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M&A Which Way Will The Gases Blow For BOCI? Even CEO Raman Pandya doesn't know who its new parents are: Air Products, Air Liquide-or both. By Rakhi Mazumdar
While it is clear that BOC PLC's 51 per cent subsidiary will have a new parent, who it is still not clear. Last month, America's Air Products and France's Air Liquide jointly took over BOC's global operations in a £7.20-billion deal. So, the agenda at BOCI will now be set by the new owners-not Pandya. And that's a toss-up between Air Products and Air Liquide-or, perhaps, both. ''We are yet to receive any communication from either of the owners,'' says an unsure Pandya. The 2 transnationals moved in on BOC quickly because they wanted to prevent a third global gas major, Praxair (US), from doing so. As it happened, they sacrificed strategy for speed. So, the predators are yet to finalise how the spoils (BOC's global assets: £5.20 billion) will be shared. As things stand, Air Liquide may take over BOC's businesses in the UK, Ireland, Thailand, and Japan. And Air Products could gain control of the plants in Australia, New Zealand, Singapore, China, and Malaysia. While BOC's US business, in all likelihood, will be divided between them, that leaves a big question-mark over the future of BOCI (See Will BOCI's Change Charter Vaporise?, BT, June 7, 1999). BT draws up 3 future scenarios:
AIR PRODUCTS' GAMEPLAN. The first option is, probably, best for BOCI. The Calcutta-headquartered company's main problem was that its British parent was unwilling to invest in the Indian operations. Apart from a Rs 200-crore investment to set up a 1,290-tonnes per day (tpd) air-separation unit on TISCO's premises in Jamshedpur (Bihar) in 1998, BOCI has not grown in recent times. In fact, while its turnover rose marginally from Rs 224.84 crore in 1996 to Rs 238.49 crore in 1998, its net profits tumbled from Rs 13.50 crore to Rs 6.14 crore in the same period. Air Products has been following an aggressive gameplan since 1998. In fact, the $5-billion US major (global marketshare: 9 per cent) has opted for the acquisition route. In April, 1999, it picked up a 50 per cent stake in Industrial Oxygen-formerly controlled by the Mumbai-based Jain family, whose empire includes Gujarat Fluorochemicals-for Rs 200 crore. Explains Pavan Jain, 48, who is the Managing Director of INOX: ''Apart from our 17 units, Air Products wants to acquire smaller companies as well as develop new applications for the food-processing and medical sectors. Our aim is to become India's largest gas company.'' Acquiring BOCI-as well as Air Liquide's Rs 20-crore domestic operations-will help Air Products fulfil that ambition. Apart from raking in an annual turnover of over Rs 400 crore, there are other advantages. Market dominance is one. BOCI has a strong presence in East and South India, which together consume 42 per cent of the gases sold, while INOX dominates the West, which constitutes 35 per cent of the Rs 3,000-crore domestic gas market. Together, they will complement each other quite nicely. Ditto with products. While BOCI is a supplier of industrial gases (mostly used by the steel industry), which accounted for 70 per cent of its revenues in 1998-99, Air Products has been able to woo customers in sectors like chemicals, petrochemicals, and food-processing. Similarly, while BOCI has a negligible presence in the carbon dioxide segment, Air Products has made a successful foray into it. Conversely, although Air Products has a negligible presence in the large hydrogen market, that happens to be one of BOCI's strengths. Add to that the fact that Air Liquide has made forays into niche areas, like supplying gases to refineries and the healthcare sector. Agrees Amrish Balika, 35, Analyst, Kotak Securities: ''The synergies between INOX and BOCI will help unleash the inherent strengths in the latter.'' Even BOCI's scrip-price reflects this optimism, shooting up from Rs 39 on April 29, 1999, to Rs 57.50 on July 28, 1999. Whether this translates into financial realities will depend on the mechanics of the takeover. For, the synergies can be exploited only if Air Products merges INOX-net profits in 1998-99: Rs 16.73 crore-with BOCI. And definitely not the other way round. Apart from creating a giant, a probable swap ratio of 1 BOCI share for 3 INOX shares will retain Air Products' majority stake while increasing BOCI's equity-base marginally: from Rs 49.08 crore to Rs 50.68 crore. More importantly, based on the latest financial results for the 2 companies, the Earnings Per Share of the combined entity would more than treble: from Rs 1.25 to Rs 4.51. AIR LIQUIDE'S BLUEPRINT. For the $6.80-billion Air Liquide, bagging BOC's stake in its Indian subsidiary would be a real windfall. Although the French major is the global leader with a marketshare of 17 per cent, its presence in India through 2 small companies in Rajasthan and Delhi is negligible. Its annual turnover of just Rs 20 crore comes mainly from niche segments, like refineries. Post-acquisition, it can become a major in the market, especially if it merges all its existing operations. For BOCI, Air Liquide will bring to the table its dominance in the healthcare gases market, which accounted for 13 per cent of its global turnover in 1998. In fact, this unexploited sector-along with the nascent chemicals and food-processing ones-could grow into a Rs 100-crore business by 2003-04. THE ASSETS SPLIT. Of the 3 options, the most messy will be a 2-way split of BOCI's assets. Although, in theory, the 2 new promoters can easily divide the manufacturing units among themselves, dividing the marketing and distribution network-39 warehouses and depots, 100 dealers, and a fleet of tankers-could be cumbersome. Advises a Mumbai-based analyst: ''The 2 new owners can focus better if the existing assets are divided geographically to suit their strengths.'' For BOCI's shareholders, however, the benefits will accrue only if the company is divided into 2 separate entities, which are then merged with Air Products' INOX and Air Liquide's combined operations. Meanwhile, Praxair is not sitting idle. In fact, the company, which entered the country in 1995, has already spent Rs 100 crore on acquisitions, picking up the A.V. Birla Group's Hindustan Gases in April, 1996, and investing Rs 450 crore in a 74:26 joint venture with the Jindals, which is setting up two 2,500-tpd oxygen-plants for Jindal Vijayanagar Steel. Adds Indrajit Mukherjee, 50, Managing Director, Praxair India: ''Praxair's investments in India could cross Rs 1,368 crore from Rs 1,026 crore by mid-2000.'' Clearly, BOCI's new owner(s) will need to deal with baggage from the past. Explains Ranjan Das, 45, a former BOCI employee, who is now Professor (Strategic Management) at IIM-C: ''BOCI needs to tap new markets in areas like food, chemicals, and petrochemicals.'' Fortunately, since Air Products is most likely to grab BOCI, the latter could gain access to the necessary investments and expertise for growth. And that should pump in much-needed oxygen into BOCI. |
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Only a month ago, Raman
Pandya had concluded a complete revamp of BOC India (BOCI). He had slashed costs, got rid
of under-performing assets, and was all geared up to kick-start growth-again. Even as he
was formulating strategies for India's largest gas-maker, in flew a gas-shell. Now, the
51-year-old CEO of BOCI is not even sure what businesses his company will be in over the
next 12 months. 