Title: Paint Wars ICI
1Paint WarsICIs Bid to buy Asian Paints India
Ltd.
- February 21, 2000
- Ankur Meattle
- Rohit Rathi
- Brad Winer
- Wee Yee
2Agenda
- Introduction
- The Environment
- The Players
- The Bid
- The Hold-up
- Options
- Conclusions
3Introduction
- Setting
- Bombay, October 1997
- Raj Purohit
- An associates dilemma
- Kotak Mahindra Capital Company
- The story
- Deal gone sour !
4Investing in India
- Economic Reforms
- Major areas in 1991
- Licensing
- Privatization
- Foreign Investment
- Corporate Governance Problem
5Investing 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
6Investing 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.
7The 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
8Indian 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
9Indian 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
10Players - Asian Paints
- Rs. 6980 MM (175MM), Rs. 378 per share on 8/1/97
- Market leader with strengths in
- Distribution, Management, Decorative Paints
- Majority held by 4 promoters
- Chokseys 9.5
- Danis, Vakils, and Chowksis 41.06
- Public and Mutual Funds 28
11Players - ICI Plc., UK
- 15 BN, Diversified, ICI India - Rs. 2,254 MM --
lt 1/2 of Asian Paints - Strengths
- Financial, Industrial Paints
- ICI India
- Paints 43 of sales - thrust area!
- The 10 X Plan
12The Bid - Motivation
- Real Option Value
- Expandability
- Import Barriers
- Management
- Brand Name
- Synergies
13The 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
14The 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
15The 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
16Options for KMCC
- Sell back to 3 promoters
- Negotiate with ICI, share/bear all losses (ICI
has favorable contract) - Appeal to FIPB, MoI
- Sell to 3rd party
- Sell to ICI India
- Combination
17What Happened
- Stock hit an all time low on 23rd 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)
18QA