Merger and acquisition analysis

Assignment on Merger & Acquisition

Submitted BySudheer ParasharMBA 4th Semester

Submitted ToMr. Gorav BagraABS

Submitted

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BANK OF RAJASTHAN TO MERGE WITH ICICI BANK

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ICICI and BOR

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Corporate Profile

Key Rationale ICICI BOR

Type Private Sector Private Sector

IndustryBanking Financial Services Banking Loan, Capital Market and

Allied Industries

Year of Incorporation 1994

1943

Branch 2530 463

Products

Finance and insurance Retail Banking Commercial Banking Mortgages Credit Cards Private Banking Asset Management Investment Banking

Corporate or wholesale banking, Personal banking , Commercial banking, Retail banking, Finance and insurance, Investment Banking, Auxiliary services, Merchant banking,

Trust and custodial services

ICICI and BOR

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Financial Profile (At March 31, 2010)

Key Rationale ICICI BOR

Total Income32999.36 1496.67

PAT4.024.98 102.13

Total Assets363,399.71 17300.06

CAR(Min. 8%)19.14% 7.74%

Net NPA Ratio2.12 1.6

Total Deposit2,020.17 billion 1506.35

Borrowing942.64 billion 0.65

ICICI and BOR

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Merger

ICICI bank approved merging of Bank of Rajasthan with itself on 18 May 2010. The share swap ratio was announced at 25:118 (25 shares of ICICI Bank for 118 shares of BOR). The Reserve Bank of India on 13th August 2010 gave its nod to the merger.

ICICI and BOR

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Deal Structure

Company Swap Ratio

Out. Share(Crore)

Price Before Announceme

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Market Cap

Deal Value

(Crore)

ICICI 25 111 889.35 99221 3042BOR 118 16 99.5 1597

ICICI and BOR

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Reason beyond Merger

Marketing

Customer centric strategy New- found branch - focused strategy Improve presence in north India It will also give us the ability to grow CASA and push

inclusive banking

ICICI and BOR

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Continue…. Reason beyond Merger

Operational

Increase Base of CustomerIncrease in retail deposit base. Consequently, ICICI Bank would get sustainable competitive advantage over

its competitors in Indian Banking

ICICI and BOR

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Financial

valuation= Rs. 3041/ 463 branches (Rs. 6.6 crore at an average rate)

Continue…. Reason beyond Merger

ICICI and BOR

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Strategic Approach

Although valuation in monetary terms does have a strong impact in any merger but without consideration of about 30 lakh customers and approx. 4000 employees, the deal might turned to a big failure.

ICICI and BOR

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Conclusion ICICI Bank’s branch network, already the largest among Indian

private sector banks, and especially strengthen its presence in northern and western India.

It would combine Bank of Rajasthan’s branch franchise with ICICI Bank’s strong capital base, to enhance the ability of the merged entity to capitalize on the growth opportunities in the Indian economy.

This is the third acquisition by ICICI Bank. It had earlier acquired Bank of Madura way back in 2001 and the Maharashtra-based Sangli Bank in 2007 which shows that ICICI Bank believe in the expansion by the strategic move through amalgamation

ICICI and BOR

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Bharti Airtel completed a deal to buy Kuwait-based Zain Telecom's African business for $10.7 billion

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Bharti Airtel and Zain

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Corporate ProfileBharti Airtel:

Bharti Airtel is the largest wireless service provider in our country and the 5th largest integrated telecom operator in the world. It has presence in all the 22 telecom circles in India and operations in Srilanka, Bangladesh and Africa. The company provides its wireless services under the GSM (Global System for Mobile Communication) technology

Zain Africa

Wholly owned subsidiary of Zain, incorporated in Netherlands and held the African operations of Zain.

The company was originally named Celtel which was acquired by Zain in 2005 and renamed as Zain

International BV. The same has been acquired by Bharti Airtel now through Bharti Airtel Netherlands BV


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Financial Profile

Basis Bharti Airtel Zain Combined

Revenue

$ Billion 8.03 3.64 11.67

Rs. 36961.6 16744 53705.6

Net Profit/Loss

$ Billion 1.84 -0.1 1.74

Rs. 8469.9 -310.6 8159.3

EBITDA

$ Billion 3.3 1.2 4.5

Rs. 15167.8 5520 20687.8

EBITDA Margins % 40 32


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Deal StructureAcquirer Bharti Airtel Limited

Seller Mobile Telecommunications Company KSCTarget Zain Africa International BV

AcquisitionBharti Airtel Limited indirectly acquired

100% of Zain Africa International BV and its business operations

in Africa from Zain under a privately negotiated agreement

Mode of Acquisition Security (Share) Sale

Consideration USD 10.7 billion


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Financial DecisionIn Feb 2010, Bharti paid $10.7 billion for Zain Africa, which is 10

times EV to EBITDA multiple for Zain.Bharti was valued at 7.2 times EV to EBITDA.Zain Africa has made a net loss of $112 million in the nine months

to September 2009.The deal is highly volatile and carries huge commercial risk.Bharti structured the deal as LBO with loan worth $8.3 billion with

LIBOR plus 195 basis points.With extremely high cost of acquisition, interest payable on loans

availed and meager revenues for next few years.


Financially does not make any Sense

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Earning dilution for Bharti in FY12E

($ Million) Bharti Zain Consolidated

Revenues 10956 4007 14963

EBITDA 4135 1402 5537

EBITDA Margin % 37.7% 35% 37%

Interest 9 749 758

Dep 1511 900 2411

PBT 2615 -247 2368

Tax 418 418

Minority Interest 55 -74 -19

Tax Shield on Interest 15% -112 -112

PAT 2141 -60 2081

% reduction in PAT -2.8


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Key Driver of Deal

Saturation in India telecom market

Over dependence on India market

Low tariff and high volume model in Africian


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Reason Beyond MergerAfrica is attractive for Bharti as the mobile user base is

low there, with just over a third of the population having a mobile.

Telecom Zain's 15 African operations included in the deal have a combined user base of about 42 million.

Indian market is also showing early signs of saturation, with

penetration reaching about 45 percent.


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StrategyBharti gains access to at least three African countries where

Zain enjoys a clear hegemony

Two-thirds of the mobile market in Niger, Malawi and Chad (operating margins in excess of 40%).

Moreover, despite its poor financial performance in Africa, Zain’s average revenue per user (ARPU) of $8.2 is much better than Bharti’s $5. This means, Bharti may be able to rake in profits from these markets if it controls costs effectively.


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ConclusionIt is a structural shift on the telecom space because the growth rates

are topping out and over the last few quarters, the operating profit margins for most of the players have been under pressure. The direction which Bharti took was to address that concern to sustain growth rates over the next few years.

However, valuations that one is paying are little bit on the higher side. However, Bharti is going to be generating pretty good amount of cash flows over the next few quarters. Bharti’s key strategic move gives a strong presence in the high potential African telecom market. However, we are optimistic that if Zain starts performing, the deal could reap returns to Bharti in the long term.


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Sun Pharma to acquire Daiichi

Sankyo owned by Ranbaxy in deal worth $3.2billion

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Sun Pharma and Ranbaxy

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Sun Pharmaceutical Industries Limited

SPIL is an multinational pharmaceutical company headquartered in Mumbai, Maharashtra that manufactures and sells pharmaceutical formulations and active pharmaceutical ingredients (APIs) primarily in India and the United States.

The company offers formulations in various therapeutic areas: ascardiology, psychiatry, neurology, gastroenterology and diabetology.

It also provides APIs such as warfarin, carbamazepine, etodolac, and clorazepate, as well as anticancers, steroids, peptides, sex hormones, and controlled substances


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Ranbaxy

Ranbaxy is a member of the Daiichi Sankyo Group. Daiichi Sankyo is a leading global pharma innovator, headquartered in Tokyo, Japan


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Deal StructureSun Pharma to acquire Ranbaxy Ranbaxy shareholders to get 0.8 shares of

Sun Pharm a stock for every share of Ranbaxy

Deal size approximately US$ 4 billion; ~ 2.2x LTM sales US$ 250 million of revenue and operating synergies by 3rd year post close

Daiichi Sankyo to become the second largest shareholder in Sun Pharma. Strategic business relationship to continue with Sun Pharma Voting Agreements

Daiichi Sankyo to vote in favor of transaction (~63.5% ownership)

Sun Pharma promoters to vote in favor of transaction (~63.7% ownership)


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Financial StructureAll-stock transaction totalling equity value of USD 3.2 billion. The transaction is worth over USD 4 billion. The deal values Ranbaxy shares at Rs 457 apiece, representing an 18 percent

premium to its 30-day volume-weighted average share price on April 4, 2014.On a pro forma basis, the combined entity’s revenues are estimated at USD 4.2

billion with EBITDA of USD 1.2 billion for the twelve month period ended December 31, 2013. The transaction value implies a revenue multiple of 2.2 based on 12 months ended December 31, 2013

On April 11, 2014, Ranbaxy Laboratories closed at Rs 467.90, up Rs 6.25, or 1.35 percent. The 52-week high of the share was Rs 505.00 and the 52-week low was Rs 253.95. The latest book value of the company is Rs 3.41 per share. At current value, the price-to-book value of the company was 137.21.


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Purpose beyond Merger5th largest global specialty generic pharma companyNo. 1 pharma company in India, one of the fastest growing markets

No. 1 Indian pharma company in US market

Over US$ 2 billion in sales

Pipeline of 184 ANDAs including high-value FTFs

No. 1 in generic dermatology, No. 3 in branded

Approaching US$ 1 billion sales in high-growth emerging markets

Expanding presence in Western Europe


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Reasons

Both drug makers have been facing quality issues in the lucrative US market, but the deal between them have created world's fifth-largest generic drug maker.

Ranbaxy has a significant presence in the Indian pharma market and in the US where it offers a broad portfolio of ANDAs and first-to-file opportunities.

In high-growth emerging markets, it provides a strong platform which is highly complementary to Sun Pharma’s strengths


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Conclusion

The combination of Sun Pharma and Ranbaxy will create the largest pharmaceutical company in India. Sun expects to realize revenue and operating synergies of USD 250 million by third year post closing of the transaction.

The combined entity will have operations in 65 countries, 47 manufacturing facilities across 5 continents, and a significant platform of specialty and generic products marketed globally, including 629 ANDAs

Daiichi Sankyo, the Japanese owner of India's biggest drug-maker by sales, will hold a stake of about 9 percent in Sun Pharmaceutical after the deal.


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Kingfisher Airlines Merge with Air Deccan

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Kingfisher and Air Deccan

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Kingfisher Airlines Kingfisher Airlines, a premium Full-Service Carrier, is a private

airline based company in Bangalore, India.

Currently, it holds the status of India's largest domestic airline, providing world-class facilities to its customers. Owned by Vijay Mallya of United Beverages Group,

Kingfisher Airlines started its operations on May 9, 2005, with a fleet of 4 brand new Airbus - A320, a flight from Mumbai to Delhi to start with.

The airline currently operates on domestic as well as international routes, covering a number of major cities, both in and outside India


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Air Deccan

Air Deccan is India’s first LCC.

It was founded and operated by Deccan Aviation Ltd. by Captain Gopinath in 2003 with regular scheduled flights from Bangalore to Mangalore and Hubli.

Deccan was known popularly as the common man's airlines.

Air Deccan triggered price wars in the Indian Skies which forced other players to match Air Deccan’s prices.

The consumers benefited while carriers lost. Air Deccan gained market share but at the cost of profitability


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Merger..

Air Deccan airlines merged with Kingfisher Airlines and decided to operate as a single entity from April, 2008. Following the merger of Deccan with Kingfisher, in August 2008, Kingfisher renamed Deccan as Kingfisher Red. After the merger, the company has a combined fleet of 71 aircrafts, connects 70 destinations and operates 550 flights in a day. The combined entity has a market share of 33%.


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Reason Negotiation power and costs saved in fuel and maintenance

will be the a expect savings of about Rs 300-400 crore (Rs 3-4 billion)

Annually to accrue because of the synergies achieved due to the merger added benefits.

Expect savings of about Rs 300-400 crore (Rs 3-4 billion) annually to accrue because of the synergies achieved due to the merger.

The raison d'etre for demerger of scheduled air services from Kingfisher Airlines into Deccan Aviation is to preserve the tax offset.


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Objective

Focus more on the international routes

Wider domestic reach.

Low cost carrier

Full-service carrier

Immense synergies as both operate Airbus


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Conclusion

As result of deal both the company has a combined fleet of 71 aircrafts, connects 70 destinations and operates 550 flights in a day.

Kingfisher would operate as a single largest (private) airline in the sub-continent. Besides, operational synergies (engineering, inventory management and ground handling services, maintenance and overhaul), the management and staff of both the airlines would be integrated

They would be stronger lessors, aircraft manufacturers and will also spend less on training and employees. Costs would also reduce which is associated with maintenance of aircraft.

The savings in cost would be lower by about 4-5% (Rs 300 crores) devising a more optimal routing strategy it could help in rationalizing the fare..


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Verizon wins approval for $130 billion takeover of Vodafone's share of its wireless network

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Verizon and Vodafone

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VerizonVerizon Wireless is the largest U.S. wireless company, with 100.1 million retail connections as of the end of the second quarter of 2013.

It operates the country’s largest 4G LTE (advanced wireless broadband) network, which, as of July 2013, was available to 301 million people in 500 markets across the U.S. As of the end of the second quarter of 2013,

The company had 73,400 employees and operated more than 1,900 retail locations in the U.S


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VodafoneVodafone Group Plc (Vodafone), is a mobile communications

company. Vodafone Red offers consumers and businesses a package with mobile data allowances, unlimited calls and texts, plus cloud and back-up services to secure personal data

In February 2014, Verizon Communications Inc completed the acquisition of Vodafone Group Plc's 45% indirect interest in Verizon Wireless. In April 2014, Vodafone Group Plc acquired100 %of its Indian subsidiary, Vodafone India Limited (VIL)


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Financial:

Vodafone shareholders are due to receive roughly 72 pence in Verizon shares and 30 pence in cash for each Vodafone share they own.

Verizon will pay Vodafone $58.9 billion in cash. To fund this portion of the consideration, Verizon has entered into a fully executed $61.0 billion Bridge Credit Agreement with J.P. Morgan Chase Bank, N.A., Morgan Stanley Senior Funding, Inc., Bank of America, N.A. and Barclays.

Verizon intends to reduce the commitments under the Bridge Credit Agreement with the issuance of permanent financing. In addition, Verizon expects to maintain capital structure, balance sheet and financial policies consistent with investment-grade credit metrics, in part based on 100 percent access to Verizon Wireless’ cash flow


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Reason:

The deal however halves the size of the Vodafone Group to a company worth around USD100 billion, pushing it down from the worlds's second largest phone company to the fourth, behind China Mobile, AT&T and Verizon


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Conclusion:

Verizon is paying Vodafone $130 billion to gain full control of Verizon Wireless, which will help it compete in the U.S. Vodafone now has the war chest to embark on some serious M&A, but who’s the target

Acquiring Vodafone's stake in Verizon Wireless provides us with opportunities for greater financial flexibility, enhanced operational efficiency and innovations that will benefit customers

This transaction allows both Vodafone and Verizon to execute on their long-term strategic objectives. Our two companies have had a long and successful partnership and have grown Verizon Wireless into a market leader with great momentum


Merger and acquisition analysis

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