Topic 4 Acquisition of Companies

Before detailing about facts regarding acquisition of foreign company by Indian

company I should describe about what is acquisition of company. In an acquisition
the acquaring company buys controlling stake in the acquired company. The
acquired company is known as Target Company. There are basically two type of
acquisition.

• Friendly Acquisition

• Hostile Acquisition

In the friendly acquisition the target company is formally informed, the acquisition
and there is an agreement on corporate management and finance control mainly
known as ammalgation of company or merger.

But in a Hostile takeover the target company does not find it favorable that majority
of their shares are bought by acquiring entity. In the hostile takeover the acquiring
company keeps on increasing its stake in Target Company by buying the shares
from institutional investment or through normal stock exchange transaction.

Up to couple of yr back, the news that Indian companies having acquired

Americans- European entities were very rare rather foreign company acquiring
Indian company. However this scenario has taken uturn. Nowadays news of Indian
companies acquiring a foreign business is more common

Indian companies are now aggressively looking at North American and European
market to spread their ways and become global player. The Indian IT companies
already have a strong presence in foreign market. However other sectors are also
growing rapidly.

Reliance Gateway Net, VSNL, Scandant and GHCL aren’t exactly household name in
International Market but have become a brand name.

Indian companies usually quietly but sometimes with media fanfare has bought
companies in international market

The increased interest in acquiring international company Indian companies have

come up a border frame, 1st 9 months of 2006 for example Indian companies
announced 115 foreign acquisition with value totally $ 7.4 billion according to
Economist.

One major U.S. acquisition took place in Feb. 2006 when Gujarat based GHCL
acquired Dam River, textile company for $93 million
 • In June 2006 Tata coffee paid $ 220 million to buy a U.S. brand name
“eight o clock coffee”

• In Aug 2006, Tata Tea paid $677 million for 30% stake in Glaceau(a maker
of Vitamin water in New York

If we view the statistic there were member of noteworthy acquisition by Indian

companies of U.S firm from Jan 2000 to March 2006. Reliance Gateway Net
acquire Flag Telecom in 2003 for $191 million

• Mumbai based bought VSNL Tyco Global

• Bangalore based Scandant acquired Cambridge service holding company

having head quarter in Greenwich company in 2005 for $120 million.

Deal
Target Country
Acquirer value Industry
Company targeted
($ ml)

Tata Corus Group

UK 12,000 Steel
Steel plc

Hindalco Novelis Canada 5,982 Steel

Daewoo
Videocon Electronics Korea 729 Electronics
Corp.

Dr.
Reddy’s Betapharm Germany 597 Pharmaceutical
Labs
The total of
Suzlon merger and
Hansen Group Belgium Energy
Energy 565 acquisition
during yr
Kenya from Jan –
HPCL Petroleum Kenya 500 Oil and Gas May 2007
Refinery Ltd. have been
valued of $
Ranbaxy
Terapia SA Romania Pharmaceutical 47.37
Labs 324
billion
Tata
Natsteel Singapore 293 Steel
Steel

Videocon Thomson SA France 290 Electronics

VSNL Teleglobe Canada Telecom

239
In period Jan-Feb 07 have 102 with value of $38.6 Billion.

There were 111 M/A deals with value of 6.12 Billion $ in March and April 07

There were 74 M/A deals with for year during May 07 with value of 4.37 billion
in May 07

The sector which are attracting Indian investor in acquiring the foreign company
are metal pharmaceuticals, industrial goods, cosmetics , automobiles components,
and energy in manufacturing, software and financial services.

There are many reasons for acquisition of company in foreign by Indian company.
First and foremost was

COMPANIES ILL PERFORMANCE. Experts says that Indian companies are inspired for
acquisition of foreign company as this companies are failing to perform well and are
unable to reach their target for e.g. Textile industry name as Dam River had many
mills inside the U.S but was facing challenges and was competing with low cost
provider outside the country. Then GHCL bought Dam River for 93 million dollar
shut factory and started GRM sourcing from India. A yr latter Dam River was doing
lot better and it turned profit in October

2nd reason was Indian Companies had taken advantages for the demand on Indian
paper both debt and equity. People from international market were continuously
investing in Indian sector and company. Thus this made surplus funds available with
Indian companies. They found easy to acquire the foreign company. Two companies
have made good use of FCCB (Foreign Currency Control Borrowings). Sun Pharmacy
and Wochhard raised $350 million and 100 million $ in acquiring International
Company.

Tata tea also acquire British Company Tetley in 2000 for 431.2 $ million with
help of FCCB.

Another source isPrivate Equity funds which are emerging as major source of money
for Indian Company. Indian companies have also taken full advantages in various
tax benefits and incentives. It becomes easier for Indian company to acquire foreign
company. The Dec 2005 the acquisition of U.K. based Keyline by the Mumbai based
Godrej consumer products was a good example of this. Some acquirer has also
found innovative ways to acquire company through tax benefits.

With simple rules and easier access to money the environment in India for shopping
overseas companies has been easier. The most important thing is that the
acquisition of most company is encouraging and most of them achieved what they
claim to get. The only problems Indian companies have meet that their encounter
with different culture, different managerial norms, different regulatory environment.
But there will be problems whether of culture or language Indian management is
able to handle them.