The Scrimmage for Corus

One of the most coveted and dramatic acquisition wars is that of India’s largest private sector steel company Tata Steel in its attempt to acquire Europe's second largest steel producer, Corus through its wholly-owned indirect subsidiary, Tata Steel UK.
Why is it so keen on Corus?
The integration would create a vertically integrated global steel group and would catapult it to the rank of the fifth largest global steel producer. It will also continue the consolidation in the industry post the recent takeover of Arcelor Steel by Mittal Steel which has 10% market share. Tata Steel is globally renowned for its high quality, low cost model and would enable it to build a strong platform for further growth by combining with a leading European steel player with the support of a strong and committed combined management team.
Corus’s viewpoint-
As rising raw material and energy costs in the Britain and the Netherlands chip away at profits, Corus is keen to access low cost production and high growth markets. Consistent with this, the Company held talks with a number of parties from Brazil, Russia and India.
The background of the deal-
Tata Steel made an initial offer to Corus at 455 pence per Corus Share representing approximately 7.9 times underlying EBITDA from continuing operations for the twelve months to 1 July 2006.
The financial advisors representing Tata for the transaction are ABN Amro, NM Rotchschild and Deutsche Bank
A Twist in the story!
In the third week of November, another rival Brazilian firm Companhia Siderurgica Nacional (CSN) entered the fray and outbid Tata Steel’s $7.4 billion bid. In the second week of December, the Tatas raised their bid to 500 pence per share amounting to $9.2 billion which was again outstripped by CSN which offered 515 pence per share amounting to $9.6 billion a day later. While the EU approved the bids in January, the Takeover Panel set Jan 30 deadline for naming the winner. It has asked Corus to sell itself to the highest bidder; consequently, an eight round closed-door bidding auction will take place, where the two rivals will try to outstrip each other for the takeover. Each bid should be atleast 5 pence apart. If a conclusive winner doesn’t emerge on 30th, a ninth round will take place on 31st if needed.
A caveat for the precarious situation-
While both parties are aggressively keen to acquire Corus, but they must not go overboard on the bidding process.
Recent revelations
A legal row that has emerged recently may help Tata succeed in its ambitions. Brazilian mining group CVRD (Companhia Vale do Rio Doce) would challenge CSN's ability to supply iron ore to Corus, should its bid succeed.

Reliance Retail

Reliance Retail, the Mukesh Ambani floated retail venture on Monday, aggrandized its national presence by launching nine new Reliance Fresh Stores in the National Capital Region in Noida, Greater Noida, Gaziabad, Faridabad and Gurgaon. The total number of retail outlets across the country has billowed to 50 covering 109,000 sq feet of retail space. However, the company is yet to open its first retail store in Delhi owing to several regulatory hassles. Reliance Industries has a 100% stake in Reliance Retail, and is looking at mushrooming 1000 new retail stores of 4000 sq feet by year end.

On December 5, 2006, the company acquired Gujarat-based Adani Retail for Rs 100-110 crore. Reliance will soon re-brand the 54 Adani Retail stores across nine cities in Gujarat to Reliance Fresh. The company is also in talks with Delhi based Super bazaar, Mumbai based Maratha stores, and according to some inconclusive sources, the south India based Subhiksha retail chain.

The company which has ventured into the food and grocery at present will be entering into the non food FMCG segment in a couple of months by launching categories such as laundry, personal care and apparel. It will start with multi brand retailing and then launch some private labels as well. In specialty formats it will start with consumer durables and has signed some deals with companies in China, besides Videocon in India.

The company faces competition from several players such as Bharti-Walmart, the AV Birla Group, Future Group, Tesco’s, Carrefour, Spencers, Subhiksha, Trinetra and food world. The Kishore Biyani-promoted retail chain Pantaloon, is also rolling out 40 stores in the national capital region by next June in over 18 formats.

Organised Retail is yet in an inchoative stage in India. India’s organised retail market is likely to grow from the current $4 billion to $64 billion by 2015. The first phase has been to provide customers with an innovative shopping experience by providing a better deal to customers. It is expected to restructure agriculture and small scale and medium scale manufacturing enterprises which suffers from gross inefficiencies. Organised Retail is faced with the challenge of increasing its top line by attracting customers with greater variety and lower costs, and at the same time increasing its bottom line by reducing the costs related to inefficiencies in the supply chain. Public investment in agriculture as a percentage of GDP has been gradually declining. Outdated machinery and poor infrastructure has let to wastages, losses in transit, and increased prices. The retail venture will thus usher in a revolution by promoting modern machinery, infrastructure thereby increasing productivity and jobs.

UB Group and Whyte & Mackay

Since October 2006, the Vijay Mallaya promoted United Breweries group has been negotiating with Glasgow based distillers Whyte & Mackay for a possible acquisition. It had earlier made a bid at GBP 400 million for the company which was not accepted. There were talks that the deal may be settled around GBP 500 million, but the company has now raised the price tag to GBP 600 million.Citigroup is advising Whyte & Mackay while UBS is advising UBGroup on the deal.UBGroup is the largest player in the IMFL (Indian made foreign liqueur) segment and Whyte & Mackay is the seventh-largest Scotch maker in Scotland.UBGroup is interested in taking over Whyte & Mackay as it will help take his global operations to the next level and add value to its business in the Indian market which has recently faced with a number of global players opting to introduce the variety in the Indian market. For example, Diageo, the world’s no. 1 spirits company and the makers of Johnny Walker whiskey has launched its local version of the global brand Haig.The UB Group began its global operations with the acquisition of Bouvet-Ladubay, a wine company in France. This acquisition of champagne major Taittinger’s subsidiary was struck at GBP 400 million. UB Group chairman Vijay Mallya is planning to ship French wine in bulk to India, where it will be blended with Indian-made wines to cater to the growing number of wine drinkers.

Hutchison Essar Deal

Hutchison Essar Limited (HEL) is India’s fourth largest wireless operator (third largest privately-owned), with a subscriber base of 22 million. Indubitably then, it has evinced substantial interest in the sale of the assets of HEL from several global and domestic corporations.What’s the Fuss about? Li Ka-shing, the promoter of Hong Kong based $3.13 billion Hutchison Telecom International (HTIL) which owns 67% holding in HEL (19.55% is indirectly held via a company called Telecom Investments India) has indicated that he wants to sell his stake in the company.Use of proceeds: The $20 billion valuations that are being bandied about work out to roughly 48 times EBIDTA earnings and HTIL’s share amounts to a gargantuan $10 billion which Li plans to use to bankroll his 3G global rollout plans.Advisors: Goldman Sachs is advising HTIL on this deal, and Essar is being advised by JM Morgan Stanley.Reasons for interest in the stake: India is the fastest growing cellular market in the world with a subscriber base of 143 million cellular phone users growing at a 5% month on month basisPenetration levels are low at 12% (Less than 2% in rural areas).Hutch commands leadership positions in Mumbai, Kolkata and Gujrat, is present in 16 out of 23 circles, and has average revenues per user higher than the industry average of Rs. 335.The contenders include:Reliance Communications (owned by Anil Ambani)- India’s second largest mobile operator – a successful bid would topple Sunil Mittal, and render Reliance as the undisputed leader with a 36.8% market share and over 50 million subscribers and help it create a GSM footprint. Also, as against setting up its own Greenfield pan-India GSM network, it can save $5 billion in capital expenditure and $3.5 billion in operating expenditure over the next 5 years. He will be teaming up with the Carlyle Group for the acquisition.The Essar Group: The steel and oil-refining Company owned by The Ruia family already owns 33% in HEL via its holding company Essar Teleholdings Ltd. It may decide to be a buyer, partner or seller, depending on whether it can secure the best valuation for its stake. If it decides to be a seller, any foreign player will need a local partner – as foreign ownership in telecoms is capped at 74%, courtesy Chidambaram. The Ruia’s also hold the right to first refusal in the event of HTIL’s stake falling below 40% and HTIL selling more than 10% to Reliance, Tata or Bharti.Vodaphone: The largest mobile company in the world spread across 26 countries, with partner networks in another 34 countries having over 190 million subscribers is eyeing the Hutch stake as the markets of UK, Germany and Australia are saturated and it wants to increase its limited Asia presence (3.3% in China Mobile and 10% in Bharti Airtel). CEO: Arun Sarin was in India recently to further the process.Verison (Unlikely bidder) The US based second largest CDMA cellular operator having 57 million customers and has Vodaphone as a 44% JV Partner. Since its presence is limited to the US, it is looking at expanding its presence overseas.Maxis (Malaysia’s largest operator with over 7 million subscribers) It had put in a $13.5 billion bid with PE player Texas Pacific Group for a 100% stake in Hutchison Essar, but may have dropped out of the race. It had earlier acquired 74% in the C. Sivasankaran promoted Aircel in late 2005. Hutch-Essar would give it a pan-India footprint and supplement its India operation which currently has 4.2 million subscribers.Orascom (Unlikely bidder): Egyptian Telecom Company which owns 19.3% of Li’s Hutch Telecom (not Hutch-Essar). If Reliance, Vodafone, and/or the PE firms encounter resistance from the Ruia’s and decide to buy in to the parent company, Orascom (claims it) has right of refusal.The Hinduja family: They originally held a 5.11% stake in Hutch-Essar which they sold in mid 2006 for $450 million. Cash is not a problem for them as they have global revenues of $11 billion. They are looking at expanding into telecom in India.Other likely bidders are Russia’s Sistema, Spain’s Telephonica and Telenor which has presence in the Nordic region and other parts of Europe, Malaysia, Thialand, Bangladesh and Pakistan.

DR REDDY'S Laboratories and Betapharm Arzneimittel GmbH

On March 6, 2006, Hyderabad based DR REDDY'S Laboratories completed the acquisition of 100% equity of Betapharm Arzneimittel GmbH for euro 572 million (approximately Rs 2,574 crore) from 3i Group in one of the largest overseas acquisitions by an Indian Pharmaceutical major.Betapharm Arzneimittel GmbH is the fourth largest generic pharmaceuticals company based in Germany holds a 3.5% market share of the 27 billion German pharmaceutical market, and is the fastest growing generic pharmaceutical company amongst the top 10 for the last 5 years. It markets high-quality generic drugs with focus on long-term therapy products with high prescription rates.The acquisition was made to increase Dr. Reddy’s presence by leveraging its global product development and marketing infrastructure to build a significant generics business in Europe and to supplement their initiative to becoming a mid-sized global pharmaceutical company.The deal was funded using a combination of internal cash reserves and committed credit facilities.The company had earlier acquired the UK-based BMS Laboratories, in 2002 and its wholly-owned subsidiary, Aurigene Discovery Technologies, for around $12 million. In November 2005, Dr Reddy's acquired Roche's APIs business, in Cuernavaca, Mexico, in a $59-million deal.