Merger and Acquisitions dip

The continuing recessionary fears in the world's largest economy, has dented India Inc's US-bound merger and acquisition activities, which dropped 30 per cent to 5.1 billion dollars in the first six months of 2008, according to an investment bank and advisory firm.

In the first half of 2008, Indian companies accounted for a total of 34 US-bound acquisitions worth over USD 5.1 billion, US-based Virtus Global Partners said in its latest report on US bound acquisition by Indian companies.

However, the volume of deals dropped 15 per cent to 34, from 40 in the H1 of 2007.

The mega size M&A deal in the first half of 2008, include Tata Chemicals acquisition of General Chemicals for USD one billion, GMR Energys purchase of 50 per cent equity in Intergen for USD 1.1 billion and Sterlite Industries announced bid for Asarco valued at USD 2.6 billion. Over 70 per cent of the transactions involved acquisition of 100 per cent stock for cash consideration.

Despite a slowdown in the M&A volume, IT/ITES remained the most acquisitive sector capturing over 50 per cent share of the total US-bound transactions by volume, the report stated.

"The high rate of US-bound acquisition activity is being propelled by the need to gain scale in terms of size, product offerings and geography. The first six months of 2008 also demonstrate an underlying business model change - from a cost-centric approach to a profit-margin focus," the report pointed out.

As per the report, the acquisition of Regulus Group by 3i Infotech for USD 100 million, Caterpillar Inc by Satyam Computer for USD 60 million and Jass & Associates Inc and SDG Corporation by Mascon Global for USD 55 million are among the top US-bound M&A deals.

Possible Merger & Acquisition Companies

Credit Suisse believes the few Indian companies could be likely merger & acquisition candidates

They believe the stocks need over US$100 mn market cap for liquidity.
and should be from consumer-facing sectors (excluded technology, services, industrials, commodities and engineering related sectors). Should have sales growth of over 15% in last three years anda verage ROE of less than 10% despite good sales growth. They find that the media, cement and auto related sectors have potential to see more acquisitions, in addition to aviation and telecommunications

The following are the companies..

Centurion Bank of Punjab Ltd

Deccan Aviation

EIH

Entertainment Network Limited

Escorts Limited

Federal Mogul Goetze

Hotel Leelaventure

IOL Broadband

India Cements

Indiabulls Financial Services

Indian Hotels

J K Industries

Jet Airways (India) Ltd.

MRF

NDTV India Ltd.

Orchid Chemicals & Pharma

Oriental Hotels

PVR Limited

Punjab Tractors

Pyramid Saima Theatres Limited

Ruchi Soya Industries

Sahara One Media & Entertainment

Sanghi Industries

Suven Life Sciences

Tata Tele Services

Television 18

Trent Ltd.

UTV Software Communications

Zee Entertainment Enterprises

Sweet Land of Liberty

Back in 2001, when Indian Hotels Corporation Limited (IHCL) was implementing Total Productivity Maintenance (TPM) and the Kaizen approach across its properties, it benchmarked with the Ritz Carlton on customer satisfaction measurements in luxury hotels. Just five years later, IHCL has signed an agreement to acquire the Boston-based Ritz-Carlton hotel, a luxury property in operation since May 19, 1927, for about $170 million. With the deal scheduled to close mid-January, this will be the second us hotel to be acquired by the Tata Group company (which owns the Taj chain of resorts and hotels), after it took management control of The Pierre, a luxurious landmark hotel on New York's 5th Avenue, for $50 million. Clearly, Indian Hotels is morphing from being a leading Asian chain of luxury hotels into a global one with presence in the gateway cities of the world. In five years, it aims to have a third of its revenues from overseas operations-and the US would account for a fair share of those sales.

Indian Hotels is not the only company for which the US is a key fragment of a globalisation blueprint. According to a CRISIL report titled "Creating the Indian MNC", acquisitions by Indian companies overseas have touched $7.3 billion in the April 2005-September 2006 period. A little over a quarter of these target companies are in the US, with the total deal value amounting to a cool $1.9 billion. Tata Tea's $677-million acquisition of a 30 per cent stake in the Glaceau, an enhanced water company, is till date the largest us acquisition by an Indian company and skews the us share substantially in 2006-07 to 52.7 per cent, but the us was the #1 destination even in 2005-06 with an 18.3 per cent share of all overseas acquisitions.

Whilst niche American buyouts have been taking place for some time now-it services majors like TCS, Wipro and Satyam have been particularly busy as has a clutch of pharma majors-a handful of Indian corporations are now beginning to make us acquisitions for sheer size and scale. Rain Calcining Ltd, Asia's largest manufacturer of calcined petroleum coke (CPC), acquired a 20 per cent stake in GLC Carbon Corporation and is reportedly looking to acquire full control. If successful, Rain will emerge the world's largest producer of CPC. Rain has the capacity to manufacture 480,000 tonnes per annum of CPC, while GLC, with its four facilities in Texas, Oklahoma, Louisiana and Argentina, is about four times the size with an annual capacity of 2.3 million tonnes. Clearly, scale is an important factor in influencing the decision for Rain Calcining as market leadership brings with it the ability to influence pricing, especially in a commodity industry.

For other manufacturers with global ambitions, the US is one land that they just can't ignore. When last June, Bharat Forge, the second largest forgings firm in the world, purchased Federal Forge Inc., a company engaged in the design and manufacture of complex forged steel components, for $9.1 million, it gained an immediate foothold in the us passenger car and light truck market; and most importantly, a manufacturing base close to some of Bharat Forge's largest customers.

Access to markets has been a key driver of these acquisitions and the US being the largest market in the world, has been a big draw. Says Sunil Alagh, Chairman, SKA Advisors, a Mumbai-based marketing and branding consultancy: "The level of importance of entering the us markets depends on the product. Indian companies should enter any market and more specifically the US, from a position of strength, that is in sectors like it, textiles, specialty teas, Indian cuisine-based foods, etc. It will be of little importance in areas like soaps, cosmetics, confectionery or air conditioners. Entering the us market should not be a 'fashion' but 'opportunity-based'."

The Indian textiles industry has been trying something similar-to make inroads into the $30-billion (Rs 1,35,000-crore) US and EU home textiles market by aligning its low-cost manufacturing base with us-based brands. Companies like GHCL have chosen to grow via the inorganic route-it acquired Dan River, the third largest player in the us home textiles market, the owner of the brand 'Bed in a Bag' and preferred supplier to large retailers like JC Penny and Linen & Things, Wal-Mart and Bed, and Bath & Beyond. GHCL Joint Managing Director R.S. Jalan says: "The acquisition provides us the opportunity to quickly move into the us market with a ready customer base and infrastructure in place." S. Kumars, too, is reportedly bidding for one of the largest American home furnishing manufacturing and distribution companies, America Pacific, and the deal size is rumoured to be in the range of $100-120 million (Rs 450-540 crore). America Pacific supplies bedding, bath and window products to many us brands, including Nautica, Dockers and Liz Claiborne. It also makes and markets home linen under its own brand.

So, how much of an imperative is penetrating the us-the final frontier in some ways-for Indian companies with MNC ambitions? Rama Bijapurkar, an independent market strategy expert, explains that America shouldn't be blindly pursued because it's potentially the most lucrative market. Rather, the importance of a country must be based on how feasible it is to build a decent sized, profitable, and competitive position. "So, if that is better done in Africa or Uzbekistan or UK, why not?" asks Bijapurkar. That may explain why some Indian companies have made big-ticket acquisitions in less likely regions-Suzlon in Belgium, Aban Loyd Chiles in Norway and Gail in Bermuda.

Motely Fool - Google finally pigs out

It finally happened. Google (Nasdaq: GOOG) has at last made an earth-shattering acquisition. After more than a few days of speculation, it has agreed to buy popular video-sharing site YouTube in a $1.65 billion deal.

The transaction won't even make a dent in the company's $9.8 billion cash-rich fortress -- YouTube has opted to take Google stock in exchange for the company.

Just before the deal was announced following Monday's market close, I was in the process of asking my fellow Fools what they thought about the proposed pairing. Here's what they had to say just as the news was about to break.

Anders Bylund:

Until Monday morning, I thought the deal stood a snowball's chance in Miami of happening. Google doesn't need to pay $1.6 billion for anything more than a brand name. Google's video service is no worse than YouTube, and the proposed partner comes with a large, dark cloud of copyright trouble hanging over it.

And then I got the press releases. Google signs video-distribution deals with Sony (NYSE: SNE) and Warner Music Group (NYSE: WMG). YouTube signs suspiciously similar deals with Sony and Universal. It got Warner a couple of weeks ago. All of a sudden, it looks like everybody sat down at a table, had some hot chocolate, and worked out their differences. That snowball just moved to Canada.

Tim Beyers:

So, the other day, I'm reading how a company that collects catchy domain names for ad space has attracted $220 million in venture financing inside a year. Now I'm reading that Google might pay $1.6 billion for YouTube. Is it really worth more than three times MySpace? Seriously, since when did we start paying billions for companies that create, in effect, nothing? Oh, that's right, during the last bubble! Pop!

Vitaliy Katsenelson:

YouTube should take the money and run. I love the site -- this weekend, I spent about two hours watching Queen music videos (love that group) -- but I am not sure about the sustainability of its competitive advantage. If it doesn't sell, it may face the fate of Pointcast, which did not want to sell itself on the cheap for $500 million in late '90s and later went bankrupt. That being said, maybe YouTube's competitive advantage is the tremendous library.

Jim Fink:

Mark Cuban says that only a moron would buy YouTube because of the copyright issues. According to Cuban, YouTube is the video version of Napster (Nasdaq: NAPS), and all Google would be buying for $1.6 billion is a bunch of costly lawsuits. I can't believe that Google's management hasn't thought this issue through. Google must be confident that it can strike licensing deals with content providers to avoid litigation hell.

Dayana Yochim:

I'm just trying to imagine the T-shirts: GooTube? YouTooble?

Rich Smith:

It depends on whether Google will be paying with real money or with its own overvalued stock. I'd happily buy out eMeringue.com myself if they'd take Monopoly money in payment.

Steven Mallas:

Google and YouTube. There's no question that this is a huge business event. But will the acquisition actually add value over the long term, once all the hype fades away?

This is a difficult one to assess. The YouTube brand is hot right now -- everyone's talking about it. It's sort of a cross between MySpace and local cable access -- anyone who has a digital camera can make decent-looking creative fribbles on any subject matter. Users can channel and instantly distribute their inner Scorceses. Hey, it's definitely cool, and it's a good example of what a site fueled by user-generated content should be.

But will YouTube always be as hot? I'm not so sure. Remember that any company can replicate the YouTube model. That could hurt brand equity down the line and make the $1.6 billion of capital deployment -- a large number for Google in comparison with its previous acquisitions -- look like too much money spent for something without a well-defined moat. Would a media conglomerate have been a better fit?

As I said, though, this is difficult to assess. I wonder whether it would have been better for Google to have simply worked on its own video brand. At the very least, a cheaper buying price would have been nice. Perhaps the powers that be at the greatest search engine in the world know something about YouTube's future that we can't possibly see. Either way, though, to the other question of whether YouTube should have remained independent -- no way. For the founders of that site, strike while that iron is hot, baby!

Mike Norman:

YouTube may not amount to anything, but even if it doesn't, the money is peanuts for Google.

On the other hand, YouTube may become a huge success, propelling Google far higher than anyone thought and putting even more distance between it and rival Microsoft (Nasdaq: MSFT).

Brian Lawler:

Google's management has shown yet again that a strong scientific background doesn't always translate into sound financial management.

YouTube's format won't be easy to monetize, and now that it is owned by a deep-pocketed corporation, the lawsuits will start to fly from organizations being infringed upon by YouTube.

This is basically Napster part two. The recording studios were able to destroy Napster with their lawsuits. Now with YouTube, the movie and television studios will have no problem not only taking it down but also wounding Google. Bad, bad move.

So now what?
As I had mentioned on Friday, Google wouldn't have bumped Froogle off its landing page to make room for a Video tab if it wasn't serious about competing in the clip-culture revolution. Google wasn't having much of an impact against edgier sites like YouTube and MySpace's own video-streaming initiatives.

When eBay (Nasdaq: EBAY) realized that its fledgling Billpoint financial-payment service would never supplant PayPal as the deal-sealer of choice on its auction site, it swallowed hard and acquired PayPal. When Yahoo! (Nasdaq: YHOO) recognized the value of paid search, it wasted no time in snapping up industry pioneer Overture rather than ramping up its own service.

The stock market is funny that way. It can make a surrender seem like sweet victory. The one with the fattest billfold wins, even if the buyer was getting smoked by its acquisition target. Google is buying YouTube because Google failed at being the online leader in video, yet Google will be hailed as the top dog in digital video streaming by the time the transaction is completed in a month or two.

Quite frankly, you've got to love the pairing of Google with YouTube. I know that many of my bright and esteemed colleagues don't agree, but this was really the best fit for both companies. Watching the way Google took on the book publishers and the government proves that it has no problem with YouTube's potential for copyright litigation. YouTube, meanwhile, is going to the "do no evil" company that's open to letting the video specialist operate as independently as possible.

Will YouTube ever approach the sweet margins that Google has been achieving? Not a chance. The eventual profit -- and Google will turn a profit with this move -- will still be incremental. However, that doesn't bother me. If Google were limited to entering only sectors that would broaden its margins, it would be struck expanding exclusively into computer animation and Chinese gaming. That wouldn't work. Even Microsoft would never have rolled out the Xbox if big margins were the only measure of success.

Google will make this work.

More importantly, it just saved me an embarrassing run to the mall.

"How much do you want to bet that YouTube doesn't make it to next year as an independent entity?" I wrote back in March. "If it does, I'll put on a sundress and upload the video to YouTube."

Thank you Google, for sparing the world -- and my family -- from seeing me in that.

Google Acquiring Youtube ...

Can Google squeeze enough out of Youtube ?

Read at Blogging Stocks