Ratan Tata is not easing gently towards retirement.
Two months before he relinquishes the reins at India's largest business house, the Tata Group's Indian Hotels Co Ltd has made an unsolicited and unexpected $1.2 billion bid for luxury hotel group Orient-Express Hotels Ltd.
The offer, priced at a 40 per cent premium, may prove the final bold move for Tata, who has built the software-to-steel conglomerate into the country's biggest business house through a series of large overseas deals, not all of them successful.
Investors greeted the Orient-Express offer with wariness, pushing Indian Hotels shares down 5.5 per cent on Friday. Indian Hotels would also assume Orient-Express debt, which stood at $530 million on June 30.
Shares in Bermuda-headquartered Orient-Express fell back 0.7 per cent in New York on Friday to $10.90, well shy of Indian Hotels' bid of $12.63 per share. The shares rose as much as 41 percent on Thursday after the bid was announced, closing at $11.05, up 22.5 per cent.
Indian Hotels was rebuffed in an attempt to strike an alliance with Orient-Express in 2007, and again in August.
"Generally, acquisitions for Indian Hotels have not been rewarding for the company," said Niraj Mansingka, an analyst with Edelweiss Capital in Mumbai.
Indian Hotels has bought several overseas properties, including the Pierre in New York, but they have not tended to perform as well as its domestic operations, which include its flagship Taj Mahal Palace in Mumbai.
Orient-Express' global portfolio includes the Hotel Cipriani in Venice and the 21 Club in New York, but its heavy exposure to the sluggish European economy has crimped growth.
Indian Hotels rejected the characterisation of Thursday's bid as hostile, even though it was uninvited and Orient-Express had as recently as August rejected an approach for what Indian Hotels said was a "significant" stake in the company.
"If it was a hostile offer it would have been made to the shareholders. It is a friendly, constructive offer," Indian Hotels Vice Chairman R K Krishna Kumar told reporters.
He said the company expects a reply within three weeks. "If this does not go through then we will look at other options. We are open," Kumar told Reuters.
Orient-Express, which has a dual share structure that would make a hostile takeover hard to pull off, has said it will evaluate Tata's approach.
Indian Hotels has the backing of the former CEO of Orient-Express, Paul White, and Luca Cordero di Montezemolo, chairman of Italian sports car maker Ferrari and a close friend of Ratan Tata.
Under the silver-haired Tata, a bachelor and car enthusiast who turns 75 in December, the Tata group has been at the forefront of an overseas acquisition binge by Indian companies.
Tata Motors Ltd made one of India's signature buys when it paid $2.3 billion in 2008 for British luxury car maker Jaguar Land Rover, a heavily leveraged deal whose wisdom was questioned at the time but has proven to be a winner.
Tata Steel Ltd's $12.7 billion takeover in 2007 of Anglo-Dutch steelmaker Corus, India's largest outbound deal, has been less successful, with the European steel sector plagued by overcapacity, high costs and broader economic troubles.
"Those acquisitions have created very anxious moments in shareholders," said Jagannadham Thunuguntla, head of research at SMC Investments and Advisors Ltd in New Delhi.
"Considering that, (it) needs to be seen how far Indian Hotels group would like to stretch themselves," he said.
Tata, whose titles include non-executive chairman of Indian Hotels, will be succeeded at the helm of the conglomerate by Cyrus Mistry, 44, who is related by marriage and whose father is the biggest shareholder in the Tata Sons holding company.
Try, try again
Under the proposed deal, the Charme II Fund, managed by the Ferrari chairman's Montezemolo and Partners S.p.A, would invest $100 million for a minority stake in the newly combined group.
Indian Hotels would pay $650 million in cash while the rest would be funded by other Tata entities and debt from ICICI Bank , Standard Chartered Bank and Bank of America-Merrill Lynch, which is also advising the bidder.
Indian Hotels bought a 10 percent stake in Orient-Express in 2007, and now owns about seven per cent.
One analyst at a Mumbai brokerage who tracks Indian Hotels and declined to be identified said the proposal does not look attractive for the Mumbai-based company's shareholders, partly because of the debt that Indian Hotels is already carrying.
Indian Hotels, with a market value of $1 billion, had net debt of Rs 35.7 billion at the end of March. "It will be earnings-dilutive and worsen the debt profile in a troubled business environment. Orient-Express gets a third of its revenue from Europe, which is facing problems," the analyst said. "Paying 40 percent premium for a property in a low-growth region is probably not a great idea in this environment."