MERGERS & ACQUISITIONS (M&A) IN INDIAN TELECOM INDUSTRY

Mergers and Acquisitions (M&A) are strategic tools in the hands of management to achieve greater efficiency by exploiting synergies and growth opportunities. Mergers are motivated by desire to grow inorganically at a fast pace, quickly grab market share and achieve economies of scale. India has become a hotbed of telecom mergers and acquisitions in the last decade. Foreign investors and telecom majors look at India as one of the fastest growing telecom markets in the world. Sweeping reforms introduced by successive Governments over the last decade have dramatically changed the face of the telecommunication industry. The mobile sector has achieved a teledensity of 14% by July 2006 which has been aided by a bouquet of factors like aggressive foreign investment, regulatory support, lower tariffs and falling network cost and handset prices. M&A have also been driven by the development of new telecommunication technologies. The deregulation of the industry tempts telecom firms (telcos) to provide bundled products and services, especially with the ongoing convergence of the telecom and cable industries. The acquisition of additional products and services has thus become a profitable move for telecom providers. The sectors attracting investments by Corporate India include metals, pharmaceuticals, industrial goods, automotive components, beverages, cosmetics and energy in manufacturing; and mobilec o m m u n i c a t i o n s , s o f t w a r e a n d f i n a n c i a l s e r v i c e s i n s e r v i c e s , w i t h p h a r m a c e u t i c a l s , I T a n d energy being the prominent ones among these. Year 2007 can be cancelled as the years of Merger & Acquisition for India. B e s i d e s t h e investments flowing into India, Indian corporations currently loaded with excess cash are on an acquisitions spree. ACQUISITION An acquisition, also known as a takeover, is the buying of one company (the target) by another.A n a c q u i s i t i o n m a y b e friendlyor hostile. I n t h e f o r m e r c a s e , t h e c o m p a n i e s c o o p e r a t e i n negotiations; in the latter case, the takeover target is unwilling to be bought or the target'sboard has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm bya larger one. Sometimes, however, a smaller firm will acquire management control of a larger or l o n g e r e s t a b l i s h e d c o m p a n y a n d k e e p i t s n a m e f o r t h e c o m b i n e d e n t i t y. T h i s i s k n o w n a s a reverse takeover . TYPES OF ACQUISITION The buyer buys the shares, and therefore control, of the target company being purchased.Ownership control of the company in turn conveys effective control over the assets of thec o m p a n y, b u t s i n c e t h e c o m p a n y i s a c q u i r e d i n t a c t a s a g o i n g b u s i n e s s , t h i s f o r m o f transaction carries with it all of the liabilities accrued by that business over its past and allof the risks that company faces in its commercial environment. The buyer buys the assets of the target company. The cash the target receives from thesell-off is paid back to its shareholders by dividend or through liquidation. This

type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to "cherrypick" the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards such as those that could arise from litigation over defective products, employee benefits or terminati ons, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, imposeo n t r a n s f e r s o f t h e i n d i v i d u a l a s s e t s , w h e r e a s s t o c k t r a n s a c t i o n s c a n f r e q u e n t l y b e structured as like-kind exchanges or other arrangements that are taxfree or tax-neutral, both to the buyer and to the seller's shareholders. The terms "demerger ", "spin-off " and "spin-out" are sometimes used to indicate a situation where one company splits into two, generating a second company separately listed on a stock exchange