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India Inc awash in takeover high tide

New Delhi, March 4: After a two-year lull, corporate takeovers are in the air once again.

According to latest figures available with the government, the total value of the takeover market through open offers was worth Rs 4,940 crore during the first seven months of 2002-03 (April-October).

In value terms, the total amount of open offers in the first seven months of 2002-03 was substantially higher than values in the preceding years.

In 2001-02, the total value of the takeover market, through open offers was Rs 3,610 crore. As against this the total value of open offers in the fiscal year, 2000-01 was Rs 1,372 crore. The trend emphasises the growth in the takeover market and on the value of the open offers.

According to Sebi data, there were 75 takeovers or offers that opened during April 2002 and the end of January this year.

The big deals were all part of the government’s disinvestment programme before it ran into a wall in the middle of the year. They included VSNL, IPCL, IBP.

Other takeover targets included Reckitt Benkiser (India), Hughes Tele.com (India) and AstraZeneca Pharma India.

VSNL was acquired by Panatone Finvest, The Tata Power Company, Tisco and Tata Industries for Rs 1,151.4 crore.

The Tatas acquired a 20 per cent stake in VSNL and later another 20 per cent through an open offer last May.

Generally, if a management team is producing poor cash flows for the owners of a company, then it should induce competing management teams to try to take control of the assets of the said firm. Market regulator Sebi refined the institutional framework for these transactions under the takeover code. In September last year, the code was amended by Sebi.

According to analysts, liberalisation of the economic policy, coupled with financial reforms have prompted companies to go for restructuring through takeovers, acquisitions, mergers and amalgamations.

Commenting on mergers in general and takeovers in particular, a corporate law expert pointed out that these may lead to economy in pricing, expansion of market, achieving turnover targets, elimination of cut-throat competition et al.

On the flip side, takeovers could mean workforce losing jobs, small-scale units being swallowed by MNCs as also obsolete and traditional industries just vanishing away. However, he points out that many of these effects can be neutralised when native world class competitors, operate from the soil.

According to another recent study conducted by the Centre for Monitoring Indian Economy (CMIE), merger and acquisitions (M&A) have increased in significant proportions.

CMIE estimates that the total gamut of M&A activity aggregates to Rs 43,874 crore in the calendar year 2001 in Indian corporate sector. Open offers, buybacks, sale of brands, change in equity, reverse merger are some of the popular forms of M&As.

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