India shining under Anglo-Saxon spotlight

It has been a major Indian entertainment pot-boiler for the Anglo-Saxon audience, with the spotlight firmly on India. A television entertainment show in the UK involving forgotten artistes with a lot of time on hand being forced to live in one house under the watch of a 'Big Brother', led to charges of anti-Indian racism after an Indian participant became the butt of ridicule.

Even our finance minister had to clarify in a public appearance that the television show would not jeopardise Indo-UK relations. While no one in India knew of this television serial, content to be riveted to the poor cousin on Indian television, this controversy got the show all the publicity it could ever get, and the Indian participant won by popular vote.

Days later, Tata Steel offered to pay about USD 11 billion to acquire Anglo-Dutch steel major Corus, outbidding CSN, the keen rival bidder Brazilian by about 34 per cent. The Tatas are said to have retained the option of not doing the deal unless 90 per cent of Corus' equity ends up in Tata hands. The sheer size of this deal would make the Tatas the fifth largest steel-maker in the world.

The road ahead is not an easy one. This would be the largest ever foreign acquisition by any Indian company, amounting to an investment nearly equal to all the overseas investments made last year by all other Indian companies put together. A deal of such a size would necessarily have to be leveraged on the assets of not only the target company but perhaps even the acquirer. Steel prices would have to stack up at current levels without any dramatic cyclical downturn.

Having won the bid with nerves of steel, chewing and digesting this acquisition will require teeth and intestines of steel. Initial reports from the Indian stock market indicate adverse nervousness. But in the battle of nerves "� CSN had made hostile acquisitions of a substantial stake in the open market even while the battle was underway "� the Tata ego has won.

The Takeover Panel of London has done well for the public shareholders "� extracting a 34 per cent premium over the nearest bidder is no mean feat. In India, despite confidentiality in government processes being notoriously fragile, Arun Shourie, donning the mantle of Disinvestment Minister, had managed to extract such premiums from the Tatas and Reliance while hawking government holding in VSNL and IPCL.

A lot of M&A is indeed driven by ego. When size matters, this is a natural corollary for such transactions. CSN would be happy to sell to the Tatas whatever it holds, at a hefty premium to what it would have ever liked to pay for the same stock. Locally, we have had cases, particularly in the cement industry, where acquirers in leveraged deals, took over companies having a market capitalisation much higher than their own networth or market capitalisation had to eventually get bailed out with one-time settlements and corporate debt restructuring packages.

None of this is meant to deny Tata Steel its due. Now is clearly its time in the sun. This deal will be the strongest statement ever from an Indian company in the cross-border mergers and acquisitions market. Shackled as Indians have been with debilitating exchange controls (See Without Contempt "� Edition dated October 23, 2006) for decades, the deal is a major statement on how Indian industry has come into its own.

Coming as it does virtually simultaneously with an upgrade of Indian sovereign credit rating to 'investment grade', and repeated 9%-plus economic growth rates being reported by the Government of India, there have never been more promising times. Improved sovereign rating may help shave of valuable basis points off the borrowing costs for Indian companies. There has never been a busier period for investment bankers and lawyers. The spotlight for now cannot but be focused on India.

The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own

somasekhar@jsalaw.com