EDITORIAL - M&A Critique March 2020 Issue

At the time of writing this, globally more than 3,00,000 people on record were infected with coronavirus out which close to 300 are registered cases in India. Although, recovery rate if detected early is high, it is highly infectious and we are seeing an impact on the global economy as the most severely infected nation, China, has also been an important in the global supply chain as well exporter of finished goods and raw materials. All sectors are affected to some extent as the complete supply chain is affected. While the cause of virus is getting examined, other countries should take this as an opportunity to bridge the gap of supplies of all materials coming out of China and whatever market share, they capture could be irreversible. Sectors and companies in India which are competing with China for exports if take this opportunity should lead to a growth sprout in the short term with long term benefits.

Our cover article is on HIRA group restructuring owned by Agarwal Family. We see a backward integration by Godavari Power & Ispat Ltd of one of its associate company Jagdamba Power and Alloys ltd which supplies most of the power generated to GPIL. The merger if of the POWER Undertaking of JPAL into GPIL which should simplify the corporate structure a little. This is their second attempt at merger as the earlier merger was proposed at the valuation which was not acceptable by minority shareholders of JPAL.

Wockhardt has a diversified product portfolio with strong presence in therapeutic segments such as cardiology, dermatology, diabetes, respiratory and ophthalmology. R&D in any Pharma is one the major expenses and Wockhardt has been trying to raise money from various sources to commercialise and take to market  2 new drugs built on 20 years of research. For gaining liquidity, it has decided to sell its branded generics business in India, Nepal, Sri Lanka, Bhutan and Maldives to Dr. Reddy’s Laboratories for around Rs. 1850 Crores.

Almost every household in India in the late 1990s till 2000s would have used one or the other product from Videocon. Videocon industries grew profitably from its consumer appliances business and diversified itself into telecom and oil and gas business in the mid 2000s. The telecom business with its license fees and other infrastructure and Oil and Gas business were both capital intensive business and Videocon group took on debt not only in its parent company but in 13 of its subsidiaries as well. State Bank of India filed for Insolvency proceedings against all of companies in June-Sep 2018. In this article we look at the journey of the company through CIRP and consolidation of its proceedings under one single plan, first by NCLAT. Let us hope that consolidated  Resolution Plan for the group is approved and potential acquirer  is identified quickly to release close Rs. 60,000 crores of financial creditors and assets are put to use.

Insolvency proceedings in capital intensive sector like steel has been a boon for companies looking to enter India as they could buy assets of the company much cheaper and if they are all in working condition then a turnaround is possible much faster. Adhunik Metaliks and Zion Steel had outstanding debts of almost Rs. 5650 crores when it entered insolvency in 2018. Liberty House group came up with a resolution plan which it couldn’t execute earlier and the companies were going to go into liquidation but NCLAT has given Liberty House another chance to execute the resolution plan by buying the company and paying off its creditors only Rs. 425 crores, a haircut of 92%. This acquisition is most beneficial for global company like Liberty House wanting to enter India where steel production is on the rise since almost a decade.

One more story of backward integration is of Pioneer Distilleries, already a subsidiary, merging itself completely with United Spirits. For United Spirits, this merger will help to simplify the corporate structure and reap benefits of carry forward losses in Pioneer Distilleries though operationally there may not be any  major Savings .

Along with other articles……….