US firm International Paper (IP) has announced that it would acquire Andhra Pradesh Paper Mill (APPM) . The strategy of US firm to grow inorganically looks well in line with the demand in the Indian market. With the government thrust and budgetary allocation to education, India is one of the fastest growing paper markets. The domestic paper industry is estimated to grow at around 10 million tonnes yearly. The writing paper, packaging grade paper, news print industry segment accounts to grow for 3.8 million tonnes, 4.5 million tonnes, 1.7 million tonnes respectively.
Eyeing such a huge opportunity to grow in Indian paper market, US-based paper and packaging company International Paper (IP) is all set to acquire the control of Andhra Pradesh Paper Mills (APPM) for about $257 million to become the first global company with a direct presence in India’s fast-growing paper industry. Prior to this deal International Paper has manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. IP businesses also include uncoated papers and industrial and consumer packaging.
International Paper, entered into agreements with the Kolkata-based L N Bangur Group to buy a 53.5 percent stake in AP Paper Mill and according to Indian securities law, International Paper will also launch a mandatory public tender offer to acquire up to an additional 21.5 per cent of the outstanding shares of APPM for about $104 million in cash. US based company anticipates acquiring up to 75 percent of APPM’s outstanding shares through two transactions, with the remaining 25 percent of shares publicly held. The share purchase and public tender are expected to be completed as early as the third quarter of 2011, subject to regulatory and other approvals, including the Security and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and, if applicable, the Competition Commission of India (CCI).
APPM is one of India’s leading integrated paper manufacturers and having two mills with a combined capacity of about 250,000 tonnes of uncoated free sheet paper per year. APPM will provide an excellent platform for International Paper to grow with the Indian paper and packaging markets. In present scenario the APPM has built a strong business in India, and the next phase of growth required a different set of resources and capabilities.
Earlier, APPM was rumoured to be an acquisition target of ITC Group, the number one paper manufacturer in the country. Later, both the companies had denied the reports. With the deal it is expected that International Paper would help the company to achieve the next phase of growth.
On the other hand International Paper is entering into Indian market as here the cost of production is low, while demand is high, which is the greatest advantage that a company can get from the growing market. The American company is looking forward to use its manufacturing and technical expertise to optimize the resources of Andhra Paper.
In the context to the acquisition, the company is also establishing IP India, a new division of the company which will manage IP stake in APPM.
Such acquisitions are throwing lights on the paper industry in India and it is also highlighted that how fast paper market in India is expected to grow and the opportunities the industry holds for the investors from abroad. There are number of small paper industry in India who are doing a fairly good business and holds a huge potential to perform better in Indian paper market.
Mergers and Acquisitions are high on agenda for India and US, both the countries are trying to enlarge their footprints in each other’s market. Not only in the paper industry but in other sectors also the M&A between both the countries are towards upward trajectory. The table below shows some of the M&A’s between India-US in the year 2010 with their deal size.
From the above table is can be concluded that M&A’s between both the countries are not confined to few sectors and are well diversified in different sectors ie. Pharma, FMCG, Freight and Carriers etc. This justifies the fact that how the companies from abroad are entering into the domestic market of India and US. The trade relations between both the countries are growing stronger with the time though there are few issues related to trade flow are still left to be attended from both the sides.
So the figures clearly indicate that despite an impressive strategic relationship with US, India is struggling to match its peers in attracting the US investment into the country.The need of hour is to have concerted effort from Indian government to allay the concern of US investors and to ease the restrictions on key sectors for investment.
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