Weak Rupee makes Indian firms attractive for M&A

Indian companies hold off on overseas acquisitions

By R. Chandrasekaran

CHENNAI: The sharp deterioration in Indian currency value will make Indian companies a good merger and acquisition target as foreign companies will have to pay less if they choose the US Dollar for transaction, which is stronger and reached a three-year strength recently among the major currencies.

Even as the Indian companies are trying to invest in overseas since domestic conditions are not completely favorable with interest rates on a high and the economy witnessing a slow-down, the weak Indian currency creates interest among foreign companies holding stake in Indian companies.

However, the fall in Rupee value has not only upset the calculations of Indian corporate houses in bidding for foreign assets, they are also reported to be postponing their plans to buy them to a later period since they have to cough up more if they strike a deal now.

However, it is not the same for inbound M&A deals. Only recently, Unilever has completed its offer to buy approximately 22 percent of the shares in Indian entity, Hindustan Unilever, from the public, at a price of Rs.600. But they could end up adding over 14 percent thus taking their stake to 67.26 percent from 52.48 percent at the end of March.

As per the norms prescribed by Securities Exchange Board of India, public holding should be 25 percent if the shares are to be listed in Indian bourses. Therefore, some companies such as ABB, Whirlpool and Abbott Laboratories have already reached the maximum limit of 75 percent promoters holding, which in these case are foreign companies, whether it is from the Americas or Europe.

The Indian currency fell about 13 percent recently from May. Though the currency improved somewhat in the last few days due to the Reserve Bank of India’s intervention and its efforts, there is a cloud of uncertainty that will continue to be seen until significant inflows from foreign investors either in the form of foreign direct investment or through bonds issue are recorded.

Some of the companies listed in Indian bourses where foreign companies’ holdings in terms of percentage are:


Indian company’s Name Foreign Co. shareholding as on March 31, 2013. (In percentage) as per NSE
Procter & Gamble Hygiene and Health Care Ltd 68.73
MphasiS Ltd 60.49
GlaxoSmithKline Pharmaceuticals Ltd. 50.67
GaxoSmithKline Consumer Healthcare Ltd. 72.46
Colgate Palmolive (India) 51
Pfizer India 70.75
Merck India 51.8
Castrol 71.03
Hindustan Unilever 52.48
Nestle 62.76
Bosch 71.18

While there is no report indicating that these companies will try to increase their holdings in Indian companies, a possible move to lift their holdings are not ruled out to take advantage of the Indian currency weakness since it trades about 10 percent lower than what it was a few months back.

Some of the U.S. companies such as IBM, Intel, Cisco could also explore the possibility of acquiring medium and small IT companies with a clear cut purpose of extending or expanding their respective holds.

However, there may not be any outbound M&A deals in the immediate term as the corporate will have to pay more now. Only in June, one of India’s biggest tyre manufacturer Apollo Tyres Limited struck a deal with the U.S. based Cooper Tire and Rubber Co. to buy it for $2.5 billion. This apart, ONGC and Oil India acquired a 10 percent stake in Rovuma gas field in Mozambique that was valued around $2.5 billion during the second quarter.


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