Companies in Emerging Markets
Show Clout in Global Deal Game
By JASON SINGER and DENNIS K. BERMAN
February 13, 2006; Page A1
Companies from emerging markets, armed with piles of cash from rising commodity prices and abundant financing, are snapping up targets in Europe and the U.S., a trend that could shift the global economic balance of power in some industries.
In the latest example, shareholders of ports operator Peninsular & Oriental Steam Navigation Co. are scheduled to meet today to vote on a $6.8 billion takeover by Dubai Ports World, a company backed by the government in Dubai, one of the seven emirates in the oil-rich United Arab Emirates.
The deal is expected to be approved, ending a three-month bidding war for P&O, one of Britain's oldest companies, between the Dubai company and one from Singapore. If shareholders sign off, the top three global ports operators will be based outside the U.S. and Europe.
Europe especially has been targeted by buyers from emerging markets recently. Last year, companies from the Middle East, Latin America, Asia and other regions spent more than $42 billion on deals there -- more than twice as much as in 2004.
So far this year, companies from emerging markets have announced deals valued at a total of $9.3 billion in Europe, which tops the total for all of 2003, according to research firm Dealogic.
In the U.S., companies from emerging markets spent more than $14 billion on 96 deals in 2005. That passed the previous record of about $10 billion, set in 2000. Among the better-known purchases here was the $1.25 billion acquisition by China's Lenovo Group Ltd. of the personal-computer division of International Business Machines Corp.
Bankers and executives say the latest wave is being driven by a host of new factors. One is an excess of cash, generated in part from the soaring price of oil and other commodities in recent months. Many buyers are backed by national governments that are looking to invest their newfound riches in other industries that will help diversify their economic base or provide new distribution outlets for their exports.
Economic conditions have changed, too. At the same time that once closed countries like China and India have opened up their economies, hedge funds are controlling ever-wider stakes of public companies in Europe and the U.S., and generally are neutral about who buys their holdings.
Moreover, companies from several emerging-markets economies have grown larger and more powerful than many outsiders had realized, said Peter Tague, head of European mergers and acquisitions at New York investment bank Citigroup Inc. "These guys have been consolidating their local markets without anyone paying much attention, and now they're aggressive players on the world stage," he said.
Last year, for instance, Egyptian billionaire Naguib Sawiris bought a controlling stake in Italian mobile and fixed-line phone operator Wind Telecommunicazioni from Italian utility Enel SpA. The deal, which valued Wind at more than $12 billion, was Mr. Sawiris's first foray into Europe after acquisitions across Asia and the Middle East. Mr. Sawiris received massive loans from European banks and sold a bond to finance the deal, while giving Enel a stake in his Egyptian mobile-phone business Orascom Telecom.
Even companies that haven't benefited from high energy prices have been buoyed by an influx of money into their local stock markets from western investors chasing better returns than they can get at home. Higher stock prices enable companies to more easily raise cash from shareholders and to persuade banks to lend to them at low interest rates.
India's benchmark index climbed around 50% in the past 12 months, for instance, so many Indian companies went shopping. During that period, auto-parts maker Bharat Forge Ltd. bought Imatra Kilsta AB of Sweden, petrochemical company Reliance Industries took control of Trevira GmbH in Germany and consumer-electronics concern the Videocon group snapped up the picture-tube business of France's Thomson SA.
In late December, after Indian technology company Wipro Ltd. purchased one company in Europe and one in the U.S., a senior Wipro executive told Dow Jones Newswires that the technology giant is looking to buy more software services businesses in the U.S., Europe and the Asia-Pacific region with its cash reserves of $718 million.
Just last week, Indian generics-drug maker Dr. Reddy's Laboratories Ltd. said it is bidding against local pharmaceutical rival Ranbaxy Laboratories Ltd. to acquire Betapharm Arzneimittel GmbH, a German drug maker.
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