Corporate dealings

THE CURRENT WAVE of corporate deal-making has the potential to redefine the way business will be conducted in this country. Unprecedented in their nature and scope, the several transactions by themselves do not fit into any definite pattern as yet. A very wide range of industries - from traditional ones like cement to the newer areas like telecom and entertainment - have been affected. Staid and established businesses such as those in the fast-moving consumer goods industries are adding capacities and more significantly brands, both being considered essential to safeguard as well as expand their markets. The speed at which a majority of these deals have been struck and the veil of secrecy surrounding them indicate that the profession of deal-making has arrived in India but clearly any other sweeping generalisation is untenable at this stage.

The only logical inference is that Indian companies, having shaken off the pessimism of the recent past, are experimenting as never before to achieve a number of objectives ranging from capacity acquisition to letting go unwanted businesses. Almost certainly those acts are being facilitated by the changes in the legal, economic and regulatory environment. Restrictive legislation such as the FERA and the MRTP have either been diluted or drastically refocussed. And the SEBI with its ground rules for mergers and acquisitions has provided the regulatory edifice, without which most of the furious deal-making of the past two years could not have been consummated. But by far the greatest impetus for change comes from within the Indian corporate mindset. At the start of the new century many more Indian companies are ready to join the select list of those having the vision and the wherewithal to reinvent themselves to face the challenges ahead.

One such challenge is to stay afloat in an increasingly unified global market. For many Indian companies, the domestic market, large as it is, might still not be large enough in an era where global competition has reached their doorsteps. The rapid whittling down of tariff and non-tariff barriers and the relentless march of globalisation have presented Indian companies with both threats and opportunities. There have been swift, if varying, organisational responses, ranging from large investments from abroad to take-overs in India and abroad. Lafarge, a French multinational, is rapidly emerging as a leading player in the cement industry. Hutchison Whampaoa's bid to rule the cellular networks of Mumbai and Delhi is well known. As also Hindustan Lever's reliance on mergers and acquisitions to create for its parent a huge Indian presence in the toiletries, detergents and food businesses. Less conventional but one that will be emulated is Tata Tea's bid for the Tetley brand. It shows how Indian companies can seize the opportunities if given a chance by countenancing a cross-border investment in just a name.

Even as many more such previously unthinkable deals are being struck, the time is right to examine a few of their larger implications. Evidently, the economic assumptions behind those deals, as for instance the Rs. 236 crores paid by Indian Rayon for the Madura Garments' brands, will have to be proved right. More intriguing have been the valuations of software companies and services. Satyam Infoways' almost Rs. 500-crore deal with Indiaworld for just four India-specific portals seems audacious but is in line with valuations connected with software and internet stocks, which are predicated on the future. Sooner rather than later, the regulators and even lay investors will have to be educated on the nuances of what are now mystified areas. Finally, their contribution to the macro-economy needs to be evaluated and if need be the correct regulatory and legal regime put in place.

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