India's Acquisition Spree From Steel To Roses

Recently, India proved that it has the nerves of steel by acquiring two steel giants of Europe - Arcelor and Corus to become the world's No. 1(Mittal-Arcelor) and No. 5(Tata-Corus) manufacturers .There might be a mistaken impression among some quarters that its most acquisitions have been made for manufacturing or services.
It all changed after I read a news report on St. Valentine's Day that a firm in Bangalore is negotiating with a Dutch flower company Sher - the biggest in the world for acquisition. Incidentally, it seems 40% of annual rose sales takes place on this occasion alone. It may be too early to speculate whether India will be catapulted to become the world's biggest grower of flowers; but already it is being reckoned as a flower power with exports touching $678 million which is expected to cross $1 billion by 2010.
Adding such feathers to India's cap would be truly admirable if one does not read daily about farmers' unabated suicides and grim struggles of tens of thousands of farmers. The stark reality is that even agriculture is not free of infrastructure weaknesses which have been impeding growth of manufacturing sector. Power has been a laggard for decades although other sectors have been scaling new heights.
Not surprisingly, the noted business school KnowledgeAtWharton and a consulting firm The Boston Consulting Group have said in a new study "India is on its way to becoming world-class manufacturer due to changing environment but poor infrastructure, bureaucratic red tape and restrictive labour laws have kept India's manufacturing a backwater while its services have become red-hot'.
'Sher' means tiger in Hindi and to capture big tigers including the Dutch one, India must firstly have power - to light homes, run factories, turn pumps and also to make roses bloom brilliantly.
Is it not?

India: Yesterday, Today & Tomorrow

Today, Indian economy has slowly started getting a respectable position globally. Her GDP growth has now become, what many economists believe, sustainable at 8-10% and in the process the past low growth @5-6% has been buried. Indian MNCs are out for acquisitions abroad and the latest Tatas-Corus deal - the biggest in size by any Indian company involving $12 billion has proved beyond doubt that India has truly become a global player.
How was it yesterday?

"On the eve of industrial revolution (around 1770), India was the second largest economy in the world, contributing more than 20% of total world output. By the 1970s, after two centuries of relative economic stagnation, that share had fallen to 3% - the lowest in its recorded history. From a long-term perspective, the post-industrial economic decline of India (and China) is a historical aberration, driven to some extent by a lack of openness. After independence in 1947, India followed inward-looking and state-intervenist policies that shackled the economy through regulations and severely restricted trade and economic freedom. The result was decades of low growth termed pejoratively the 'Hindu rate of growth'. Reforms beginning in 1991 gradually removed obstacles to economic freedom, and India has begun to play catch-up, steadily reintegrating into the global economy."

So says a report titled 'A game of Catch-up' appearing in Times of India (having its source Golden Sachs' Global Economic Paper no 152).

About tomorrow, I have already reproduced the forecast made, again, by Golden Sachs in my post 'Do you believe India's economy will be the second largest by 2050?' accompanied by my wish-list. The lesson for Indians out of the vicissitudes in last three centuries is "You must run faster to stay where you are".
Is it not?

Bride Corus Ties The Knot With Tatas

It is a great day for Indians, Indian steel industry and India as a whole. In a fierce battle to win the hands of the Anglo-Dutch steel company Corus, Tata Steel - the oldest steel manufacturer and the second largest in India has come out victorious. As the curtains come down in melodramatic films churned out in dozens by Bollywood, an one-liner usually appear just before the final words "The End" so that no one is left in doubt. The one-liner says 'and they lived happily ever after'. I learnt just an hour back about the happy ending of the Corus acquisition, the popular Hindi song 'Le jayenge, le jayenge, dulhaniya le jayenge'(I will take the bride, I will take the bride) spontaneously started ringing in my mind.
Tata's bid of 608 pence as against the rival Brazilian offer of 603 pence clinched the deal and like a magic wand transformed the Indian steel company from its 53rd position globally to an enviable fifth largest manufacturer. So, there is a lot of wisdom in the saying "Marriages are made in Heaven". But just to remind ourselves lest we forget in such euphoric moments, steel is made by men and he pays the piper who calls the shots.
It is a historic moment for India. Nearly three hundred years back, a British company by name 'East India Company' had touched the shores of eastern India initially for trading in textiles and spices. The British Empire kept the whole of India under its thumb for nearly two hundred years. Now the table has been turned. Tatas have taken over Anglo-Dutch giant steel conglomerate Corus.
My congratulations to Tatas-Corus on their wedding!

Wedding Bells Ringing For Corus

It is billed as a mega event - it is the wedding of Corus. It is also something unprecedented. The wedding is not going to be over in just a few hours. It will start by 10pm Indian Standard Time on 30th January, 2007 and depending upon what transpires, it may continue up to 8-30am on 1st ebruary, 2007. Interestingly, the groom has not been fixed as yet and there are two suitors.
Yes, I am referring to the acquisition drama of the steel giant Corus for which initially the only suitor was Tatas. But CSN of Brazil came out of the blue and demanded the hands of Corus. I was very thrilled at the prospect of Tata-Corus acquisition as it would have been the biggest by any Indian company for about $9 billion and made it the fifth largest steel manufacturer in the world. Though the earlier acquisition by Mittal Steels of Arcelor (which turned out to be a long-drawn corporate tug-of-war) ended making the combine the biggest steel company in the world, it was, in any case, launched from the foreign soils unlike the acquisition bid by Tatas - the oldest steel manufacturer and the biggest in the private sector in India.
There are contradictory press reports emanating from London about who will win the hands of Corus. 'Daily Telegraph' has said "CSN has the great desire to win Corus and may go as far as 600 pence." The Sunday Times quoted sources saying :"Do not write off Tata yet ...they are serious and they believe they can win." The irony lies in the highest bidder getting Corus despite a general impression prevailing that Tatas and Corus want each other.
In my post 'The eternal triangle of Corus-Tata-CSN', I had already said that I would be happy to see Tatas emerge as winner. I had, at the same time, expressed my misgivings about the drama ending like the film Devdas in which the hero (read Tatas) ruins himself without trying to save Paro (read Corus). Barely 30 hours are remaining for the curtains to come down. The suspense is building up. But then, I am keeping cool being reminded of the wise saying: "By all means get married. If you get a good wife, you will live happily ever after. If you do not, you will become a philosopher."
I do not want Tatas to become a philosopher.

No Chorus Of Approval For Corus Acquisition

The climax of the drama for acquisition of Corus is about to be enacted shortly and ironically there appears to be no chorus of approval. I had concluded my post 'The Eternal Triangle - Corus-Tata-CSN' with "What Tatas will do to win the hands of Corus? I will be happy to see Tatas a winner. Let not the acquisition drama end like the film Devdas where the hero ruins himself instead of trying to save Paro". The vey same premonition has started haunting me.
The Brazilian giant CSN initially had made an offer of 475 pence per share against Tata's offer of 455 pence per share just only to provoke Tatas to revise their offer upwards to 500 pence which was stymied within hours by its 15% hike to 515 pence. In absolute terms, Tata's offer stands at $9.1 billion as against $9.6 billion of CSN. Clearly, the eternal triangle is inviting economical trouble.
Some analysts are of the view that Tata's offer is expensive whereas others feel that this is a golden opportunity for them to emerge as the world's fifth largest steel manufacturer. A report extracted from Economic Times puts the different perspectives succinctly. "ET spoke to 11 top investment bankers, of which five said the bid was now expensive and the Tatas could do well to consolidate their presence in India, one of the largest steel markets in the world, rather than paying dearly for a foreign steel mill. But another half among the deal-makers who were polled, believes that though painful in the short term, it is the larger picture that is still attractive - of a Tata Steel that is the fifth largest in the world, of a company that is able to influence in raw material negotiations and finally, of a company that did not let go of an opportunity to buy a world class firm."
I am sure Tata has the right corporate wisdom devoid of any personal ego and backed by experts' opinion to continue the bidding war avoiding quicksand that may lie ahead. We will have to wait till the curtain comes down.

The Eternal Triangle Of Corus - Tatas - CSN

When Tatas successfully bid for the acquisition of the Anlo-Dutch behemoth Corus, it was an euphoric moment for me as the Indian corporate giant appeared to be emerging as an Indian MNC to take on the world champions of industry. I also found it somewhat ironical that because of the globalisation, Tatas were set to become for U.K. in 21st century what was East India Company when it had entered India in 18th century. The acquisition was very keenly watched as it was slated to be the largest Indian acquisition of any foreign company worth $8.1 billion that could push the rank of the new combine Tata-Corus to become the fifth largest steel manufacturer in the world.
So far, everything seemed to proceed on the expected lines and we were all thrilled to see the beaming smiles of the top Tata officials in TV and print media. The Corus board had also approved the offer of 455 pence a share made by Tatas though a third party could still throw a spanner in the works till the EGM of shareholders put the final seal on it. The acquisition drama would have lost its excitement had not CSN - a Brazilian steel manufacturer announced its plan to bid 475 pence a share raising the buyout price to $8.3 billion. The new suitor CSN's entry can be likened to the usual Bollywood stuff where the hero who is deeply in love with the heroine suddenly faces the risk of loosing her as someone villainously tries to snatch her.
Getting down to brass tacks, CSN has not only made a higher offer, albeit informally so far, it has the advantage of owning iron ore mines and have been exporting 30 million tonnes annually which is likely to go up to 50 million tonnes by 2010. Owning iron ore mines by steel manufacturers is winning half the battle in competition. It is because of such advantages that Tatas are credited with making the cheapest steel in the world. In case of Tata-Corus combine, Tatas would be able to supply slabs only to Corus who would have to alter their existing manufacturing process. CSN's steel manufacturing capacity is higher than Tata's and had made 5.8 million tonnes during the year 2005.
The bidding war has just started and the share price of Corus has already crossed 500 pence a share. In the changed situation, Tatas will have to revise their offer to clinch the deal. I am sure Tatas will not throw in the towel so early. Though Tatas are viewed as a role model in the corporate world, they seem to have a weakness. When it comes to showing its nerves of steel in forays in new locations, it has disappointed its admirers and its image has taken a beating in the past as in Gopalpur and Bangladesh.
What Tatas will do to win the hands of Corus? I will be happy to see Tatas a winner. Let not the acquisition drama end like the film Devdas where the hero ruins himself instead of trying to save Paro.

Untangling Issues From China

When I wrote my last post titled 'China - The Unchallenged Victor', little did I know that my next post would also be on China and that too, so soon. That is because I am not a sinologist. But going through the newspapers in the morning today, I found serious contradictions in a few news items which forced my thoughts to culminate in this post.
Politicians are well-known for backtracking on their statements they make once any controversy arises. They usually take refuge under a refrain 'I have been misquoted'. But what surprised me was the latest example of contradictions being made in the same breath by the ebullient Steel Minister, Ram Vilas Paswan. He said "The government should frame proper policies on the entry of Chinese companies in India". Interestingly, the above plea was made as Indian steel companies are apparently apprehensive that allowing Chinese companies with their ability to make cheap steel may threaten their existence. Instead of India trying to be competitive cost and quality wise, the honourable Minister is trying to stop steel companies from China entering India and that too when we are swearing by globalisation mantra. The contradiction did not end there as he went on to say "SAIL should look for acquisitions, like Tata Group's acquisition of Corus".
The startling comments on another issue coming from the other extreme of the political spectrum are quoted from a news item titled 'CPM's fixation with China continues' appearing in Economic Times. "These are historical issues. These are disputes. That's why issues are being discussed", Mr Yechury told reporters. He even suggested a resolution to the dispute: don't transfer populated areas on either side. In other words, Mr Yechury does not think that the Indian government is correct when it says that the whole of Arunachal Pradesh belongs to India.
So we have a Steel Minister and Indian steel industry scared of competition from China and yet are interested in spreading wings as part of globalisation opportunities. Then we have a national party CPM - part of the present UPA government who are flexing their muscles after improving their number of seats in Lok Sabha that does not support the Indian government's stand that the whole of Arunachal Pradesh is part of India.
I am really flabbergasted at the political fare spread before us. What should I choose and what should I reject?

Double Standards For Acquisition And FDI

After globalisation has broken all national and regional barriers, the world, today, has been reduced to a global village. Acquisitions and FDI flows from one part of the globe to the other are now so routine that nobody raises eyebrows even when a developing economy springs a surprise of investing in a developed economy or goes for acquisitions.
Tatas has made recently mega acquisition of Corus in Europe for $8.3 billion besides other Indian foreign acquisitions of nearly $10 billion made in last 5 years. Of course starting from scratch, this is considered sizable even though it is just 1 % of global cross-border deals.
I found a report published in Times of India on a survey titled 'Voice of the People,2006' conducted by Gallup International and TNS intriguing as some findings reveal how people from different parts of the world view differently the whole business of acquisitions and FDIs. I do not know why 44% of the respondents in USA responded negatively to FDI flows to their country when it is the largest investor all over the world. Similarly, the respondents from developing economies - South Africa (71%), Nigeria (76%), Vietnam (75%) surprisingly supported the globalisation.
When MNCs were trying to get a foothold in India in 1970s, Left and socialist parties had given a battle cry against them. Now that Indian MNCs are spreading wings abroad, the voice of opposition seems to have died down. Ironically, it is the turn of the Indian MNCs of defending their acquisitions abroad with promises that there would not be any job cuts after the takeovers.I think no nation can get away with double standards for acquisitions and FDIs. If it goes for acquisitions abroad and invests in other foreign countries, it is only fair that it allows others to do likewise in its homeland.
You cannot have the cake and eat it too!

Tata Steel Steals The Show By Proposing To Corus

I told you in my last post titled 'Acquisition - The Stepping-Stone To The Path Of Success' how acquisitions are becoming commonplace in business. I also mentioned about this particular deal - Tata Steel taking over Corus likely to materialise shortly. Now it is very much official. The ball has been set rolling by Tata Steel - the first steel company and the biggest in the private sector in India; they have made an offer of 455 pence (Rs 385 approximately) for each share of Corus and if it goes through, it will be the third biggest acquisition in the steel industry. Of course, the mother of all acquisitions remains Mittal-Arcelor's at an investment of $43.63 billion followed by Kawasaki's takeover of KK Corp at $11.89 billion.
After the takeover, Tata Steel-Corus combine will have steel production capacity of 23 million tonnes. Presently, Corus is ranked 8th and Tata Steel 55th in global steel capacity. The deal is most likely to go through even as Corus has been courted by other suitors. Tata Steel has the advantage of producing the cheapest steel in the world by having captive mines and its cost is not subject to the vagaries of price fluctuations of raw materials. Corus has a steady market in Europe for its high-valued products having applications in construction, automobile and aerospace industry.
I think the acquisition will send out a message loudly to the world that Indian companies are having the right stuff to become multi-national companies (MNCs). But to call spade a spade, the steel in the raw form will be made in India with all the attendant problems of polluting the environment while the finishing operations will be done in Europe; it will put Indian MNCs at the bottom of the list.
In any case, you cannot have the cake and eat it too!

Acquisition - The Stepping-Stone To The Path Of Success

Today, acquisition has become a buzz-word of business. Reports on acquisitions are appearing in print, TV media and Internet endlessly. Big sharks are on the prowl for big fishes; big fishes are chasing small fishes and small fishes are gobbling up smaller fishes. So acquisitions have become as common as wild animals hunting their preys.Because of acquisitions, companies generate synergies especially in pooling resources to face competition. The individual identities and images get blurred after acquisitions.
For manufacturing companies, the raw material suppliers tend to deal with the new entities differently as their combined demands go up. Their combined market share, too, becomes higher and consequently their say in price control assumes more importance. In most cases, the real beneficiaries are the owners and shareholders of the companies after acquisitions.This was exactly the bait used by the steel tycoon L.N.Mittal for the biggest mega-acquisition in the history in taking over Arcelor which raised lot of storm in the corporate world as well as several governments before the new company Mittal-Arcelor emerged as the biggest steel company in the world.
Taking the cue from the saying 'Join them if you cannot beat them', Nippon Steel and Posco are examining various modalities for flexing their combined strength. Tatas have already guarded themselves against any hostile takeover by the giants by enhancing their own shareholdings. Interestingly, Tatas are reportedly working for a $10 billion takeover of Corus - one of the largest steel manufacturers in Europe. Though the company's employees and a section of the public are against such a takeover, it is the will of the shareholders that will ultimately decide the fate as in the case of Mittal-Arcelor.When so many acquisitions and mergers are taking place all over the world, who really benefit - the consumers and general public or only the shareholders of the companies?

Posco Bitten By M & A Bug?

Whether it is the survival instinct or the ambition to climb higher, Posco - the South Korean giant and fifth largest steel manufacturer in the world is looking for acquisition opportunities in Asia. The move appears to have been triggered by the threat perception of the company itself becoming target for acquisition by bigger sharks like Arcelor-Mittal Steel which has emerged as the largest manufacturer with a capacity of 110 million tonnes. The corporate battle for merger of Arcelor the second largest steel manufacturer with Mittal Steels which was already in the top position was closely watched that lasted several months and created history of sorts. This classic M&A sent shock waves throughout the steel industry worldwide. Several leading manufacturers in China and even Tatas in India have already changed their holding pattern to pre-empt any hostile take-over bid.
Posco, on the other hand, appears more vulnerable at present as more than 60% of investors of the company are foreigners. Their strategy seems to bring change in ownership pattern by mergers and acquisitions. They are on the lookout for some companies in China and India. Fortunately for Posco, such plans can be translated to reality as they are cash-rich with an estimated $1.57 billion in reserve.They have already made a foray in India with a greenfield project to manufacture 12 million tonnes steel at an investment of $10 billion. As ill luck would have it, the project is hanging in the balance as land acquisition has not proceeded smoothly. The company has, however, embarked upon cross-holding ties with Japan's Nippion Steel Corp so that it does not become an easy prey to hostile take-over bids.
Let's see which way the wind is blowing.