Month: May 2015

Avago Technologies Ltd. has struck a landmark deal (the largest ever in the semiconductor or the high-tech industry) with its competitor Broadcom Corp., in which Avago will pay the Broadcom shareholders $37 billion ($17 billion in cash and $20 billion in shares). To raise the required $17 billion in cash, Avago will seek $9 billion in cash from various banks—it worked with the following during the deal: Deutsche Bank AG, Bank of America Corp., Barclays PLC, Credit Suisse Group AG and Citigroup Inc.; the rest of the amount would come from its own reserve. The deal should be closed by the first quarter of 2016, subject to regulatory review. Broadcom has agreed to pay $1 billion as breakup fee, if the deal is not completed.

The combined company is to be called Broadcom Limited and will have an enterprise value of $77 billion with expected revenues of $15 billion per annum. The current Broadcom investors will have a 32% stake in the combined company. In case any investor wants, they can choose to sell their shares at $54.50 per share.
Broadcom co-founder Henry Samueli (with a net worth of $2.6 billion) will be a Board of Director and the Chief Technology Officer in the new company, while the other co-founder Henry Nicholas (net worth of $2 billion) will be strategic advisor to the CEO of Avago, 63-year-old Hock Tan.
Broadcom is renowned for its unparalleled engineering prowess, which is going to be combined with Avago’s heritage of technology given its earlier associations with HP, AT&T and LSI Logic. Hock Tan believes that the merger with Broadcom would increase their scale and presence in the new chip markets, including the traditional end-markets for semiconductors. Individually, Avago or Broadcom can’t compete with rivals Intel or Qualcomm; however, after the merger their prospects are stronger.

The merger of their individual technologies and specialties would render them a leader in the wired and wireless communication semiconductors. The new company would manufacture processors for smartphones of Apple Inc. and Samsung Electronics Co. Under the leadership of Hock Tan, the combined company is being surmised to become the world’s greatest semiconductor company.

In 2009, during the global financial crisis, Avago went public and listed its shares on Nasdaq. In six years now, its shares have increased 800% in value, excluding dividend payments. From $15 a share in 2009, the stock closed on May 28, 2015 at $142.38 a share.

In the last three years, Avago has purchased five companies, together valued at $8 billion, including LSI Corp. for $6.6 billion and Emulex Corp. for $600 million. The rapid-fire M&As have raised the market value of Avago by more than $25 billion in the last three years.

In March 2015, NXP Semiconductors had bought its competitor Freescale Semiconductor in a similar deal of cash and stock—a total of $11.8 billion. Further, Intel Corp. was also reported to be a bidder for Altera Corp. (which has a roughly $14 billion market value), and NVDIA and Qualcomm are also building up their plans on M&A. Intel and Qualcomm reportedly bid for Broadcom too.

In 1961, HP created its semiconductor products division. In 1999, this division separated from HP as a part of Agilent Technologies. In 2005, KKR and Silver Lake Partners bought this division for $2.6 billion and created Avago Technologies, and made Hock Tan the CEO of Avago. It is into the business of making chips for computers, smartphones, devices for automobiles, and other industrial equipment and wireless networks.

Adani Group is mulling a foray into defence and aerospace production, keeping pace with several other big industrial groups’ drives into the “Make-in-India” initiative. Big defence spending is in the offing as defence is being seen as a sunrise sector. The place pitched for the possible manufacturing is an obvious choice: Mundra in Gujarat (it is the country’s largest private port and SEZ), utilizing its sea and land linkages.

Adani executives—including Karan Adani, the elder son of Gautam Adani, the chairman of the Adani Group—have met delegates from large overseas defence companies that have experience in manufacturing a range of defence equipment to explore how international and domestic tie-ups can be materialized.

The Adani executives have been conducting high-level meetings for the past few weeks, and have also been making exploratory calls to almost all global defence and aerospace manufacturers having liaison Adani Group is mulling a foray into defence and aerospace production, keeping pace with several other big industrial groups’ drives into the “Make-in-India” initiative launched by offices in New Delhi. At least two top Adani executives have been given the responsibility of foraging the potential collaborators and report success.

The following companies may be Adani Group’s future partners in defence manufacturing: Saab—Swedish aerospace and defence company, founded in 1937 and originally manufacturing aircrafts; Finmeccanica—Italy’s leading industrial group and one of the main global players in aerospace, defence and construction; Textron—an American industrial conglomerate founded in 1923 and manufacturing aircrafts.

Saab mainly produces fighter aircrafts and submarines, and is keen on establishing a manufacturing unit in India, ultimately targeting to win the Rs. 60,000-crore P-75I submarine (Scorpène-class submarines, a class of diesel-electric submarines) contract and the light Gripen fighter jet production contract.

Finmeccanica operates in seven sectors: aeronautics, helicopters, defence systems, electronics, space, transportation and security. It manufactures through its companies AgustaWestland, Alenia and Oto Melara.

Textron manufactures Bell Helicopters (famous for mission-critical helicopter operations all around the world) and Cessna Aircrafts (light and mid-size business jets). Textron is also being considered for a howitzer guns contract for the Indian army; it will be a $700-million contract.
Adani Group’s focus, as obvious from the exploratory discussions, is on “Make-in-India” projects, and the Group is looking forward to transforming its large land holding in Mundra into a defence manufacturing hub.

In March 2015, the Adani Group registered a new entity—Adani Defence Systems and Technologies Ltd (ADSTL)—and in April 2015, it applied to the Department of Industrial Policy and Promotion (DIPP) for a licence to manufacture helicopters under ADSTL.

Adani Group is an Indian multinational conglomerate company headquartered in Ahmedabad, in the State of Gujarat, India. Its diversified verticals include resources, agri-business, logistics and energy sectors including power generation, gas distribution and coal mining.

Some other large conglomerates have already set their sights on the defence and aerospace sector, due to the huge potential it offers as India’s defence needs are large and expanding, and it is counted as one of the biggest spenders in the defence and aerospace sector in the world. The Adani Group is the latest to turn in this direction, others being Larsen & Toubro, the Reliance Group of Anil Ambani, Mahindra & Mahindra, and the Tatas.

The Adani Group is cashing in on the fact that its SEZ and port would prove to be a unique advantage for defence manufacturing, as large-scale and high-end transportation and production can occur at the same place, though a thorough market analysis is still underway and a final decision will be taken after positive reports.

With an annual defence budget of about $40 billion of which 60 per cent (i.e. $24 billion) is being spent on purchase of defence equipment, India is the world’s largest defence importer, as the domestic defence manufacturing is still developing.

Forecast by the International Monetary Fund (IMF) is a fulfilment now as India’s economy is growing faster than China’s. India has been moving in the opposite direction while many countries around the world are dealing with low growth. It’s definitely a special moment for India with so much growth prospect in front of it!

Observing India’s third-quarter GDP growth and comparing it with that of China’s in the fiscal 2014–2015, the IMF had foretold in March 2015 itself that India would surpass China’s economy and soon become the fastest growing economy in the world.

Amid the shaky period of the global economy, India held its ground. Indian rupee gained in value against the strong US dollar this year, while the currencies of Brazil, Turkey and South Africa experienced losses. The Central Statistics Office (CSO) of India numbers showed 7.5% GDP for January–March 2015 quarter. On the other hand, China had a 7% growth rate for the same period.

China has been showing a slowdown in its economy consecutively in the third and fourth quarters of fiscal 2014–2015, while India is benefited by the lower oil prices and policy reforms of its comparatively new government led by Prime Minister Narendra Modi. China is most likely to have a slow GDP growth in the coming time, which would give a huge scope to India to grow faster than China and other peer economies.

Various Sectors of the Indian Economy that Have Shown Growth

The tremendous economic growth in India has been possible due to the contribution of a number of different sectors of the Indian economy. These sectors of the economy have been showing a continuous growth that finally has led India to register itself as the ‘fastest growing economy in the world’. The new policy reforms by the Modi government have brought improved business confidence that boosted economic activities in India. The budget approved by the Union government of India is moving in the right direction containing a number of promising elements for economic growth of the country. However, the challenge remains on the practical implementation.

By emerging as a prominent sector of the Indian economy in terms of contribution to national and states’ incomes, trade flows, foreign direct investment (FDI) inflows, and employment, the Services sector has contributed hugely in India’s growth. Finance, insurance and real estate have performed strongly for quite some time now. These services have grown by 11.5%. The Manufacturing sector has shown a growth of 7.1%; services such as trade, hotels, transport and communications have experienced a growth rate of 14.1%.

India’s Finance Secretary, Rajiv Mehrishi, has talked about the greater job opportunities in India. By improvement in the Manufacturing sector’s growth, India is able to create more jobs. A positive phase has just started; way to go!

Sectors that Have Lagged Behind in Positive Growth

In the fourth quarter of 2014–2015 fiscal, the Mining and Quarrying sector’s output reduced to 2.3% as compared to a growth of 5.4% during the fourth quarter of 2013–14 fiscal. The Agriculture sector showed a 0.2% growth in fiscal 2014–15 as against 3.7% in fiscal 2013–2014. Below-average rain damaged crops which subsequently brought the growth down.

Structural reforms in India may lead to productivity gains in such sectors. Reforms in education, labour, and product markets, etc. may help in raising labour force participation and productivity for better growth prospects.

“India is a ‘bright spot’ in a ‘cloudy global horizon’. The country’s young population and progress on structural reforms would help the economy to ‘fly’ in the coming years.”
– Christine Lagarde (Managing Director, IMF)

“India has the potential to make 9–10% its new normal in the years to come.”
– Arun Jaitley (Finance Minister, India)

“I would say (the economy is) picking up. We see some signs of capital investment picking up. There is a continuing need, which the government is trying to address, of putting some of the stalled projects back on track. But we have to work (on) bottlenecks and areas where we need reforms to ensure that growth is strong and sustainable.”
– Raghuram Rajan (Governor, Reserve Bank of India)

“We believe that countries that invest in people’s education and health, improve the business environment, and create jobs through upgrades in infrastructure will emerge much stronger in the years ahead. These kinds of investments will help hundreds of millions of people lift themselves out of poverty.”

– Jim Yong Kim (President, World Bank Group)