The first point of interest for minority shareholders of the Indian subsidiary is if the deal will result in an open offer. The structure of the acquisition will decide if an open offer is mandatory.

Alstom and Schneider will form a joint venture (JV) to be used as a special purpose vehicle for the acquisition. Subsequently, they will transfer assets out from the joint venture to themselves in a predetermined manner.

Typically, the structure used in such transactions is a scheme of arrangement. And Securities and Exchange Board of India’s takeover regulations exempt an acquisition done through a scheme of arrangement from the mandatory open offer requirement.

Hence, there may be no open offer, though this will be finally known only when the structure is made public. If the JV acquires the business by paying cash, then an open offer is more certain. Here too, they can seek an exemption if they intend merging ATIL with Alstom Projects India Ltd (APIL), the listed subsidiary of Alstom Group.

At present, APIL does engineering, procurement and construction and servicing for power plants and power equipment. It also has a smaller but high potential transport business that caters to Indian Railways and the Metro rail projects. In fiscal 2009, its revenues were Rs2,290 crore and net profit was Rs134 crore.

ATIL sells high and medium voltage T&D products, does turnkey projects, provides automation solutions and has a service line. It had a turnover of Rs2,641 crore and net profit of Rs226 crore in calendar 2008. Though both companies operate in the power business, their segments do not overlap. It will be known only later how Alstom intends to implement the acquisition in India; it can either merge both companies or choose to keep them separate.

Both APIL and ATIL have been facing falling revenues in the current year, due to a slowdown in orders. Excess capacity in the market has led to stiff competition for whatever business is available, leading to falling margins.

The long-term scenario for power may be good, but is challenging in the short to medium term. Meanwhile, shareholders of both companies can look to this acquisition for benefits, if any.

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