Just like Charles Darwin’s theory of ‘Survival of the Fittest,’ only the stronger companies survive in the end. The weak ones cease to exist. Sometimes they join forces to take on a stronger threat to their existence. Animal Spirits drive the companies too.
Mergers and Acquisitions are an inevitable part of a company’s lifecycle. This piece talks about the best M&A deals of the Indian market. They affect not only the Indian companies but also Indian consumers.
The top-10 deals of the 21st century are the following (in no particular order).
1. The E-Commerce Flip
Flipkart is the other e-commerce giant in the Indian market. The Singapore based firm acquired fashion and lifestyle website ‘Myntra’ in 2014, for ₹2000 crores. Just as Flipkart moved from selling books to other consumer stuff, Myntra catapulted it in the clothing e-commerce domain. Acquiring ‘Jabong’ (in 2017) and ‘Myntra’ has made it India’s top apparel e-commerce company.
The following year in 2018, Wal-Mart took over Flipkart in a deal of $16 billion, defeating Amazon. This deal gave Wal-Mart a fresh lease of life. It got a chance to compete with Amazon in its field. Readers should know that Amazon already hit hard the retail chain market of Wal-Mart.
Had Amazon won the deal given their deep pockets; there would have been a virtual monopoly of Amazon in Indian e-commerce. Hence, the deal fared well for Indian consumers.
2. The Retail Future
Future Group owns its retail subsidiary’s under the name of ‘Future Value Retail Ltd.’ This group in 2016 bought ‘Heritage Foods.’ Heritage got a 3.95% share in Future Retail in the deal. The valuation of Heritage shares was ₹295 crores, which currently values over ₹600 crores!
Future Retail also entered in a deal with Amazon in 2019. Amazon has bought minority shares, with an option to purchase promoters' shares in the company after three years.
Must Read: Amazon and Future Retail Partner Strategically Against Jio Mart
Future Retail is planning to expand on ‘Easy Day’ with both these ventures.
3. The Start-up Stories
Zomato recently acquired Uber Eats India for ₹2492 crores. Such mergers are quite common in start-ups. The reason is that most of the Indian start-ups are backed by deep pockets and depend so much on investors. If the funding stops, start-ups end in the lurch. Some other deep pockets would go ahead and buy them. Zomato hence acquired its competition Uber Eats India, contesting another competitor ‘Swiggy’ in the bid.
This is similar to how Ola once bought ‘TaxiForSure.’ TaxiForSure ran out of money. It increased fares. Ola arrived in the market with fresh funding and hence offered cheap tickets. It later bought ‘TaxiForSure’ with only competition surviving in Uber.
4. The Vehicle Rover
In 2008, Ford Motors was running its luxury subsidiary ‘Jaguar-Land Rover (JLR)’ in a loss of $520 million. Nobody was ready to buy such an indebted car company that was consistently losing its market.
Then Tata arrived at its rescue. It not only bought the JLR for $2.3 billion, but it also reported a $3400 million profit in the year 2019.
Merger markets have much folklore. One says that Tata once wanted to sell off Tata Motors to Ford Motor Company around 1998. Ford humiliated the Asian giant. Tata backed off. Ten years later, when Tata Motors was capable enough of the deal, Ford expressed its gratitude to Tata that they were buying it.
5. The Steel Melting Pot
India is one of the biggest Steel markets in the world. India is one of the largest consumers and producers of Steel. Three major M&A deals happened in three different scenarios.
Amidst a recession, various European Steel companies were going bankrupt. Indian companies felt they had the right time to buy. Mittal Steel merged with the Luxembourg based steel giant ‘Arcelor Steel.’ The deal valued whopping $33.1 billion. The new company, ‘ArcelorMittal,’ has now become the world’s biggest steel company.
Must Read: ArcelorMittal Essar Steel Acquisition: All You need to Know
Another deal came from Tata Steel. It went ahead to buy UK based Corus Steel. Tata bought Corus for $8.1 billion and later renamed it Tata Steel Europe. Unfortunately, the deal did not fare desired results for Tata Steel, and many of its officials call it a not so wise move.
Tata Steel recently acquired ‘Bhushan Steel’ for ₹ 35200 crores through the Insolvency proceedings under National Company Law Tribunal (NCLT). Though the deal looks good for Tata, it is yet to be seen if ‘Tata Steel BSL’ follows footsteps of ArcelorMittal or Tata Steel Europe.
6. Cementing The Deal
Jaiprakash Group’s ‘Jaypee Cements’ accumulated a lot of debt for itself. It even had to let go of its holding in the IPL team ‘Deccan Chargers.’ Circumstances were forcing JayPee to go under the hammer at the NCLT through the newly litigated insolvency process. Jaypee was concerned that they would not get a reasonable price in NCLT because everyone would know that they are desperate to be sold.
They chose a win-win formula. They went to the Aditya Birla Group that owned successful ‘UltraTech Cement’ (acquired from the L&T group). The deal would not only give a geographical expansion to UltraTech Cement; it would get access to high-end contracts like Expressways that were under Jaypee Associates. The deal was worth ₹16189 crores and added 21 million tonnes capacity to the UltraTech cement.
7. The Agro Chemical Reaction
In 2018, India’s UPL Ltd acquired Arysta LifeScience Inc of the US. The deal was worth $4.2 billion. While UPL Ltd is in the business of crop protection and agrochemical products, it acquired the farm pesticide business of Arysta. This diversified the range of the products of UPL, and the acquisition has made UPL the fifth-largest agrochemicals company of the world. This also gave it massive market access in Africa, Latin America, and China.
8. The Consumer Giants Merge
Hindustan Unilever Limited (HUL) acquired GSK Consumer Healthcare of GlaxoSmithKline (GSK). The deal worth of ₹ 27750 crores would give away products like Horlicks and Boost in HUL’s basket. Since this deal would affect the competition in the Indian FMCG market, because the two companies are giants of the game, the approval from NCLT was needed.
While the amalgamation mainly benefits HUL because it gets a new range of renowned products, GSK would take all this money to establish its original production in Bangladesh. This is not a good sign for Indian business.
9. An Idea for Vodafone
Telecom Sector is in grave crisis for a long time. From the day the 2G Scam accusations surfaced, the government policies and market dynamics have hampered this sector severely.
The ‘pimple on ulcer’ moment was the advent of Jio. The predatory pricing led to the two giants of telecom coming together to take on the new rival. The Vodafone-Idea group is the second-largest telecom network in India after Airtel.
Unlike other mergers, this is the merger of equals. In the new company named Vodafone-Idea, Vodafone has 45.1% holding while Aditya Birla Group and Idea shareholders combine hold 54.9%.
10. Public Sector Usurping
Governments in India have milked ‘Public Sector Undertakings’ (PSUs) at their will. Mergers and Acquisitions in PSUs mostly happen to suit the government. The incorporation of PSU banks is just one example. Recently, Life Insurance Corporation of India (LIC) was forced to buy the underperforming IDBI Bank.
LIC is a cash-rich arm of government. IDBI losses became unbearable for the government. Its NPAs crossed 31%. Privatization of IDBI would have invited ruckus from employee unions and customers while would have raised market eyebrows over the health of other PSU banks as well.
Ultimately, LIC bought a 51% stake in IDBI. The Insurance Regulatory and Development Authority of India (IRDAI) allows only a 15% acquisition of any company. Despite this, the mechanisms channelized so that the deal goes through.
Similarly, ONGC acquired a 51% stake in Hindustan Petroleum (HPCL).
The piece talked about the ten different sectors, where significant mergers and acquisitions took place in the 21st Century. All these acquisitions affect us in consumer choice.
One notable point is that when two giants come together, the market is worried about a possible monopoly. Monopolies reduce competition and leave less space for consumers to demand.
However, mergers and acquisitions would continue for reasons plethora.