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Schneider’s $2.1 bn Temasek-backed India deal gets CCI nod with riders
Photo Credit: Reuters

India’s antitrust regulator has approved the acquisition of Larsen & Toubro Ltd’s electrical and automation business by French corporation Schneider Electric SE and Singapore’s Temasek, but attached a bunch of conditions to wipe out the likely anti-competitive effects of the deal.

The Competition Commission of India said that Schneider Electric India Pvt. Ltd—the French company’s local arm which will make the acquisition—will have to reserve part of the L&T unit’s capacity for third-party manufacturers for five years. It also cannot discontinue any products and raise prices for five years, the CCI said in a statement.

The CCI said it gave its approval after conducting an in-depth inquiry into the acquisition. It said that the takeover would make it harder for new entrants to compete in the low-voltage switchgear industry because of Schneider’s and L&T’s leading positions in terms of sales and distribution reach in the segment.

Accordingly, the CCI ordered Schneider Electric India to reserve a part of the L&T unit’s installed capacity for manufacturing five switchgears with a high market share to offer white-label services to competitors.

“The third party competitors can take L&T products on a reasonable price for selling under their own brand, for a period of five years,” the commission said, adding that they will also get access to the technology behind the white-labelled products for five years.

Besides, the regulator ordered Schneider to revise its commercial policies to remove de facto exclusivity in distribution agreements.

The stipulations on the acquisition will help other players in the segment to strengthen their product portfolio, increase the viability of their own brands and become strong market competitors, according to the CCI.

In a separate statement, Schneider said it would work with L&T and Temasek to resolve the remaining statutory and financial aspects of the deal, adding that the final close would take several months.

“At the same time, the companies will work to ensure total compliance with the modifications set out in the CCI order,” the statement said.

L&T had agreed to sell its electrical and automation business to a consortium of Schneider and Singapore state investor Temasek Holdings Pte Ltd last May for Rs 14,000 crore (around $2.1 billion then). The all-cash deal included L&T’s subsidiaries associated with the unit outside India.

Schneider had said at the time that it would own a 65% stake in the unit while Temasek would hold the remaining. The Singapore investor’s 35% contribution translated into an investment of Rs 4,900 crore (around $717 million), making it its second-biggest India deal at the time after Bharti Airtel Ltd, where it had invested $2 billion in 2008.

L&T had put the electrical and automation business up for sale as part of its Lakshya 2021 plan, which was started in 2016 and aimed to double revenue over a five-year period. The plan also aimed to expand profit margins by 100-120 basis points as well as improve return on equity and reduce working capital to 18% each from 12% and 24%, respectively.

To discuss the emerging opportunities and challenges in dealmaking, Mosaic Digital, the corporate banner behind VCCircle.com, is organising its next edition of M&A Summit on 26 June in Mumbai.

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