Ashwin Anand

Seven months later, the foreigners are still waiting, stalled by populist politicians who say their arrival would threaten the survival of India’s legions of small shopowners. The delay has done little to change the perceived threat to mom and pop shops, though, as local conglomerates controlled by India’s richest families have been busy shoring up their position in retail.

The Birla, Ambani, Tata and Raheja business houses — which already dominate sectors such as energy and automobiles —have spent the past several months opening new outlets or taking over existing retailers to gain an edge in an industry that Technopak Advisors Pvt estimates will expand more than 40 percent to $725 billion by 2017.

“The attraction of the retail segment for most Indian corporate houses is they see consumer-oriented industries as the next logical platform for growth,” said Hemant Kalbag, head of the consumer and retail practice for Asia at consultancy A.T. Kearney.

Stores and supermarkets are a switch from the traditional businesses of India’s billionaires, most of whom got their start in steel, oil, cotton, spices, and other commodities. Today, the country’s wealthiest families are betting that they can prosper by catering to a growing middle class seeking higher quality goods in cleaner stores.

‘Highest Earnings Potential’

A unit of billionaire Kumar Mangalam Birla’s Aditya Birla Group, which produces aluminum and copper, in April agreed to buy part of Pantaloon Retail India Ltd. (PF) by purchasing 8 billion rupees ($146 million) worth of debentures and taking on another 8 billion rupees in debt.

Reliance Industries Ltd. (RIL), primarily an oil-refining business run by India’s richest man, Mukesh Ambani, last month announced a joint venture with Brooks Brothers to sell suits, sportswear and accessories in India. That adds to the more than 1,300 Reliance stores offering products from groceries to Apple computers.

Ambani, who ranks 22nd on the Bloomberg Billionaires Index with a net worth of $21 billion, last month pledged to boost revenue from his retail operations at least fivefold from the current 76 billion rupees ($1.38 billion) within four years. Reliance Retail will have some of the company’s “highest growth rates and earnings potential,” Ambani told a June annual meeting.

Political Opposition

DLF Ltd. (DLFU), India largest real-estate developer based in Gurgaon and run by billionaire Kushal Pal Singh, in May opened its first retail outlet selling multiple brands. The company’s retail unit, DLF Brands, plans to expand to as many as 500 stores in the next four or five years, said Dipak Agarwal, chief executive for operations and strategy at DLF Brands.

Shoppers Stop Ltd. (SHOP), a unit of billionaire Chandru Raheja’s K Raheja Corp., added 54 new stores in the fiscal year ended March 31, the most openings the company has ever made in a year. Trent Ltd. (TRENT), a publicly traded unit of the Tata Group that operates supermarkets and clothing stores, added 17 outlets in the year ended March 2012.

India’s government on Nov. 24 agreed to allow overseas companies to own as much as 51 percent of supermarkets. Two weeks later it reversed that decision because of political opposition from critics who said the multinationals would destroy mom-and-pop businesses.

In a December interview with Bloomberg, Prime Minister Singh pledged to overcome that opposition, possibly after March state government elections. That hasn’t materialized as his Congress party faced a setback in the regional voting and contended with surging inflation and a plunging rupee.

“I don’t sense any consensus has been built,” said Sonal Varma, India economist at Nomura Holdings Inc.

Indian Partners

An opening of the retail sector wouldn’t necessarily hurt India’s big business houses. Overseas retailers will likely be required to have local partners, giving Indian companies room to negotiate tie ups. India allows global retailers with multiple brands to have wholesale operations, although they can’t sell directly to consumers. Existing partnerships in the wholesale industry could extend into retail if the market opens.

Wal-Mart has 17 wholesale outlets in India, set up in partnership with billionaire Sunil Mittal’s Bharti Enterprises Pvt. Ltd. Bharti, which owns India’s largest mobile phone operator, Bharti Airtel Ltd. (BHARTI), runs its own chain of over 170 Easyday supermarkets.

“Even if foreign companies are allowed they would like to have a tie with somebody who is local,” said Arun Kejriwal, director of Kejriwal Research. “It gives them access to the Indian market, logistics, everything else at one shot.”

Indian conglomerates have said they support foreign investment in retail. When the government in November said it would allow the overseas brands in, Bharti issued a statement praising the decision.

The conglomerates’ immediate payouts have been limited as they invest in new stores. Reliance Industries’s 76 billion rupees in retail revenue is a fraction of the conglomerate’s total sales of 3.4 trillion rupees. Tata’s Trent had a loss of 377.6 million rupees in the fiscal year ended March, according to data compiled by Bloomberg.

Small neighborhood stores still dominate Indian retail. Foreign investment “is not going to really eradicate the nearby shopowner,” said Kumar Rajagopalan, chief executive officer for the Retailers Association of India. “If it had to happen it would have happened even with the large business houses in the country opening up more stores.” Organized retail, where conglomerates such as Tata and Reliance operate, accounts for just 6.5 percent of the retail sector, Technopak estimates.

“There is huge potential,” said Pranab Barua, head of retail and apparel at Aditya Birla Nuvo Ltd. “Penetration is very low even now for modern retail.”

To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net

To contact the editor responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net

Lazard Ltd. (LAZ), Evercore Partners Inc. (EVR) and Barclays Plc (BARC) are banking on a turf typically dominated by lawyers. While global mergers and acquisitions volume is down 27 percent so far this year, patent deals have jumped in the past 12 months to $18.8 billion from $450 million the year before, according to calculations based on data compiled by Bloomberg. The competition among Apple Inc., Google Inc. (GOOG), Microsoft Corp. (MSFT) and Facebook Inc. (FB) to dominate the wireless market largely accounts for the rise.

“Patents have historically been a small, private and illiquid asset. Now you have money piling in from all kinds of sources,” said Robert Heath, head of corporate development at RPX Corp. (RPXC), a San Francisco-based firm that buys and licenses patents.

For technology companies patents have become a valuable asset to wield against competitors and to defend themselves against intellectual-property infringement lawsuits. Activist investors including Carl Icahn and hedge fund Starboard Value LP have been riding the trend, urging companies such as Motorola Mobility Holdings Inc. and AOL Inc. to extract value from their patents as well.

‘Niche Asset’

Until recently, most Wall Street firms stayed on the sidelines in patent deals because they’ve been “too much of a niche asset,” said Craig Opperman, partner and intellectual- property asset specialist at law firm DLA Piper LLP. “Lazard, Evercore and Barclays are the banks that I come across the most” in patent deals, said Opperman, based in Palo Alto, California.

Lazard’s specialty is selling patents out of bankruptcy, honed when it advised Nortel Networks Corp. on its restructuring after it filed for Chapter 11 protection in 2009.

The Bermuda-based investment bank’s strategy was to first sell Nortel’s operating assets, making sure not to give away each asset’s underlying patents, said David Descoteaux, a New York-based restructuring banker at Lazard. Then it turned to selling Nortel’s 6,000 patents that are part of the wireless industry standards for devices, the so-called 4G high speed technology.

After 18 months of negotiations and an auction, Nortel sold the patent portfolio last year to a group including Apple Inc. (AAPL), Microsoft and Research in Motion Ltd. for $4.5 billion —almost quintupling Google’s initial offer of $900 million. The patents fetched a price higher than all of Nortel’s other asset sales combined.

Advising Google

“Banks are contributing to make the patent market more liquid by attracting more potential buyers,” said David Berten, founder and partner of Global IP Law Group LLC, a Chicago-based law firm, which advised Nortel together with Lazard.

Lazard also advised Google last year when it agreed to buy 100 percent of Motorola for $12.5 billion. The deal was largely motivated by Google’s desire for Motorola’s patents, after it lost its chance for Nortel’s. The sale came a month after Icahn urged Motorola to explore alternatives for its patents.

For Evercore, a New York-based banking boutique, patents will represent as much as 20 percent of its technology business this year, up from 5 percent a year ago, said Naveen Nataraj, a technology banker.

Nortel, AOL

Evercore advised AOL together with Goldman Sachs Group Inc. when it agreed on April 9 to sell to Microsoft its patent portfolio for about $1.05 billion, more than triple the $290 million value patent-advisory firm M-Cam Inc. had estimated. Starboard, with a 5.2 percent stake, had been agitating for an auction of AOL’s patent.

“The success of the Nortel and AOL patent sales has added to a growing awareness among large patent holders of the value trapped in their portfolio of inventions,” said Nataraj.

Unlike the boutique investment banks, London-based Barclays parlays its balance sheet to help patent-licensing companies raise equity and debt financing. It worked on six patent-related transactions in 2011 compared with none in the two previous years.

“Big banks like Barclays can’t ignore the trend because too much transaction volume is at stake,” said Kirk Kaludis, who runs its communications technology practice in Menlo Park, California.

Barclays was the lead underwriter on RPX’s $160 million initial public offering last year. Barclays also placed privately this year $225 million worth of shares in Acacia Research Corp., which develops, buys and licenses patented technologies.

Banker Flops

Bankers have had their flops. Last year, Evercore and Barclays advised InterDigital Inc., a mobile-phone technology designer with more than 19,500 patents, on attempts to find a buyer. InterDigital called off the auction in January as bids came in lower than expected, according to a person close to the situation. Evercore alone advised InterDigital when it agreed to sell Intel Corp. roughly 1,700 of the patents for $375 million, InterDigital said on June 18.

Lazard failed to sell 1,100 imaging patents owned by Eastman Kodak Co. last year as the photography pioneer tried to avoid bankruptcy. Lazard is again trying to sell the portfolio for Kodak, which filed for bankruptcy protection in January.

Valuing a patent is as much art as science. It varies based on such factors as the extent of its licensing, the strength of its validity and its expiration date, said Mike Lasinski, founding partner of 284 Partners, a patents service firm based in Ann Arbor, Michigan. Often litigation is the only way to assess a patent’s value.

To reflect the longer time spent on a patent sale compared with an average M&A deal, Lazard charges a success-based fee and a monthly retainer, said Descoteaux. Evercore’s fees are success-based like those of a normal deal, said Nataraj.

“It’s traditional M&A with a few important tweaks and some esoteric aspects,” said Nataraj.

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net.

To contact the editor responsible for this story: Katherine Snyder at ksnyder@bloomberg.net