Cynthia Rodrigues

Tata companies have been in acquisition mode for a while now, and their efforts on this front have been gathering pace

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The whole wide world is becoming the playground of the Tata Group. Having decided to make growth, organic as well as through acquisitions, its priority in 2005, the Group is sparing no efforts to expand its business interests globally. As a number of Tata enterprises embark on the ambitious task of establishing their presence far beyond India's shores, we profile the most significant of the Group's worldwide acquisitions in the recent past.

NatSteel
Tata Steel's acquisition of NatSteel's 1.7-million tonnes per annum steel business for Rs 1,313 crore provides further evidence of India Inc's global ambitions. The Singapore-based company spun off its steel business into a wholly owned subsidiary, NatSteel Asia Pte Ltd (NatSteel Asia). Tata Steel then acquired 100 per cent of the equity interest in NatSteel Asia.

The deal was executed following the approval of the Tata Steel board. The board of directors for the new company was reconstituted to induct B. Muthuraman, the managing director of Tata Steel, as chairman and Oo Soon Hee as managing director. Tata Steel's T. Mukherjee, deputy managing director (steel), and Koushik Chatterjee, vice president (finance), also joined the board.

The acquisition raised Tata Steel's total installed capacity to 6 million tonnes and gave the company access to markets in Singapore, China, Thailand, Vietnam, the Philippines and Australia, all of them countries where NatSteel owns plants. It also gave Tata Steel a 27-per cent stake in Southern Steel Berhad, a 1.3-million tonne steel maker in Malaysia.

The acquisition has provided Tata Steel a beachhead investment in the high-growth geographies of China and South East Asia. Describing the acquisition as a strong fit with the company's current expansion plans, Mr Muthuraman said, "It is very much in line with Tata Steel's stated growth and globalisation plan." He also said that there would be significant synergy benefits in the future as a consequence of the acquisition.

Daewoo

When Tata Motors beat nine competitors en route to acquiring Daewoo Commercial Vehicle Company (DWCV), South Korea, it not only marked the company's first overseas acquisition but also the first takeover by an Indian automobile company abroad.

The deal, worth Rs 465 crore, gives Tata Motors access to the quality-conscious South Korean market. It also allows Tata Motors perpetual and exclusive rights to use the Daewoo trademark for DWCV's trucks in South Korea and other markets. Widely seen as Tata Motors' big ticket into the Chinese and South East Asian markets, the acquisition is a step forward in the realisation of Group chairman Ratan Tata's vision that Tata Motors be transformed into a truly global automobile company.

The commercial vehicle unit of Daewoo Motor Corporation, DWCV is the second largest manufacturer of heavy commercial vehicles in Korea. It has a capacity of 20,000 medium and heavy commercial vehicles, a market share of 25 per cent and caters to both the South Korean and international markets. Tata Motors, for its part, commands over 60 per cent of India's truck and bus market. The possibility of extracting significant synergies in marketing, research and product development, and other operational areas, not to mention the complementary range of products, strengthened the logic of the deal.

Says Ravi Kant, executive director, commercial vehicles business unit, Tata Motors: "The complementary product range of the two companies and their strengths in product development and international marketing will open new opportunities for both. We are excited at the possibilities of this cooperation."

Hispano Carrocera SA

Following its success story in South Korea, Tata Motors scripted yet another overseas foray. In its second such move, the company signed an agreement to acquire a 21-per cent equity stake in Hispano Carrocera SA, a Spanish bus manufacturer with a market share of 25 per cent in its segment in Spain. Mr Kant was appointed chairman of the Spanish firm.

Priced at Euros 12 million, the stake comprises equity, debt and technology licensing, apart from brand rights. In addition, Tata Motors has a call option to take its shareholding to 100 per cent. The option is open for five years.

Hispano Carrocera operates two manufacturing facilities — in Zaragoza, Spain, and in Casablanca, Morocco — and has a total production capacity of around 3,000 units a year. Tata Motors believes that the strategic position of the Casablanca facility will help it to consolidate its position in Africa.

Hispano's plants in Spain and Morocco will be used to increase Tata Motors' presence in the international bus market, especially in Europe. The design and development capabilities of Hispano will help Tata Motors get the latest bus technology for the Indian market as well. Hispano, in turn, will gain access to Tata Motors' international channels in various countries.

Imacid
Taking its first step on the road to becoming a global player, Tata Chemicals has entered as an equal-partner in Indo Maroc Phosphore SA (IMACID), Morocco, a company that manufactures phosphoric acid, by acquiring shares from Office Chérifien des Phosphates, Morocco, and Chambal Fertilisers and Chemicals, the two existing joint venture partners. Definitive agreements were entered into on May 2, 2005, and Tata Chemicals will now have a 33.3-per cent stake in IMACID along with the other two partners.

A well-established company, Imacid had a turnover of $144 million. Morocco is the largest exporter of phosphatic rock and phosphoric acid in the world, and accounts for over 40 per cent of the world's trade in acid. On the other hand, India imports 50 per cent of the world's production of phosphoric acid, which is required for the manufacture of diammonium phosphate, a higher-analysis fertiliser used extensively in the country.

Says Prasad Menon, managing director, Tata Chemicals: "Our entry into Imacid with one-third shareholding is both timely and strategic. It assures us security in the supply of phosphoric acid, builds a bond with a company that is a leading player in phosphatic fertilisers, and gives us a footprint in new geographies."

In 2004, Imacid produced 3,73,895 tonnes of phosphoric acid. Tata Chemicals has an annual requirement of 2,50,000 tonnes of phosphoric acid, which it buys from various parties. The easy availability of phosphoric acid through Imacid will work in Tata Chemicals' favour and ensure a fruitful partnership between the three companies involved in the deal.

Tyco Global
VSNL took a significant step in the globalisation initiative with the acquisition of Tyco Global Network (TGN), one of the world's most advanced and extensive submarine cable systems, for Rs 600 crore. The acquisition, subject to government approval in the US, India and other countries, will give VSNL control over a network that spans 60,000 km of fibre: transatlantic, transpacific and trans-American and in western Europe and the Far East.

It will also give VSNL a network operating centre, 30 points of presence globally, and connectivity in 12 gateway cities. It will aid VSNL's strategy to be a one-stop telecommunications provider for global businesses, even as the company seeks to provide services to large enterprises across the world. The Tyco-VSNL agreement came about following a notice from the Federal Communications Commissions of the US granting VSNL America Inc authority under Section 214 to provide international telecommunications services from the US.

"The agreement is a major step forward in our ongoing drive to offer our enterprise and carrier customers seamless, end-to-end telecommunications solutions that circle the globe," says N. Srinath, director (operations), VSNL.

The acquisition is a big leap for VSNL. The geographical spread of Tyco complements VSNL's existing networks. Tyco has around 7,000 GB across the Pacific and around 3,600 GB across the Atlantic as unlit capacity. TGN, which has the largest network across the Atlantic and the Pacific, also has an installed terrestrial network through the eastern seaboard of North America to the western seaboard of the continent, extending from Los Angeles to New York.

Phoenix Global Solutions
In a move to strengthen its offerings for the insurance industry, Tata Consultancy Services (TCS) acquired the Bangalore and US -based Phoenix Global Solutions (PGS) from The Phoenix Companies Inc. PGS provides insurance solutions encompassing information technology, business process outsourcing and customer care services.

The purchase consideration for 100 per cent of the company consisted of a fixed amount of $10 million (of which $2 million will be repayable to TCS if certain volume commitments of business from Phoenix are not met) and a variable component of $3 million, payable in five equal instalments over the next five years, based on certain contractual commitments Phoenix.

Now a wholly owned subsidiary of TCS, PGS has been renamed TCS Business Transformation Solutions. Satishchandra Doreswamy, nominated as the whole-time director on the company's board, will continue as the chief operating officer of the new company.

Commenting on the acquisition, S. Ramadorai, the chief executive officer of TCS, says, "This acquisition is in line with our focus to increase our domain strength in the financial services industry. It will give us an impetus to attract new customers and help grow existing customers."

At the point of its acquisition, PGS had more than 350 associates and a turnover of approximately $12 million. This is TCS's fourth acquisition, one for which it outbid other competitors. PGS will continue to serve its top clients, Phoenix Companies and MetLife.

Uploaded on April 27, 2005