MERGERS AND ACQUISITIONS INDIAN SCENARIO 2010 ONWARDS

SHUBHADA YASHVANTH SHETTY/HPGD/JA16/3122

SPECIALIZATION : FINANCE

PRIN. L.N.WELINGKAR INSTITUTE OF MANAGEMENT & DEVELOPMENT

RESEARCH

YEAR OF ADMISSION : JAN 2010

ACKNOWLEDGEMENT

Inspite of many hardwork and research we cant achieve our goals without
proper guidance and assistance.

I have not received any special guidance for this project but I have used the
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UNDERTAKING FROM THE CANDIDATE

I declare that Project work entitled Mergers and Acquisition in India since
2010 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 agency. I understand that, any such
malpractice will have 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.

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Contents

Introduction:

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

company where one survives and the other loses their corporate existence.
The survivor acquires the assets as well as liabilities of the merged company
or companies. It is simply a combination of two or more businesses into one
business. Laws in India use the term amalgamation for merger. It usually
involves two companies of the same size and stature joining hands. There
are different types of concept in which merging of the companies take place
like, Horizontal Merger, Vertical Merger, Conglomerate Merger, and Reverse
Merger.
Hence, it can be said that the M&A climate is very positive for India and
the world. Many factors such as easy and cheap availability of finance,
cash rich corporates and attractive growth and proliferation
opportunities are said to be the driving force behind Merger and
Acquisition activity which is expected to continue in a similar trend in future.

Acquisition in a general sense means acquiring the ownership in the

property. It is the purchase by one company of controlling interest in the
share capital of another existing company. Even after the takeover, although
there is a change in the management of both the firms, companies retain
their separate legal identity. The Companies remain independent and
separate; there is only a change in control of the Companies.

In India, the concept of mergers and acquisitions (M&AS) was

initiated by the government bodies. Corporate sector of India
was restructured by financial organizations by adopting the
M&A policies. This research aims to study the future prospects of
worldwide M&As, and the role of Indian industries in global scenario.
The present study tries to understand the extent of external deals
made by India. The results reveals that Indian markets have witnessed
burgeoning trend in mergers which may be due to business
consolidation by large industrial houses, consolidation of business by
multinationals operating in India, increasing competition against imports
and acquisition activities. M&As have begun to gain momentum in India;
there is plenty of examples of M&A provided in this research which proves
that Indian industries have already entered into the M&A process of value
creation.

Despite the challenging conditions, many firms still want to grow

through M&As. In todays global economy M&AS are being increasingly
used world over as a strategy for achieving larger size and faster
growth in market share and to become more competitive through
economies of scale. The Indian economy has been growing with a rapid pace
and has been emerging at the top, be it IT, R&D, pharmaceutical,
infrastructure, energy, consumer retail, telecom, financial services,
media, and hospitality etc. Investors, big companies, industrial houses view
Indian market in a growing and proliferating phase, whereby returns on
capital and the shareholder returns are high. The circumstances and reasons
for every M&A deal are different and these circumstances impact the
way the deal has been approached, managed and executed. However,
the success of mergers depends on how well the deal makers can
integrate two companies. Each deal has its own flips which are influenced
by various extraneous factors such as companys leadership and the ability
to retain people. Profits, intellectual property, customer base and
peripheral or central to the acquiring company, the motive will determine
the risk of such M&A.

1.2 Historical Perspective of Strategy and Mergers and Acquisitions:

Over the centuries, Mergers & Acquisitions have been employed as

strategic tools for achieving growth, competitive advantage and
creating wealth for shareholders. In todays ever changing, dynamic and
globalised environment, the M&A activity across the world is increasing
at a rapid pace by creating new challenges and providing new
opportunities to the companies involved. M&As are being widely used
for improving competitiveness of companies through gaining greater
market share, broadening the portfolio to reduce business risk, entering
new markets and geographies, capitalizing on economies of scale etc. The
year 2007 was a year for mega merger deals wherein the global deal value
crossed US $ 4.7 trillion.

According to the Boston Consulting Group (BCG), globally approximately

23,000 deals were closed during the year 2010 which marked an
increase of 7.6 percent over deal volume in the year 2009, while the
value of global M&A deals rose 22.9 per cent to US $ 2.4 trillion. Emerging
markets' M&A activity rose 76.2 per cent from the year 2009 to US $ 806.3
billion and accounted for 33 per cent of the total value of deals. The deal
value of Indian M&As reached US $ 67.2 billion in the year 2010, barely
missing the record of US $ 69.4 billion activity of the year 2007. In the first
half of the year 2011, the global value of M&A deals has already
reached US $ 1.5 trillion and Indias inbound M&A volume was second
highest in the Asia-Pacific region which surged to US $23.4 billion with
the United Kingdom emerging as the top acquirer into India.

Dealogics ranking table reveals that India climbed from 16th to 12th
position in global M& A transactions in the year 2010. Indian companies are
transforming into MNCs and are snapping up assets across the globe,
changing their market position rapidly. A slew of deals, including JSW
Steelspurchase of a majority stake inIspat Industries, Reckitt Benckisers
takeover of Paras pharmaceuticals and Tata Chemicals acquisition of UKs
British Salt, were announced during the last month of the year 2010.
Some other recent examples are Hindalco acquiring Canada Novelis for US
$ 6 billion, becoming the worlds largest aluminium rolling company,
Bharti Airtel becoming the fifth largest telecom company in the world
after its US $10 billion Zain deal.

Since times immemorial, mankind has inhabited the planet earth and
will do so till the end of the world. In the past it has been theorized that the
principle of the survival of the FITTEST holds true. Then what happened
to the Dinosaurs? The researcher has another theoryand that is the
survival of the strategist. Man survived so long, not because he was the
fittest, but because he strategically and systematically devised ways and
means by which he could thrive in the wild, amongst the animals. As
homosapiens gradually evolved to civilized human beings, their means, minds
and strategies evolved too.
Twenty five hundred years ago, Sun Tzu in his work titled The Art of War
explained that the strategist seeks the state of shih-having positioned his
forces at a place of advantage over rivals. In that same era, the Greek
historian Thucydides wrote that the events of the past " will at some
time or other, and in much the same ways, be repeated in the future."
For the next 24 centuries, he has been proven correct time and again.
Biographers of Napoleon Bonaparte talk about his ability to size up a
situation with a single coup d'oeil, meaning a stroke of the eye or
glance. Napoleon was so knowledgeable about his strategic
situationthe landscape, the enemy, available technology, similar
situations from the pastthat he could understand and respond
quickly to ever changing circumstances. The few things which are of
utmost importance here are Enemy, Landscape, Similar Situations from the
past and Ever changing circumstances. In the olden times, the
strategies were mainly employed for the purpose of war or annexure of
kingdoms. As man started moving away from his barbaric ways and tried
to establish order and harmony in his social life, war strategies took many
new forms. This study deals with strategy from the management point of
view. It would not be wrong to say that making a success out of your
business is like winning a war. Revisiting Napolean Enemy in war is
like competition in business, Landscape in war
is the Economic, political and social environment in Business, Ever
changing circumstances in war are similar to ever 3 changing climate of
the market and economy in business. So, in the life-or-death quest for
strategic change, business has much to learn from war. Both are about
the same thing: succeeding in competition. Even more basic, both can be
distilled to four words: informed choice/timely action. The key objective
in competition -whether business or war -is to improve the
organization's performance along these dimensions:
To generate better information than rivals
To analyze that information and make sound choices
To make those choices quickly
To convert strategic choices into decisive action
In simple words, strategy, from the point of view of business management is
a decision or a series of decisions taken in order to be able to beat
competition and adapt to some major change in the existing environment
of business for the ultimate growth or sustainability of the enterprise.
Mergers, acquisitions and all the different types of corporate
restructuring activities can be classified as strategies or quasi
strategies adapted by businesses to achieve growth, expand,
disseminate value and basically become better equipped to face
competition.
Mergers and Acquisitions are nothing but strategic alliances
between companies. These types of transactions can be referred to as
alliances as they are usually beneficial to both the acquiring party as well
as the selling party. Strategic alliances have very deep rooted history.
One can start with the first emperor of India-Chandragupta Maurya (320
BCE-298 BCE). It is said that his kingdom ranged from Bengal and
Assam in East India to Kashmir and Nepal in the North, the Deccan
plateau and much of Southern India. It is believed that Alexander the Great
came to India and conquered much of the Northern Province (now
Afghanistan and Pakistan) and he fought with king Porus on the banks
of the river Beas. Although he defeated king Porus, his troupes were heavily
damaged and he had to return to Greece. However, he left the regions he
had conquered in the care of his Satraps 1(A subordinate bureaucrat
official). Chandragupta Maurya had already annexed most of Northern
India with the help of his chief strategist Chanakya after 1From Latin
satrapa,from Greek satraps,from Old Persian khshathrapvan, Meaning:
protector of the land. King Darius I of Persia employed the system of dividing
their territory into satrapies, or provinces, over which a satrap was put in
charge. Alexander liked the idea and kept the administrative
structure.4which he started taking a stronghold in Alexanders Satrapies.
Seleucus I Nicator, the then Satrap of Alexander, who was well aware of the
prowess of the emperor, struck an alliance with Chandragupta Maurya.
The alliance was such that Chandragupta Maurya married Seleucuss
daughter and obviously got the Satrapies as dowry and in return he gave 500
war elephants to Seleucus!
The Rajputs of Marwar have been known for their strategy of conquest
through forging matrimonial alliances. The glaring example is that of the
marriage of princess Jodha, daughter of King Bharmal of Amer to King
Akbar. Political success knew no bounds for Emperor Akbar. After
having secured the Hindu Kush, his empire extended from Afghanistan to
the Bay of Bengal, and from the Himalayas to the Narmada River. However,
the Rajputs of the Western regions of India were giving him a tough time.
Through a shrewd blend of diplomacy, intimidation and brute force, Akbar
won the allegiance of the Rajputs. He married Jodhaa, a fiery Rajput
princess, in order to further strengthen his relations with the Rajputs. The
alliance of Jodha and Akbar it was, but it was more of a political
allegiance of the Rajput states to King Akbar, whereby the Rajput
states, to an extent retained their autonomy, but in turn were a part of
Akbars Dynasty.
These are but, just a few of the innumerable such strategic political
alliances which have taken place throughout history in different parts of the
world.
Mergers and Acquisitions in businesses can be termed as derivatives
of such historical alliances. Business Mergers, Acquisitions and
Takeovers first started in 1890s and the United States of America
recorded the most important M&A activity during this period.

METHODOLOGIES

TOP MERGER & ACQUISITION DEALS IN INDIA

1. TATA STEEL-CORUS: Tata Steel is one of the biggest ever Indians

steel company and the Corus is Europes second largest steel
company. In 2007, Tata Steels takeover European steel major Corus
for the price of $12.02 billion, making the Indian company, the worlds
fifth-largest steel producer. Tata Sponge iron, which was a low-cost
steel producer in the fast developing region of the world and Corus,
which was a high-value product manufacturer in the region of the world
demanding value products. The acquisition was intended to give Tata
steel access to the European markets and to achieve potential
synergies in the areas of manufacturing, procurement, R&D, logistics,
and back office operations.
2. VODAFONE-HUTCHISON ESSAR: Vodafone India Ltd. is the second
largest mobile network operator in India by subscriber base, after
Airtel. Hutchison Essar Ltd (HEL) was one of the leading mobile
operators in India. In the year 2007, the worlds largest telecom
 company in terms of revenue, Vodafone made a major foray into the
Indian telecom market by acquiring a 52 percent stake in Hutchison
Essat Ltd, a deal with the Hong Kong based Hutchison
Telecommunication International Ltd. Vodafone main motive in going in
for the deal was its strategy of expanding into emerging and high
growth markets like India. Vodafones purchase of 52% stake in Hutch
Essar for about $10 billion. Essar group still holds 32% in the Joint
venture.
3. HINDALCO-NOVELIS: The Hindalco Novelis merger marks one of the
biggest mergers in the aluminum industry. Hindalco industries Ltd. is
an aluminum manufacturing company and is a subsidiary of the Aditya
Birla Group and Novelis is the world leader in aluminum rolling,
producing an estimated 19percent of the worlds flat-rolled aluminum
products. The Hindalco Company entered into an agreement to acquire
the Canadian company Novelis for $6 billion, making the combined
entity the worlds largest rolled-aluminum Novelis operates as a
subsidiary of Hindalco.
4. RANBAXY-DAIICHI SANKYO: Ranbaxy Laboratories Limited is an Indian
multinational pharmaceutical company that was incorporated in India
in 1961 and Daiichi Sankyo is a global pharmaceutical company, the
second largest pharmaceutical company in Japan. In 2008, Daiichi
Sankyo Co. Ltd., signed an agreement to acquire the entire
shareholders of the promoters of Ranbaxy Laboratories Ltd, the largest
pharmaceutical company in India. Ranbaxys sale to Japans Daiichi at
the price of $4.5 billion.
5. ONGC-IMPERIAL ENERGY: Oil and Natural Gas Corporation Limited
(ONGC), national oil company of India. Imperial Energy Group is part of
the India National Gas Company, ONGC Videsh Ltd (OVL). Imperial
Energy includes 5 independent enterprises operating in the territory of
Tomsk region, including 2 oil and gas producing enterprises. Oil and
Natural Gas Corp. Ltd (ONGC) took control of Imperial Energy UK
Based firm operating in Russia for the price of $1.9 billion in early
2009. This acquisition was the second largest investment made by
ONGC in Russia.
6. MAHINDRA & MAHINDRA- SCHONEWEISS: Mahindra & Mahindra
Limited is an Indian multinational automobile manufacturing
corporation headquarters in Mumbai, India. It is one of the largest
vehicles manufacturer by production in India. Mahindra & Mahindra
acquired 90 percent of Schoneweiss, a leading company in the forging
sector in Germany. The deal took place in 2007, and consolidated
Mahindras position in the global market.
 7. STERLITE- ASARCO: Sterlite is Indias largest non-ferrous metals and
mining company with interests and operations in aluminum, copper and
zinc and lead. Sterlite has a world class copper smelter and refinery
operations in India. Asarco, formerly known as American Smelting and
Refining Company, is currently the third largest copper producer in the
United States of America. In the year 2009, Sterlite Industries, a part of
the Vedanta Group signed an agreement regarding the acquisition of
copper mining company Asarco for the price of $ 2.6 billion. The deal
surpassed Tatas $2.3 billion deal of acquiring Land Rover and Jaguar.
After the finalization of the deal Sterlite would become third largest
copper mining company in the world.
8. TATA MOTORS-JAGUAR LAND ROVER: Tata Motors Limited (TELCO), is
an Indian multinational automotive manufacturing company
headquartered in Mumbai, India and a subsidiary of the Tata Group and
the Jaguar Land Rover Automotive PLC is a British multinational
automotive company headquarters in Whitley, Coventry, United
Kingdom, and now a subsidiary of Indian automaker Tata Motors. Tata
Motorsacquisition of luxury car maker Jaguar Land Rover was for the
price of $2.3 billion. This could probably the most ambitious deal after
the Ranbaxy won. It certainly landed Tata Motors in a lot of troubles.
9. SUZLON-REPOWER: Suzlon Energy Limited is a wind turbine supplier
based in Pune, India and RePower systems SE (now Senvion SE) is a
German wind turbine company founded in 2001, owned by Centerbridge
Partners. Wind Energy premier Suzlon Energys acquisition
of RePower for $1.7 billion.
10. RIL-RPL MERGER: Reliance Industries Limited (RIL) is an Indian
Conglomerate holding company headquartered in Mumbai, India.
Reliance is the most profitable company in India, the second-largest
publicly traded company in India by market capitalization. Reliance
Petroleum Limited was set up by Reliance Industries Limited (RIL), one
of Indias largest private sector companies based in Ahmedabad.
Currently, Reliance Industries taking over Reliance Petroleum Limited
(RPL) for the price of 8500 crores or $1.6 billion.

Methodology

Over the years, several studies have been done by researchers and
practitioners to understand the significance of adopting Mergers &
Acquisitions (M&A) strategy by organizations. The motivation has been to
understand whether the perceived benefits from this strategy have accrued
or not. They have studied whether these acquisitions are value enhancing or
destructive strategies for acquiring organizations.

OBJECTIVES OF THE STUDY

The study is about finding the future prospects of M&AS worldwide. It also
describes the trends and the progress of M&As in India and abroad.
To identify the future prospects and impact of global M&AS.
To analyze the trends & progress of M&AS in Indian Industries.

MOTIVES FOR MERGERS AND ACQUISITIONS

Strategic Motives
These motives are easiest to justify and are the most influential and
important. The chosen takeover target might be the wrong one; the price
paid might be too high. If a takeover has a sensible strategic fit it makes
sense that it supports the achievement of corporate objectives.

Financial Motives
All M&AS have financial motives of one kind or another, each is designed to
achieve a satisfactory rate of return for the investment and risk been taken.
It is the financial returns which drive the deal. Managerial Motives
managerial synergies arise when a high-performing management
team replaces a poor-performing one. One advantage of acquisitions
is that they give the acquirer the opportunity to remove
incompetent managers, which could improve the targets performance.
Shareholders Gain It refer to the increase in the market value of the firm due
to the merger. Since the increase in the value of the firm directly benefits its
owners, it is said that shareholders gain.

Increasing Capabilities
Increased capabilities may come from expanded research and
development opportunities or the capability may come from acquiring a
unique technology platform rather than trying to build it.

Economies of Scope
Economies of scope are economies of scale generalized to multi-
product firms or to firms related by a chain of supply. They are
reached if the average cost of producing two products separately falls
when the products are produced jointly.
Economies of Vertical Integration
These are revealed when the sum of the cost of separately owned
stages of production falls when a single firm performs the two stages of
production.

Cost Saving
What is important for the analysis of merger motives is to identify the type of
cost saving, i.e., if it consists on a reduction of average or marginal costs of
production, fixed costs or financial costs.

Rationalization
It consists of optimal reallocation of production across the different
lines of production of the merging firms or shifting production from a
plant with higher marginal costs to another with lower marginal costs,
without increasing the joint technological capabilities.

Purchasing Power
Cost savings may arrive when by increasing its size, a downstream
firm may also increase its buyer power and obtain quantity discounts or
just better prices from their upstream suppliers.

Creating Internal Capital Markets

By building up larger firm that creates an internal capital market, value can
be generated. A firm is composed of several product lines or geographic
areas called divisions. These divisions are owned altogether by a single
corporation but are decentralized and their operational decisions are
independent among them.

Diversification
The idea of diversification states that the market value of a firm can
be increased if it incurs in optimal risk by investing in many
uncorrelated instruments. This merger motive is different from the
spreading portfolio motive that allows enhancing market power.

Spread Portfolio
It concerns mergers between firms that produce goods in distinct product
markets but that are somehow related or complementary, that is, it concerns
conglomerate mergers. A merged firm is able to gain market power because
its buyers will prefer to be supplied of different inputs by the same firm
rather that by different firms.

Free Cash-Flow
The excess of free-cash flows is often considered as a result of
management inefficiency. It has been stated that companies that hold
high free-cash flows are frequent targets in hostile takeovers.

Survivng
Its never easy for a company to willingly give up its identity to
another company, but sometimes it is the only option in order for the
company to survive. A number of companies used M&A to grow and
survive during the global financial crisis from 2008 to 2012.

Until upto a couple of years back, the news that Indian companies having
acquired American-European entities was very rare. However, this scenario
has taken a sudden U turn. Nowadays, news of Indian Companies acquiring a
foreign businesses are more common than other way round.

Buoyant Indian Economy, extra cash with Indian corporates, Government

policies and newly found dynamism in Indian businessmen have all
contributed to this new acquisition trend. Indian companies are now
aggressively looking at North American and European markets to spread
their wings and become the global players.

The Indian IT and ITES companies already have a strong presence in foreign
markets, however, other sectors are also now growing rapidly. The
increasing engagement of the Indian companies in the world markets, and
particularly in the US, is not only an indication of the maturity reached by
Indian Industry but also the extent of their participation in the overall
globalization process.

We investigate this question from the perspective of methods used to

determine post acquisition value. We research M&A literature over the last
three decades to describe different methods used to measure acquisition
performance; identify the most popular methods; their limitations and
benefits; and analyze whether research conclusions differ depending upon
the method used to measure performance. We also research whether
methods used in emerging markets such as India differ from those typically
used in the developed markets.

We find that internationally event studies dominate acquisition performance

research; while research on Indian acquisitions has primarily been based on
accounting returns. There are a few other methods such as data
envelopment analysis and balanced score card methods which warrant
further research and inclusion in M&A literature. We also find that research
conclusions differ depending on the method selected for performance
evaluation; which is an important factor for researchers and practitioners to
consider while drawing conclusions on acquisition success or failure.

We recommend that the method of evaluation should be based on the country

of study, and more significantly the aspect under examination i.e.
profitability, stock market perception or efficiency. Our contribution to the
present body of knowledge is to suggest that methods of evaluation used in
developed markets may not work in emerging markets and that method
selection can influence research conclusions.

The corporate sector all over the world is restructuring its operations
through inorganic growth with different types of consolidation strategies like
mergers and acquisitions in order to face challenges posed by the new
pattern of globalization, which has led to the greater integration of national
and international markets. Mergers and Acquisitions are key forms of
corporate restructuring. Over the last two decades, Mergers and Acquisitions
(M&A)-related issues have drawn considerable interest from practitioners
and academicians. There is massive literature available over developed
economies but very not as much of studies exist in India. This paper is an
explanatory attempt for examining the different studies that have been
carried out in the field of global M&A. The study is based on secondary data
of cases of mergers & acquisition in various geographies across global
market. This research also aims to study the trend of M&A and future
prospects of M&A in India. To gaze the status and competitiveness of M&A
extensive literature review and desk research has been carried out .The
results reveals that Indian markets have witnessed burgeoning trend in
mergers which proves that Indian industries have already entered into the
M&A process of value creation.

India's merger and acquisition (M&A) deals saw a 68.5% rise in the first nine
months, the highest growth since 2010. M&A deals involving Indian
companies grew to $44.2 billion during the nine months of 2016 from $26.2
billion during the same period last year, according to a Thomson Reuters
report.
This is due to M&A deals such as with Reliance Communication and
Aircel valued at $$4.8 billion in September, HDFC Standard Life Insurance
and Max Life Insurance deal valued at $3.1 billion in August, Aditya Birla
Nuvo and Grasim Industries in August valued at $2.8 billion and Jaiprakash
Associates' Cement unit and UltraTech Cement in February which is valued
at $2.4 billion, among others.
Prior to this M&A in terms of deal value reached its highest in 2010 were it
stood at $57.1 billion and was driven by industry consolidations and
restructurings. The average M&A deal size for transactions with disclosed
values reached $102.2 million during the first nine months of 2016, compared
to $67.7 million from the same period last year, said the report.

The domestic M&A deals was up by a large 210.4% from over a year ago in
terms of value and reached to $22.2 billion. In terms of domestic M&A deals
this was the highest first nine months period since 2006, which had seen
M&A deals a little higher at $22.7 billion.

However, the process of these M&A deals still lie pending as the report
states that completed M&A deals involving Indian companies was down
10.6%, as the deal value was $22 billion as compared to the first nine months
on 2015.

Be that as it may, M&A deals have grown considerably in India, especially

since global M&A deals have been falling down. Worldwide M&A deals
decreased by 22% from 2015 levels to stand at $2.4 trillion during the first
nine months. This is the slowest period for worldwide deal making in three
years, according to Thomson Reuters Global M&A Financial Advisory Review.

In fact, the value of worldwide M&A deals decreased by 10% as compared to

the second quarter of this year. The value of worldwide M&A announced
during the third quarter of 2016 totaled $796.2 billion.
Conclusion & Recommendations

Bibliography:

Online articles from Trak.in, Wikipedia, Zee business etc

Nishit Desais book