L&T to sell electrical and

automation business to
Schneider for Rs 140 bn
This is the biggest disvestment for the engineering giant so far
Amritha Pillay  |  Mumbai 
Last Updated at May 2, 2018 02:11 IST

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In its biggest divestment so far, engineering conglomerate Larsen &

Toubro (L&T) on Tuesday said it would sell its electrical and automation
business (E&A) to France-headquartered Schneider Electric for a cash
consideration of Rs 140 billion. The divestment plan, which was first
discussed in the summer of 2015, took three years to mature, it is learnt.

The deal is important because it signals L&T’s exit from manufacturing

in the real sense, a source said. Although it will continue with
manufacturing in power equipment as well as industrial products and
machinery, that will primarily be on the project business side with
associated fabrication, he added. There have been many divestments in
the past, the biggest being the company’s exit from cement 15 years
ago.

Schneider Electric will partner investment company Temasek for the

deal, which took merchant bankers to several cities within India and
overseas. A person familiar with the developments pointed out how it
was a hard-fought battle between Siemens, Eaton, and Schneider — the
three suitors talking to L&T. While the meetings with Siemens and
Schneider were held mostly in India where the two companies have a
strong presence, negotiations with Dublin-headquartered Eaton took
place on neutral ground, another source told Business Standard. That
was in Singapore. Finally, the deal was clinched in Mumbai as bankers
settled for the Schneider-Temasek partnership.

L&T was represented by Arpwood Capital, while Schneider-Temasek

were advised by Bank of America Merrill Lynch and Citi.

“L&T, today (Tuesday) signed, subject to regulatory approvals, definitive

agreements with Schneider Electric, for strategic divestment of
its E&A business for an all-cash consideration of Rs 140 billion,” the
company said in a statement.

The divestment of this business is part of L&T’s larger plan to streamline

its operations by divesting from non-core assets. The contribution from
the E&A division to L&T’s total revenue has declined over the years as
the proportion of other segments such as infrastructure and engineering,
procurement, and construction grew. In addition, the E&A industry, which
requires constant technology advancements, also grew competitive,
said an analyst.

For financial year 2016-17, the E&A business reported net revenue of
Rs 50.38 billion.
“The divestment of E&A business is in line with L&T’s stated intent of
unlocking value within the existing business portfolio to streamline and
allocate capital and management focus for creating long-term value for
our stakeholders,” said S N Subrahmanyan, chief executive officer and
managing director at L&T.

In a separate press statement, Schneider said, “Schneider

Electric announces the signing of an agreement with L&T to buy its E&A
business and combine it with Schneider Electric India’s low voltage and
industrial automation product business. Temasek will invest in the
combined business and will hold 35 per cent of it.”

This deal will strengthen Schneider Electric’s India business, making it

the thirdlargest country in terms of revenues of €1.6 billion (Rs 128
billion), on a par with France.

Schneider pipped German conglomerate Siemens and Dublin-based

Eaton in a hard-fought battle to acquire the E&A business.

“Our investment in Schneider Electric India is another step in the steady

growth of our portfolio in India over the past few years, and reflective of
the type of partnership opportunities that we seek to invest into,” said
Rohit Sipahimalani, joint head, India, Temasek, in a press statement.

Analysts see the conclusion of the deal as a positive for L&T. “It is one of
the last big divestments for the company. The market will now look for
turnaround at its loss-making divisions and partial stake sale of
comparatively small size in some divisions. It is a good move, as it helps
to focus on the core operations of the company,” said an analyst with a
domestic brokerage firm.
The E&A business includes five manufacturing facilities in India as well
as presence in a few countries in West Asia, South East Asia, and the
UK. The transaction includes all the current business segments of E&A
except marine switchgear and servowatch systems. These two
businesses share synergy with L&T’s defence business.

Subrahmanyan added that the deal would be completed in 12-18

months, and would require various approvals, including that of the
Competition Commission of India.

L&T’s E&A division has over 5,000 employees, excluding marine

switchgear and servowatch systems. All the employees will be
transferred to Schneider.

Valued at Rs 140 billion, analysts see it as a good deal for L&T. “It is a
good valuation and it will help them improve their balance sheet. They
may not use it for overall debt reduction, but it will help them with
working capital and in growing faster,” said Dhirendra Tiwari, head of
research, Antique Stock Broking.

Subrahmanyan did not share details on what the company plans to do

with the proceeds. “The transaction will take some time, so let the
money come in. Companies like us take a lot of time in getting into
details of what to do with proceeds, where to allocate capital and
resources. It is too early to talk about it,” he added.

Schneider expects the new combined business to create significant

synergies and efficiency by leveraging on the complementary
businesses of Schneider and L&T E&A business. The synergy will
include enabling Schneider access to consumers in tier II and tier III
cities and semi-urban and rural areas across India, where Schneider
Electric currently has limited presence.