India Inc is experiencing a surge in takeover activity and consolidation, thanks to reforms since 1991-92. The opening up of the economy to global competition has set off a churning process among desi corporates, especially over the last few years. To survive in this brave new world, companies need to have critical mass to compete on a strong footing. One route to that is additions to capacity through greenfield investments as Reliance Industries has been doing. The other is to takeover existing capacities to grow bigger, like pharma company Nicholas Piramal has been doing. Regardless of the route, however, the internal compulsion to keep growing remains the same —- as captured in the Marxian axiom, “Accumulate, accumulate. That is Moses and the Prophets”. The fact that 318 open offers amounting to Rs 5,631 crore were made since 1997-98 clearly indicates that corporate restructuring is maturing in this country. The laws are also falling into place to facilitate this process in a big way. The Securities and Exchange Board of India thus has finalised a major set of changes to its takeover code and the review panel headed by Justice P N Bhagwati will soon give its approval.
The break up of Sebi’s takeover data also points to interesting trends. As much as 59 per cent of the open offers in terms of value were for change in management control, while consolidation of holdings accounted for another 32.4 per cent. Substantial acquisition was the objective in the case of 8.4 per cent of the offers in terms of value. India Inc thus prefers takeovers or acquisitions to acquire critical mass. Industrywise, the financial sector leads the pack with over one-fifth of the 318 open offers, followed by information technology with 8.8 per cent and food processing with 7.9 per cent among other industries. The biggest surprise of all, however, is one that goes against the thrust of the so-called Bombay Club’s campaign regarding a foreign takeover of India Inc. The fact is that such entities accounted for only 19 per cent of the open offers since 1997-98, with desi corporates accounting for the remaining 81 per cent of the open offers. Yet perceptions still are rife that foreigners are on an acquisition spree to secure the commanding heights of corporate India. The truth instead is that takeover fever afflicts corporates.