Would 2010 be the year of Acquisitions ? … Well, it is already turning out to be one as early as the first quarter of calendar year 2010. With the sight of recovery in the global markets after the period of two years of recessionary environment, the Indian corporate world is losing no time in making their global ambitions felt.
History tells us that deals done during turbulent times can turn out particularly well instead of those getting struck during the peak of the investment cycle. During the best of times, strategically sound deals may fail to live up to expectations as they come at the point of extremely optimistic valuations and the regime dictated by the free flow of funds.
Shree Renuka Sugars Buys Brazilian Equipav
Karnataka-based Shree Renuka Sugars plans to buy a 51% stake in Brazilian company Equipav SA Acucar e Alcool for $329 million which makes strategic sense from various angles. Brazil is the world’s largest producer of sugarcane and sugar. Equipav comes with a cane crushing capacity of 10.5 million tones a year. The Indian company further strengthens its sugar and alcohol business by improving its access to the supply of raw-material at a time when sugar demand in India has far over-stripped the supply in the country leading to spurt in the commodity prices of the sweetener.
In November 2009, Shree Renuka had also bought yet another Brazilian company involved in business of sugar and ethanol- Vale Do Ivai- for $240 million.
Thus, the Indian company has shored-up its needs of raw-materials from the hub of natural resources of Brazil where valuations still remain attractive despite of high sugar prices. The success of this deal will ensure that the Indian company becomes the world’s third largest sugar manufacturer by refining capacity.
NMDC Scouting for Brazilian Miner
India’s largest mining company NMDC is contemplating to buy 50% of operations of Brazilian miner Ferrous Resources Ltd for $2.5 billion. Ferrous Resources own a number of substantial iron ore mineral assets in Brazil. The Ferrous group targets to produce 50 million tones of saleable iron ore per annum through expansion of mines and processing facilities. NMDC has cash reserves of over $2 billion at hand.
However, the above news of Ferrous Resources acquisition by NDC still remains unconfirmed on behalf of the company. However, the chairman of NMDC Rana Som said, “NMDC is looking for natural resources across the markets.”
RIL eyeing LyondellBasell
India’s biggest private sector company Reliance Industries Ltd has its intention no less clear in terms of inorganic growth. The Indian company is busy scouting to hike and revise its bid upwards to $14.5 billion for the bankrupt company LyondellBasell, involved in petrochemical business, followed by its plans of reorganization. LyondellBasell had applied for bankruptcy protection in the US after its debt levels spiraled during the recent global meltdown.
The earlier offer of RIL was said to be around $12 billion which needed to be hiked, as the company plans to restructure the unsecured loan in agreement with its creditors. Earlier this month, Reliance was said to have expressed interest in a Canadian firm engaged in development of oil sands.
Religare set to Acquire Northgate
Religare Enterprises is said to be eyeing a majority stake in a venture capital and private equity firm based in California- Northgate. Malvinder Singh, a former promoter of Ranbaxy Laboratories, had exited the company recently and entered exclusively into the fast growing financial services space. Northgate, a fund of funds manages around $3 billion in assets.
The company has ambitious dream of buying out stakes in several asset management companies globally. Religare plans to invest $1 billion for strategic investments globally. In 2008, the company bought a stock broking firm Hichens Harrison for $110 million.
Thus, with the fears of global recession receding and a soothing recovery in the emerging markets led by China and India, India-related in-bound acquisitions is gaining pace and momentum as early as first quarter of calendar year 2010. With the end of the tightening liquidity conditions, the cross-border acquisitions are likely to see growth in momentum as the valuations remain moderate to reasonable in prevailing times.
While China made the most of the global recessionary environment in fulfilling its overseas ambitions to shore-up natural resources in order to feed its fast-growing domestic economy, it may not be too late for India to top-up its resources by tapping some of the cheaply valued natural resource hubs from the global arena.
With recent spate of news revolving mega-Bharti-Zain deal and RIL-LyondellBasell bid, do you feel India Inc can scout for more of such by multi million/billion dollar deals, in time to come?