Mergers, Acquisitions and Takeovers Case Study

L&T: Attempts on Public-Private Partnership

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Abstract:

In September 2004, the engineering and construction giant L&T, had sent a proposal to the Joint Secretary, Shipping for a joint venture (JV) with the loss making HSL. Under the proposed scheme, L&T wanted to form a 60:40 JV as an associate company of HSL with majority stake held with L&T. It envisaged a strong collaboration between the engineering and design expertise of L&T and the domain expertise of HSL would herald a new area of growth. L&T wanted HSL to transfer assets (minus liabilities) as a portion of equity. The company proposed to infuse funds and utilisation of HSL assets via the JV to bring about a turnaround of the loss making Public Sector Undertaking. L&T wanted the Government to remain the owner of HSL.

The Joint Secretary, Shipping sent a welcome response and the preliminary approval to initiate talks between L&T and HSL. Accordingly, the Joint Secretary asked L&T to broadly elucidate the proposed shape of the JV and communicate the same to the CMD, HSL. In early 2005, L&T’s top management presented the JV plan to the Joint Secretary, Shipping, Ministry of Finance and Planning commission. In this meeting a decision was taken to evaluate HSL’s worth. The valuation was conducted in March-April 2005. After that the picture became vague. The pace of the process slowed down and that left Mr. Naik confused. Though 15 months had elapsed after the process was initiated, he was hopeful that the venture would materialise in the days to come. He thought that L&T could move ahead with the public-private partnership (PPP) model, the concept of co-investment would be a feasible alternative to disinvestment of public sector undertakings in India.

Analysts and industry observers debated on whether L&T’s attempt of PPP was a right move or not. What did L&T envision to achieve through the deal? Where could it take L&T, if the PPP deal was successful? Was PPP trustworthy, when it came to projects related to defense?

Pedagogical Objectives:

• To understand how Joint venture can be instrumental in the turnaround of a public sector
• To discuss the problems faced in private-public partnership.

Keywords : Mergers,Acquisitions,Alliances Case Study;Public Private Partnership(PPP); L&T; Joint Venture (JV); Hindustan Shipyard Limited (HSL); Mazagon Docks (MDL); Hindustan Aeronautics Limited (HAL); Public Sector Undertaking (PSU)

Contents : 
L&T’s ambitious plan
L&T eyes on PSUs
HSL – L&T JV Plan
Global Shipbuilding scenario
L&T – NPCIL – BHEL JV plan
The PSU perspective
Government Initiatives
The way forward
Public-Private Partnership Model