India’s heavy engineering major Larsen & Toubro (L&T) has signed definitive agreements with Schneider Electric for divesting the company’s electrical and automation (E&A) business for an all-cash consideration of Rs 14,000 crore, the company said in a statement on Tuesday.
India’s heavy engineering major Larsen & Toubro (L&T) has signed definitive agreements with Schneider Electric for divesting the company’s electrical and automation (E&A) business for an all-cash consideration of Rs 14,000 crore, the company said in a statement on Tuesday. The company’s E&A business, which reported net revenues of Rs 5,038 crore during the financial year ended March 31, 2017, offers low- and medium-voltage switchgear, electrical systems, marine switchgear, industrial and building automation solutions, energy management systems and metering solutions. Its manufacturing facilities are located at Navi Mumbai, Ahmednagar, Vadodara, Coimbatore and Mysuru in India as well as in Saudi Arabia, UAE (Jebel Ali, Dubai), Kuwait, Malaysia, Indonesia and the UK.
The transaction includes all the current business segments of E&A except marine switchgear and the UK unit Servowatch Systems. It is subject to regulatory approvals. According to reports, the deal, which was in the works for long, took time due to differences on valuation. The deal has finally been struck at about 2.8 times revenues, which industry players consider a healthy price. Earlier, Siemens, ABB, Hitachi and Honeywell were also said to have shown interest in the business. L&T said that over the years, the E&A business has built strong research and development capabilities and has a wide network of channel partners across India and international markets. The segment reported operating margins of 15.1% in FY17, which increased from 12.5% a year ago.
In what could be one of the biggest transactions in India so far in 2018, the deal forms a part of the overall strategy of L&T to divest non-core businesses and focus on key growth businesses like IT, technology services, defence, smart world and water management.
CEO and managing director SN Subrahmanyan had earlier told FE that the company will exit non-core businesses over a period of time and that there was a strategic plan that involved reallocation of resources of both talent and capital. Commenting on the transaction on Tuesday, Subrahmanyan said, “The divestment of E&A business is in line with L&T’s stated intent of unlocking value within the existing business portfolio to streamline and allocate capital and management focus for creating long-term value for our stakeholders.”
Group chairman AM Naik said, “We believe the partnership with Schneider Electric, which has a strong product and geographic presence, would further enhance the business prospects for E&A business and its employees.”
As part of the strategy to exit non-core businesses, L&T in October sold its entire stake in a wholly owned subsidiary, EWAC Alloys, to UK-registered ESAB Holdings for a total consideration of Rs 522 crore. Prior to that in September, the company had agreed to sell its 100% stake in the unlisted arm L&T Cutting Tools to Berkshire Hathaway-owned IMC International Metalworking Companies for Rs 174 crore. Earlier, in 2016, L&T sold its general insurance business to HDFC Ergo for Rs 551 crore.
In a February 2018 report, domestic brokerage IIFL noted that L&T has a few divestments on track, which include Kattupalli port, for which the company has received the payment, repaid debt and transferred it to the Adani Group under an operating agreement pending approval for divestment from the Tamil Nadu government. It is also selling small portions of commercial area in its Seawoods project in Navi Mumbai (9 lakh sq ft). Also, Nabha Power in Punjab may be monetised after a Supreme Court verdict on a pending dispute.
In a recent report, Grant Thornton noted that 2018 commenced on a high note, with a spate of big-ticket transactions, surpassing the numbers witnessed in the first quarter of 2017. The three months of January-March saw over 300 transactions with a total of $22.5 billion. India’s M&A outlook for 2018 looks promising on the back of a stable macroeconomic environment, positive deal fundamentals and buoyant business confidence, the tax advisory and consulting firm observed.
Pankaj Chopda, director, Grant Thornton India, said, “With expected closure of several insolvency-related proceedings and increasing role of technologies in businesses, manufacturing and power sectors and IT & ITeS sector are expected to be the focus sectors for M&A transactions.”