Shopping time! Corporate India went on an acquisition spree in the year gone by, powered by the urge to go global, solid market fundamentals and the drive to dish out cost-competitive products. Acquisitions were not limited to the domestic market, but spread out in the global arena also.
The buyout brigade was led by the Tata group, which made two major acquisitions abroad: snapping up of Tyco Global Network by Videsh Sanchar Nigam Ltd (VSNL) and acquiring Singapore-based NatSteel by Tata Steel Ltd . Meanwhile, several group subsidiaries, like Tata Tea were active with their own takeovers.
Tata Steel’s (Tisco) acquisition of the Singapore-based NatSteel in August 2004 topped the charts for the group during the year. Natsteel was purchased for a whopping Rs 1,313 crore. The acquisition also included 26% owned by the Singapore
government-owned company in Southern Steel Berhad, a 1.3 million tonne steel-manufacturer based in Malaysia.
Announcing the buy from Singapore over videoconferencing, Tisco MD B Muthuraman said it would help the company increase its steel-making footprint to seven Asian countries, including Vietnam, Singapore and Thailand, besides securing easier access to the buzzing Asian markets.
To complete the acquisition, NatSteel will spin off its steel business into a wholly-owned subsidiary – NatSteel Asia Pte Ltd
(NatSteel Asia), which would be subsequently acquired by Tata Steel, Muthuraman had said. By now, both Tata Steel and NatSteel shareholders have cleared the mega-deal.
The acquired company owns mills in China, Thailand, Vietnam, The Philippines and Australia, and had clocked sales of Rs 3,800 crore in 2003.
However, this was only a sign of things to come. In early 2005, Tata Steel indicated that it was not done with its takeovers yet. There are more big deals coming, the steel giant said. This was followed by another recent announcement by Tata Sons Executive Director Alan Gosling that Tata's acquisitions so far have been nothing compared to what is coming up. Await bigger big deals! (Tata Sons is holding company of companies in the Tata group).
In 2004, Tata Steel also acquired a small steel wire-manufacturing unit in Sri Lanka, details of which were not provided, citing it was a small buy.
Yet another Tata big buy was the acquisition of South Korea-based Daewoo Commercial Vehicle Co Ltd (DWCV) for Korean Won 120 billion or Rs 465 crore by Tata Motors Ltd. The acquisition of DWCV was completed in March this year.
Tata chief Ratan N Tata, who was in Korea for the takeover, said: “this is a major step for Tata Motors and a milestone for the group in its quest for globalisation. I am confident that both companies will derive considerable benefits from this arrangement”.
The acquisition was to be financed equally through Tata Motors’ equity in DWCV and direct lending facilities to the Korean truck manufacturer, Tata had said. The acquisition is synergistic for Tata Motors as the DWCV makes commercial vehicles in 200-400 BHP range, while the former only makes trucks of maximum 200 BHP capacity.
Another big-ticket Tata acquisition was Tyco Global Network, which was snapped up by Internet and telecommunications gateway provider Videsh Sanchar Nigam Ltd (VSNL) in November 2004. VSNL was acquired by Tata from the government, when the latter had divested it in 2002.
VSNL purchased Tyco for Rs 585 crore (or $130 million) in an all-cash deal, pipping Reliance Industries Ltd, which had also bid for the submarine cable provider, especially after it bought over US-based FLAG Telecom in January for USD 211 million.
The company was expecting to complete the deal in six-nine months, which would give it a control over a 60,000 km cable network spanning over three continents, Tata Industries Managing Director Kishor Chaukar said.
“The price VSNL has paid is a fraction of Tyco’s total cable assets. It is a unique global network, with assets of almost USD 2.5 billion,” Kishor Chaukar had said.
In March 2004, VSNL had acquired Chennai-based Dishnet DSL’s Internet service provider (ISP) division for Rs 270 crore in a slump-sale transaction. It also includes Internet assets, employees and customers of Dishnet’s ISP division.
The acquisition consolidated VSNL’s position in the dial-up space and with this, VSNL would have access to over 600 owned and franchised cyber cafes of Dishnet and the broadband assets having capacity to serve more than 50,000 customers in key cities in the country. VSNL Director (operations) N Srinath said.
To strengthen its offerings for the insurance sector, Tata Consultancy Services (TCS) acquired Phoenix Global Solutions (PGS) in May 2004 for an undisclosed sum. PGS, an insurance company, is a subsidiary of US-based Phoenix Companies Inc.
The acquisition, according to TCS MD and CEO S Ramadorai was in line with its focus to consolidate the strengths developed by the company over a period of time in the financial segments.
“The acquisition will give TCS an impetus to attract new customers and at the same time, help grow our existing clients,” S Ramadorai said.
Earlier in March 2004, TCS had acquired the remaining 51% stake in Aviation Software Development Consultancy India Ltd (ASDC), a company providing consultancy and solutions to the aviation industry.
ASDC was acquired from Singapore Airlines in a cash deal of Rs 140.25 million, which was paid by Tata Sons Ltd (TSL).
“Before the acquisition, TCS held 49% stake through TSL and Tata Industries Ltd in the company,” TCS MD & CEO S Ramadorai had said.
Tata Tea Ltd had acquired a couple of small plantations in the country, details of which were also not provided.
Compared to the major buys of Tata, the other leading Indian businesses house Reliance had only one major acquisition - Trevira Gmbh & Co KG, a German specialty polyester firm. However, Reliance had a major global acquisition in 2003, that of FLAG Telecom Ltd in October, even though the group received Trevira’s shareholder approval only in January 2004.
Reliance Industries Ltd (RIL) had acquired Trevira from Deutsche Bank, which was its second international acquisition and
the first in the polyester sector, for 80 million euros.
The acquisition, according to Reliance Industries Chairman and Managing Director Mukesh Ambani, would propel the company as the world’s biggest polyester producer in terms of capacity.
Trevira has an annual capacity to manufacture 1.30 lakh metric tonne of polyester staple fibres, filament yarns and chips
from its four locations in Europe — Bobingen and Guben in Germany, Silkeborg in Denmark, and Quevaucamps in Belgium. It had sales of 316 million euros in 2003 and has around 1,900 employees.
The company makes specialty value-added products with applications in automotive and home textiles sectors, and is a
leader in special sectors like fibres for flameretardant fabrics and semi-technical textiles.
Commenting on the acquisition, Reliance Polyester Business President Subodh Sapra said, “The acquisition will help Trevira and Reliance to serve all customers in Europe and other world markets with polyester products and even better supply chain services”.
In November, General Electric (GE) had sold 60 per cent stake in its BPO arm, GECIS to two strategic partners - General
Atlantic Partners and Oak Hill Capital Partners - for USD 500 million. Though the stake was sold to two global firms, GECIS
is to be headed by Indians, including GECIS President and Chief Executive Officer Pramod Bhasin.
Industry sources term the acquisition significant as the control is with Indians, which makes it an acquisition by India Inc,
even though the stake was sold to two global companies. “We have best-in-class expertise of GE that global firms will benefit from. This deal gives us financial strength to grow organically and through acquisitions,’’ Pramod Bhasin said.
GECIS had started Indian operations in 1997, attracted by the immense cost-savings and India's huge educated workforce. These led to massive export revenues a 12,000-strong headcount — and profits — in less than a decade in India.
In October, confectionary major Candico (I) Ltd acquired a plant in Tanzania and unveiled its plans to set up another plant in Johannesburg by investing $5 million as part of its strategy to enter the global market.
"We have invested $1million in Tanzania and upgraded its capacity to 3,900 tonne from 1,800 tonne per annum. The Johannesburg plant, to be set up within a year, would cater to seven countries in the South African region," Candico Executive Director Karan Gupta said. The Rs 125-crore company expects to generate 50 per cent revenue from its overseas projects in the next five years, he said, adding, Candico is scouting for joint venture partners in north and west Africa.
Candico is also chalking out plans for distribution agreements in South Asia and Middle East, he said. "These markets are flooded with Pakistani products and we have shortlisted companies there to strike agreements with. Our first container should leave for Middle East by the end of this fiscal," Karan Gupta added.
In November, Pune-based Kirloskar Group acquired certain assets and businesses of UK-based SPP Pumps Ltd through a joint venture company. SPP Pumps was a part of Thyssen Bornemiscza Group of UK and was making pumps for a variety of market segments like construction, irrigation, fire-fighting, and water supply and sewage, and had recorded a sales revenue of 27 million sterling pounds in 2002.
Kirloskar Brothers Ltd (KBL), a group company in the business of providing fluid handling solutions, has had a 30-year relationship with SPP for the supply of components required for pump
“There is an explicit understanding between the managements of KBL and SPP Pumps, and SPP will function as an independent company and all transactions between the two companies would be at an arm's length basis,” Sanjay Kirloskar said. ICICI Securities Ltd was the advisor to KBL for the transaction.
In December 2004, Bharat Forge Ltd (BFL), the flagship of the $1billion Kalyani Group acquired CDP Aluminiumtechnik GmbH & Co KG (CDP AT), a German company into aluminum-forged components for 6.30 million euros. The transaction was an all-cash deal and was funded by way of equity of 3.80 million euros and non-recourse debt of 2.50
Announcing the acquisition, BFL Chairman and Managing Director BN (Baba) Kalyani said, “the acquisition is an important part of BFL’s long-term business strategy and it marks entry of the company into the aluminum auto-component business”.
The acquisition, Baba Kalyani said, would strengthen Bharat Forge's position in the global passenger car and chassis component business and is a step towards attaining global leadership. CDP AT would enhance BFL’s product range and technical capabilities in both steel and aluminum. This would also enable BFL’s existing customers to source complete spectrum of forged auto components across steel and aluminum segments from a single source.
Established in 1997, CDP AT is located at Brand-Erbisdorf and is a profitable firm with annual sales of over Rs 200
crore. Its clients include automobile-makers like BMW, Audi, Volkswagen and Ford.
This is the second German acquisition by Bharat Forge, as the company had acquired the German operations of Carl Dan Peddinghaus GmbH & Co KG in 2003, which was later renamed to CDP Bharat Forge GmbH.
Infosys Technologies Ltd’s acquisition of Australia-based Expert Information Systems Private Ltd in December 2003 for $22.9 million was announced in 2003, and completed in January 2004.
The purchase consideration was to be paid over three years starting from fiscal 2005, and included an upfront payment and
escrow of about $14 million, earn-out money for achieving some targeted revenues and a transition bonus to retain key Expert employees.
Indian automotive major Mahindra & Mahindra Ltd (M&M) also boarded the buyout bus, signing a joint venture with Jiangling Motor Corporation Group (JMCG) of China to acquire 80% stake in its subsidiary Jaingling Tractor Company. According to the MoU signed in November, M&M would invest $8 million in the joint venture, which was valued at $10 million.
This would help Mahindra & Mahindra expand its presence and strengthen its existing distribution network in China, according to M&M President (Farm Equipment Sector) Anjanikumar Choudhari. The transaction was subject to certain precedent conditions and regulatory approvals, he said.
Not to be left behind, Indian pharmaceutical companies also went on an acquisition spree in 2004, mainly to expand overseas and gain access to virgin territories.
In December, Nicholas Piramal India Ltd (NPIL) signed an agreement to acquire global inhalation anaesthetics business of UK’s Rhodia Organique Fine (Rhodia) for $14 million. The acquisition would create a significant presence in the niche global inhalation anaesthetics market for NPIL. The Ajay Piramal-promoted Nicholas Piramal would use the manufacturing technology and facilities of Rhodia, its global sales and marketing rights of two inhalation anaesthetics products — Halothane and Isofluorane.
Rhodia had recorded sales of USD 14 million in 2003 from this business.
Nicholas Piramal will also gain access to Rhodia’s sales and marketing network of distributors in over 90 countries, including US, Europe, Japan, Australia and many emerging markets.
In December, pharmaceutical major Ranbaxy Laboratories Ltd initiated talks to acquire two firms – one in Germany and one in US - besides plans to set up a manufacturing unit in Brazil.
However, Ranbaxy Laboratories Ltd Chief Executive Officer and Managing Director Brian W Tempest did not provide any further details of the proposed acquisitions, while analysts expect these to be emerging by the first quarter next calendar year.
Drug major Sun Pharmaceuticals was also eyeing selective acquisitions in US and India, which were expected to help the company ramp up its products. In December, company sources said that Sun Pharmaceuticals was eyeing international acquisitions, which would fall through during the first half of 2005.
Meanwhile, public sector giant Oil and Natural Gas Corporation (ONGC) is eyeing the Yugansk petrochem facility which was formerly owned by the Russian giant Yukos. Yugansk was auctioned off to Rosneft by the Russian government.
The oil major’s intention is to securing access to natural resources, which was crucial for its growth in a highly competitive