End of the financial season tends to bring a lot of changes in the economic realm no matter the company. The recent developments in this field however were too much for the general public. A myriad of takeovers and acquisitions were seen in the past months – too fast.
The complex phenomenon that mergers and acquisitions (M&A) represent has attracted substantial interest from a variety of management and corporate firms all over the nation. Mergers and acquisitions continue to be a highly popular form of corporate development.
However, in a paradox to their popularity, acquisitions appear to provide at best a mixed performance to the broad range of stakeholders involved. While target firm shareholders generally enjoy positive short -term returns, investors in bidding firms frequently experience share price underperformance in the months following acquisition, with negligible overall wealth gains for portfolio holders.
2017 continued with the regulatory reform agenda of the government namely, Goods and Services Tax (GST), Real Estate Regulatory Authority (RERA), coupled with the judicial interpretations on several aspects of the not too very old Insolvency and Bankruptcy Code (IBC) which has redefined the insolvency and liquidation landscape in India.
The year 2017 was filled with good amount of talks of corporate restructuring and mergers and acquisitions – due to the relative easing of the regulatory ecosystem and principally due to the evolution of the IBC, which at one hand provides revival/ liquidation of the companies in doldrums and at other hand provides the financial sound companies to grow/ expand by acquiring the competition/ targets at attractive valuations. The deals discussed widely were in the telecom sector Vodafone-Idea merger, Bharti Airtel acquiring Telenor India, and Bharti Airtel merger with Tata Teleservices.
Among the largest M&A deals to be consummated were – Russia’s Rosneft PJSC agreeing to acquire Essar Oil Ltd, Flipkart acquiring the Indian arm of Ebay, Axis Bank taking over the mobile payment application – FreeCharge, Ola acquiring Foodpanda, the associates of State Bank of India (SBI) merging into SBI, thereby enhancing the muscle power of the public sector behemoth.
Having said so, the fizz of various deal talks died down soon as, in the end, only a handful of those deals saw the day light – the very complex ones, involving multiple regulators – HDFC and the Max Life Insurance merger; the much-talked-about Flipkart and Snapdeal merger; Reliance Communications-Aircel merger; and Zomato-Swiggy were a few cases which did not go beyond discussions.
2018 had yet another similar storm in mind which is yet to make its definite impact. From Flipkart-Walmart, Bharti Airtel-Telenor India, Arcelor Mittal-Essar Steel, Fortis Healthcare and many more… this year has seen a lot of takeovers.
Here is an abstract of the most eye-catching deals from this M&A season.
Bharti Airtel Ltd has decided to acquire the assets of Telenor ASA’s India business, as the country’s biggest telecom operator, to preserve its position in a market where Reliance Jio Infocomm Ltd.’s aggressive pricing has spurred a wave of consolidation.
As part of the deal, Airtel will assume the Telenor unit’s liabilities related to licence fees and lease obligations for phone towers. The transaction, which won’t involve any cash payments to Telenor, will give Airtel access to 44 million customers (increasing its user base to 307 million), 43.4 megahertz (MHz) of spectrum in the 1,800MHz band and 20,000 base stations.
The latest deal comes amid fierce competition and follows a move by Vodafone Group Plc.’s India unit and Idea Cellular Ltd to discuss a merger of their operations to create India’s largest phone operator last month.
The telecom industry as such is facing the worst dilemma as the billionaire Mukesh Ambani’s Jio phone service has signed up 100 million subscribers in about five months by offering free data and voice calls, undercutting established rivals and eroding industry profitability.
Bharti Airtel has also acquired a stake in Juggernaut Books, a digital platform to discover and read books and submit amateur writing, as India’s leading telecom operator looks to beef up its content play to take on Reliance Jio Infocomm. The platform, that was launched in April 2016, has close to one million downloads across Android and iOS operating systems.
In a bid to expand their global presence steel tycoon Lakshmi N Mittal’s ArcelorMittal is looking for strategic global opportunities rather than just expanding for the sake of expansion. Right on his radar at present for expanding global footprint is India, Mexico and Italy, to name a few geographies.
Keen to gain a firm foothold in India after failing to take off any of the announced projects, ArcelorMittal is in the race to acquire debt-laden Essar Steel which is undergoing insolvency proceedings.
On March 2, 2018, ArcelorMittal had signed a joint venture formation agreement with Nippon Steel & Sumitomo Metal Corporation (NSSMC) in relation to its offer to acquire Essar Steel.
ArcelorMittal has already announced a major USD 1 billion investment programme at its Mexican operation, which is focussed on building ArcelorMittal Mexico’s downstream capabilities, sustaining the competitiveness of its mining operations and modernising its existing asset base.
The programme is designed to enable ArcelorMittal Mexico to meet the anticipated increased demand requirements from domestic customers, realise in full ArcelorMittal Mexico’s productive capacity of 5.3 million tonnes and significantly enhance the proportion of higher-value added products in its product mix, in-line with the Company’s Action 2020 strategic plan.
ArcelorMittal has also received the go-ahead from the European Commission (EC) to acquire Italian steelmaker Ilva. The approval is a significant milestone in the transaction to acquire loss-making Ilva and represents a major step towards closing the deal, which is now expected to occur as soon as possible. The deal is an important strategic acquisition, offering a significant presence in a country where it has no primary steelmaking capacity.
Fortis Healthcare, which has been on the block for a while now, has attracted quite a bit of attention. At least five suitors — from competing hospitals, private equity funds, those in the fast-moving consumer goods (FMCG) business and other health care sector players, are in the fray.
With over 45 health care facilities and over 300 vibrant diagnostic centres, Fortis is India’s second-largest hospital chain — next only to Apollo, which has 64 hospitals with 10,000 beds. Therefore, any international or domestic hospital chain that buys Fortis will simply catapult to the numero uno position.
International hospital companies find setting up Greenfield projects in India rather complex and time-consuming – Columbia Asia, which has followed the Greenfield and brownfield route is an outlier. Given this, going for an acquisition in India is seen as a more efficient way of entering the country’s health care sector.
Here’s a look at the suitors what Fortis Healthcare acquisition might mean for them:
- IHH Healthcare – IHH Healthcare Berhad is a leading international provider of premium integrated healthcare services operating in the home markets of Malaysia, Singapore, Turkey and India. The Group also has a growing presence in China and an expanding network across Asia and Central and Eastern Europe, the Middle East and North Africa.
- Dabur’s Burmans – Dabur India Ltd. is one of India’s leading FMCG Companies with Revenues of over Rs 7,680 Crore & Market Capitalisation of over Rs 48,800 Crore. Building on a legacy of quality and experience of over 133 years, Dabur is today India’s most trusted name and the world’s largest Ayurvedic and Natural Health Care Company.
- Radiant Life Care – Radiant’s foray in the healthcare sector commenced with the redevelopment of BLK Super Speciality Hospital at a cost of Rs 3,500 million. Originally setup in 1959, inaugurated by Pt. Jawahar Lal Nehru, BLK has more than 60 years of heritage. With Radiant team, BLK has achieved multiple milestones over the last 4 years like accreditation from National Accreditation Board for Hospitals and Healthcare Providers, accreditation from National Accreditation Board for Testing and Calibration Laboratories, award for Best Multi-speciality Hospital in India by Indo-Global Health, ranking amongst top 10 hospitals of NCR, award for best response in acute heart attacks by Lumen Global, Gold Award for service improvement for internal customers from Health Management Asia, to name a few.
- Manipal Hospitals Group – Manipal Hospitals is one of India’s foremost multi-specialty healthcare providers catering to both Indian and international patients. It is a part of the Manipal Education and Medical Group (MEMG) – a leader in the areas of education and healthcare.
- Fosun International – Founded in 1992, Fosun is a family-focused multinational company. Fosun International Limited has been listed on the main board of the Hong Kong Stock Exchange since 2007. Fosun’s total assets as at June 30, 2017 exceed RMB 500 billion. With its roots in China, and through technology and innovation, Fosun’s mission is to create customer-to-maker (C2M) ecosystems in health, happiness and wealth, providing high-quality products and services for families around the world.
Motherson Sumi Systems
Samvardhana Motherson Group (SMG)’s flagship company Motherson Sumi Systems (MSSL) is in an advanced stage of sealing at least three more acquisitions in the next 5-6 months.
These acquisitions will be in addition to the recently announced deal of Reydel Automotive, a supplier of interior parts. The company, which has grown inorganically through a slew of acquisitions, is just two years away from achieving its $18 billion annual revenue target.
The company is in advanced talks for acquisition of a European company which has filed multiple bankruptcies. The value of the acquisition could be in the range of $500 million. The second company under consideration is in Japan which will be in the range of $50 million-$80 million. And the third target acquisition is in the US, and the valuation could be between $200 million and $250 million.
In 2015, Motherson Sumi had set a revenue target of $18 billion by 2020, from $5.5 billion in 2015. While releasing the fourth five-year plan in 2015, the company had said that it hopes to achieve 65% the target revenues through existing businesses and the rest through the acquisition route. The company has exceeded its last three five-year plans’ revenue targets.
SMG has made enviable growth over the past two decades with over 370 companies spread across 230 locations in 37 countries with over 25 joint venture partners and over 1.5 lakh people working for it globally. It had already achieved over $11 billion of annual revenue in the recently concluded financial year.
Walmart Inc. agreed to buy a controlling stake in India’s biggest online retailer, striking a blow against rival Amazon.com Inc. as the battle for e-commerce supremacy goes global.
The world’s largest retailer will acquire a 77% holding in Flipkart Group for $16 billion, the companies have announced. Flipkart co-founder Binny Bansal and other shareholders will hold the remainder.
The deal – Walmart’s biggest ever – gives it greater access to India’s e-commerce market, which Morgan Stanley has estimated will grow to $200 billion in about a decade. Flipkart, meanwhile, gets additional capital and expertise to battle Amazon, which has spent billions of dollars to gain customers in India. Online sales in the world’s second most-populous nation are growing about 35% a year, according to data tracker Euromonitor, fueled by a rising middle class and urbanization that present an attractive environment for e-commerce.
For the US retailer, acquiring a stake in Flipkart enables it to tap into India’s retail market without building stores. Walmart once envisioned operating hundreds of locations across India but it has been unable to open traditional units because of long-standing governmental rules for so-called multiband international retailers.
Walmart entered India in 2009 through a joint venture with Bharti Enterprises, and took full control of that business in 2013. It currently operates 20 wholesale clubs in India that serve small businesses.