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With Indian Hotels calling off its bid to acquire London-based Orient Express Hotels and Apollo Tyres’ attempt to acquire Cooper Tire facing opposition from the US-based company’s employees, India Inc’s bid to expand its footprint abroad seems to have hit a rough patch.
When the Tata Group-owned Indian Hotels first attempted to acquire Orient Express five years ago, it was rebuffed by the New York-listed company, which said a tie-up with the Indian group would hurt its brand. About a year ago, Indian Hotels, which owned 6.1 per cent stake in Orient Express, made another attempt, valuing the company, whose properties include Hotel Cipriani in Venice, the Copacabana Palace in Rio de Janerio and the Orient Express train (which ran between London and Venice), at $1.9 billion (Rs 10,184 crore). About a week ago, the company said in a statement, “After taking into account all factors, the current economic environment and other opportunities and priorities for the company, the board has decided not to pursue the offer.”
When the Tata Group-owned Indian Hotels first attempted to acquire Orient Express five years ago, it was rebuffed by the New York-listed company, which said a tie-up with the Indian group would hurt its brand. About a year ago, Indian Hotels, which owned 6.1 per cent stake in Orient Express, made another attempt, valuing the company, whose properties include Hotel Cipriani in Venice, the Copacabana Palace in Rio de Janerio and the Orient Express train (which ran between London and Venice), at $1.9 billion (Rs 10,184 crore). About a week ago, the company said in a statement, “After taking into account all factors, the current economic environment and other opportunities and priorities for the company, the board has decided not to pursue the offer.”
Investment bankers involved with such deals say such setbacks are part of the growing-up stage. “You announce some deals in good faith. But sometimes, they don’t happen,” says Jacob Mathew, managing director at investment bank Mape Advisory. According to his company’s estimates, about a fifth of the deals announced globally aren’t closed.
The $100-billion Tata group, which had made some of India Inc’s most expensive acquisitions — Corus and Jaguar Land Rover, had faced a similar situation when it had to exit the US-based Energy Brands. In 2006, Tata Global Beverages had acquired 30 per cent stake in the energy drink brand, which later received an acquisition bid from The Coca Cola Company in 2007. The unlikely exit from a strategic investment in less than a year exposed the challenges of foreign acquisitions. Though the company amicably sold its stake for $1.2 billion, a 77 per cent premium, its attempt to gain a foothold in the growing beverages category in its largest market, the US, faced a setback.
Ajay Garg, managing director at Equirus Capital, says, “Generally, mergers and acquisitions in unknown geographies are challenging and at times, risks are underestimated while doing a deal.”
This is true of the Kanwar family-promoted Apollo Tyres. In June this year, it had announced it would acquire the US-based Cooper Tire for $2.5 billion, saying this would help it diversify abroad to counter declining revenue in the domestic market (for the September quarter, the company reported a seven per cent fall in its revenue from the Indian market).
Now, Apollo is seeking a lower acquisition price of $35 a share for the Cooper Tire deal. As the company is facing opposition from Cooper’s US labour union — United Steel Workers — and its Chinese joint venture, financing the fully debt-funded deal has become difficult. A company spokesperson declined to comment, as the matter was sub judice. In a filing, Cooper’s lawyer said Apollo was likely to terminate the merger.
“Any cross-border transaction has its challenges, as it involves dealing with different laws, taxes and labour unions. So, surprises will be there; these aren’t easy to anticipate,” says Raja Lahiri, partner (transaction advisory) at global financial consultancy firm Grant Thornton. “The companies going for foreign acquisitions need bandwidth to deal with such situations, as well as mature teams to deal with post-deal integration.”
Indian companies’ attempts to acquire natural resources abroad have also seen much bickering. Naveen Jindal-promoted Jindal Steel & Power (JSPL) had announced a $2.1-billion investment in Bolivia to develop an iron-ore mine and set up a steel plant there. In 2012, it had to call off the contract, owing to non-fulfillment of conditions related to the supply of natural gas for the project by the Bolivian government. Following this, the Bolivian government filed a criminal case against the company for allegedly not honouring its part of the deal, which included investing $600 million. It also arrested two company employees and confiscated a few JSPL properties.
For upstream oil giant Oil & Natural Gas Corporation (ONGC), its projects in Sudan, Syria and Libya — countries that have seen protracted civil conflicts---have been hit. Earlier, the company was caught in a dispute between Vietnam and China; the matter pertained to two oil blocks in the South China Sea. Eventually, the company abandoned the oil blocks because of “insufficient reserves”.
In 2008, Anil Ambani-promoted Reliance Communications had to call off its merger plan with South African telecom company MTN. The deal was clouded by a bitter dispute between the Ambani brothers. At that time, elder brother Mukesh Ambani had claimed the first right of refusal regarding Anil Ambani’s company.
In 2009, MTN’s attempt to merge with Sunil Bharti Mittal-promoted Bharti Airtel was hit, as the South African government rejected the proposed merger structure.
“Companies evolve as they learn about a number of factors to be considered before mergers and acquisitions. Globally, this is the pattern,” says Ajay Saraf, executive director, ICICI Securities.
