MERGERS AND ACQUISITIONS- INDIAN SCENARIO 2010

ONWARDS

BHUMI MORABIYADPGD/JL13/1804

FINANCE

WELINGKER INSTITUTE OF MANAGEMENTDEVELOPMENT AND RESEARCH

YEAR OF SUBMISSION: - JUNE, 2015

1

ACKNOWLEDGEMENT

With Immense pleasure I would like to present this report on “MERGERS AND

ACQUISITIONS INDIAN SCENARIO 2010 ONWARDS”.

I would like to thank Welingkar Institute of Management for providing me the

opportunity to present this project.

Acknowledgements are due to my parents, family members, friends and all those people

who have helped me directly or indirectly in the successful completion of the project.

BHUMI MORABIYA

2

UNDERTAKING BY CANDIDATE

I declare that project work entitled “MERGERS AND ACQUISITIONS INDIAN SCENARIO

2010 ONWARDS” is my own work conducted as part of my syllabus.

I further declare that project work presented has been prepared personally by me and it is not

sourced from any outside agency. I understand that, any such malpractice will have very serious

consequence and my admission to the program will be cancelled without any refund of fees.

I am also aware that, I may face legal action, if I follow such malpractice.

BHUMI MORABIYA

3

TABLE OF CONTENTS

Particulars Page no.

1. Title page 1

2. Acknowledgement 2

3. Undertaking by candidate 3

4. Table of contents 4

5. Table of figure 6

6. Executive summary 7

A INTRODUCTION

7. Introduction to merger & acquisition 8

8. Merger 10

9. Classifications of mergers 12

10. Acquisition 16

11. Takeover 17

12. Types of acquisitions 17

13. Methods of acquisitions 18

14. Distinction between mergers and acquisitions 18

B HISTORY15. History of merger & acquisition 20

C GENERAL

16. Importance of mergers and acquisitions 23

17. Motivations for mergers and acquisitions 24

18. Purpose of merger& acquisition 29

19. Phases of mergers & acquisitions 32

20. Stages of a mergers 35

4

21. Mergers and acquisitions: valuation 37

22. Advantages of mergers and acquisitions 41

23. Disadvantage of merger & acquisition 41

24. Costs of mergers and acquisitions 42

25. Defence strategies against mergers & acquisitions 43

D TOP MERGERS & ACQUISITIONS IN INDIA

26. Merger & acquisition in India 47

27. Mergers & acquisitions in 2010 48

28. Mergers & acquisitions in 2011 53

29. Mergers & acquisitions in 2012 58

30. Mergers & acquisitions in 2013 61

31. Mergers & acquisitions in 2014 66

32. Mergers & acquisitions in 2015 72

33. Future of mergers and acquisition 79

E CONCLUSION 80

F BIBLIOGRAPHY 81

5

TABLE OF FIGURE

Particulars Page no.

1. Classifications of mergers 12

2. Magic Circle for a Successful Merger 39

6

Executive summary

Industrial maps across the world have been constantly redrawn over the years through

various forms of corporate restructuring. The most common method of such restructuring is

Mergers and Acquisitions (M&A). The term "mergers & acquisitions (M&As)" encompasses a

widening range of activities, including joint ventures, licensing and synergising of energies.

Industries facing excess capacity problems witness merger as means for consolidation.

Industries with growth opportunities also experience M&A deals as growth strategies. There are

stories of successes and failures in mergers and acquisitions. Such stories only confirm the

popularity of this vehicle.

Merger is a tool used by companies for the purpose of expanding their operations often

aiming at an increase of their long term profitability. There are 15 different types of actions that

a company can take when deciding to move forward using M&A. Usually mergers occur in a

consensual (occurring by mutual consent) setting where executives from the target company

help those from the purchaser in a due diligence process to ensure that the deal is beneficial to

both parties. Acquisitions can also happen through a hostile takeover by purchasing the majority

of outstanding shares of a company in the open market against the wishes of the target's board.

In the United States, business laws vary from state to state whereby some companies have

limited protection against hostile takeovers. One form of protection against a hostile takeover is

the shareholder rights plan, otherwise known as the "poison pill".

Mergers and acquisitions (M&A) have emerged as an important tool for growth for Indian

corporates in the last five years, with companies looking at acquiring companies not only in

India but also abroad.

7

Introduction to Merger and Acquisition

Mergers and acquisitions is about the companies coming together to from another

company and companies taking over the existing companies to expand their business.

With recession taking toll of many Indian businesses and the feeling of insecurity

surging over our businessmen, it is not surprising when we hear about the immense numbers

of corporate restructurings taking place, especially in the last couple of years. Several

companies have been taken over and several have undergone internal restructuring, whereas

certain companies in the same field of business have found it beneficial to merge together

into one company.

The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of

corporate strategy, corporate finance and management dealing with the buying, selling and

combining of different companies that can aid, finance, or help a growing company in a given

industry grow rapidly without having to create another business entity.

Thus important issues both for business decision and public policy formulation have

been raised. No firm is regarded safe from a takeover possibility. On the more positive side

Mergers & Acquisitions may be critical for the healthy expansion and growth of the firm.

Successful entry into new product and geographical markets may require Mergers &

Acquisitions at some stage in the firm's development.

Successful competition in international markets may depend on capabilities obtained in

a timely and efficient fashion through Mergers & Acquisition's. Many have argued that

mergers increase value and efficiency and move resources to their highest and best uses,

thereby increasing shareholder value. To opt for a merger or not is a complex affair,

especially in terms of the technicalities involved. We have discussed almost all factors that

the management may have to look into before going for merger.

8

Considerable amount of brainstorming would be required by the managements to reach

a conclusion. e.g. a due diligence report would clearly identify the status of the company in

respect of the financial position along with the net worth and pending legal matters and

details about various contingent liabilities. Decision has to be taken after having discussed

the pros & cons of the proposed merger & the impact of the same on the business,

administrative costs benefits, addition to shareholders' value, tax implications including

stamp duty and last but not the least also on the employees of the Transferor or Transferee

Company.

9

Merger

Merger is defined as combination of two or more companies into a single company

where one survives and the others lose their corporate existence. The survivor acquires all

the assets as well as liabilities of the merged company or companies. Generally, the surviving

company is the buyer, which retains its identity, and the extinguished company is the seller.

Merger is also defined as amalgamation. Merger is the fusion of two or more existing

companies. All assets, liabilities and the stock of one company stand transferred to transferee

Company in consideration of payment in the form of:

● Equity shares in the transferee company

● Debentures in the transferee company

● Cash

● A mix of the above modes

In business or economics a merger is a combination of two companies into one larger

company. Such actions are commonly voluntary and involve stock swap or cash payment

to the target. Stock swap is often used as it allows the shareholders of the two

companies to share the risk involved in the deal.

A merger can resemble a takeover but result in a new company name (often combining

the names of the original companies) and in new branding; in some cases, terming the

combination a "merger" rather than an acquisition is done purely for political or marketing

reasons.

Merger is a financial tool that is used for enhancing long-term profitability by

10

expanding their operations. Mergers occur when the merging companies have their mutual

consent as different from acquisitions, which can take the form of a hostile takeover. The

business laws in US vary across states and hence the companies have limited options to

protect themselves from hostile takeovers. One way a company can protect itself from hostile

takeovers is by planning shareholders rights, which is alternatively known as “poison pill.

If we trace back to history, it is observed that very few mergers have actually added to

the share value of the acquiring company and corporate mergers may promote monopolistic

practices by reducing costs, taxes etc.

Managers are concerned with improving operations of the company, managing the affairs

of the company effectively for all round gains and growth of the company which will provide

them better deals in raising their status, perks and fringe benefits.

11

Classifications of mergers

Mergers are generally classified into 5 broad categories. The basis of this classification is

the business in which the companies are usually involved. Different motives can also be

attached to these mergers. The categories are:

12

Horizontal Merger

It is a merger of two or more competing companies, implying that they are

firms in the same business or industry, which are at the same stage of industrial

process. This also includes some group companies trying to restructure their

operations by acquiring some of the activities of other group companies.

The main motives behind this are to obtain economies of scale in

production by eliminating duplication of facilities and operations, elimination of

competition, increase in market segments and exercise better control over the

market.

There is little evidence to dispute the claim that properly executed horizontal

mergers lead to significant reduction in costs. A horizontal merger brings about

all the benefits that accrue with an increase in the scale of operations. Apart from

cost reduction it also helps firms in industries like pharmaceuticals, cars, etc.

where huge amounts are spent on R & D to achieve critical mass and reduce unit

development costs.

Vertical Merger

It is a merger of one company with another, which is involved, in a different

stage of production and/ or distribution process thus enabling backward integration

to assimilate the sources of supply and / or forward integration towards market

outlets.

The main motives are to ensure ready take off of the materials, gain control

over product specifications, increase profitability by gaining the margins of the

previous supplier/distributor, gain control over scarce raw materials supplies and in

13

some case to avoid sales tax.

Conglomerate Mergers

It is an amalgamation of 2 companies engaged in the unrelated industries.

The motive is to ensure better utilization of financial resources, enlarge debt

capacity and to reduce risk by diversification.

It has evinced particular interest among researchers because of the general

curiosity about the nature of gains arising out of them. Economic gain arising out of

a conglomerate is not c l e a r .

Much of the traditional analysis relating to economies of scale in production,

research, distribution and management is not relevant for conglomerates. The

argument in its favor is that in spite of the absence of economies of scale and

complimentary, they may cause stabilization in profit stream.

Even if one agrees that diversification results in risk reduction, the question

that arises is at what level should the diversification take place, i.e. in order to

reduce risk should the company diversify or should the investor diversify his

portfolio? Some feel that diversification by the investor is more cost effective and

will not hamper the company’s core competence .

Others argue that diversification by the company is also essential owing to

the fact that the combination of the financial resources of the two companies

making up the merger reduces the lenders risk while combining each of the

individual shares of the two companies in the investor’s portfolio does not. In spite

of the arguments and counter- arguments, some amount of diversification is

required, especially in industries which follow cyclical patterns, so as to bring

14

some stability to cash flows.

Concentric Mergers

This is a mild form of conglomeration. It is the merger of one company with

another which is engaged in the production/marketing of an allied product.

Concentric merger is also called product extension merger. In such a merger, in

addition to the transfer of general management skills, there is also transfer of

specific management skills, as in production, research, marketing, etc., which

have been used in a different line of business. A concentric merger brings all

the advantages of conglomeration without the side effects, i.e., with a concentric

merger it i s possible to reduce risk without venturing into areas that the

management is not competent i n .

Consolidation Mergers

It involves a merger of a subsidiary company with its parent. Reasons behind

such a merger are to stabilize cash flows and to make funds available for the

subsidiary.

Market-Extension Merger

Two companies that sell the same products in different markets.

Product-Extension Merger

Two companies selling different but related products in the same market.

15

Acquisition

Acquisition in general sense is acquiring the ownership in the property. In the

context of business combinations, an acquisition is the purchase by one company of

a controlling interest in the share capital of another existing company.

An Acquisition usually refers to a purchase of a smaller firm by a larger one. Acquisition,

also known as a takeover or a buyout, is the buying of one company by another.

Acquisitions or takeovers occur between the bidding and the target company. There may

be either hostile or friendly takeovers. Acquisition in general sense is acquiring the

ownership in the property. In the context of business combinations, an acquisition is the

purchase by one company of a controlling interest in the share capital of another existing

company.

Takeover

In business, a takeover is the purchase of one company (the target) by another

(the acquirer, or bidder). In the UK, the term refers to the acquisition of a public company

whose shares are listed on a stock exchange, in contrast to the acquisition of a private

company.

A ‘takeover’ is acquisition and both the terms are used interchangeably.

Takeover differs from merger in approach to business combinations i.e. the process of

16

takeover, transaction involved in takeover, determination of share exchange or cash price and

the fulfillment of goals of combination all are different in takeovers than in mergers. For

example, process of takeover is unilateral and the offered company decides about the

maximum price. Time taken in completion of transaction is less in takeover than in

mergers, top management of the offered company being more co-operative.

Types of Acquisitions

i. Friendly takeover: Before a bidder makes an offer for another company, it

usually first informs the company's board of directors. If the board feels that

accepting the offer serves shareholders better than rejecting it, it recommends the

offer be accepted by the shareholders.

ii. Hostile takeover: A hostile takeover allows a suitor to take over a target

company's management unwilling to agree to a merger or takeover. A takeover is

considered "hostile" if the target company's board rejects the offer, but the bidder

continues to pursue it, or the bidder makes the offer without informing the target

company's board beforehand.

iii. Back flip takeover: A back flip takeover is any sort of takeover in which

the acquiring company turns itself into a subsidiary of the purchased company. This

type of a takeover rarely occurs.

iv. Reverse takeover: A reverse takeover is a type of takeover where a private

c o m p a n y acquires a public company. This is usually done at the instigation of

the larger, private company, the purpose being for the private company to

effectively float itself while avoiding some of the expense and time involved in a

conventional IPO.

17

Methods of Acquisitions

An acquisition may be affected by:-

Agreement with the persons holding majority interest in the company management

like members of the board or major shareholders commanding majority of voting

power;

Purchase of shares in open market;

To make takeover offer to the general body of shareholders;

Purchase of new shares by private treaty;

Acquisition of share capital through the following forms of considerations viz.

Means of cash, issuance of loan capital, or insurance of share capital.

Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as though they were

synonymous, the terms merger and acquisition mean slightly different things:-

When one company takes over another and clearly established itself as the new

owner, the purchase is called an acquisition. From a legal point of view, the

target company ceases to exist, the buyer "swallows" the business and the

18

buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of

about the same size, agree to go forward as a single new company rather

than remain separately owned and operated. This kind of action is more

precisely referred to as a "merger of equals." Both companies' stocks are

surrendered and new company stock is issued in its place. For example,

both Daimler-Benz and Chrysler ceased to exist when the two firms merged,

and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often.

Usually, one company will buy another and, as part of the deal's terms,

simply allow the acquired firm to proclaim that the action is a merger of

equals, even if it's technically an acquisition. Being bought out often carries

negative connotations, therefore, by describing the deal as a merger, deal

makers and top managers try to make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that

joining together is in the best interest of both of their companies. But when

the deal is unfriendly - that is, when the target company does not want to be

purchased - it is always regarded as an acquis i t ion .

Whether a purchase is considered a merger or an acquisition really

depends on whether the purchase is friendly or hostile and how it is

announced. In other words, the real difference lies in how the purchase is

communicated to and received by the target company's board of directors,

employees and shareholders.

19

History of Mergers and Acquisitions

Tracing back to history, merger and acquisitions have evolved in five stages and each of

these are discussed here. As seen from past experience mergers and acquisitions are triggered

by economic factors.

The macroeconomic environment, which includes the growth in GDP, interest rates and

monetary policies play a key role in designing the process of mergers or acquisitions

between companies or organizations.

First wave mergers

The first wave mergers commenced from l897 to l904. During this phase merger

occurred between companies, which enjoyed monopoly over their lines of production like

railroads, electricity etc.

The first wave mergers that occurred during the aforesaid time period were mostly

horizontal mergers that took place between heavy manufacturing industries.

End of 1st Wave Merger

Majority of the mergers that were conceived during the lst phase ended in failure since

they could not achieve the desired efficiency. The failure was fuelled by the slowdown of the

economy in l903 followed by the stock market crash of l904. The legal framework was not

supportive either. The Supreme Court passed the mandate that the anticompetitive

mergers could be halted using the Sherman Act.

20

S econd wave mergers

The second wave mergers that took place from l9l6 to l929 focused on the mergers

between oligopolies, rather than monopolies as in the previous phase. The economic

boom that followed the past World War I gave rise to these mergers. Technological

developments like the development of railroads and transportation by motor vehicles

provided the necessary infrastructure for such mergers or acquisitions to take place.

The government policy encouraged firms to work in unison. This policy was

implemented in the l920s. The 2nd wave mergers that took place were mainly horizontal or

conglomerate in nature. The industries that went for merger during this phase were producers

of primary metals, food products, petroleum products, transportation equipment’s and

chemicals. The investments banks played a pivotal role in facilitating the mergers and

acquisitions.

End of 2nd Wave Mergers

The 2nd wave mergers ended with the stock market crash in l929 and the great

depression. The tax relief that was provided inspired mergers in the l940s.

Third Wave Mergers

The mergers that took place during this period (l965-69) were mainly conglomerate

mergers. Mergers were inspired by high stock prices, interest rates and strict enforcement

of antitrust laws.

The bidder firms in the 3rd wave merger were smaller than the Target Firm. Mergers

were financed from equities; the investment banks no longer played an important role.

End of the 3rd wave merger

21

The 3rd wave merger ended with the plan of the Attorney General to split conglomerates

in l968. It was also due to the poor performance of the conglomerates. Some mergers in the

l970s have set precedence.

The most prominent ones were the INCO-ESB merger; United Technologies and OTIS

Elevator Merger are the merger between Colt Industries and Garlock Industries.

Forth wave mergers

The 4th wave merger that started from l98l and ended by l989 was characterized by

acquisition targets that wren much larger in size as compared to the 3rd wave merger.

Mergers took place between the oil and gas industries, pharmaceutical industries,

banking and airline industries. Foreign takeovers became common with most of them

being hostile takeovers. The 4th Wave mergers ended with anti-takeover laws, Financial

Institutions Reform and the Gulf War.

Fifth wave merger

The 5th Wave Merger (l992-2000) was inspired by g l o b a l i z a t i o n , stock market

boom and deregulation. The 5th Wave Merger took place mainly in the banking and

telecommunications industries.

They were mostly equity financed rather than debt financed. The mergers were driven

long term rather than short term profit motives. The 5th Wave Merger ended with the burst

in the stock market bubble. Hence we may conclude that the evolution of mergers and

acquisitions has been long drawn. Many economic factors have contributed its development.

22

IMPORTANCE OF MERGERS AND ACQUISITIONS

The 1980’s produced approximately 55,000 mergers and acquisitions in the United States

alone. The value of the acquisitions during this decade was approximately $1.3 trillion as

impressive as these figures are; they are small in comparison to the merger wave that began in

the earlier 1990’s approximately in 1993. The number and value of mergers and acquisitions

have grown each year since 1993. For example in 1997 there were approximately 22,000

mergers and acquisitions roughly 40% of the total acquisitions during the whole decade of the

1980s. Perhaps more significant, the value of these mergers in 1997 was $1.6 trillion. In other

words, the acquisitions completed in 1997 were valued at $300 billion more than the value of

acquisitions during the 1980s. Interestingly 1980s was often referred to as the decade of “Merger

Madness”. The year 1998 was no different, as noted by the huge Merger and Acquisitions

transactions listed earlier; it was predicted to be another record year. Interestingly the 6,311

domestic mergers and acquisitions announced in 1993 had a total value of $234.5 billion for an

average $37.2 million, whereas the mergers and acquisitions announced in 1998 had an average

value of $168.2 million for an increase of 352% over those of 1993. Approximately $2.5 trillion

in mergers were announced in 1999, continuing the upward trend.

The merger and acquisitions in the 1990s represent the fifth merger wave of the twentieth

century and their size and numbers suggest that the decade of 1990s might be remembered for

the megamerger mania. With five merger waves throughout the twentieth century, we must

conclude that mergers and acquisitions are an important, if not dominant. Strategy for twenty

first century organizations.

23

Motivations for mergers and acquisitions

Mergers and acquisitions are caused with the support of shareholders, manager’s ad

promoters of the combing companies. The factors, which motivate the shareholders and

managers to lend support to these combinations and the resultant consequences they have to

bear, are briefly noted below based on the research work by various scholars globally.

1. From the standpoint of shareholders

Investment made by shareholders in the companies subject to merger should enhance in

value.

The sale of shares from one company’s shareholders to another and holding investment

in shares should give rise to greater values i.e. the opportunity gains in alternative

investments. Shareholders may gain from merger in different ways viz. from the gains and

achievements of the company.

i.e. through

a) Realization of monopoly profits

b) Economies of scales

c) Diversification of product line

d) Acquisition of human assets and other resources not available otherwise

24

e) Better investment opportunity in combinations

One or more features would generally be available in each merger where shareholders

may have attraction and favor merger.

2. From the standpoint of Mergers

Managers are concerned with improving operations of the company, managing the

affairs of the company effectively for all round gains and growth of the company which will

provide them better deals in raising their status, perks and fringe benefits.

Mergers where all these things are the guaranteed outcome get support from the

managers. At the same time, where managers have fear of displacement at the hands of new

management in amalgamated company and also resultant depreciation from the merger then

support from them becomes difficult.

3. Promoter’s Gains

Mergers do offer to company promoters the advantage of increasing the size of their

company and the financial structure and strength. They can convert a closely held and private

limited company into a public company without contributing much wealth and without losing

control.

4. Benefits of general public

Impact of mergers on general public could be viewed as aspect of benefits and costs to:

(a) Consumer of the product or services;

25

(b) Workers of the companies under combination;

(c) General public a f f e c t e d in general having not been u s e r or consumer or the worker in the

companies under merger plan.

a) Consumer

The economic gains realized from mergers are passed on to consumers in the form of

lower prices and better quality of the product which directly raise their standard of living and

quality of life.

The balance of benefits in favor of consumers will depend upon the fact whether or not

the mergers increase or decrease competitive economic and productive activity which

directly affects the degree of welfare of the consumers through changes in price level,

quality of products, after sales service, etc.

b) Workers community

The merger or acquisition of a company by a conglomerate or other acquiring

company may have the effect on both the sides of increasing the welfare in the form of

purchasing power and other miseries of life. Two sides of the impact as discussed by the

researchers and academicians are:

l. Mergers with cash payment to shareholders provide opportunities for them to invest this

money in other companies which will generate further employment and growth to uplift of the

economy in general.

2. Any restrictions placed on such mergers will decrease the growth and investment activity

26

with corresponding decrease in employment. Both workers and communities will suffer on

lessening job opportunities, preventing the distribution of benefits resulting from

diversification of production activity.

c) General public

Mergers result into centralized concentration of power. Economic power is to be

understood as the ability to control prices and industries output as monopolists. Such

monopolists affect social and political environment to tilt everything in their favour to

maintain their power ad expand their business empire. These advances result into economic

exploitation. But in a free economy a monopolist does not stay for a longer period as other

companies enter into the field to reap the benefits of higher prices set in by the monopolist.

This enforces competition in the market as consumers are free to substitute the alternative

products.

Therefore, it is difficult to generalize that mergers affect the welfare of general public

adversely or favorably. Every merger of two or more companies has to be viewed from

different angles in the business practices which protects the interest of the shareholders in the

merging company and also serves the national purpose to add to the welfare of the

employees, consumers and does not create hindrance in administration of the Government

policies.

The Strategic Goals of Mergers and Acquisitions

1. Economies of Scale

2. Consolidation: -

3. Media buyers are now consolidating to increase ad rates.

27

4. Globalization: -

5. For Example Kerry Group an Irish milk processor and dairy cooperative has become a

global player after a string of acquisitions in the food and ingredients business.

6. Create or gain access to distribution channels: -

7. A lack of distribution has been one of the main hindrances to growth of the wine

companies. They are overcoming this by a string of acquisitions for example Fosters.

8. Gain access to new products and technologies: -

9. Pooling resources helps pharmaceutical companies to speed up research and development

of new drugs and also to share the risks and place a number of bets on emerging

technologies. In the 1990’s 23 pharmaceutical merger to form the top ten players.

10. Enhance or increase products and/or services: -

11. Mergers between large banks specializing in different sectors for example when Allianz

AG acquired Dresdner Bank.

12. Increase market share or access to new markets: -

13. Car manufacturers turn to mergers and acquisition for this reason. For example when

Daimler Benz and Chrysler Group merged, when Ford acquired Jaguar.

14. Diversification

15. To offset threatened loss of market

16. To increase the rate of growth

17. To improve cyclical and seasonal stability

18. To improve effectiveness of the marketing effort

19. To employ excess capital

20. To change from a holding company to an operating company

28

Purpose of Mergers and Acquisition

The purpose for an offeror company for acquiring another company shall be reflected

in the corporate objectives. It has to decide the specific objectives to be achieved through

acquisition. The basic purpose of merger or business combination is to achieve faster

growth of the corporate business. Faster growth may be had through product improvement

and competitive position.

Other possible purposes for acquisition are short listed below: -

a) Procurement of supplies

To safeguard the source of supplies of raw materials or intermediary product

To obtain economies of purchase in the form of discount, savings in transportation

costs, overhead costs in buying department, etc.

To share the benefits of suppliers economies by standardizing the materials

b) Revamping production facilities

To achieve economies of scale by amalgamating production facilities through more

29

intensive utilization of plant and resources

To standardize product specifications, improvement of quality of product, expanding

Market and aiming at consumers satisfaction through strengthening after sale

Services

To obtain improved production technology and know-how from the offeree company

To reduce cost, improve quality and produce competitive products to retain and

Improve market share

c) Market expansion and strategy

To eliminate competition and protect existing market

To obtain a new market outlets in possession of the offeree

To obtain new product for diversification or substitution of existing products and to

enhance the product range

Strengthening retain outlets and sale the goods to rationalize distribution

To reduce advertising cost and improve public image of the offeree company

Strategic control of patents and copyrights

d) Financial Strength

To improve liquidity and have direct access to cash resource

To dispose of surplus and outdated assets for cash out of combined enterprise

To enhance gearing capacity, borrow on better strength and the greater assets backing

To avail tax benefits

To improve EPS (Earning per Share)

e) General gains

To improve its own image and attract superior managerial talents to manage its affairs

To offer better satisfaction to consumers or users of the product

30

f) Own developmental plans

The purpose of acquisition is backed by the offeror company’s own developmental

plans.

A company thinks in terms of acquiring the other company only when it has arrived at

its own development plan to expand its operation having examined its own internal

strength where it might not have any problem of taxation, accounting, valuation, etc. It

has to aim at suitable combination where it could have opportunities to supplement its

funds by issuance of securities, secure additional financial facilities eliminate competition

and strengthen its market position.

g) Strategic purpose

The Acquirer Company view the merger to achieve strategic objectives through

alternative type of combinations which may be horizontal, vertical, product expansion,

market extensional or other specified unrelated objectives depending upon the corporate

strategies. Thus, various types of combinations distinct with each other in nature are

adopted to pursue this objective like vertical or horizontal combination.

h) Corporate friendliness

Although it is rare but it is true that business houses exhibit degrees of cooperative

spirit despite competitiveness in providing rescues to each other from hostile takeovers and

cultivate situations of collaborations sharing goodwill of each other to achieve performance

heights through business combinations. The combining corporate aim at circular

combinations by pursuing this objective.

31

Phases of Mergers & Acquisitions

Phase 1: Strategic Planning

Stage 1: Develop or Update Corporate Strategy

To identify the Company’s strengths, weaknesses and needs

1. Company Description

2. Management & Organization Structure

3. Market & Competitors

4. Products & Services

5. Marketing & Sales Plan

6. Financial Information

7. Joint Ventures

8. Strategic Alliances

Stage 2: Preliminary Due Diligence

1. Financial

2. Risk Profile

32

3. Intangible Assets

4. Significant Issues

Stage 3: Preparation of Confidential Information Memorandum

1. Value Drivers

2. Project Synergies

Phase 2: Target/Buyer Identification & Screening

Stage 4: Buyer Rationale

1. Identify Candidates

2. Initial Screening

Stage 5: Evaluation of Candidates

1. Management and Organization Information

2. Financial Information (Capabilities)

3. Purpose of Merger or Acquisition

Phase 3: Transaction Structuring

Stage 6: Letter of Intent

Stage 7: Evaluation of Deal Points

1. Continuity of Management

2. Real Estate Issues

3. Non-Business Related Assets

4. Consideration Method

33

5. Cash Compensation

6. Stock Consideration

7. Tax Issues

8. Contingent Payments

9. Legal Structure

10. Financing the Transaction

Stage 8: Due Diligence

1. Legal Due Diligence

2. Seller Due Diligence

3. Financial Analysis

4. Projecting Results of the Structure

Stage 9: Definitive Purchase Agreement

1. Representations and Warranties

2. Indemnification Provisions

Stage 10: Closing the Deal

Phase 4: Successful Integration

1. Human Resources

2. Tangible Resources

3. Intangible Assets

4. Business Processes

5. Post-Closing Audit

34

Stages of a Mergers

Pre-mergers are characteristics by the: -

1. Courtship: -

The respective management teams discuss the possibility of a merger and

develop a shared vision and set of objectives. This can be achieved through a rapid

series of meetings over a few weeks, or through several months of talks and informal

meetings

2. Evaluation and negotiation: -

Once some form of understanding has been reached the purchasing company

conducts “due diligence” a detailed analysis of the target company assets,

liabilities and operations. This leads to a formal announcement of the merger and

an intense round of negotiations, often involving financial intermediaries.

Permission is also sought from trade regulators. The new management team is

agreed at this point, as well as the board structure of the new business.

35

This phase typically lasts three or four months, but it can take as long as a year

if regulators decide to launch an investigation into the deal. “Closure” is a

commonly referred term to describe the point at which the legal transfer of

ownership is completed.

3. Planning: -

More and more companies use this time before completing a merger to

assemble a senior team to oversee the merger integration and to begin planning the

new management and operational structure.

Post-Merger is characterized by the following phases: -

1. The immediate transition: -

This typically lasts three to six months and often involves intense activity.

Employees receive information about whether and how the merger will affect their

employment terms and conditions. Restructuring begins and may include site

closures, redundancy announcements, divestment of subsidiaries (sometimes required

by trade regulators), new appointments a n d job transfers. Communications and

human resources strategies are implemented. Various teams work on detailed plans

for integration.

2. The transition period : -

This lasts anywhere between six months to two years. The new organizational

structure is in place and the emphasis is now on fine tuning the business and

ensuring that the envisaged benefits of the mergers are realized. Companies often

consider cultural integration at this point and may embark on a series of

workshops exploring the values, philosophy and work styles of the merged business.

36

Mergers and Acquisitions: Valuation

Investors in a company that is aiming to take over another one must

determine whether the purchase will be beneficial to them. In order to do so, they

must ask themselves how much the company being acquired is really worth.

Naturally, both sides of an M&A deal will have different ideas about the worth of

a target company: its seller will tend to value the company at as high of a price as

possible, while the buyer will try to get the lowest price that he can. There are,

however, many legitimate ways to value companies. The most common method is

to look at comparable companies in an industry, but deal makers employ a variety

of other methods and tools when assessing a target company. Here are just a few of

them:

Comparative Ratios - The following are two examples of the many comparative

metrics on which acquiring companies may base their offers:

37

Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring

company makes an offer that is a multiple of the earnings of the target company.

Looking at the P/E for all the stocks within the same industry group will give the

acquiring company good guidance for what the target's P/E multiple should be.

Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring

company makes an offer as a multiple of the revenues, again, while being aware of

the price-to-sales ratio of other companies in the industry.

Replacement Cost - In a few cases, acquisitions are based on the cost of

replacing the target company. For simplicity's sake, suppose the value of a

company is simply the sum of all its equipment and staffing costs. The acquiring

company can literally order the target to sell at that price, or it will create a

competitor for the same cost. Naturally, it takes a long time to assemble good

management, acquire property and get the right equipment. This method of

establishing a price certainly wouldn't make much sense in a service industry where

the key assets - people and ideas - are hard to value and develop.

Discounted Cash Flow (DCF) - A key valuation tool in M&A, discounted cash

flow analysis determines a company's current value according to its estimated

future cash flows. Forecasted free cash flows (operating profit + depreciation +

amortization of goodwill – capital e x p e n d i t u r e s – cash taxes - change in

working capital) are discounted to a present value using the company's weighted

average costs of capital (WACC). Admittedly, DCF is tricky to get right, but few

tools can rival this valuation method.

Magic Circle for a Successful Merger

A company’s integration process can ensure the formation of such a circle. It

acts rather like the Gulf Stream, where the flow of hot and cold water ensures a

38

continuous cyclical movement. A well designed integration process ensures that

the new entity’s designed strategy reaches deep into the organization, ensuring a

unity of purpose. Basically everyone understands the purpose and logic of the deal.

The integration process can ensure that the ideas and the creativity can are not

dissipated but are fed into the emergent strategy of the organization this is achieved

through the day to day job of the encouraging and motivating people and also

creating forums where people can think the impossible. The chart below

demonstrates the relationship between designed and emergent strategy and merger

integration. It suggests how merging organizations can become learning

organization; strategy formulation and implementation merges into collective

learning.

39

Some merger failures can be explained by this model. For example, serious

problems arise when a company relies too heavily on designed strategy. If the

management team is not getting high quality feedback and information from the

rest of the organization, it runs the risk of becoming cut off. Employees may

perceive their leaders as being out of touch with reality of the merger, leading to a

40

gradual loss of confidence in senior management’s ability to chart the future of the

new entity. Similarly, the leadership team may not receive timely information

about external threats, brought about perhaps by the predatory actions of

competitors or dissatisfies customers with the result that performance suffers and

the new management is criticized for failing to get grips with the complexities of the

changeover.

However, too much reliance on emergent strategy can lead to the sense of a

leadership vacuum within the combining organizations. The management team may

seem to lack direction or to be moving too slow. This often leads political

infighting and territory building and the departure of many talented people.

Therefore it is very important that a careful balance is struck between

designed and emergent strategy for integration after the merger between two

companies is done.

41

Advantages of mergers and acquisitions

1. To acquire a larger share of an existing market

2.  Enter new markets

3. Eliminate competitors

4.  Acquire expertise or assets

5.  Transfer skills

6.  Save costs

7. Increase efficiencies or capitalize on synergies

8.  The main reason for companies to enter into such arrangements is to consolidate their

power and control over governments and markets

Disadvantages of mergers and acquisitions

1 . All liabilities assumed (including potential litigation)

2 . Two thirds of shareholders (most states) of both firms must approve

3 . Dissenting shareholders can sue to receive their “fair” value

4 . Management cooperation needed

5 . Individual transfer of assets may be costly in legal fees

6 . Integration difficult without 100% of shares

7 . Resistance can raise price

8 . Minority holdouts

9 . Technology costs - costs of modifying individual organizations systems etc.

10 . Process and organizational change issues – every organization has its own culture and

business processes

11 . Human Issues – Staff feeling insecure and uncertain.

12 . A very high failure rate (close to 50%)

42

Costs of mergers and acquisitions

Mergers and acquisitions can be costly due to the high legal expenses, and the cost of

acquiring a new company that may not be profitable in the short run. This is why a merger or

acquisition may be more of strategic corporate decision than a tactical maneuver. Moreover, if a

poison pill unknowingly emerges after a sudden acquisition of another company's shares, this

could render the acquisition approach very expensive and/or redundant.

• Legal expenses

• Short-term opportunity cost

• Cost of takeover

• Potential devaluation of equity

•Intangible costs

M&A activity can also be exacerbated by the short-term cost of opportunity or

opportunity cost. This is the cost incurred when the same amount of investment could be placed

elsewhere for a higher financial return. Sometimes this cost does not prevent or deter the merger

or acquisition because projected long-term financial benefits outweigh that of the short-term

cost.

43

Defence strategies against Mergers & Acquisitions

Companies can also adopt strategies and take precautionary actions to avoid

hostile takeover. This is very necessary in present day industrial rivalry where a

small lack in precaution can result in huge loss to the stakeholders of the firm. Some

of the defence strategies against takeover a r e :

Poison Pill

To avoid hostile takeovers, lawyers created this contractual mechanics that

strengthen Target Company. One usual poison pill inside a Corporation Statement

is the clause which triggers shareholders rights to buy more company stocks in

case of attack. Such action can make severe differences for the raider. If

shareholders do really buy more stocks of company with advantaged price, it will be

harder to acquire the company control for sure.

It is associated with high cost

It may keep the good investors away

Stock Option Workout

Poison Pill may have the same structure of stock options used for payouts.

Under these agreements, once the triggering fact happens, investor have the right

to turnkey some right. In poison pill event, most common is an option to buy more

shares, with some advantages. Priced with better conditions, lower than what

bidders does for the corporation it serves for the specific purpose of protecting the

corporation current shareholders.

The usual stock option is made to situations of high priced stocks. That usually

happens under takeover operations. A takeover hard to be defended usually will have

a bid offer with a compatible price, at that moment which is higher than usual for

44

shareholders, with conditions to be accepted by stockholders.

Shark Repellent

Among shark repellent instruments there are: golden parachute, poison pills,

greenmail, white knight, etc.

White Knight

Another fortune way to handle a hostile takeover is through White Knight

bidders. Usually players of some specific market know each ones history, strategy,

strength, advantages, clients, bankers and legal supporters. Meaning beyond

similarities or not, there're communities around these companies. In this a strategic

partner merges with the target company to add value and increase market

capitalization. Such a merger can not only deter the raider, but can also benefit

shareholders in the short term, if the terms are favorable, as well as in the long term

if the merger is a good strategic fit.

White Squire

To avoid takeovers bids, some shareholder may detain a large stake of one

company shares. A white squire is similar to a white knight, except that it only

exercises a significant minority stake, as opposed to a majority stake. A white squire

doesn't have the intention, but rather serves as a figurehead in defense of a hostile

takeover.

The white squire may often also get special voting rights for their equity stake.

With friendly players holding relevant positions of shares, the protected company

may feel more comfortable to face an unsolicited offer. A White Squire is a

shareholder than it can make a tender offer. Otherwise it has so much relevance

over the company stock composition that can make raiders takeover more difficult

or somewhat expensive. Real White Squire does not take over the target company,

and only plays as a defense strategy.

45

Golden Parachute

A golden parachute is an agreement between a company and an employee

(usually upper executive) specifying that the employee will receive certain

significant benefits if employment is terminated. . Without it, officers have no

stability, and it may represent inaccurate defense strategy in case of bidder’s pressure.

It can further accelerate drastic and unnecessary m e a s u r e s .

From an overall analysis, cost of golden parachutes is relatively low, compared

with disadvantages of its absence. Officers can have minimum guarantees after

takeover is accomplished. Otherwise inappropriate attitudes can be taken just to

keep officers standings in the market an inside the corporation. Golden parachutes

try to make these challenges for the corporation and over officers, as natural as

possible. Studies show that these benefits can keep chiefs working without excess

pressure and drama, defending the corporation against all, till the end, but with

responsibility.

Poison Put

In stocks trading, the rights assigned to common stock holders that sharply

escalates the price of their stockholding, or allows them to purchase the company's

shares at a very attractive fixed price, in case of a hostile takeover attempt.

Super-majority amendment

Super-majority amendment is a defensive tactic requiring that a substantial

majority, usually 67% and sometimes as much as 90%, of the voting interest of

outstanding capital stock to approve a merger. This amendment makes a hostile

takeover much more difficult to perform. In most existing cases, however, the

supermajority provisions have a board-out clause that provides the board with the

power to determine when and if the supermajority provisions will be in effect. Pure

46

supermajority provisions would seriously limit management's flexibility in

takeover negotiations.

Fair Price Amendment

A provision in the bylaws of some publicly-traded companies stating that a

company seeking to acquire it must pay a fair price to targeted shareholders.

Additionally, the fair price provision mandates that the acquiring company must

pay all shareholders the same amount per share in multi-tiered shares. The fair

price provision exists both to protect shareholders and to discourage hostile

acquisitions by making them more expensive.

Classified Board

A staggered board of directors or classified board is a practice governing the board

o f directors of a company, corporation, or other organization in which only a

fraction (often one third) of the members of the board of directors is elected each

time instead of en masse. In this a structure for a board of directors in which a

portion of the directors serve for different term lengths, depending on their particular

classification. Under a classified system, directors serve terms usually lasting between

one and eight years; longer terms are often awarded to more senior board positions.

In publicly held companies, staggered boards have the effect of making hostile

takeover attempts more difficult. When a board is staggered, hostile bidders must

win more than one proxy fight at successive shareholder meetings in order to

exercise control of the target firm.

Authorization of Preferred Stock

The board of directors is authorized to create a new class of securities with

special voting rights. This security, typically preferred stock, may be issued to

friendly voting rights. The security preferred stock, may be issued to friendly in a

control contest. Thus, this device is a defense takeover bid, although historically it

47

was used to provide the board of directors with flexibility in financing under

changing economic conditions. Creation of a poison pill security could be included

in his category but generally it's excluded from and treated as a different

defensive device.

Mergers and Acquisitions in India

The process of mergers and acquisitions has gained substantial importance in today's

corporate world. This process is extensively used for restructuring the business organizations.

In India, the concept of mergers and acquisitions was initiated by the government bodies.

Some well-known financial organizations also took the necessary initiatives to restructure

the corporate sector of India by adopting the mergers and acquisitions policies.

The Indian economic reform since l99l has opened up a whole lot of challenges both in

the domestic and international spheres. The increased competition in the global market has

prompted the Indian companies to go for mergers and acquisitions as an important strategic

choice.

The trends of mergers and acquisitions in India have changed over the years. The

immediate effects of the mergers and acquisitions have also been diverse across the various

sectors of the Indian economy.

India has emerged as one of the top countries with respect to merger and acquisition

deals. In 2007, the first two months alone accounted for merger and acquisition deals

worth $40 billion in India.

48

Top Mergers & Acquisitions in India

Mergers & Acquisitions in 2010

Tata Chemicals buys British salt

Tata Chemicals bought British Salt; a UK based white salt producing company for about US $ 13

billion. The acquisition gives Tata access to very strong brine supplies and also access to British

Salt’s facilities as it produces about 800,000 tons of pure white salt every year.

Reliance Power and Reliance Natural Resources merger

This deal was valued at US $11 billion and turned out to be one of the biggest deals of the year.

It eased out the path for Reliance power to get natural gas for its power projects.

49

Airtel’s acquisition of Zain in Africa

Airtel acquired Zain at about US $ 10.7 billion to become the third biggest telecom major in the

world. Since Zain is one of the biggest players in Africa covering over 15 countries, Airtel’s

acquisition gave it the opportunity to establish its base in one of the most important markets in

the coming decade.

Abbott’s acquisition of Piramal healthcare solutions

Abbott acquired Piramal healthcare solutions at US $ 3.72 billion which was 9 times its sales.

Though the valuation of this deal made Piramal’s take this move, Abbott benefited greatly by

moving to leadership position in the Indian market.

50

GTL Infrastructure acquisition of Aircel towers

This acquisition was worth about US $ 1.8 billion and brought GTL Infrastructure to the third

position in terms of number of mobile towers – 33000. The money generated gave Aircel the

funds for expansion throughout the country and also for rolling out its 3G services.

ICICI Bank buys Bank of Rajasthan

This merger between the two for a price of Rs 3000 cr would help ICICI improve its market

share in northern as well as western India.

JSW acquired Ispat Industries

Jindal Steel Works acquired 41% stake at Rs 2,157

cr in Ispat Industries to make it the largest steel producer in the country. This move would also

help Ispat return to profitability with time.

51

Reckitt Benckiser acquired Paras Pharma

Reckitt acquired Paras Pharma at a price of US $ 726 million to basically strengthen its

healthcare business in the country. This was Reckitt’s move to establish itself as a strong

consumer healthcare player in the fast growing Indian market.

Mahindra acquired Ssang Yong

Mahindra acquired a 70% controlling stake in troubled South Korea auto major Ssang Yong at

US $ 463 million. Along with the edge it would give Mahindra in terms of the R & D

capabilities, this deal would also help them utilize the 98 country strong dealer network of Ssang

Yong.

52

Fortis Healthcare acquisitions

Fortis Healthcare, the unlisted company owned by Malvinder and Shivinder Singh looks set to

make in two in terms of acquisitions. After acquiring Hong Kong’s Quality Healthcare Asia Ltd

for around Rs 882 cr last month, they are planning on acquiring Dental Corp, the largest dental

services provider in Australia at Rs 450 cr.

Mergers & Acquisitions in 2011

The Reliance – BP deal

The much talked about Reliance – BP deal finally came through in July 2011 after a 5 month

wait. Reliance Industries signed a 7.2 billion dollar deal with UK energy giant BP, with 30

percent stake in 21 oil and gas blocks operated in India. Although the Indian government’s

approval on two oil blocks still remains pending, this still makes it one of the biggest FDI deals

to come through in India Inc in 2011-12-31.

53

Essar exits Vodafone

In March 2011, the Vodafone Group announced that it would buy 33 percent stake in its Indian

joint venture for about 5 billion dollars after the Essar Group sold its holding and exited

Vodafone. Healthcare giant Piramal Group too, bought about 5.5 percent in the Indian arm of

Vodafone for about 640 million dollars. This brings Vodafone’s current stake to about 75

percent.

The Fortis Healthcare merger

In September 2011, India’s second largest hospital chain, Fortis Healthcare (India) Ltd,

announced that it will merge with Fortis Healthcare International Pte Ltd., the promoters’

privately held company. This will make Fortis Asia’s top healthcare provider with the

approximate total revenue pegged at Rs. 4,800 crore. Fortis India will buy the entire stake of the

Singapore based Fortis International. This company is currently held by the Delhi-based Singh

brothers (Malvinder Singh and Shivinder Singh).

54

iGate acquires majority stake in Patni Computers

In May 2011, IT firm iGate completed its acquisition of its midsized rival Patni Computers for

an estimated 1.2 billion dollars. For iGate, the main aim of this acquisition was to increase its

revenue, vertical capability and customer base. iGate now holds an approximate stake of 82.5

percent in Patni computers, now called iGate Patni.

GVK Power acquires Hancock Coal

In one of the biggest overseas acquisitions initiated by India in September 2011, Hyderabad-

based GVK Power bought out Australia’s Hancock Coal for about 1.26 billion dollars. The

acquisition includes a majority of the coal resources, railway line and port infrastructure of

Hancock Coal, along with the option for long term coal supply contracts.

55

Essar Energy’s Stanlow Refinery Deal with Royal Dutch Shell

The Ruias’ flagship company for its oil business, Essar Energy completed its 350 million dollar

acquisition of the UK based Stanlow Refinery of Shell in August 2011. In addition to a direct

access to the UK market, Essar is planning to make optimum utilization of this deal with its ‘100

day plan’ to improve operations at the UK unit.

Aditya Birla Group to acquire

Columbian Chemicals

In June 2011, the Aditya Birla Group announced its completion of acquiring US based

Columbian Chemicals, a 100 year old carbon black maker company for an estimated 875 million

dollars. This will make the Aditya Birla Group one of the largest carbon black maker companies

in the world, doubling its production capacity instantly.

56

Mahindra & Mahindra acquires Ssangyong

In March 2011, Mahindra acquired a 70 percent stake in ailing South Korean auto maker

Ssangyong Motor Company Limited (SYMC) at a total of 463 million dollars. This acquisition

will see the Korean company’s flagship SUV models, the Rexton II and the Korando C foray

into the Indian market.

The Vedanta – Cairn acquisition

December 2011 finally saw the completion of the much talked about Vedanta – Cairn deal that

was in the pipeline for more than 16 months. Touted to be the biggest deal for Indian energy

sector, Vedanta acquired Cairn India for a neat 8.6 billion dollars. Although the Home Ministry

cleared the deal, it has highlighted areas of concern with 64 legal proceedings against Vedanta.

57

Adani Enterprises takes over Abbot Point Coal

In June 2011, Adani acquired the Australian Abbot Point Port for 1.9 billion dollars. With this

deal, the revenues from port operations are expected to almost triple from 110 million Australian

dollars to 305 million Australian dollars in 2011. According to Adani, this was amongst the

largest port deals ever made.

Mergers & Acquisitions 2012

Microsoft acquire Yammer for $1.2 billion  

In a bid to bring social networking features to its widely used suite of business software

applications, Microsoft has reportedly acquired internet startup Yammer for $1.2 billion.

As a matter of concern, it is found, Yammer Inc. is an enterprise social network service which

was launched in September 2008. It was originally launched as an enterprise micro blogging

service and subsequently evolved to become a full-fledged enterprise social network. Yammer

facilitates users to create private social networks so employees within the same company can

keep tabs on what colleagues are working on.

Presently, Yammer counts more than 80 percent of Fortune 500 companies as clients. 

58

Segate completes LaCie

acquisition

Recently, Seagate Technology and LaCie have announced an exclusive agreement with the intent

for Seagate to acquire a controlling interest in LaCie, which is a French consumer storage

company.

The transction would combine two highly complementary product and technology portfolios. It

is adding LaCie’s line of premium branded consumer storage solutions, network-attached storage

solutions and software offerings to Seagate’s array of mainstream consumer storage products. 

SafeNet

strengthens its Cloud capabilities with acquisition of Cryptocard

Acknowledging the significance of Cloud capabilities for business expansion, SafeNet has

announced its acquisition over Cryptocard, a privately held leader of Cloud based authentication

solutions 

With the acquisition of Cryptocard, SafeNet is likely to enhance its market leading authentication

portfolio, providing both enterprises and service providers with one of the most advanced

authentication-as-a- service (Auth-as-a-Service) offerings in the marketplace.  Cryptocard’s

platform will provide a unique opportunity for mobile and telecom service providers, as well as

IT system integrators and service providers, to rapidly introduce Auth-as-a-Service and market

leading authentication solutions to their end users, sources informed.

59

Dell to buy Quest Software for $2.4 billion

Intending to branch out beyond its weakening personal computer business, the tech giant Dell is

planning to buy enterprise management software maker Quest Software. The deal will close in

US $2.4 billion that too in cash.

Dell’s atest $2.4 billion deal acquisition can turn out to be a golden opportunity for Dell in India

market as Quest Software possesses a strong customer-base in the country. Also, the software

maker has an aggressive strategy in place for Indian market. Market experts believe, Quest

Software also looks at India as a significant market. 

With its latest acquisition, Dell is planning to include Quest’s software solutions with its services

and enterprise solutions. Now, it can offer a better and more valuable experience to its

customers.

Seems, it is the season of acquisitions. Time shall tell us how beneficial would these associations

be for the growth of the respective companies as well as economy as a whole. 

60

Mergers & Acquisitions 2013

Airtel – loop

This was one of the greatest Mergers and Acquisition in 2013 in telecom sector

Bharti Airtel is set to acquire Loop Mobile in a Rs 700-crore deal which includes repayment of

debt worth Rs 400 crore in what will be the first consolidation move in the country’s telecom

industry since 2008, taking India’s biggest operator to the top spot in Mumbai.

The deal will be via a slump sale, in which one or more undertakings are transferred for a lump

sum, without values being assigned to individual assets and liabilities.

61

Airtel will get Loop’s 3 million subscribers, about 400 telecom towers, optic fibre connecting the

towers, and electronic equipment on which the Loop’s network currently runs.

For Airtel the deal is very profitable as its subscriber base will increase which makes it no.1 in

the list followed by Vodafone.

In case of Loop mobile the employees fear of losing their job. The risk is more for lower level

employees as Airtel wasn’t keen to take on board a large number of employees as it already has

workforce in the Mumbai circle, it could retain a few key senior functionaries, although

temporarily.

GlaxoSmithKline and Novartis

Britain’s  GlaxoSmithKline  and Swiss rival Novartis have agreed a multi-billion dollar swap of

assets in a move that led to a rally in pharmaceutical stocks as investors bet on a renewed burst

of deal-making across the sector.

The two drug companies will join forces in the consumer healthcare sector to combine brands

including Aquafresh, Beechams and Tixylix, while exchanging their onco-Shares in GSK rose

5.2% to £16.40 and Switzerland’s Novartis rose 2% to 76.40 Swiss francs (£51.28).logy and

vaccine businesses.

62

Opportunity to combine high quality assets in vaccines and consumer healthcare are scarce. With

this transaction they will substantially strengthen two of their core businesses and create

significant new options to increase value for shareholders.

Dabur india ltd and northern aromatics ltd.

FMCG firm Dabur India Ltd has acquired its vendor Northern Aromatics Ltd. which is an

existing vendor for Dabur that manufactures glucose, shampoos and shilajit for Dabur, Who’s

core business of manufacturing and marketing fragrances, flavors and essential oils.

Northern Aromatics Ltd’s. Manufacturing facility in Pantnagar, Uttarakhand was on a slump sale

basis for Rs. 15 crore. Dabur said the facility will be used to manufacture its food products,

ayurvedic medicines and cosmetics. Dabur had agreed to purchase the business including

manufacturing facility and all assets and liabilities relatable to the said facility.

Dabur India Ltd by acquiring Northern Aromatics Ltd (NAL) has been in a very profitable

situation. It is always easy to acquire an already working manufacturing unit than to build a

separate one altogether. And in case of Dabur, NAL already manufactured some products for

them. So it was very profitable deal for Dabur India Ltd.

63

Future lifestyle fashion ltd

Future Lifestyle Fashion Ltd, part of the Kishore Biyani-led Future Group, has divested its

minority stakes in ethnic wear firm Biba Apparels and designer Anita Dongre-owned AND

Designs. The divestment was for Rs. 450 crore. Future Lifestyle Fashion Ltd demerged its

fashion business in November, 2012 and formed a new company called Future Lifestyle

Fashions. It has a portfolio of over two dozen fashion and lifestyle brands. Both investments

were made more than five years ago. The Future Group generally exits investments when they

become large.

The company has stated that it made a profit of Rs 190 crore from sale of stake in Biba. It had

22.9 per cent stake in AND Designs and 25.8 per cent stake in BIBA Apparels. They had first

acquired a 6.5 per cent stake in Biba in 2007, which was gradually increased to 25.8 per cent in

2011.

64

Blackberry and Fairfax

BlackBerry Ltd. completed the $1-billion US financing in November 2013 after Fairfax

Financial scaled down a larger plan to buy the company outright.

More than half of the money came from two institutional investors they are: $300 million from

Canso Investment Counsel Ltd. of Richmond Hill and $250 million from Fairfax Financial

Holdings Ltd., which is BlackBerry’s largest shareholder.

Fairfax and the other investors had 30 days to buy an additional $250 million of the interest-

paying notes, which could be used to buy BlackBerry shares for $10 US each.

BlackBerry shares were at $6.77 in Toronto stock exchange and $6.475 on Nasdaq, where most

of the companies trade their shares, down from $7.77 US on Nov. 1, before Fairfax changed its

proposal.

In a way it was a fair deal for the smart phone maker blackberry. It was going through a bad time

as its smart phone market was taken over by other players like Samsung, Nokia and Apple which

are among the top 5 ranking companies in the market. This had also leaded to possible new

routes for blackberry to revive. Even if its share prices went down the deal was for blackberry’s

overall benefit.

65

Mergers & Acquisitions 2014

Flipkart- Myntra

The huge and most talked about takeover or acquisition of the year. The seven year old

Bangalore based domestic e-retailer acquired the online fashion portal for an undisclosed amount

in May 2014. Industry analysts and insiders believe it was a $300 million or Rs 2,000 crore deal.

66

Asian Paints- Ess Ess Bathroom Products

Asian paints signed a deal with Ess Ess Bathroom products Pvt Ltd to acquire its front end sales

business for an undisclosed sum in May, 2014. “The company on May 14, 2014 has entered into

a binding agreement with Ess Ess Bathroom Products Pvt. Ltd and its promoters to acquire its

entire front-end sales business including brands, network and sales infrastructure,” Asian Paints

said in a filing to the BSE on Wednesday.Ess Ess produces high end products in bath and wash

segment in India and taking them over led to a 3.3% rise in share price for Asian paints.

RIL-

Network 18 Media and Investments

Reliance Industries Limited (RIL) took over 78% shares in Network 18 in May 2104 for Rs

4,000 crores. Network 18 was founded by Raghav Behl and includes moneycontrol.com, In.com,

IBNLive.com, Firstpost.com, Cricketnext.in, Homeshop18.com, Bookmyshow.com while TV18

group includes CNBC-TV18, CNN-IBN, Colors, IBN7 and CNBC Awaaz.

67

Merck- Sigma Deal

One of the leading Indian manufacturers, Merck KGaA took over US based Sigma-Aldrich

Company for $17 billion in cash, hoping the deal will help boost its lab supplies business.

Sigma is the leading supplier of organic chemicals and bio chemicals to research laboratories and

supplies groups like Pfizer and Novartis with lab substances.

Ranbaxy- Sun Pharmaceuticals

Sun Pharmaceutical Industries Limited, a multinational pharmaceutical company headquartered

in Mumbai, Maharashtra which manufactures and sells pharmaceutical formulations and active

pharmaceutical ingredients (APIs) primarily in India and the United States bought the Ranbaxy

Laboratories. The deal is expected to be completed in December, 2014.

Ranbaxy shareholders will get 4 shares of Sun Pharma for every 5 Ranbaxy shares held by them.

The deal, worth $4 billion, will lead to a 16.4 dilution in the equity capital of Sun Pharma.

68

TCS- CMC

Tata Consultancy Services (TCS), the $13 billion flagship software unit of the Tata Group, has

announced a merger with the listed CMC with itself as part of the group’s renewed efforts to

consolidate its IT businesses under a single entity.

At present, CMC employs over 6,000 people and has annual revenues worth Rs 2,000 crores.

The deal was inked a few days back. TCS already held a 51% stake in CMC.

Tata Power- PT Arutmin Indonesia

India’s largest private power producer, Tata Power, purchased 30% stake in Indonesian coal

manufacturing firm for Rs 47.4 billion. Earlier this year, they sold off 5% of its stake in PT

Arutmin Indonesia (Arutmin) and PT Kaltim Prima Coal (KPC) for Rs. 250 billion due to falling

coal prices globally. It plans to sell the remaining 25% stake for $ 1 billion soon too.

69

Tirumala Milk – Lactalis

The largest dairy player in the world, Groupe Lactalis SA, acquired the 18 year old Hyderabad

based Tirumala Milk products for a whopping Rs 1750 crore ($275 million) in January, 2014.

Founded in 1896 by D Brahmanandam, B Brahma Naidu, B Nageswara Rao, Dr N Venkata Rao

and R Satyanarayana, Tirumala is the second largest private dairy company in South India.

Lactalis acquired 100% of their shares.

70

Aditya Birla Minacs- CSP CX

Aditya Birla Nuvo Ltd (ABNL) owned ABNL IT & ITeS Ltd. was sold to a Canadian based

technology outsourcing firm marking Aditya Birla’s exit for the IT industry.

The deal was chalked out with a group of investors led by Capital Square Partners (CSP) and CX

Partners (CXP) for $260 million (approximately Rs. 1,600 crore).

Sterling India Resorts- Thomas Cook India

Billionaire Prem Watsa owned Thomas Cook India bought the Sterling Resorts India for Rs 870

crores in , marking Thomas Cook’s entry into the hospitality sector. Thomas Cook had earlier

acquired Ikya Human Solutions in 2013.

71

Yahoo- Bookpad

The search engine giant, Yahoo, acquired the one year old Bangalore based startup Bookpad for

a little under $15 million, though the exact amount has not been disclosed by either of the two

parties concerned. While the deal value is relatively small, this was the first acquisition made by

Yahoo, and was much talked about and hence finds a mention in our list.

Mergers & Acquisitions 2015

72

Flipkart Acquires Mobile Marketing Platform Appiterate

Making its second acquisition in the year, Country’s largest ecommerce firm Flipkart India has

acquired Delhi based Appiterate, a mobile marketing start-up owned by DSYN Technologies

Pvt. Ltd. The financial details of the deal remain undisclosed.

Post the acquisition, Appiterate will be integrated into Flipkart's mobile app, which enable

eCommerce firm targeting users based on their activity on the app and website. Also, Appiterate

team will join Flipkart board.

Flipkart is looking for more investments and acquisitions in other mobile companies to improve

its mobile app capabilities.

Myntra Acquires Mobile App Developer Nnative5

Online fashion and lifestyle store Myntra has acquired Bengaluru-based mobile application

development platform Native5. The financial details of the deal remain undisclosed.

73

As a part of deal founders of Native5 will be absorbed into the Flipkart technology team. Last

year, Flipkart acquired Myntra for $330 Mn.

With this acquisition, Myntra is looking at escalating its website to a mobile friendly one.

Bharti Airtel To Raise Funds From Chinese Banks

Indian multinational telecommunications services company, Bharti Airtel to raise around

R15925 Cr ($2.5 Bn) from China Development Bank and Industrial and Commercial Bank of

China.

The company will utilise these funds for the growth of data networks and is subject to final

agreements and the requisite approvals, as applicable, including RBI approvals.

The China Development Bank has committed financing of upto $2 Bn with an average maturity

of about 9 years and the Industrial and Commercial Bank of China has committed $0.5 Bn with

an average maturity of about 9 years making it the largest and longest bilateral commitment to an

Indian telecom operator.

74

Airtel To Buy Augere Wireless Broadband

Telecommunications services company, Bharti Airtel is in advanced talks to buy out Augere

Wireless Broadband India for about R150 Cr. The deal is subject to regulatory approvals.

Founded in 2007, Augere offers affordable and accessible broadband internet services to

communities worldwide. The company has so far launched broadband internet services in

Pakistan and Bangladesh under the brand name ‘Qubee’. It also has licenses to operate

broadband wireless networks in Madhya Pradesh and Chhattisgarh states in India and is in the

phase of testing a pilot wireless network based on LTE technology in Madhya Pradesh.

Currently, Bharti Airtel holds 4G airwaves in the 2300 MHz band in 8 of 22 circles across the

country. In 2010, it had purchased 4 airwaves circles and later acquired San Diego based

Qualcomm's airwaves in another four circles, including Delhi and Mumbai.

75

PVR To Acquire DLF's DT Cinemas

India's largest real estate developer - DLF Ltd is set to sell its multiplex chain - DT Cinemas to

PVR Cinemas. The deal size is expected to be around R500 Cr and the transaction could be close

within weeks.

As per report, PVR plans to add 60 new screens annually in the next three years.

This would be PVR’s second attempt towards acquisition of DT Cinemas after 2009, as the deal

was called off due to some legal issues.

Cipla To Acquire Uganda Based Quality Chemical

BSE Listed Cipla Limited, today announced that it has entered into a definitive agreement to

acquire a 51% stake in Quality Chemicals Limited for R190.96 Cr ($30.05 Mn) of which $8 Mn

payable upfront on completion and 5 equal installments of USD 4.41 million payable at annual

intervals.

The acquisition will be routed through Cipla (EU) Limited UK, the wholly owned subsidiary of

Cipla Limited and it will strengthen Cipla’s overall presence in the African market and the deal

is expected to be completed by end of July 2015, subject to regulatory approvals.

76

Royal Enfield Buys Design And Engineering Firm Harris Performance

Two wheeler division of Eicher Motors, Royal Enfield has acquired UK based design and

engineering company Harris Performance Products Ltd for an undisclosed amount. Through the

deal, it will acquire all assets, employees, trade names, technical know-how and intellectual

property of Harris Performance.

Being the first acquisition of Royal Enfield, it will enhance its engineering and product design

capabilities.

Snapdeal Acquires Mobile Commerce Startup

Martmobi

Taking mobile commerce to the next level, Jasper Infotech operated ecommerce marketplace,

Snapdeal, has acquired Hyderabad based mobile commerce platform, MartMobi for an

undisclosed amount.

As 75% of the Snapdeal orders are coming from mobiles-based devices, Snapdeal is aiming to

strengthen its mobility platform for merchant partners, with this acquisition.

77

78

Vodafone India Exits Bharti Airtel

British telecom company Vodafone has exited from Bharti Airtel by selling its 4.2% stake in the

Indian telecom major to an arm of Bharti Group for $200 Mn (R 1274.70 Cr), through its wholly

owned subsidiary.

Vodafone has to sell its entire stake in Bharti Airtel following new norms issued by government

that bars a telecom operator from holding any kind of stake in competition under unified

licences.

Vodafone had bought a 10% stake in Bharti Airtel in 2005 and sold a part of it in 2007 post its

acquisition of Hutchison-Essar, now renamed Vodafone India.

Mahindra

Holidays To Buy Additional Stake In Holiday

Club

Chennai based, Mahindra Holidays and Resorts has announced to buy additional 64% stake for

about R200 Cr in Finland based Holiday Club Resorts, by exercising its Call Option and the deal

expected to be completed in 2-3 months, subject to regulatory approvals.

Post deal, Mahindra Holiday’s stake will rise up to 88% from the current holding of 23.3% in

Holiday Club and the balance 12% stake are primarily held by the management. Initially it had

acquired 18.8% stake in Holiday Club in July, 2014 and subsequently raised its stake to 23.3%

79

Snapdeal Buys Mobile Payment Startup Freecharge

In the biggest startup acquisition deal, ecommerce marketplace Snapdeal has snapped up

Freecharge, an online platform for recharge, utility payments, promotions and couponing. The

deal size was not disclosed, however, reports peg to be around $400 Mn.

The deal beats the largest acquisition till of Flipkart buying out Mnytra, strengthening its fashion

portfolio.

Future of   Mergers and Acquisition

Number of factors have influenced Mergers and Acquisition in 2015 but market is the

primary force that drives them. Another factor in the rise in mergers is a booming economy,

which is growing at unprecedented levels. As the country faced recession in the past decade,

many companies were forced to downsize, and the number of major mergers decreased

accordingly. Improvements in the economy, as well as potential legislative changes, very well

sparked another wave of mergers.

Despite negative studies and resistance from the economists, Mergers and Acquisitions

continue to be an important tool behind the growth of a company. The reason is that the

expansion is not limited by internal resources; no drain on working capital, stocks is attractive as

tax benefit and above all can consolidate industry and increase firm’s market power.

80

With the FDI policies becoming more liberalized, Mergers and Acquisitions talks are

heating up in India and are growing with an ever increasing cadence. They are now not limited to

one particular type of business. The past mergers cover every size and variety of business.

Mergers and Acquisitions are on the increase over the whole marketplace, providing platforms

for the small companies being acquired by bigger ones.

Indian markets have witnessed an increasing trend in mergers which may be due to

business consolidation by large industries, consolidation of business by multinationals operating

in India, increasing competition against imports and acquisition activities. Therefore, it is ripe

time for business houses and corporates to watch the Indian market, and grab the opportunity.

Conclusions

The following conclusions have been drawn from the study:

1. Post- liberalization, most Indian business houses are undergoing major structural

changes, the level of restructuring activity is increasing rapidly and the

consolidations through M&A have reached every corporate boardroom.

2. Most of the mergers that took place in India during the last decade seemed to have

followed the consequence of mergers in India corroborate the conclusions of research

work in U.S. with most of the M&A are taking place in India to improve the size to

withstand international competition which they have been exposed to in the Post-

liberalization regime.

81

3. The M&A activity is undertaken with the objective of financial restructuring and to

avail of the benefits of financial restructuring. Nowadays, before financial

restructuring, it has become a pre-requisite that companies need to merge or acquire.

Moreover, financial restructuring becomes easier because of M&A. the small

companies cannot approach international markets without becoming big i.e. without

merging or acquiring.

4. Market capitalalisation of a company sometimes is found to be going up or down

without any corresponding change in the EVA and MVA since the stock may be

strong because of the general bullish scenario in the market, s is observed in most of

the cases in our study.

Bibliography

Books

1) Mergers and Acquisitions – A Guide to creating value for Stakeholder

-Micheal A. Hilt

-Jefferey S. Harrison

-R. Duane Ireland

2) Independent Project on Mergers and Acquisitions in India –A Case Study

-Kaushik Roy Choudry

82

-K. Vinay Kuma

3) Cases in corporate Acquisitions, Mergers and Takeovers

-Edited by Kelly Hill

4) Successful mergers getting the people issues right

-Marion Devin

5) Merger, Acquisition and corporate restructuring in India

-Rachna jawa

6) Financial services 3rd edition -M.Y.khan

Websites

www.investopedia.com

www.wallstreetjournal.com

www.ny-times.com

www.economictimes.com

www.google.com

www.wikipedia.com

www.mergersindia.com

www.mergerdigest.com

83

84