Rocking India !!!

#1
Europeans shocked by Mittal Steel's $22.7 billion hostile bid for Arcelor were comforted by one hope: It would be an isolated case, not an omen of a predatory India Inc.

But a survey of India's corporate landscape suggests that where Mittal has led, a procession of Indians is following.

In recent months, Indian companies have made a series of foreign multibillion-dollar bids. Despite the failure of those bids - by Reliance, Tata and Indian Oil for companies in the United States, Ukraine and Turkey - executives and bankers say it is just a matter of time before such a megadeal is completed.

Perhaps as ominous for those concerned by a new breed of Indian multinationals, a larger and equally dogged set of companies is repeating Mittal Steel's history by rising in the shadows. Bharat Forge, for example, through a series of small acquisitions, has become the second-largest maker of car parts, behind ThyssenKrupp of Germany.

"Two years ago, did anyone think Mittal would come from nowhere and build the largest steel company?" asked Ashok Wadhwa, an investment banker who heads the firm Ambit-RSM in Mumbai and advises some of the largest Indian corporations.

Ironically, foreigners are the driving force behind India's new outbound ambition. Global investors are pouring money into Indian shares, pushing the benchmark Sensex index past a record of 10,000 points last week. That money effectively finances Indian companies ambitious to buy Western ones.

"We can use this capital as a springboard for making ourselves into global institutions," said Uday Kotak, head of the Indian financial services company Kotak Mahindra.

Leading outsourcers in India, like Infosys, have recently studied buying companies like Electronic Data Systems, which is based in Texas, to blend their cheap back office in India with high-end consulting and sales operations in the West, according to investment bankers and corporate insiders familiar with their planning. Infosys posted sales last year of $1.6 billion, compared with $20 billion for Electronic Data Systems. But Infosys can consider such a move because investors, favoring its profitability and growth, have pushed its market value up to $18 billion, exceeding that of EDS, at $13 billion. Infosys would not comment on any potential major deals.

Such prospects, along with a series of recent big-ticket bids, have ushered India into the club of countries that global bankers consider in trying to sell a firm, said Jayesh Desai, head of transactions for Ernst & Young in India.

The trend began in earnest last autumn when Reliance Industries, the largest Indian private company with $17 billion in sales last year, started a quiet multibillion-dollar bid for Innovene, a division of the oil giant BP. Reliance lost. The deal was valued at $10.9 billion, twice the cost of all of India's roughly 200 foreign buyouts since 2001.

People who work with Reliance say it is looking for more big buyouts, including ones with Western oil and chemical companies. "They've got a team which is actively looking at these things," said Desai, who advises the company.

Also last autumn, Indian Oil bid $4.12 billion for the Turkish oil company Tupras, losing to Royal Dutch Shell, which offered $20 million more, said P.K. Goyal, head of corporate finance at Indian Oil, which is state-owned.

Indian Oil, one of the 200 largest global companies with $34 billion in sales last year, aims to be a global energy giant. It saw Tupras, with 86 percent of Turkey's refining capacity, as a toehold to selling petroleum in Europe, Goyal said.

Another Mittal in waiting lost its chance to spend those billions to Mittal. The Ukrainian government last year sold its 93 percent stake in its largest steel mill, Kryvorizhstal. Mittal won it for $4.8 billion - more than Tata Steel, a low-cost Indian producer that was considering a bid, was willing to pay. Tata withheld a bid at the last minute, said Sanjay Choudhry, a spokesman for the company.

And while Reliance, Indian Oil and Tata Steel are already on the cusp of big deals, there is a second group following the Mittal model of lurking, and burgeoning, in the wings.

In lieu of headline-grabbing acquisitions, these companies are purchasing global stature in bits and pieces: Taj in hotels, Ranbaxy in pharmaceuticals, Vedanta Industries in mining. They are honing business models that can revamp acquisitions anywhere, not just in India.

Bharat Forge, with $280 million in sales last year, remains a speck on the radar of global investors. But its chief, Baba Kalyani, is globalizing as he realizes an affirmation he made decades ago that India, despite an abundance of cheap labor, would do well to focus on manufacturing through innovation rather than cheap labor. Today, nearly half of his 3,500 workers are engineers.

Bharat Forge bought forges in Britain, Germany, the United States and China, where it owns the largest one. It won customers like DaimlerChrysler and became the second-largest car parts maker in the world.

"Three years from today, a Bharat Forge would be out there making as big a noise and hopefully as big an acquisition" as Mittal has done, said Wadhwa, the banker. Bharat Forge declined to comment.

Westerners acquainted with India and its companies say the West is slow to grasp the rise of emerging market companies.

Antoine Zenone, a senior vice president at the French cement maker Lafarge and its lone expatriate at its Indian operations, said, "They have this image of developing countries - where everyone focuses on their home markets and where no one has time to look outside - which is totally wrong."


EU clears steel firm buyout

European Union regulators approved the proposed acquisition of Erdemir, a Turkish steel maker, by Arcelor and Oyak Group, a Turkish pension and investment fund, The Associated Press reported Monday from Brussels.

"The proposed transaction would not significantly impede effective competition in the European economic area," the European Commission said.

Oyak beat bids by Arcelor and Mittal in October to buy a 46.12 percent stake in Erdemir for $2.77 billion, but later agreed to sell part of its holding to Arcelor.

Happy Reading,
cheers,
nkpanjiyar
 

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