Mergers and Acquisitions: 2007

Warburg Pincus acquisition of Bausch & Lomb
Bausch & Lomb is one of the world’s largest eye-care products manufacturer and their offerings include contact lenses, ophthalmic drugs and vision correction instruments; the Company has revenue streams of more than $2 billion and employs more than 12,000 staff. The company is being acquired by the private equity firm, Warburg Pincus for $3.67 billion, which now puts to rest the rival offer of Advance Medical Systems Inc., which had earlier offered $4.2 billion for acquiring Bausch & Lomb.
Cerberus acquires Chrysler
Chrysler has once again become an American company. Daimler of Germany and Chrysler of the US merged nine years ago in a historic $33 billion deal. This partnership ended in 2007 when Daimler Chrysler AG sold 80.1% stake in Chrysler to US based private equity company Cerberus for US$7.4 billion. The German automaker retained a 19.9% stake in the new company, Chrysler LLC. One may remember that the original Daimler-Chrysler deal was hailed as creating a global giant; however, things did not work out the way it was envisaged. Daimler was seriously hit by the rising pension and superannuation costs in the US. Also, it was unable to sort out the quality issues that came up with its focal brand, Mercedes. This is a classic case of how mergers and acquisitions seem rosy at the time of the deal announcement, but gets very challenging when it comes to the stage of integrating the merged companies

Rupert Mudroch takes controlling Interest in Wall Street Journal
2007 saw the takeover of Dow Jones by Rupert Murdoch for $6billion. Dow Jones is the American media giant that controls Wall Street Journal (WSJ), which is considered to be Americas’ most respected and leading business newspaper. The Bancroft family owned Dow Jones for more than 100 years. The media tycoon Rupert Murdoch owns the News Corporation Company, which has to its credit more than 110 newspapers, around the world. Key brands already owned by Murdoch include The Times of London and The Post. Murdoch leaves his footprint in all forms of communication media business including print, television and internet. His business empire stretches virtually to all continents and is truly global. Murdoch is famous for deep pockets and financial strength that help to support his newspaper in the long run. After many months of deliberation, the Bancroft family has finally sold Dow Jones to Murdoch. The initial concerns for the Bancroft family were that Murdoch could negatively influence the editorial independence of the newspaper. This was however overcome as Murdoch agreed to set up independent executive committees that would professionally review some of the critical operational decisions of the company, including the hiring and firing of staff, especially editorial executives.

Royal Bank of Scotland takeover of ABN Amro
The Royal Bank of Scotland (RBS) consortium, comprising itself, Spain’s Santander and Belgian-Dutch bank Fortis, seems to have won the largest ever corporate take over battle in the history of the banking industry, through their US$111.7 billion takeover of Dutch bank, ABN Amro. This corporate takeover battle was being fought between the RBS consortium and the third largest bank in the UK, Barclays. In spite of Barclay’s offer, which was marginally lower than that of the RBS, the management of ABN was in favour of merging their bank with Barclay’s. The main driver here was that Barclays were proposing to integrate the operations of both the banks, post merger, while the intention of the RBS consortium was different; it proposed to break down the operations of ABN which was expected to result in retrenchment of around 19,000 jobs. Nevertheless, at the end of the day, the ABN shareholders were attracted by the higher offer from RBS, resulting in the deal swinging in favor of the RBS consortium!

Vodafone-Hutch Deal

This has been one of the most publicized acquisition deals in 2007 resulting from a 67% divestment by the foreign shareholder, Hutchison Telecom International (HIL), in the Indian wireless telephone ‘Joint Venture (JV)’, Hutchison Essar Limited (Hutch), in which Ruias’ of the Essar group own the remaining 33%. There was stiff competition among almost all major players in the industry, including global telecom majors like Vodafone of UK, Verizon from the US, Maxis Telecommunications of Malaysia, Orascom from Egypt, the Hinduja group, Reliance and Bharti Airtel from India, all of whom were showing keen interest in acquiring the 67% from HIL. Vodafone of UK finally managed to clinch the deal through seamless political diplomacy. The deal was successfully completed at a valuation of $21 billion for 100% shares in Hutch.This deal has been very important for Vodafone, especially as Vodafone had not been performing well of late. None of its recent global acquisitions, including those of the German business of Mannesmann, telecom businesses in Japan and Belgium, were performing up to the mark. All of these markets, including the US, were maturing and were not growing in a big way. The company needed some solid restructuring, and in such a situation it seemed desperate to enter the fastest growing market in the world. In this backdrop, the Hutch deal became very important for Vodafone. Now that the deal is completed, it is expected that Vodafone, with its immense international expertise and technology will bring in significant innovations in the Indian telecom market through which Indian telecom users can gain more. The competition is however expected to be seriously challenging.

Tata Steel Corus Deal
Over the last few years Tata Steel has been on an overseas acquisition spree; deals with NatSteel of Singapore and Millennium Steel of Indonesia were successfully completed. But what came through in 2007, in the form of the Corus acquisition, definitely seems to be the best among all that Tata Steel has achieved by way of acquisition. The Corus deal was concluded in 2007 at a value of $12billion, and is roughly four times the current size of Tata Steel, in terms of ‘turnover’. The deal is expected to provide significant synergies to Tata Steel in the future. However the risk in the deal also seems to be fairly high, primarily the financial risk arising out of the excessive debts (loans) incurred by Tatas in financing this deal. The total purchase price of $12 billion required to fund Corus, was financed through $2 billion, infused through equity, another $2 billion through bridge loans, repayable over a year out of Tata Steel internal accruals, a term loan of around $6 billion, repayable over the next ten years and the remaining $2billion through additional equity and loans. Where the proportion of loan financing is so high (70% to 75% in the present case), the risk in the transaction is considerable, due to uncertainties on whether cash flows from invested companies would be in a position to service the debt consistently, over the next ten-year period, subject to good market conditions prevailing that would continue to be conducive for Tata Steel and Corus to generate the envisaged cash flows. Another angle to this issue is the already overstretched position of the Tatas: they are in the midst of a huge capital expansion program with committed investments in Jharkhand, Chattisgarh and Orissa to increase capacity to 30 million tonnes over the coming decade. However, involvement of the Tata name significantly mitigates this risk, as their credit record has been immaculate.

Jet-Sahara Merger
The Jet Sahara deal, which went through a litigation process, was eventually concluded during the current year; Jet Airways and Air Sahara reached a compromise and moved forward. Jet eventually completed the Air Sahara purchase for Rs.1,450 crores, all in cash, through deferred payment. Jet has already re-branded Sahara as ‘JetLite’, and has spun it off as a 100% subsidiary of Jet Airways. Air Sahara’s fleet of aircraft has already been converted to JetLite branding. Jet Airways is now focusing on its international route with Brussels in Belgium as its hub. This strategy gives it the flexibility to retain the full service offering of Jet Airways as it was and at the same time allow JetLite to compete with the onslaught of other Indian low cost carriers without diluting the brand image of Jet Airways

Hindalco’s acquisition of Novelis Inc.
In 2007, Aditya Birla Group’s Hindalco Industries Ltd., India’s largest non-ferrous metal company acquired Novelis Inc., the world’s leading producer of aluminum rolled products in an all cash transaction that was valued at around $6billion. Following the merger, the combined entity of Hindalco-Novelis is expected to be the world leader in aluminum rolling operations, one of the biggest producers of primary aluminum in Asia, and India’s leading copper producer.

Kingfisher-Air Deccan Alliance
As outlined earlier, the Indian domestic airline sector has been moving towards a strong consolidation mode in 2007. The Jet-Sahara merger and Air India-Indian consolidation was followed by Vijay Mallya-owned Kingfisher Airlines taking a close to 50% stake in Air Deccan, promoted by Captain G.R. Gopinath for Rs. 550 crores. This deal is actually not a merger; the intention of this deal is not to merge the operations of the two airlines, but to run them as two distinctive legal entities and separate brands, but the two airlines will now have certain common shareholders like Mr. Mallya; these shareholders would now be in a position to evolve joint strategies for the two airlines that would complement the operations of the two airlines, which till now were competing with each other. We have already seen that Air Deccan has shed its old image and has changed its appearance by adopting the Kingfisher colour schemes and branding. Kingfisher and Air Deccan now have a combined fleet of 71 aircraft and are flying to 70 destinations. They have, between themselves, captured more than 30% of the Indian aviation market share. The commonality in the aircraft types between the two airlines is a major plus and is expected to save costs. Kingfisher offers a full service model (serves hot food on board the aircraft, has luxury lounges in the airports, has in-flight entertainment system like TVs). Air Deccan, on the other hand, targets travelers looking to fly at low costs. Its fares are lower than, or close to, the Second A/C Railway fares and the airline offers very basic service on-board; the target customers of Kingfisher are at the higher end of the spectrum including business executives and holiday leisure travelers. The very philosophy of the two airlines is poles apart. Both Mr. Mallya and Captain Gopinath have rightly decided not to merge the airlines, but to run them independently without diluting either of the brand names.With the credit squeeze partially easing out as a result of the US Federal Reserve (Fed) slashing interest rates by around 75 basis points, the global liquidity position is expected to further improve and more deals could be happening by the 2007 year end!

Clinical Trials Market in India

India has emerged as a strong base for clinical trials in recent times. Due to the multitude of benefits it offers, the country is fast growing as a centre for conducting clinical trials for many international companies. So It has launched its research report called “Booming Clinical Trials Market in India” to give first-hand information on the Indian clinical trials market. It investigates the key competitive advantages/disadvantages India has when it comes to conducting clinical trials in the country. The report also does a through study of the key factors which evaluate the country’s clinical trials, such as patient pool, patient recruitment, cost, time, government regulations, intellectual property, human resources, infrastructure and ethical issues.

India, with its huge patient base, low cost advantage, completion of clinical trials on time, improving infrastructure, and with a strong government support is witnessing a double digit growth in its clinical trials market. All major pharmaceutical companies and Clinical Research Organizations (CROs) have already started conducting their clinical trials in India, and with improving infrastructure, industry friendly regulations and trained workforce, the growth is only likely to increase in future.

However, to achieve its goal of becoming a global hub of clinical trials, the country will have to overcome challenges like unethical trials, delay in trial approval, inappropriate protection of clinical data, and lack of Good Clinical Practice (GCP ) certified sites and investigators.

Some Key Findings

• Indian clinical trials market is expected to grow at a CAGR of nearly 36% between 2006 and 2011 to register revenues worth US$ 546 Million in future.
• One of the biggest advantages of conducting clinical trials in India is the availability of a large patient pool that can be recruited at much shorter time then it takes to recruit patients in the west.
• India by 2011 will be conducting more than 15% of the total global clinical trials.
• India presently lacks in GCP trained investigators (which are less than 1000). Their demand is projected to reach between 3000 and 6000 by 2010.
• India does not provide “Data Exclusivity” in clinical trials unlike the US and EU members.
• The salaries of a clinical data specialist and Medical writer in India are around 15% and 9% respectively of what they get in the US.
• The clinical trials market will drive the growth of the Diagnostics and Pathology Industry in India.

Indian Retail Strategies Trends and Opportunities

Retail is India’s largest industry, accounting for over 10 per cent of the country’s GDP and around eight per cent of the employment. Retail industry in India is at the crossroads. It has emerged as one of the most dynamic and fast paced industries with several players entering the market. But because of the heavy initial investments required, break even is difficult to achieve and many of these players have not tasted success so far. However, the future is promising; the market is growing, government policies are becoming more favorable and emerging technologies are facilitating operations.

Retailing in India is gradually inching its way toward becoming the next boom industry. The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. Modern retail has entered India as seen in sprawling shopping centres, multi-storeyed malls and huge complexes offer shopping, entertainment and food all under one roof. The Indian retailing sector is at an inflexion point where the growth of organized retailing and growth in the consumption by the Indian population is going to take a higher growth trajectory. The Indian population is witnessing a significant change in its demographics. A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing working-women population and emerging opportunities in the services sector are going to be the key growth drivers of the organized retail sector in India.

Some Key Facts:

- Retail is India’s largest industry, accounting for over 10 per cent of the country’s GDP and around eight per cent of the employment

- The market size of Indian retail industry is about US $312 billion

- Organised retailing comprises only 2.8 per cent of the total retailing market and is estimated at around US$ 8.7 billion

- The organised retail sector is expected to grow to US $ 70 billion by 2010

Saudi Mining industry

The Saudi Arabian Mining Company (Ma’aden) is undertaking the Az Zabirah Aluminum Project to exploit Saudi Arabia’s extensive bauxite reserves and low cost fuel supplies in order to create economic growth and employment at high commercial return. The Project involves the construction and operation of a 0.62 Mtpa aluminum smelter and 1.4 Mtpa alumina refinery at Ras Az Zawr located on the central east coast of Saudi Arabia, and a 3.3 Mtpa bauxite mine located at Az Zabirah in central northern Saudi Arabia. Power, steam and desalinated water will be provided to the smelter and refinery by a captive 1800 MW oil fired power station that will also be constructed