructuring and M&A business has coincided with the recovery after a slowdown in 1997-98. ``Heavy commercial vehicles showed 63 per cent growth, passenger cars 39 per cent, consumer durables and colour television production 25 per cent, cement 20 per cent and steel 8 per cent,'' said an analysis by the UTI Investment Advisory Services.

Among big business groups, the Tatasended up selling assets: the group literally surrendered one of its jewels, ACC, to Gujarat Ambuja Cements. Besides, the Tatas sold the cement division of Tata Steel to French multinational LaFarge for Rs 550 crore. The Tatas also sold their stake Goodlass Nerolac to Kansai Paints of Japan. The Tatas are expected to use the proceeds of its sale to buy Tetley of United Kingdom for over œ 200 million.

The Aditya Birla group, led by Kumar Mangalam Birla also made some acquisitions. While its acquisition of Shree Digvijay Cement for Rs 230 crore has turned sour as the latter has become sick, its latest takeover of Madura Garments (along with brands like Allen Solly, Van Heusen and Peter England) for Rs 350 crore sent its rivals into a tizzy.

Three takeovers which stand out in the year's M&A business are: Subhash Chandra's takeover of Star TV stake in Zee Network, Satyam Infoway acquisition of IndiaWorld Comm and Gujarat Ambuja takeover of ACC stake. The $ 300 million deal by Subhash Chandra consolidated hisposition in the media industry and catapulted the market capitalisation of the group above the entire Tata group. What stunned the industry and laymen alike raised suspicions about valuation was the Satyam takeover of IndiaWorld for a whopping Rs 499 crore. Rajesh Jain, promoter of IndiaWorld, said: ``This deal shows internet firms have finally arrived in India. It is a win-win deal for Satyam whose market cap increase by over $ 600 million in one day. Its shareholders have reposed faith in the deal.''

It was Narotam Sekhsaria of Gujarat Ambuja who stepped up the gas in the M&A drive by taking over two companies ACC and DLF Cement. Even before the ink dried on DLF Cement takeover agreement, Sekhsaria made another quick move to acquire 7.2 per cent of Tata holding in ACC. He is also set to acquire the remaining Tata stake of 7.2 per cent and eventually merge the largest cement company with Gujarat Ambuja. Sekhsaria said the the offer price of Rs 370 per share for ACC was not too high, as the ``strategic''deal will immensely benefit both companies. ``ACC is the largest cement producer with an all-India presence. We strongly believe that the strategic alliance will result in a win-win situation for both of us and the price we paid is not too high.''

The power sector has not lagged behind with several projects changing hands. Multinational PowerGen bought over Torrent Power based in Gujarat for Rs 1,065 crore and set the tone for the M&A activity in the sector. However, the sale of Essar Power by the troubled Essar group to Marathon of the US got stuck in procedural formalities. The government is already talking about the takeover of NHPC by NTPC for Rs 4,500 crore which would be `mother of all acquisitions'. Though NTPC will buy stake from the government, it would be more as a book entry as NTPC is a 100 per cent government-owned company.

In the telecom sector, Bharti further consolidated by acquiring Skycell from Crompton Greaves. The telecom deal of the year was Hutchison Whampoa of the Hong Kong buying49 per cent stake in Sterling Cellular promoted by Essar and Swiss Comm for $125 million. Analysts say in future Corporate India will have to play a more responsible role during mergers and acquisitions by not leaking the news of the impending takeover to the market and indulge in insider trading. ``Almost all corporate deals in India are leaked to the markets first, newspapers second and shareholders and regulators last,'' said a corporate watcher.

``If the same thing happens in the US, the Securities and Exchange Commission will take the promoters to court. In India, the Sebi needs more powers to do something like this. Some of the well-known business groups in India are known for using price-sensitive information involving M&A to make a fast buck,'' analysts add. Sebi, on the other hand, seems to be helpless. ``What happens if the deal does not take place after the rumour hits the market. Investors can lose money by betting on these rumours,'' said a senior SEBI official.

In the coming months, moremergers and acquisitions will take place with Essar Oil selling stake to Oman Oil within first quarter of next fiscal to get its project completed. The group is getting out of all the unrelated businesses. ``We can expect some more deals among the software companies whose share prices have already touched dizzy heights on the stock market.'' Cash-rich IT companies like Infosys, NIIT, Satyam and Pentafour are also looking for acquisitions. So also most of the software multinationals who are already in India.

The beginning of the new millennium will be an era of M&A in India. With the government planning a new competition policy and economic reforms taking shape one after another, one can expect a flurry of M&A activity. For India Inc, it's time to shape up or ship out. Welcome to the millennium of M&A.