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India's Tata Group on buying spree, eyes more overseas acquisitions

India's Tata Group on buying spree, eyes more overseas acquisitions

India's Tata Group is on a buying spree.
The conglomerate, one of the country's oldest and largest, is aggressively scouting for more overseas acquisitions after a string of purchases this year.
"We are looking for opportunities in all areas where we are present," said R. Gopalakrishnan, executive director of Tata Sons _ the holding company of the group that has interests spanning everything from steel and automobiles to software services and hotels with annual sales totaling US$23 billion (euro18.2 billion).
This week it announced deals to buy the Ritz-Carlton Hotel in Boston and a 30 percent equity stake in South African tea company Joekels, moves that followed two major acquisitions in the United States _ that of Eight O'Clock Coffee and New York-based Energy Brands Inc., which makes the Glaceau brand of flavored water.
Gopalakrishnan's comments came amid media reports that Tata Steel was in talks to buy London-based steelmaker Corus Group PLC for US$10.6 billion (euro8.37 billion) , in what would have a definite bearing on the global steel industry and would be the biggest overseas purchase by any Indian company.
This year's acquisitions are part of a strategy to ratchet up ambitions to go global, Gopalakrishnan said, although he declined to make specific comments on reports relating to Corus.
After decades of thriving on government protection, Indian companies are seeking global footprints and most of them prefer to do that through overseas acquisitions.
Working in their favor is a radical change in international perception, especially among investment bankers, that Indian companies are creditworthy and that many have the potential to become global corporations. Changes in government policy, such as easing foreign currency restrictions, have also helped.
A recent study by Boston Consulting Group included several Tata companies in a list of 100 firms from developing countries such as China, India, Brazil and Russia that it said would emerge as challengers to today's multinational companies.
Arindam Bhattacharya, a director at the consulting firm's India office, said a merger of Corus with Tata Steel "makes sense in theory" because the two companies complement each other in what they produce and where they sell.
Tata Steel has little presence in Europe, and Corus, the world's ninth-largest steel producer, previously said it would make sense for the company to team up with a low-cost partner with assets in countries such as Brazil, India and Russia.
Consolidation in the steel industry has been a hot topic since Mittal Steel Co. NV won its battle to take over Arcelor SA earlier this year in a deal that will create a titan with control of close to 10 percent of global production. Some analysts argue that further consolidation will give the industry more pricing power and greater economies of scale.
A combined Tata-Corus entity would have annual steel production of 25 million tons, making it the world's fifth or sixth largest steel producer, according to a recent JPMorgan Chase & Co. report.
There have been concerns, however. Bhattacharya of Boston Consulting said some of the recent deals were overpriced and the Tata Group "faces a huge challenge to make sure that the investments pay off."
Also, many doubt if Tata Steel can raise the money needed to bid for a controlling stake in the Anglo-Dutch steelmaker. Media reports have said the company will have to keep a war chest of close to US$9 billion ready if it moves to bid for Corus.
The biggest acquisition for the Tata Group so far has been the 30 percent stake in New York-based Energy Brands Inc., for which it is paying US$677 million.
But Gopalakrishnan said the conglomerate has the ability to raise funds for a takeover of any size.
"The deal may be large or small, but we are looking at its fit, rather than the size of the deal," he said. "We are not short of resources ... we have strong balance sheets," he said.
An Indian newspaper on Friday said Tata Steel had lined up US$6.5 billion (euro5.1 billion) in loans from three banks _ London-based Standard Chartered, Dutch bank ABN Amro and Germany's Deutsche Bank _ to fund a possible bid for Corus.
It may also sell bonds to raise about US$2 billion (euro1.6 billion) to later refinance some of the loans, the Business Standard reported.
Shares of both Tata Steel and Corus have soared since the news appeared Thursday.


Updated : 2021-08-03 01:49 GMT+08:00