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The prevailing policy paralysis and inordinate delays in clearing projects has made Indian companies with healthy balance sheets and hard cash to go for acquisition of existing assets in India and overseas to keep their growth rate intact.
India Inc. is gearing up for a season of mergers and acquisitions (M&A), with major deals taking place both, domestically and abroad. In the midst of a declining domestic growth rate, which reached a decade low five per cent in 2012-13, Indian companies have reignited their interest in M&A activities, especially in cross-border takeovers.
The First Half 2013 review by Thompson Reuters revealed that India’s overall merger and acquisition activities surged by 12.13 per cent compared to the first half of 2012. Easy accessibility and the low cost of debt capital through financial institutions in the international market are prime factors leading to the maximum number of overseas acquisitions by Indian companies. Faced with constricting regulatory conditions in India, Indian companies are eyeing assets overseas both, as a source of raw materials and technology as well as a base for reaching untapped markets.
Apollo Tyres acquiring US based Cooper Tire and Rubber Co, a company nearly three times its size in June 2013 via an all-cash transaction valued at approximately Rs 14,500 crore is a recent example of “big ambitions” of Indian companies. With this deal, Apollo Tyres will be a true MNC overnight with 14 plants spread across India, the United States, China, Europe and Mexico. Apollo will have market presence not only in the US and EU but it will also have a foothold in fast-growing markets like China, Africa, and Latin America.
The deal would make Apollo Tyres the world's seventh-largest tyre maker and reduce its dependence on a slowing Indian auto market, where car sales declined by seven per cent in the financial year that ended in March, the first annual fall in a decade.
McLeod Russel India, one of the world’s largest bulk tea producers, is also looking at acquisitions in Africa and Vietnam to cater to markets in West Asia and Russia.
Domestically, M&A operations stood at $2.3 billion in the first half of 2013, which is 68.3 per cent down as compared to the same time the previous year. This is also the lowest first half level since 2004 ($1.2 billion). However, a slew of fresh M&A deals are expected in the second half with the month of August already witnessing some major deals.
One of the biggest M&A developments which took place during this month is the merger of Vedanta Group’s iron ore unit, Sesa Goa, with their copper unit, Sterlite Industries, to create Sesa Sterlite. The merger of Sterlite and Malco into Sesa Goa has become effective pursuant to the scheme of amalgamation and arrangement amongst Sterlite, Malco, Sterlite Energy, Vedanta Aluminium and Sesa Goa and their shareholders and creditors.
The final regulatory clearance was received after a division bench of the Bombay High Court in Goa gave its nod to the merger.
As per the merger scheme, Vedanta will be holding a stake of 58.3 per cent in Sesa Sterlite, while Sesa Sterlite itself will be the holding company of all group firms of Vedanta other than Konkola Copper Mines (KCM) in Zambia. Thus, Cairn India, Hindustan Zinc, Balco, Vedanta Aluminium, Malco, Western Clusters in Liberia, Talwandi Sabo Power and Australian Copper Mines have all become subsidiaries of Sesa Sterlite.
Due to this consolidation, Sesa Sterlite will be the world's seventh largest global diversified natural resources major, and have exposure to zinc-lead-silver, iron ore, oil & gas, copper, aluminium and commercial power, with assets located in India, Australia, Liberia, South Africa, Namibia, Ireland and Sri Lanka.
Other major deals include renewable power producer Green Infra acquiring a majority stake in TVS Energy, a subsidiary of TVS Motor Company. With this acquisition, Green Infra has added 59.75 MW of wind farms across Tamil Nadu and Maharashtra to its portfolio, taking its operating capacity to 377 MW. The company aims to reach 500 MW of capacity by March 2014, and 1,000 MW of capacity by 2015, largely through wind and solar energy.
The Companies Bill, 2012, which was recently passed by the Upper House of Parliament, allows an Indian company to merge with a foreign company, making cross-border mergers and acquisitions easier. Experts feel that the bill is likely to trigger a spate of domestic and cross-border mergers and acquisitions and make Indian firms more attractive to private equity investors. The new law will also make it easier for promoters to restructure, merge or acquire companies because only those shareholders who own more than ten per cent stake or have more than five per cent of the total debt will have the power to oppose any scheme of arrangement. Thus, it won’t be wrong to expect a more active M&A scenario in India over the coming period.
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