Schneider Electric, a global player in energy management and automation, has entered into a definitive agreement with Larsen Toubro, a leading Indian conglomerate, to buy its electrical automation business for an all-cash consideration of Rs 14,000 crore.
Schneider Electric has formed a consortium with Singapore’s state investment firm Temasek Holdings for the transaction. Under the proposed deal, both partners will make fresh investments in Schneider’s wholly owned subsidiary, Schneider India, which in turn will buy out LT Electrical Automation.
After the transaction is completed, Schneider Electric will have a 65% stake in the company, while the remainder will be held by Temasek, Schneider Electric said in a statement. Temasek will invest Rs 5,075 crore cash as it’s share of the equity.
Schneider Electric also has a listed Indian subsidiary, Schneider Electric Infrastructure Ltd., in which the French multinational owns a 75% stake.
ET reported on April 19 that the consortium of Schneider Electric and Temasek had resumed negotiations to acquire LT’s electrical and automation business.
Schneider has the right to appoint the chairperson and five executive directors, while Temasek will appoint three non-executives in the new board.
“By bringing together the Low Voltage and Industrial Automation Products Business of Schneider Electric India and LT EA, we are creating an innovative company in Energy Management and Industrial Automation in one of the world’s largest and fastest-growing economies,” Schneider Electric chairman and CEO Jean-Pascal Tricoire said in a statement.
With this transaction, India will become one of the key innovation and manufacturing hubs of Schneider Electric. The French giant plans to export to emerging markets like Middle East, South East Asia and Africa from India, once the transaction consummate
“India will become our third-largest business in the world, and one of our four major RD and manufacturing global hubs. Our combined company will actively contribute to make India green, digital, and reinforce its role as a centre for RD and manufacturing,” Tricoire added.
Temasek’s joint head for India Rohit Sipahimalani said its investment is a reaffirmation of the steady growth of the fund’s portfolio over the past few years and reflective of the type of partnership opportunities that it seeks.
“India’s favourable demographics, as well as its growing middle-income population and consumption trends, all represent opportunities for us to further invest in India’s growing companies,” he said.
Bank of America Merrill Lynch, Citi, HSBC and Arpwood Capital were the advisors in the transaction. Shardul Amarchand Mangaldas we’re the legal advisors.
Commenting on this long-awaited divestment, AM Naik, Group Chairman of LT, said, “The EA business is well-positioned to continue its growth trajectory with outstanding technologies, brands, people and global presence.”
The Schneider-Temasek combine edged past peers Siemens and Eaton Corp to clinch the deal that was revived earlier this year. It will help LT deleverage its balance sheet while streamlining its portfolio.
LT’s EA business, which reported net revenue of Rs 5,038 crore last fiscal, offers a wide range of low and medium voltage switchgear, electrical systems, marine switchgear, industrial and building automation solutions, energy management systems and metering solutions. Its manufacturing facilities are located at Navi Mumbai, Ahmednagar, Vadodara, Coimbatore and Mysore in India as well as in Saudi Arabia, UAE (Jebel Ali, Dubai), Kuwait, Malaysia, Indonesia and the UK. The division has 11 manufacturing facilities in India, Asia and Europe.
The transaction covers all segments of the Electrical Automation business of LT, except marine switchgear and Servowatch Systems. These two divisions together represent 2-3% of EA’s revenue.
The proposed sale is aimed at pruning the engineering giant’s portfolios. Over the past year, the conglomerate – with a diversified presence in technology, engineering, construction, manufacturing and financial services in over 30 countries with $17 billion in revenue – has sold several non-core assets. This, along with the sale of the general insurance business, helped LT to completely fund its investments in Nabha Power and Hyderabad Metro in FY17.
Schneider Electric, with revenue of 27.4 billion euros in 2017, is expanding its presence in the Indian market. “There will be an exit route in the agreement but it would be five years or more,” said a person involved in the deal.
Schneider will provide debt and equity to Schneider India and Temasek will provide equity funding in Schneider India that will subsequently buy out the EA division and merge it with itself, said a person involved in the deal.