Acquisitions in emerging markets actually create positive value, on average, for both acquirer and acquired companies, writes Rajesh Kothari in ‘ Financial Services in India: Concept and application' ( www.sagepublications.com), citing a study by Prashant Kale (2004). This result is different from that in developed market acquisitions, where acquisitions have generally created zero or negative value for the acquiring companies, the author notes.Among the other findings are that the value creation, in terms of abnormal stock returns following acquisitions, can be significantly greater for acquired companies (8.79 per cent) than for acquiring companies (1.71 per cent); and that multinational acquirers created greater value than local acquirers did, perhaps due to their edge in acquisition experience and skills.
The M&A chapter in the book wraps up with a list of words and phrases in the deal space, such as ‘zombie' (a bankrupt or insolvent company which continues to operate while it awaits a closure or merger); ‘envy ratio' (price investor paid/ percentage equity owned by investor); ‘scorched-earth policy' (a reaction to a takeover attempt that involves liquidating valuable assets and assuming liabilities in an effort to make the proposed takeover unattractive to the acquiring company); and ‘cram-down deal' (a situation where shareholders are forced to accept undesirable terms in a merger or buyout, like accepting junk bonds instead of cash or equity).
Thorny issues in turnaround
For a manager who is given a turnaround task, the goal is to improve productivity and profitability, writes Meena Surie Wilson in ‘ Developing Tomorrow's Leaders Today' ( www.josseybass.com). “The growth of the business unit may have stalled, with the company incurring enormous losses due to market contraction. The financial and operational problems of the unit may have compounded because employees are deficient in skill, unwilling to perform, and pessimistic about the company's future, and distrust management.”
Describing thus some of the likely scenarios before the manager, the author underlines the need to focus on the human situation because the manager may have to first calm the turbulent thoughts and feelings of employees and their anxiety. She informs that widespread organisational changes become necessary when market repositioning is a must or when the workforce has to be persuaded to align with different priorities. “Thorny issues arise: new offices and factories must be opened and surplus ones closed. Personnel have to be reassigned and skills and attitudes of managers and employees have to be retooled… Jobs must be redesigned.” Instructive read.
Symptoms of a crisis
The problem with a crisis is that it does not come with a name tag round its neck. But you may be able to sense it from the many giveaway symptoms, as listed by C. Vasanta Madhavi in ‘ Business in Crisis' ( www.taxmann.com). For instance, sales go down, demand declines, prices go up, costs rise, unemployment increases, stock market becomes bearish, inflation seems to fall though not leading to a price fall, companies start reporting losses, production plummets, sectors begin negating the predicted trends, currency depreciates, cross-border trade tumbles and investments take a plunge.
“The economy, industries, government, and consumers – all face the brunt alike. The economic growth slows down. Industries slow down in production, supply, sales, and profitability. Consumers reduce the spending, face unemployment and face the rising prices. Government has the tough task of boosting the economy, industries and consumer confidence…”
In such a situation, a business must first understand the crisis in detail and get a complete picture, advises Madhavi.
“All players in a market are equal in the eyes of a crisis. A company should try to focus on its business by responding to the market signals.
"All players in a market are equal in the eyes of a crisis. A company should try to focus on its business by responding to the market signals such as reduced demand and rising unemployment."
The author cautions that a government not enjoying enough confidence in its usual governance cannot win its way through a crisis; and that it may create a weak economy ambling through the recovery process.
Weak transmission mechanism
Post-Lehman, we seem to be smug about our `rudimentary and unsophisticated financial system where regulation is very tight, securitisation and other complex derivatives are largely disallowed, and banks behave conservatively,' observes Dhiraj Nayyar in one of the essays included in `Surviving the Storm' (Penguin). Acknowledging that the Indian financial system has been widely praised for its resilience in the crisis, he alerts that before we get carried away by the accolades, it is important to note the costs of an unsophisticated financial system, which may outweigh the benefits of conservatism.
For example, an underdeveloped financial system blunts the effectiveness of monetary policy in a slowdown because of a weak transmission mechanism, mentions Nayyar. "In more sophisticated systems, a cut in rates by the central bank almost immediately translates into a corresponding fall in the lending rates of commercial banks." The author foresees that the transmission in India will continue to remain weak until determined policy action is taken to liberalise and deepen the bond, derivatives and currency markets.
Worthy collection of essays that should interest finance professionals.
Before we support India's empowerment we need to know what true empowerment is, says Swami B. S. Tirtha Maharaj in `Actually There's No Problem' (www.dpb.in). "True empowerment is not about having the rights and privileges other nations or societies do not have. It is not about taking the prerogative to police the world and attack any nation that refuses to toe the line. And empowerment certainly does not mean arming yourself with weapons of mass destruction," he elaborates.
Reminding that empowerment of any one nation cannot be in conflict with the interest of another, the author avers that true empowerment is the possessing of the ability to influence the world in a peaceful and positive way, as India has been doing for thousands of years and continues to do so.