Merger Mania: Report on the mergers and acquisiions in 2009

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Udita Lal

26 December, 2009

Never before has the relevance of amalgamations or M & A,s, as it is called in the corporate parlance felt more than in this decade. It all started when the Indian Economy opened up and dared to move in territories it had kept away for a long time. Mostly used by the government, it was used to reform the business organizations across sectors by adopting various policies. Global competition has been one of the key factors for companies going in for various mergers and acquisitions.Various sectors like telecom, finance, FMCG, construction materials, steel and automobile industries resorted to unification through M & A's, so much so that India is now recognized as one of the premier nation in M & As. The total value in 2007 of M & As was more than $ 100 billion, double than what it was in 2006.

Acquisition of foreign enterprises by an Indian corporate was unheard of earlier but in the recent past this image has undergone a sea change which is supported by constructive government policies, optimism in economy, liquidity in the corporate sector and theenergetic attitude of the Indian entrepreneurs. The IT sector established its potential in the global market in the 90s and now other sectors in the Indian market are following suit and it is because of their global presence that we are witnessing a hectic activity acquisition field! Talk to any lay man on the streets and the moment you ask them about mergers and acquisitions, cross border acquisition is the first thing that will strike them? it could be Tata's acquisition of Corus or Vodafone's buy in Hutchison Essar Group.

The dip in the global economy gave a major fillip to Indian companies. It gave them a chance to look locally. Of the 135 deals that happened in the first quarter of 2008, only 79 were cross border. In fact according to deal tracker Venture Intelligence as reported by The Mint, the first quarter of 2009 saw only 15 cross border M & A's of the total of 54. The foreign deals took a backseat because of the slowdown and the companies who were looking at foreign lands had to watch their steps.

Besides the cross merger was always a concern since the local market was not fully exploited. With a nearly non existent corporate debt market the financing for domestic M & As was difficult and Indians companies had to look overseas for cash. Credit in developed financial markets gave cheap availability and cemented the aspirations of companies like Tata Motors and Hindalco. The credit crunch of 2007 cut off the easy availability of the moolah and the companies were faced with reality. That did not ring the death knell for M & As but made companies more cautious so that it looked for strong valuations and focused on local consolidation.According o PTI as reported by The Economic Times, M & As crossed a little over $10 billion with a total of 267 deals for the period January-December(till December 13) this year. Of these 142 were domestic deals (value of nearly $6 billion) and 125 cross border deals (at over $4 billion), including both outbound and inbound investments. The flow of M & As was strong domestically and was pegged at $5.8 billion during the January- December period. The inbound and outbound deals reduced, totaling at $4.23 billion because of several large restructuring deals and consolidation in many industries.

The Economic Times reports, that PE investments including qualified institutional placements (QIP s) were pegged at $11.17 billion during January-December period. Overall the total value of deals (M & A and PE) during the year almost halved at $21.20 billion, as against $41.54 billion and $70.14 billion registered in 2008 and 2007 respectively. Deal volumes (M & A and PE-QIP together) dropped in 2009 as against the previous year, even though there was a revival in the second half of the year. There were 766 deals in 2008 as compared to 488 this year.

S Ramesh, COO, Kotak Investment Banking thinks that M & A activity is relatively subdued as the companies at the moment are shy of taking new bets. He believes that Indian growth story will continue to be strong with inbound M & As to be the key driver in future.One third of the total M & As in the country was accounted by the consolidation in the telecom industry with the largest of around 20 deals being the buyout of 26% stake in Tata Teleservices by Japanese major NTT DoCoMo Inc.The largest major domestic deal was when Idea Cellular acquired 40.8% stake in Spice Communication for $679 million.One of the sectors holding out in global recession was FMCG (fast moving consumer goods), with consumers helping the sales up in 2009.

FICCI reports that it grew by 15% over the last year. The mergers and acquisition though not playing a major role - Wipro?s acquisition of Rs 210 crore of UK based Yardley was in the spotlight. Dabur and Emami completed consolidation after their acquisitions of Fem Care and Zandu Pharmaceuticals.The consolidation in banking sector, however, is not supported by the Reserve bank of India even as finance ministry is making grounds for the same. Deputy Governor said on 25 November that consolidation in this sector can wait and the need of the hour is to make available banking services to more Indians.

D Subbarao also suggested that the banks need to strengthen their capital base to usher in better risk management. India's M & A activity is bound to see an upward growth because of improved liquidity and business confidence. As reported by The Mint, Ernst and Young (E &Y) shows that in the third quarter of 2009 there were as many as 180 merger and acquisition with domestic transactions contributing 57% of the total transaction value. E & Y also predicted that the transaction climate is likely to improve in the coming months.Lets hope the crystal ball reads the best for India as the year comes to an end!

Major mergers and acquisitions:

Imperial Energy's outbound takeover by ONGC Videsh for $1900 million.Satyam Computers domestic takeover by Tech Mahindra for $576 million.Dempo Mining Corp's domestic takeover by Sesa Goa for $350 million.Vredestein Banden outbound takeover by Apollo tyres for $300 million.S Tel's domestic takeover by Sterling Infotech for $230 million.NDTV sold 76 per cent of its stake in its entertainment channel NDTV Imagine to Turner Asia Pacific Venture Inc. Nestle India acquired Speciality Foods healthcare nutrition business. The acquisition is set to be effective from January 1, 2010. Heineken will buy APB India from APB Singapore for $25 million. It will then transfer the company to UBL some time in 2010. The two breweries of APB India will be sold to UBL.Media conglomerate Network18 announced to merge the logistics, back-end and broadcast operations of its two business news channels, CNBC TV18 and CNBC Awaaz. PVR Ltd acquired DLF Group's DT Cinemas. Wipro Ltd has brought Yardley London brand into its fold. Green Infra Ltd (GIL), an independent power producer, announced the acquisition of BP Energy India Private Ltd (BPEIPL). Cummins India Ltd (CIL), merged its wholly owned subsidiaries Cummins Sales and Service India Ltd (CSS) and Cummins Auto Services Ltd (CASL).Lupin picked up 51 per cent stake in Philippines Multicare Pharmaceutical.