MOTIVES OF TARGET COMPANIES

PROMOTERS

Exiting Non-profitable
Business

Corus Plc was sold out to Tata Steel since the former was making
losses. In the years through 2000 to 2003 it had posted losses of
GBP 1.271 billion, 462 million, 404 million and 255 million,
respectively.
The writing was clear on the wall that unless the company joined
hands with a low-cost producer of steel, who also has a captive
source of iron ore, its long-term viability was in danger.
Thus, it decided to take the wiser route of selling out to Tata Steel.

Exiting Non-profitable
Business
National Organic Chemicals

Industries Limited (NOCIL), a

one time cash-rich, blue chip
company of Mafatlal Group,
had to sell its petrochemicals
and plastics businesses to
Reliance Industries Limited
(RIL) after it started incurring
heavy losses around the turn
of the century.

Exiting Non-synergistic
or Non-core Business
Larsen & Toubro (L&T)

demerged its cement business

from UltraTech Cement Limited.
Thereafter, Grasim Limited, a
flagship company of A.V. Birla
Group, acquired control over
UltraTech .
One of the reasons why L&T
sold its cement business to the
Birla was to opt out of the noncore business.

Generate Cash Flow for

Other Business(es)
India Cement sold 94.69 percent of its stake in
Shri Vishnu Cement at an enterprise value of
Rs. 385 crore.
The objective behind this was to generate cash
for retiring high-cost debts of India Cement and
also for funding its expansion plans.

Inability- Real or Perceived

- to withstand Competition
In 1998, Lakme Limited sold its
brand and cosmetics business
to Hindustan Unilever Limited
(HUL).
The main reason behind this
was that Lakme management
was finding it difficult to pump
in huge money to support its
brand in the face of
advertisement blitzkrieg by
MNCs, especially HUL.

Inability- Real or Perceived

- to withstand Competition
In 1993, Ramesh Chauhans Parle
Group sold Thums Up, Gold Spot
and Limca brands to Coca-Cola for
around Rs 400 crore.
Parle felt that it was impossible for
them to fight with Coke and Pepsi in
the market since both these
companies could easily spend huge
amounts in promoting their brands
and sustain themselves despite the
heavy losses.

Original
Thums up

New
Thums
up

Inability to Achieve
Further Growth
Bazee.com was sold to e-Bay.
The intention of the promoters of
Bazee.com was to combine their
local expertise with global
presence, global perspective and
the deep pockets of e-Bay to take
Bazees business to the next level.
Daksh e-Service was merged with
IBM so that Daksh e-Service
would get continuous jobs from
IBM enabling it to grow faster and
become the front runner in the
outsourcing industry in India.

Trade-off for survival

It is believed that, after
supporting L&T against
Reliance, Financial institutions
were this time favouring Birla
group. Birlas were in a position
to increase their stake in L&T
through creeping acquistion.
Financial Institutions

Thus, L&Ts professional

management agreed to give
away the cement business to
Birla mainly because of their
own survival.

Typical Characteristics of
Takeover Candidates
Low Market Capitalization vis--vis Intrinsic (Present/Potential)
Value
Low Market Capitalization vis--vis Replacement Cost of
Assets
Low Market Capitalization vis--vis Book Value
Cash Flows in excess of Debt Servicing Requirements
Lowly Geared Companies
Underperforming Companies
Unexploited Brand Potential
Undervalued and Saleable non-operating assets
Large Off-Balance Sheet Assets