The Indian mergers and acquisitions market has traditionally been hobbled by the persistent refusal of our business groups to give up control. The current wooing of South Africa’s MTN Group suggests that matters could change for the better in the years ahead.
Take a look at some of the major headline-grabbing global acquisitions that Indian groups have done over the past couple of years. Most have been funded by borrowings. One reason is that interest rates have been enticingly low since 2002, which means that companies could take on humungous amounts of debts to satisfy their urge to go global. But an equally important reason why leveraged buy-outs ruled is that such debt- fuelled deals allowed them to buy global companies without diluting their equity stake. It was other shareholders who had to bear the risks from higher financial leverage.
(Illustration by: Jayachandran / Mint)
The MTN saga is still running. So, it’s too early to come up with firm conclusions. There could still be many twists and turns ahead. But we find it interesting that both the Indian groups which have participated in the beauty parade—first, the Bharti group and now the Anil Ambani group—have been open to a merger that involves swapping shares. There are several issues involved here, but the main point is that whoever eventually ends up in bed with MTN will have less control than they did before the merger. Some reports even suggest that it will be Reliance Communications that will be merged with MTN, rather than the other way round. Or, a reverse merger.
Indian companies that have ambitious global plans will increasingly have to make a choice between inorganic growth and control. Mergers that involve share swaps tend to end in messy fights: Who takes the helm at the merged company? It is never an easy issue and there have been many such global mergers— such as the one between Citibank and the Travelers Group in 1998—that created ego battles at the top.
L.N. Mittal did not face these problems because he owned most of Mittal Steel. So his stake in ArcelorMittal, the steel behemoth he cobbled together, is still around 44%. He calls the shots. Neither Sunil Mittal nor Anil Ambani will end up with such a large stake if their respective companies merge with MTN. That they have still considered doing a share swap (with perhaps some cash involved as well) is something other Indian businessmen should learn from.
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