Mergers And Acquisitions

MERGERS AND ACQUISITIONS IN BRIC COUNTRIES

PRESENTED BY NAME  Avani Brahmbhatt  Siddhi Hatkar  Nidhi Shah

ROLL NO. 07 15 51

Outline          

Objective Introduction of ‘BRIC’ Importance of BRIC countries Opportunities Threats Revolution What is M&A? Purpose of M&A Example Conclusion

Objective

 To understand the objective of M&A in BRIC countries  Exploring the emerging opportunities and issues of BRIC counties

Introduction BRIC Countries

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BRIC or BRICs-the combination of Brazil, Russia, India, and China, Key Emerging Markets

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Acronym was first coined in 2001 and prominently used in a thesis of the Goldman Sachs investment Bank.

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China and India account for apprx.33% of world population of 6 billion

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Both countries have huge middle class with high purchasing power

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GDP growth rates in BRIC countries are much higher than in developed markets

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India is also the biggest foreign investor in the UK, outpacing even the US.

Short term outlook: GDP growth rate

Body of the subjects GDP Growth rates country

2008

Brazil

6.2

Russia

8.1

India

8.2

China

10.6

Why are the BRIC countries important? 

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In 2008 the emerging economies has overcome developed economies by their share in the World GDP calculated at purchasing power parity. The BRIC countries were the main driving force for GDP growth of the emerging economies. Fast growing economies with the biggest source of labor They are changing the consumption and production pattern in the world economy; As their influence on the global economy grows so do the risks for the sustainable world development; Their role in the global policy is increasing as well the geopolitical importance for their regions and the world.

Emerging MarketsOpportunities           

High growth rates Increased foreign direct investments Huge investments in infrastructure Huge middle class boosting demand Abundant supply of educated cheap workforce High potential for outsourcing work specially India Disinvestments of PSUs Domestic/global mergers/acquisitions Technology up gradations Abundant agri/mineral resources Commodity markets expanding fast

Threats    

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Volatile markets Rising Inflation Natural disasters Setback in rain dependent agri sector bring down GDP growth rates Currency appreciation for export led economies Weak infrastructure Slowdown in FDI/increasing int rates in USA Steep increase in energy cost

Revolution in BRIC countries 

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IBR survey reveals that business owners in the fast growing BRIC economies are now enthusiastically embracing M&A, and are often more likely to grow through acquisition than businesses in more mature markets. the BRIC countries appear more focused on building value rather than looking to realise it at this stage and are excited about following their own growth strategies through domestic and cross-border acquisitions. This is clearly visible, with mainland China (67 per cent) and Brazil (64 per cent) polling the highest percentage of participants planning an acquisition, a much higher proportion than in the United States (48 per cent).

What is M&A A general term used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another with no new company being formed.

Mergers and Acquisitions

Merger and acquisition volume on foreign shores by companies from the world’s top four emerging nations – Brazil, Russia, India and China (BRIC) - has touched a record $54.6 billion so far in 2007, with the two Asian countries India & China accounting for two-thirds of the total deals.

The Main Purpose Of M&A The company          

foresees a new target market is able to develop new products through new available technical know-how is able to increase product range foresees new business opportunities is able to streamline staff is able to eliminate redundant technology enjoys an increase in bargaining power acquiring visibility and international brands buying cutting-edge technology rather than importing it improving operating margins and efficiencies, and taking on the global competition

Tata Corus  

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Impact

The price of steel in India is Rs15,000 to Rs20,000 lower than international steel prices. They are also expected to remain firm for the next five to ten years on the back of demand from BRIC After successfully acquiring Corus, Tata Steel became the fifth largest producer of steel in the world, up from fifty-sixth position. There were many likely synergies between Tata Steel, the lowest-cost producer of steel in the world, and Corus, a large player with a significant presence in value-added steel segment and a strong distribution network in Europe. Among the benefits to Tata Steel was the fact that it would be able to supply semi-finished steel to Corus for finishing at its plants, which were located closer to the high-value markets... Tata Steel acquired Corus in 2007 as part of a strategy of international expansion.

Pitfalls in Corus Acquisitions Though the potential benefits of the Corus deal were widely appreciated, some analysts had doubts about the outcome and effects on Tata Steel's performance. They pointed out that Corus' EBITDA (earnings before interest, tax, depreciation and amortization) at 8 percent was much lower than that of Tata Steel which was at 30 percent in the financial year 2006-07...

Conclusions 

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In the short term, strong overall macroeconomic fundamentals sustained in China, India and Russia and improvements reached in Brazil. This will continue to attract substantial flows of foreign investment, further boosting potentials for the future output growth. Risks related to global economic imbalances will continue to weight on the outlook for BRIC countries and especially Brazil. Country specific risks and challenges include: ¨ Russia - sustained upward pressure on the exchange rate and inflation; potential fiscal easing, further aggravation of competitiveness in manufacturing industries. ¨ China - potential for increased protectionism at Chinese exports. ¨ India - high level of off-budget subsidies for petroleum products. ¨ Brazil - expansionary fiscal policy. "Emerging markets are likely to overtake developed countries in terms of international acquisitions in the next two to three years, while India has emerged as the most acquisitive among the emerging nations

Suggestions 

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The BRICs should maintain their comparative advantages in the long term. This will help to ensure relatively high growth rates and therefore increasing share of these economies in the world market. But the sustainability of high growth will depend on the several crucial factors: sound and stable macroeconomic and development policies; development of strong and capable institutions (including political); human development (improved healthcare and education); increasing degree of openness.

Continue…… The main comparative advantages of Russia are related to macroeconomic stability and rich natural resources  To diversify away from its growing dependence on natural resources and to maintain its comparative advantage, the Russian economy will need to boost the productivity and international competitiveness of its manufacturing sector.  Russia can do this by: ¨ creating incentives for greater firm-level innovation, ¨ by improving the skill base of its labor force, ¨ by creating a stable policy environment that is conducive to competition. 

Continue……   

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Although improved in recent years, the Russian investment climate is still characterized by significant instability, as well as a tendency to punish its most dynamic and innovative firms. Creating better investment climate and promoting environment for fair competition is crucial for competitiveness and innovation in Russia. Countries successful in creating an innovation economy are characterized by a high level of competition and competitive pressures. ICA data confirm the importance of competition for innovation in Russia. This problem is related to key areas of structural reform in Russia: administrative reform, fiscal federalism, local self-government, competition policy, administrative barriers to business, land reform.

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