Companies Selling Off Non core Business In A Bid To Garner Liquidity

By Anjali Shukla

Godrej has sold off its air care brand, Ambi Pur, to Procter & Gamble for Euro 40 million. As per reports, below the deal the Godrej Group, which had the rights to market the brand in India till 2012, has relinquished these to Sara Lee, which, successively, will hand Ambi Pur to P&G, the modern possessor.
Over the past few months, Indian companies have been on a spree to trade off their non-core businesses/ sum totals. These include the countrys largest conglomerates to mid-sized companies like Piramal Healthcare and real estate player Unitech, amidst others.
Non-core asset/ business sale over the past few months
Close on the heels of Godrejs sale formal public statement came the news of Reliance Communications (RCom), the flagship telecom company of Reliance Anil Dhirubhai Ambani Groups (ADAG), approval to dilute 26% equity in a highly important sale. The stake sale, it’s believed, is to finance future elaboration plans suchlike the rollout of 3G mobile services.
Similarly, GMR Group sold a majority stake in GMR Industries, its sugar business, to E.I.D Parry for in regards to Rs 110-120 crore in line with its overall system to divest non-core sum totals and focalize on infrastructure and energy businesses in the future.
Real estate firm Unitech Ltd, in April said it would spun off its infrastructure businesses including its investment in a telecoms firm into a distinguished company in a bid to unlock value. Similarly, DLF Ltd. has sold non-core sum totals worth 2.94 billion rupees.
Around the same time Tata Motors declared its plans to trade allocation of its shareholding in Tata Cummins JV, a diesel engine joint campaign company as allocation of the companys plan to raise cash to repay debt by divesting its non-core assets.
Why are companies retail off non-core businesses?
The reasons are a lot of and include the pressing need for liquidity to de-leverage. Sale of non-core businesses comes handy for companies looking to comfort their debt burden. The spate of spun offs was triggered by the slowdown witnessed in the worldwide markets. The companies, searching for liquidity had to fall back on the non-core assets/ operations to generate the same.
On the other side of the scale are companies with surplus money who are searching for profitable investments.
These non-core businesses, perchance acquired with the view to diversify, do come in handy at a time when the companies must de-leverage.

To concentrate better on core business: The spun-offs are likewise directed at cutting the flab in order to focus on the center competencies which will enable them to turn into lean, mean and internationally competitory.
To garner liquidity for investments to boost core businesses/ fund accomplishments: In addition to the increased focus on the center businesses, by divesting their non-core sum totals the companies are likewise cutting out a drain on their remainder sheets. Thereby, they’re likewise saving cash, which may be better used to advance efficiencies in their existent operations in addition as towards acquiring businesses which supplement the center efficiencies.
Ease the debt burden/ Pay off debt: The trigger for such hectic action may be summed up with one four-letter word: Debt. Debt, that was usedor overusedto make accomplishments large and little, to exaggerate operations, and to flag off new ventures.
Mergers & Acquisitions in April-June 2010
According to reports as a lot of as 65 M&As were declared in the month of May (Source: VCCEdge), supported by the robust domestic economy and bettering overseas scenario, which has pushed firms to relook at highly important elaboration choices.
The deal value touched USD 24.8 billion in April-June 2010 taking the total M&A value in the firstborn half of 2010 to USD 48.1 billion, up from USD 16.3 billion for the entire of 2009. The most purposed spheres include telecommunication services, healthcare and finance.
Conclusion
In order to consolidate their positions/ businesses, companies not only must make highly important purchase outs but likewise spun off their non-core operations. It is believed that the valuations for highly important M&As are still reasonably priced in the current market circumstance.

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