Purpose – This paper investigates how a firm’s human resource capability can affect the deployment and effectiveness of corporate mergers and acquisitions strategy.
Design/methodology/approach – Mergers and acquisitions (M&A) is treated as a long-term strategic orientation based on human resource advantage rather than a tactic to pursue short-term goals. Using a sample of 267 US banking firms, the main and interaction effects of M&A intensity, HR capability, and in-state propensity on four firm performance measures were examined.

Findings – The findings confirm that banking M&A could be very effective when the firm had high HR capability. Evidence was also found that HR capability had a direct impact on firm performance. Although in-state M&A strategy was in general superior to out-of-state M&A strategy, a firm with excellent HR capability might narrow the performance difference between in-state and out-of-state M&A.

Research limitations/implications – An obvious drawback of using this sample of banking firms is that it raises questions about the generalizability of these findings to smaller financial firms and firms in other industries. This study considers firms having at least one M&A over a three-year period, so we should not generalize our findings to those firms preferring to use internal growth strategies or greenfield start-ups.

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INSURED losses from natural catastrophes due to climate change are expected to rise 37 per cent in the next decade, resulting in the need for alternative ways to manage risk, according to Allianz SE, Europe’s biggest insurer.

Annual insured losses from catastrophes such as floods and hurricanes could jump to $49 billion a year in 2010-2019, up from $36 billion a year in 2000-2006, and less than $6 billion before 1989, Munich-based Allianz said in a report released yesterday in Sydney. Total losses in any one year might be as much as $480 billion, said Clement Booth, a member of the management board.

The United Nations concluded earlier this year that climate change was probably caused by people and would increase floods and droughts, change growing seasons and harm wildlife.

Lloyd’s of London chairman Peter Levene said in January climate change was the “number one” issue for the world’s biggest insurance market because of the unpredictability and cost of potential weather-related claims.

“Insured damages from natural catastrophes at projected future levels will put pressure on catastrophe risk markets,” Mr Booth said. “The insurance industry needs to continue to develop alternative approaches to risk transfer such as catastrophe bonds and risk partnerships between insurers and governments.”

In 2005, hurricane Katrina caused more than $US41.1 billion of insured losses in New Orleans and along the US Gulf coast, destroying oil and gas platforms, pipelines and refineries and flooding houses and buildings. Total damage was $US170 billion.

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The average Indian now spends 5.4 times as much on life insurance as what he/she did seven years ago when the industry was yet to be opened up for private participation.

The finding came up in the course of an insurance roundtable discussion organised by the Life Insurance Council, the apex body of the life insurance companies. The life insurance premium contributions per capita has jumped from Rs 280 in 1999-2000 (pre-liberalisation) to Rs 1,510 in 2006-07.

Indians are also setting aside a greater percentage of their income on life insurance when measured as a percentage of GDP.

Contribution by way of insurance premia has shot up from 1.2 per cent to 4.1 per cent of the GDP during the same period. Interestingly, insurance penetration in the US stands at 4 per cent of the GDP. But some of the participants pointed out that India still has some distance to cover in improving penetration. The US which ranks poorly in GDP terms has a stronger social security system with the Government spending much more on the average American.

India is, however, ahead of China where insurance accounts for just 1.7 per cent of the GDP.

In other developed markets such as the UK and Japan, insurance penetration stands much higher at 13.1 per cent and 8.3 per cent of the GDP, respectively.

According to data collected by the Life Insurance Council, the life insurance industry has made a huge leap across several other parameters in the liberalised era.

The growth in insurance premium collections has spelt an opportunity for the equity market. The industry’s investment in the equity market stood at Rs 1,50,000 crore and the assets under management were at Rs 6,00,130 crore as on March 31, 2007.

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India witnessed heightened deal activity in the first half of 2007 with the value of M&A transactions crossing $55 billion, spread over 550 deals, far exceeding the total deal value recorded for all of 2006.

India witnessed heightened deal activity in the first half of 2007 with the value of M&A transactions crossing $55 billion, spread over 550 deals, far exceeding the total deal value recorded for all of 2006. Notable amongst deals during the period were the sharp acceleration in outbound activity by Indian corporates, and significant growth in private equity investments in the country.

Outbound investments, which included Tata Steel’s $13.6 billion acquisition of Corus and Hindalco’s $6 billion acquisition of Novelis, exceeded $28 billion. In a way these two large deals have brought Indian M&A to the global forefront, where India’s outbound M&A during the first six months of 2007 was second only to Australia.

Paradigm shift
It has also broken the myth that Indian businesses are all about IT and outsourcing, as most of the outbound M&As were by companies belonging to the ‘traditional old economy sectors.’ Sectors such as energy, oil & gas, steel, cement, aluminum and other metals accounted for over 50 per cent of the total deal value compared to just 20-25 per cent of deal value a couple of years back. This is reflective of the fact that Indian companies in these sectors are looking to be competitive globally.

A number of these deals were debt funded, highlighting the confidence that the Indian and overseas banking and finance community has in the Indian companies to make these acquisitions work.

Some of the other key outbound deals reported during this period included the following:

nTata Power’s acquisition of PT Kaltim Prima Coal and PT Arutmin, Indonesia for $1.1 billion. This deal has given Tata Power access to one of the largest exporting thermal coal mines in the world.

*Essar Steel’s acquisition of Canada-based integrated steel producer Algoma Steel Inc for $1.58 billion.

*United Spirit’s acquisition of premium scotch distillers Whyte & Mackay, Scotland for $1.17 billion.

*Suzlon Energy Limited’s acquisition of a 74.6 per cent stake in REpower Systems AG, the German manufacturer and supplier of wind-powered generating facilities for $1 billion.

*Sun Pharmaceuticals’ acquisition of Israel’s generic manufacturer Taro Pharma for $446 million, making it the second largest overseas acquisition by an Indian drug company. While outbound deals were clearly the flavour of the season, domestic and inbound investments too scaled new peaks for any first half on record. The most significant of these being Vodafone’s acquisition of a 52 per cent stake in India’s fourth largest mobile service operator Hutchison Essar for a consideration of $10.9 billion.

Other key deals:

*Vedanta Resources, acquired 51 per cent controlling stake in Sesa Goa for $981 million.

*Mittal Investment’s (a wholly-owned unit of Arcelor Mittal NV) acquisition of 49 per cent stake in Guru Gobind Singh Refineries, oil & gas refinery for approximately $747 million.

*Matsushita Electric Works’ acquisition of 80 per cent stake in India’s oldest and largest electrical accessories and wiring devices company, Anchor Electricals for a consideration of $420 million.

*Jet Airways acquisition of Air Sahara for approximately $339 million.

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The initial public offering is a part of the market that always generates a great deal of interest, along with stories of fabulous profits and spectacular losses. But there are a ways to reliably profit on the initial public offering. Look for the trends that the initial public offering may cause and trade with them.

Initial public offering spinoffs are a solid trading trend to work with. A company that’s going to spin off a part of itself as an initial public offering tends to move steadily up in price until the initial public offering date, starting a week or two before that date. On the day the initial public offering starts to trade, the parent company’s stock typically dips sharply. The best strategy is to buy the parent once it starts moving in anticipation of the spinoff, sell it the day before the initial public offering is to begin trading, and then short the parent just after the initial public offering starts to trade.

Another trend to consider is the “quiet period” trend. The “quiet period” for the initial public offering is the twenty five days after a company goes public. During this time, the SEC forbids the company and the initial public offering underwriters to say anything that isn’t covered in the company’s prospectus or final registration statement. The underwriters face further restrictions on issuing any research.

As stocks near the ends of their quiet periods, they tend to steadily rise in price in anticipation of the “strong buy” recommendations most will receive from their underwriters after the quiet period ends. The run-up usually begins about ten days prior to the quiet period expiration, and is often accompanied by steadily increasing volume. It’s wise to sell quiet period stocks the day before the recommendations come out. Why not hold the stock after it gets a “strong buy” recommendation? It’s another case of buy the rumour, sell the news. It’s also best to trade this trend with stocks that have highly respected underwriters and are in hot sectors.

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Despite a slowdown in global credit market and possibilities of some deals struck earlier getting restructured, investment bankers are of the opinion that there is adequate liquidity to fund well-priced deals. It is time for Indian companies to come out and scout for opportunities abroad, bankers said.

“Merger and acquisitions (M&As) are likely to continue. However, pricing would be very different from what we had seen in the last couple of years,” Tarun Kataria, head of investment banking and markets at HSBC India said. Indian companies have been involved in 172 M&A deals, amounting to $42.48 billion in the first quarter of 2007.

“A number of companies are look at buyouts,” Nalin Naayyar, managing director, Lehman Brothers, said. The liquidity position in Asia is much better and firms would chase what might be somewhat cheaper assets abroad, he added.

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