Takeovers - the Indian Experience

A fantastic piece here in the Economist on the rapid globalisation of Indian firms such as Tata Group - a key case study for A2 students looking at takeovers and mergers…

Tata’s takeover of Tetley Tea (2000), Corus (2007) and Jaguar Land Rover (2008) are perhaps the most high-profile examples here in the UK of cross-border transactions led by Indian firms - but there have been many others. The Economist estimates that the value of such deals is around $130bn over the last decade.

However, the article puts that investment by Indian firms in overseas takeovers in some useful context. Acquirers in other emerging markets (particularly China, Brazil and Russia) have been even more active.

A question mark is raised too about whether Indian-led takeovers are likely to prove any more successful than the experience of cross-border takeovers generally. A good evaluative point is made about how to create shareholder value from takeovers;

“To succeed it is not enough to run the acquired firm well. It must also be bought for a sane price”

There is some useful analysis in the article about whether Indian-led takeovers have been successful - from a financial perspective. Some great evidence here for BUSS4 students, not the least when the relative performance of Tata’s investments in JLR (a success) and Corus (less successful) are compared.

In terms of both return on capital and absolute change in profitability, the Tata / JLR takeover is the shining star: it is explained like this:

“JLR, where earnings have soared despite a near-death experience after the 2008 crash. A chunk of the recovery is due to the fall of the pound: JLR’s plants are mainly in Britain, though it sells largely in other countries. But that is not the whole story. Under Tata’s ownership JLR has also launched a killer product, the Range Rover Evoque, and cracked emerging markets, not least China.”