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Govt to explore mergers & acquisitions across state-run units
February, 18th 2017

The government will explore mergers & acquisitions (M&As) in not just the oil sector but in all state-run enterprises, a senior finance ministry official said on Friday , while asserting that all efforts would be made to meet the disinvestment target of Rs 72,500 crore for the current financial year.

“M&As are natural process of business expansion to improve the value chain. There has to be economic justification, which is very strong forward and backward integration,“ Neeraj Gupta, secretary , department of investment and public asset management (DIPAM) told TOI in an interview. “M&As should be explored across CPSEs (central public sector undertakings) as there are multiple entities doing similar or related work,“ Gupta said. He said M&As in the PSU space will lead to economies of scale, optimise returns and help build bigger companies.

FM Arun Jaitley in his 2017-18 Budget announced that the government plans to create an integrated public sector oil major, which will be able to match the performance of international and domestic private sector oil and gas companies. He also said that the government sees opportunities to strengthen CPSEs through consolidation, mergers and acquisitions. “Oil sector is indicative not exhaustive,“ Gupta said.

While M&As are common in the private sector, it has been very limited in the PSU space. The experience of M&As in state-run firms has also not yielded desired results as those were driven with other motives rather than financial consideration. Administrative ministries are often reluctant to ease their control over PSUs, which hinders maximisation of return of investment. Merger of oil companies was discussed during Atal Bihari Vajpayee's regime and then it was taken up by Mani Shankar Aiyar in UPA-1. The government has also merged Indian Airlines with Air India but experience has not been pleasant. Under the current initiative, DIPAM can play the role of conceptualising and can assist state-run firms. But before PSUs proceed on the path of M&As there should be an in-depth analysis of issues linked to specific sectors.

Gupta said strategic sales were on track and were progressing on the lines of the governmenty policy and final decision would be taken on a “case-to-case to basis.“ He said the budget focussed on a specific strategy for 2017-18, including listing of insurance companies, use of ETFs, minority and strategic stake sales and listing of railway companies.“It will be the endeavour to meet the target and we will put our best effort.“ The government raised Rs 45,500 crore from stake sales in 2016-17, the highest amount realized from disinvestment.

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