Tata’s interested: The race gets hotter for BSES - Views on News from Equitymaster

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Tata’s interested: The race gets hotter for BSES

Jun 8, 2000

According to reports in a leading newspaper, the Tata Electric Companies’ (TEC) may lead the Tata Group counter bid against Reliance’s recent open offer for 20% stake in BSES. The Tata Group chairman Mr. Ratan Tata has neither confirmed nor denied the reports. The move if true, must come as a surprise to many industry watchers. The Tata’s have never shown any interest in BSES in the past. But a lot has changed in the power sector in the last couple of years.

Hitherto, TEC was the only major independent power generator in India. BSES is known more for its distribution skills. It entered the power generation field only recently. The Tata Group has never been very proactive with respect to its power businesses. One got the feeling that power was always on the lesser priority list of the Group. The company has been functioning without a managing director for quite some time now.

But with the government looking keen to remove all power sector roadblocks, the scenario for the power sector looks much more attractive. TEC seems to have woken up to the sudden reality that Enron, Reliance and a host of other companies seem to be aggressively building up their power strategies, while it has lagged behind. It seems to be losing the first mover advantage.

Another factor that must have spurred them to counter bid Reliance may be concerns regarding the Mumbai circle. TEC currently holds a licence to supply to the Mumbai area only till 2014. Post 2014, it can expect Reliance backed aggressive BSES to bid for its Mumbai licence. Secondly and more importantly, Maharashtra state government is planning to privatise its electricity board MSEB. TEC, BSES and Enron will be the major contenders during this privatisation exercise. If Reliance were to take over BSES, its marketing and financial clout will make it difficult for TEC to hold ground. Already TEC has lost the battle to BSES in Orissa. If it manages to control BSES then it can hope to dominate the MSEB privatisation drive.

Otherwise also, a bid on BSES seems logical and advantageous for both companies as both will save on costs. Currently BSES is spending on laying an optic fibre cable network, which TEC already has. Secondly, both have Internet plans, which they can club together.

But acquiring BSES is easier said than done. The Tata’s will have to quote a very high price and look at acquiring more than the prescribed 20%. One must remember that Reliance already holds around 15% of the company. The financial institutions hold the key to this tussle as they hold around 35% in BSES.

Whoever comes up trumps within the two, BSES shareholders especially the FIs will surely be laughing all the way to the bank at the end of all this.

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