The stock markets usually do not react positively to news of a company making an acquisition, particularly a foreign one.

Worries about the deal value and likely debt for the buyout and concerns about the overseas subsidiary turning out to be drag on the operations, usually weigh on the stock.

However, Tata Chemicals has been an exception to this trend with the stock shooting up by 3 per cent intra-day, after the company announced plans to invest further in EPM Mining Ventures of Canada.

The reasons for the positive reaction are threefold.

One, Tata Chemicals' decision to invest Canadian $60 million (about Rs 74 crore) through a wholly owned subsidiary in EPM Mining Ventures may not impose any significant financial burden on it. As acquisitions go, this is one of the company's smaller ones (the buyout of British Salt last year cost Rs 695 crore).

Tata Chemicals had cash and cash equivalents of Rs 1,545 crore on its balance sheet as of June 30, 2011. The amount of debt on its balance sheet too has declined in the past three years to 0.74:1. a level comfortable enough to allow future fund-raising.

Two, the company's 30.6 per cent stake in EPM Mining will help the company secure critical inputs for its fertiliser business.

EPM Mining's Potash assets in the US allow Tata Chemicals to secure supplies at a time of global shortages and rising prices of this key fertiliser ingredient. As the company already has stakes in phosphate assets in Morocco through IMACID and has invested in Gabon in Africa for a urea plant with assured natural gas supplies, finding a long-term source for potash was a key link in the feedstock chain.

Three, Tata Chemicals has met with reasonable success on its previous overseas acquisitions, with buyouts such as British Salt and General Chemicals delivering strong growth and improving profitability in recent quarters.

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