What about the reverse takeovers?

CAPITAL VIEW

Too much of bubbly being uncorked

Even as we celebrate the increasingly acquisitive nature of Indianindustry as they unveil their transnational ambitions overseas, thereis a silent predator enlarging his scope of business and footprint ofoperations here in India. The predator continues to knock on ourdoors.Yes, cross border transactions are a two way street in this hijinks world of new age commerce. And as we buy companies abroad, thelatest instance being Bharti's pouching of Zain's operations inAfrica, big ticket acquisitions are being made by foreigners at home.Swadeshi flagships which have assiduously built businesses at home arefalling prey to this phenomenon of a two sided deal street.
One can pause and argue that this is the nature of the beast, for ifwe go out and buy companies abroad, how can we prevent the same fromhappening in our own backyard? After all that is globalisation. But ithurts, it leaves a void and very bitter after taste. ACC, GujaratAmbuja, Ranbaxy, Maruti Suzuki albeit through the process of strategicsale or disinvestment, Mphasis, i flex et al have all been swallowedby foreign companies. In fact, 32 per cent of Bharti is also owned bySingTel. In a study conducted in 2000 by Lehman Brothers, it was foundthat, on average, large M&A deals cause the domestic currency of thetarget corporation to appreciate by 1% relative to the acquirer's. Forevery $1-billion deal, the currency of the target corporationincreased in value by 0.5%. More specifically, the report found thatin the period immediately after the deal is announced, there isgenerally a strong upward movement in the target corporation'sdomestic currency (relative to the acquirer's currency). Fifty daysafter the announcement, the target currency is then, on average, 1%stronger. Interesting, no?
So, while we are gung ho about Corus or Novelis or a Jaguar LandRoveror an Imperial Energy, we too are losing Indian homegrown, homespunand entrepreneur jumpstarted companies with scale and size. Companieswhich don't only give the acquirer a sizeable toehold in the Indianmarket, but offer a window of global opportunity in some cases to thesame acquirer. This reverse acquisition process is a cause forconcern. Obviously one cannot build barriers. But even then a matterwhich requires some mindspace attention. ACC, Gujarat Ambuja andRanbaxy are three shining examples of Indian entrepreneurship, but allthree have been lost to Holcim and Daiichi Sankyo. One can justifythis by saying that they are casaulties of war, because as we get moreand aggressive in our intent to garner mass abroad, this is bound tohappen. Hemant Luthra of M & M once explained this phenomenon to me,he argued that as companies go into Chapter 11 (bankruptcy) in thewest, Indian companies with aspirations to build global businessessense an opportunity to enlarge their swathe and pick them up.Unfortunately, when the reverse holds true, we tend to lose sight ofthe fact that nearly all such Indian companies bought have been basedon the entrepreneurship model. This includes Mphasis and i flexSolutions.
While reams of research is being done on the rise and rise of Indianmultinationals, we are losing sight of the same happening to ourcompanies at home. MNCs in India now have a garrotte like grip onapproximately 40 per cent of the turnover of the top 20 companies inIndia. Indian operations of several global heavyweights like Suzuki,Bharti, Gujarat Ambuja, Vodafone among others are examples of thismantra. Thums Up which was sold by Ramesh Chauhan long before reformsand globalisation became that much a part of our free speech was thefirst such brand to be subsumed by a MNC, in this case Coca Cola.Lakme, Kissan, Hamam and Kwality are other such examples of strong andpowerful brands which have fallen prey to the same acquirer -Hindustan Unilever. Look at the way Swiss cement giant Holcim has leapfrogged over its global competitors - Lafarge, Cemex and Italicementin India. Systematically, it has built up scale. With ACC and GujaratAmbuja, Holcim acquires a pan-Indian presence and a control overcapacity in excess of 35 million tonnes, which accounts for 25 percent of the industry. Holcim's presence is especially dominant in thewestern and northern markets. Agreed that they paid top dollar, butunlike Malvinder and Shivinder Mohan Singh who are using the resourcesmade available by Daiichi to propel new businesses forward, theSekhsarias and Neotias are not exactly doing the same. At least not inpublic eye.
There is some learning that needs to be transposed through thisprocess of sale. While I am dead against iconic Indian companies beingsold, you can label me a purveyor of 'swadeshi' thinking, but as longas the sale proceeds are being used to further new business ideas,then there is some merit in the argument. Otherwise, exiting a fullyfunctional and profitable business is a no brainer. Look at Indiantelecom - of the big five, Bharti has 32 per cent SingTel ownership,Vodafone Essar is majority owned by Vodafone, Tata Docomo has 26 percent NTT Docomo shareholding for which it forked out $2.7 billionwhile only R Com and Idea Cellular remain truly Indian. In the greatIndian automobile bazaar, barring Tata Motors and Mahindras,everything is firang.
In the end, let me leave you with another unpleasant thought -Heineken has a 37.5% stake in market leader United Breweries, which itacquired as part of its purchase of U.K.-based brewer Scottish &Newcastle PLC together with Denmark's Carlsberg A/S in 2008. For nowVijay Mallya also holds 37.5% stake in the maker of Kingfisher beer.While glitches in the rocky relationship between the two were resolvedlate last year, business dealing dynamics are often fluid and openended. Perhaps, this is the next frontier...