
c2eaa9e9fcd74d648353631e18667f35.ppt
- Количество слайдов: 18
Paint Wars ICI’s Bid to buy Asian Paints India Ltd. February 21, 2000 Ankur Meattle Rohit Rathi Brad Winer Wee Yee
Agenda • • Introduction The Environment The Players The Bid The Hold-up Options Conclusions
Introduction • Setting – Bombay, October 1997 • Raj Purohit – An associate’s dilemma • Kotak Mahindra Capital Company – The story – Deal gone sour !
Investing in India • Economic Reforms • Major areas in 1991: – Licensing – Privatization – Foreign Investment • Corporate Governance Problem
Investing in India • Uncertainty in Policy – Changes since 1960 – 1960: Investment encouraged – 1973: 40% limit placed on foreign ownership – 1980: Modified – 1991: Changed again to allow majority – Add to this the dimension of industry and sectors
Investing in India • Three Regulatory Bodies – Foreign Investment Promotion Board – Ministry of Industry - Policy – Reserve Bank of India - Central Bank • Latest Guidelines in Jan 97 “. . . an overseas corporate body can buy into or enlarge its holding. . only if the board of the domestic company allows it to. ”
The Paint Industry • Not protected or priority sector • Two Strategic Groups ORGANIZED SECTOR Large Companies Quality Higher Cost Structures 70% of Market Share SMALL SCALE Low O/h 30%
Indian Paint Industry • Industrial (30%, Rs. 6, 442 MM) – Automotive, Special Purpose, Marine etc. • Decorative (70%, Rs. 15, 033 MM) – Interior Finishes • Indian ratio will converge to World trend (50 -50) in 10 years
Indian Paint Industry ORGANIZED SECTOR BY MARKET SHARE # 1 Asian Paints (33%) # 2 Goodlass Nerolac (18%) # 3 Berger Paints (14%) # 4 ICI India (11%) # 5 Jenson and Nicholson (6%) Total Market: Rs. 21, 476 MM
Players - Asian Paints • Rs. 6980 MM ($175 MM), Rs. 378 per share on 8/1/97 • Market leader with strengths in – Distribution, Management, Decorative Paints • Majority held by 4 promoters – Chokseys – Danis, Vakils, and Chowksis – Public and Mutual Funds 9. 5% 41. 06% 28%
Players - ICI Plc. , UK • $15 BN, Diversified, ICI India - Rs. 2, 254 MM -- < 1/2 of Asian Paints • Strengths – Financial, Industrial Paints • ICI India – Paints 43% of sales - thrust area! – ‘The 10 X Plan’
The Bid - Motivation • • • Real Option Value Expandability Import Barriers Management Brand Name Synergies
The Bid - Valuation • Naïve Method – P/E and DCF – Used Indian CAPM for WACC = 16. 5% – Value Rs. 346/share • Problem Areas – International WACC ~ 20 - 27% – Value Rs. 220 - Rs 170/share
The Bid - Real Option • Naïve Method – P/E (23) regressed on Market Share – New value calculated at P/E = 27 – Option Value = (Forecasted - Current) • Problem Areas – P/E Method is faulty, Ignores discounting – Probabilities of various failures of takeover or strategic alliances ignored
The Hold-Up: Nov 1, 1997 • Asian Paints refuses to transfer shares, reasons provided – FIBP Guidelines – Sham Transaction – “No Value Added to Investors” • Stock price plummets to Rs. 280 per share • KMCC sitting on losses
Options for KMCC • Sell back to 3 promoters • Negotiate with ICI, share/bear all losses (ICI has favorable contract) • Appeal to FIPB, Mo. I • Sell to 3 rd party • Sell to ICI India • Combination
What Happened • Stock hit an all time low on 23 rd June 1998 at Rs. 198 per share • KMCC had to sell 4. 5% to Unit Trust of India (mutual fund) and remaining back to the promoters at an average of Rs. 280. • KMCC/ICI - UK bore huge losses Rs 245 MM (ICI Rs 140 MM, KMCC Rest)
Q&A
c2eaa9e9fcd74d648353631e18667f35.ppt