The Hindu Business Line : Markets taking pessimistic view of overseas buys

Even as Indian companies turn more gung-ho about cross-border acquisitions, the stock markets appear to be taking an increasingly pessimistic view of companies that put through big-ticket overseas acquisitions.

While the Hindalco stock shed 14 per cent on Monday's trading session after announcing its Novelis buyout during the weekend, the Suzlon Energy stock was marked down by 13 per cent following its bid for German rival - Repower Systems.

In the not-so-distant past, the Tata Steel stock lost 11 per cent on a single day, after its final 608-pence winning bid for Corus came to light. Declines in stock prices in these cases have been attributed to concerns that the acquirer may have overpaid for the deal and uncertainties about financing plans for the buyout.

In fact, tracking the stock price trends of 14 mega deals over the past year, stock prices of the acquiring company were pummelled on nine of the 14 occasions on the day of the deal announcement.

Tata Coffee's buyout of Eight O' Clock Coffee and Subex Systems' deal to acquire Azure Systems were two exceptions to this trend, when the stock prices climbed sharply on the day of the announcement.

However, in both cases, the enthusiasm proved short-lived, as the stocks gave up much of their gains in the month following the announcement.

On two occasions, the M&M-Jeco Holdings deal and the Suzlon-Hansen Transmission, stock prices remained unchanged on the day of the announcement.

Generally, overseas acquisitions in the pharma and IT space have been viewed more positively by the markets, when compared to such deals in cyclical sectors.

In the case of pharma or IT companies, investors seem to perceive short-term benefits in the form of client additions or an entry into new markets for the Indian company.

More Stories on : Overseas Investments | Mergers & Acquisitions | Stock Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Launch of spot exchanges runs into rough weather

Fresh pulse to sustain winter rains in North

Bharti ups the ante to face Vodafone

Pricing worth the entry into India

Will Essar accept Vodafone offer?

Car sales up 24%, bikes 12% in Jan

Corporate finance deals in 2006: The party shows no signs of slowing

Industrial output up 11.1% on capital goods growth

Essar arm to set up steel co in Vietnam

Daewoo plant assets to be sold for Rs 765 cr

Hindalco deal may not impact aluminium prices

Sensex sheds 348 points

Financial Tech: Betting on growth

Markets taking pessimistic view of overseas buys

Money transfer service on mobiles