A picture with shades of grey...
Akzo gains market leadership, but could lose shareholder trust

(column by Aditi Soni)

While we have oft en been amused by the British stiff upper lip, this trait has also done them good at times. The latest instance is acquisition of UK-based chemicals company ICI by Akzo Nobel. ICI rejected offers by Akzo twice, playing hard to get till the deal was closed at a cash offer of 670 pence per share, valuing the company’s ordinary share capital at nearly $16 billion.

Chances of a better rival bid are low, as ICI has already been grossly overvalued (premium of 35% over ICI’s average closing price for the last six months). Besides, an additional side deal has been finalised where Akzo’s partner, Henkel, would buy the National Starch Business of ICI for $4 billion. For Akzo, it had become unavoidable, with their arch rival PPG industries taking over SigmaKalon to expand their coatings portfolio. Commented Akzo Nobel CEO Hans Wijers, “We will create a leading global coatings & specialty chemicals company with a diversified geographic presence....”

Analyst Wim Hoste, KBC Securities, told B&E, “With ICI’s operations in Asia & eastern Europe that offer good growth markets, Azko can benefit to a great deal and generate good cash flows.” Akzo will also benefit from ICI’s global presence with around one third of revenues coming from emerging markets like Asia Pacific & Latin America, 40% in America and the rest from Europe. According to the Global Coatings Report (2006), annual growth by value during 2005-2010 will average 5.4% as against 2.7% during 2001-2005.

It’s a bonanza for ICI, but remains a very expensive acquisition for Akzo, which is why Akzo share prices have been in a state of free fall. On August 20, Akzo shares closed at $72.94, a drop by 7% from their value on August 13. The company will still have to justify the price to shareholders, which may not be a cakewalk. One shareholder group, TPG Axon, which holds 3.5% stake in Akzo has also criticised the high exposure of ICI to the US, with its falling housing market. Agrees Wim, “Akzo will have to (read aggressively!) tap revenue & cost synergies to justify the huge amount.” Guess they will need to demonstrate a stiff upper lip now, provided they have one!

(End of Aditi Soni column)

We had it made!
Deutsche Post in deep trouble

(column by Aditi Soni)

“Deutsche Post is a pioneer in Europe and now is being punished for it,” says CEO Dr. Klaus Zumwinkel, and betrays in these words a plea for mercy, as his company would find itself in murky waters, once the German postal market is opened up. Dr. Zumwinkel is lamenting unfair competitive conditions in the EU. The delay in opening up some key European markets has stalled the company’s expansion. And the new entrants – Luxembourg based Pin Group & UK based TNT Post would expectedly launch a brutal price war on the German turf. Pieter Schaffels, spokesperson, TNT Post, said, “We are looking for increase of 10- 15% in market share.”

In response, Deutsche Post is incessantly cutting costs & expanding in foreign markets where feasible. In 2006, the group improved its operating performance by increasing its revenue by 35.8% to $82.94 billion by consolidating all freight activities & focusing on the high growth Express division. Even their second quarter profits have risen by 13%, beating analyst expectations, primarily due to the DHL Express division that has had tremendous growth in Asia.

The clear stumbling block is its mail business, where revenues surged by a mere 13% since 2000. Express & logistics divisions have risen phenomenally; revenues stood at $17.2 billion (growth of 185% from 2000) & $22.7 billion (growth of 174% from 2000), but its cash cow remains the mail business, with 52% of total profits in 2006. The blow to this business will hit the company hardest. But with regulators refusing to show mercy, Deutsche Post has no choice but to engage itself in this long drawn bloodbath, hook line & sinker.

(End of Aditi Soni column)

Meet the Slims
The Carlos Slim legacy has terrific endurance value

(column by Romsha Singh)

Visit the land of Mexico and you will instantly feel the strong presence of this man in the everyday life of Mexicans. His influence over this erstwhile Spanish colony would instantly invite comparisons with the Ambanis & Tatas in India. And unlike these behemoths, Carlos Slim has amassed his huge wealth from mainly two sectors – telecom & finance. And just through his holdings in these two sectors, his iconic status in Mexico is well known. No wonder that George W. Grayson, a professor of Government at the College of William & Mary, aptly coined a terminology, “Slimlandia” to define Mexico.

And recently, at the age of 67, Slim became a symbol of Mexican, and for that matter, Third World resurgence, by taking the mantle of the richest man in the world; overtaking Bill Gates with a marginal difference of $1 billion. This development is in sync with a surge in the American Movil stock that increased Slim’s net worth by another $12 billion this year to $59 billion. His family’s holdings representing over 5% of Mexico’s GDP in 2006 and the companies under his control amount to 1/3rd of the Mexican Bolsa (stock exchange).

Slim is of Lebanese descent but he has totally adopted a typical Mexican living, which is quite obvious with the cigar he puff s and his manner of speech. Among the mantras of business, he is also an ardent art collector and boasts of being a philanthropist. One of his famous one liners on good economics goes thus, “When everybody else is better off , they can buy more, they strengthen demand, strengthen the market, strengthen the country.”

Slim’s appearance is oft en matched to the legendary J.P. Morgan and his meteoric rise is compared to John D. Rockefeller, as the latter had similarly taken undue advantage of weak regulatory norms in the American oil sector. His wealth sings the saga of his Mexican wireless monopoly, as he controls over 92% of Mexico’s phone lines via Telefonos de Mexico. “Twenty years ago, Mexico’s phone system was a joke. However, new wireless technology has changed the quality of Mexico’s phone system,” quotes Jeff Kagan, Wireless and Telecom Industry Analyst, Commentator, Provocateur. But his most stinging criticism comes from the fact that thanks to his monopoly, Mexican telecom customers still bear the brunt of high tariff s. States an OECD report on Mexico, “Although telecom tariff s have fallen, they remain significantly higher than in most OECD countries...”

Born in 1940 in Mexico, Slim is a widower and a father of six. Slim graduated with B.Sc. from National Autonomous University of Mexico. By the age of 17, he was investing in the stock market and by the mid-1960s; he was putting bucks in various businesses that formed ‘Grupo Carso.’ During the 1982 economic crash, Slim executed his business interests so efficiently that within a decade, it gift ed him very high returns. Once a maths instructor, he built his empire by following his father’s words, “Though Mexico will have its ups and downs, don’t ever count the country out.” And Mexico was always on Slim’s cards when it came to amassing huge wealth that comprises American Movil ($31 billion), Carso global telecom ($12.9 billion), Grupo Carso ($7.1 billion), Inbursa ($5.6 billion), Ideal ($1.7 billion) & SAKS Inc. ($263 million).

Indeed, Slim has always been in form when it comes to making money but after his heart surgery in 1997, his sons Carlos Jr., Marco Antonio & Patrick have taken over the business. More than the wealth, his sons have inherited their father’s shrewd business skills and the art of multiplying money. And they all seem to have picked it up so flawlessly, that we could well expect the Slims right up there on the Fortune rich list for years to come!

(End of Romsha Singh column)

Taking pride in its (re)tail...
With expansion on its mind, Future Group seems all set to give its competitors a tough time ahead!

(column by Priyanka Rajpal )

The curtains close, the actors retire & the audience thunderously applaud the last act of G.B. Shaw’s ‘Pygmalion’. And amidst the mesmerizing thunder, one gets reminded of someone who’s scripting a similar plot. And wait! We are not hinting at an imposter here, but at the retail maverick Kishore Biyani, who, like the lead fi gure in the play seems to have taken a bet to satisfyingly pass off a common girl as a refined society lady!

Biyani’s plan to enter the last mile retail space with announcement of 1,500 new format ‘Fair Price Shops’ is clearly an effort to convert the humdrum and highly uninspiring ‘kirana shops’ into prom queen material. And surely, while competitors thought that this retail bigwig only moved ahead with the refined crowd, he springs a surprise, disclosing desires for plain Jane as well. Since inception, Biyani’s Future Group diverted its attention from the bottom of the pyramid... Now no more!

A bigger question here is to what extent was the adoption of his current strategy affected by Subhiksha’s & Reliance Fresh’s effortless walk towards increasing market share. Or was it just skyrocketing real estate prices at prime locations that made Biyani believe profoundly in the fragmented set-up? Sure enough, competition from other retail players may also have edged him to maximise his national reach through his latest arm candy (read Fair Price Shops) which measure only 2,000 square feet each with glitz whatsoever! But Nilotpal Chakravarti, Retail Analyst, Springboard Research, denies the fact as, “The new format stores are nothing but an attempt to tap the large lower middle-class group in small areas, where there is a great potential for organised retail. The step is not meant as a response to Subhiksha or Reliance Fresh, but is a means to tap the huge market that exists...” Sure, with a difficult living ahead & with the retail wave gaining magnitude – with Subhiksha planning to touch 1,000 mobile stores by 2007 end & Reliance Fresh expecting to add another 100 stores soon to add to the innovative growth it has shown with its first hypermart already launched in Ahmedabad – Biyani seems to have understood the need for attending to the bottom of the pyramid while still donning the organised player hat! Moreover, the Future Group is poised to unveil four new brands by 2007-end. Besides, Damodar Mall, President (Food Business Division), Pantaloon Retail India Ltd. Confirms, “Most of Future Group’s ventures are company owned but we are trying the franchisee route too with these stores.”

Thus, Biyani will have make careful choices as profit margins at the bottom of the pyramid are thinner. Also, while HLL and ITC have already started serving the lower income brackets, they are also giving the rural Indians the purchasing power through their CSR acts. Moreover the prime competitors (including Reliance Fresh) can play the game much harder owing to their deep pockets. So will his ‘Fair Price’ Janes enable the company to win the prom title amidst the glitzy ladies? Well, surely not if he acts sans break-even targets for starters!

(End of Priyanka Rajpal column)