MERGERS & ACQUISITIONS

SUBMITTED BY
SIDHARTH BHAMBHANI
DIV-A
SEMESTER- VI
SUBMITTED TO
MS. BHARTI WADHWA
ORGANISATION
SYMBIOSIS CENTRE FOR MANAGEMENT
STUDIES, NOIDA

ASSIGNMENT- 1

TYPES OF MERGERS
1. Horizontal Mergers
Horizontal mergers involve companies that offer the same products or services
to the same kinds of customers. Horizontal mergers are types of mergers that
involve companies in direct competition with one another. Often horizontal
mergers are considered hostile, which means a larger company "takes over" a
smaller one in more of an acquisition than a merger. Horizontal mergers offer
"economies of scale," meaning that average costs decline as the company does
a greater volume of business. Such mergers also increase market share. And
they offer opportunities for cost savings by eliminating redundancies: Where
the original companies each needed their own purchasing department,
advertising budget, benefits program and so on the merged firm only requires
one.

2. Vertical Mergers
A vertical merger combines two companies that are involved in producing the
same goods or services but at different stages of production. When a company
merges with either a supplier or a customer to create an extension of the supply
chain, it is known as a vertical merge or integration. An example of a vertical
merger may be a steel company merging with a car manufacturer. The steel
company was previously a supplier to the car manufacturer but after the merge
would be part of the same company. Vertical mergers help prevent business
disruptions: The manufacturing operation no longer has to worry about
obtaining enough plastic, while the plastics operation gets a steady customer.
Cost savings through eliminating redundant functions are also possible.

3. Conglomerate Mergers
Concentric mergers, also called congeneric mergers, occur between companies
within an industry that serve the same customers but don't offer them the same
products or services. There is no relationship between the type of business one
company is in and the type the other is in. The merger is typically part of a
desire on the part of one company to grow its financial wealth. By merging
with a completely unrelated, the resulting conglomerate gains a revenue stream
in many types of industries. Concentric mergers diversify the combined
company's offerings and allow the firm to benefit from areas of shared
expertise. These mergers can also drive new business.

Horizontal Merger
Merger of Tech Mahindra and Satyam Computer Services
Ltd.
Satyam Computer Services Ltd is an Indian IT services company based in
Hyderabad, India. Tech Mahindra which was ranked #5 in India's software services
firms and overall #161 in Fortune India 500 list for 2011, is a is a part of Mahindra
Group conglomerate with headquartered at Pune, India. Tech Mahindra Limited is
a leading global systems integrator and business transformation consulting
organization, focused primarily on the telecommunications industry. Satyam
unveiled its new brand identity Mahindra Satyam subsequent to its takeover by the
Mahindra Group's IT arm on 13 April 2009. On June 24, 2013 Tech Mahindra and
Mahindra Satyam merging process completed and the name of the parent company
was retained for the merged entity with a new Logo and motto. Merger was delayed
due to various disputes both in India and abroad. There were quite many problems
in the areas of legal and judicial issues, diverse expertise of the merged entities and
also the culture between two companies.
Pre- Merger Scenario at Satyam Computer Services Ltd:
B Ramalinga Raju created Satyam Computer Services Ltd. as a private limited
company on 24th June 1987 which became public in 1991 and turned into worlds
first ISO 9001:2000 company to be certified 2 by BVQI by 2001. Its customers
included World Bank, General Electric Company and its affiliates, State Farm
Mutual Automotive Insurance Company, Megasoft Inc., Caterpillar Inc.
World Bank announced on December 23, 2008 that Satyam has been barred Satyam
from business with World Bank for eight years for providing Bank staff with
improper benefits and charged with data theft and bribing the staff. Share prices
were falling drastically. Ramalinga Raju resigns.
As NDTV informed, over Rs. 70 billion accounting fraud of non-existent cash in
the company's books was disclosed. Three more independent directors Vinod
Dham, Krishna Palepu and Rammohan Rao resign.Satyam's investment banker
DSP Merrill Lynch terminated contract. On Jan 8, 2009 Satyam's bankers Citibank
freeze its accounts. On January 22, 2009, Satyams CFO Srinivas Vadlamani
confessed that by inflating the number of employees by 10,000, the company was
earning around Rs 20 crore per month from the related but fictitious salary
accounts.

Pre- Merger Scenario at Tech Mahindra:

Tech Mahindra Limited is an Indian multinational provider of information
technology (IT), networking technology solutions and business support services
(BPO) to the telecommunications industry.[3] Tech Mahindra is a part of the
Mahindra Group conglomerate. It is headquartered at Mumbai, India.Tech
Mahindra is ranked #5 in India's software services firms and overall #111 in
Fortune India 500 list for 2012Tech Mahindra has operations in more than 30
countries with 17 sales offices and 13 delivery centres.
Its activities spread across a broad spectrum, including Business Support Systems
(BSS), Operations Support Systems (OSS), Network Design & Engineering, Next
Generation Networks, Mobility Solutions, Security consulting and Testing.
After the Satyam Episode of 2008-09, Tech Mahindra bid for Satyam Computer
Services, and emerged as a top bidder with an offer of Rs 58.90 a share for a 31 per
cent stake in the company, beating a strong rival Larsen & Toubro.
Tech Mahindra Acquired Satyam, Renamed it As Mahindra Satyam:
On Feb 19, 2009 when the share price was Rs. 46.25, in order to increase
authorized share capital to Rs. 2.8 billion from Rs. 1.6 billion, company Law Board
decided to identify investors to get hold of 51% stake in company through open,
transparent and competitive process from those organizations that are having net
assets in excess of $150 million. Investors need to provide proof of funds worth Rs.
15 billion. The companies interested in acquiring Satyam include L&T, Cognizant,
Wilbur Ross and Tech Mahindra. The bidding process took place on Mar 11, 2009
under the observation of Former chief justice of Supreme Court S.P. Bharucha.
Satyam intimates SEBI was informed about bidding process. Apr 2, 2009 when the
share price was Rs. 39.90 Satyam modifies bidding process; goes for open auction
and on Apr 13, 2009 when share price Rs. 48.85 Venturbay Consultants, a
subsidiary of Tech Mahindra, turned out as the highest bidder for Rs.58per share.
Thus Tech Mahindra wins bid to acquire 51% stake in Satyam.
In the board of the new company, Tech Mahindra CEO and MD Vineet Nayyar was
appointed as the Vice Chairman , its international operations Head CP Gurnani as
CEO and Subramaniyam Durgashankar as CFO. Deloitte Haskins & Sells was
chosen as the companys statutory auditors. The board of Tech Mahindra and
Mahindra Satyam approved the merger on March 21, 2012.

Reasons for Merger:

To create new strategies and deep competencies and a balanced mix of
revenues from Telecom, Manufacturing, Technology, Banking, Insurance
etc.
To leverage expertise in mobility, system integration , deliver of large
amount of information to diverse clients around the globe.
To create economies of scale, sourcing benefits, and standardization of
business processes.
Investment Bankers:
Ernst and Young acted as merger advisors. Morgan Stanley and JPMorgan were
bankers to the merger process. AZB Partners acted as legal advisors. Enam
Securities pvt ltd and Barclays Bank acted as advisors to Tech Mahindra.
Challenges:
Each and every organization has a unique characteristics, policies which form work
culture of that particular organisation. Whenever employees settle in the culture,
they feel a sense of belongingness to the company. Many a times it does happen
that when culture undergoes some kind of changes, due to some reason or other, it
might lead to demoralizing sometimes even devastating situations. During a merger
or acquisition also culture can change and employees from the acquired company
might face too much problem and can resist in accepting the new culture. It might
lead to demotivation, frustration, lower productivity etc., which can affect a
company to a great extent. Only 25,429 employees were associated with Tech
Mahindra. As compared to Tech Mahindra, Satyam was a larger in size with more
number of employees. After the acquisition total staff strength became 85,167. To
handle such a huge workforce was a great challenge. At the same time Mahindra
and Mahindra group had to gain the customers faith on Mahindra Satyam and
make it run profitably again.
Status after the merger:
On January 3rd, 2014 the share price of Tech Mahindra was Rs.1836.05. On the
basis of this it can be assumed the company is moving forward at a very rapid rate.
Tech Mahindra and Satyam together expected to post revenue of about $2.7 billion
in fiscal 2013. The vision of Tech Mahindra is to be among the top three firms in
India in the business segments it is focusing on. Its aspires to reach revenue target
of $5 billion by 2015. To attain this vision the company is initiating to reappoint its
former employees in the mid-to-senior management levels who know the
organization in and out. The merger was successful.

Vertical Merger
Merger of Reliance Gateway with FLAG Telecom Ltd.
Reliance Infocomm Ltd.,.India's largest mobile service provider, is a part of the
Reliance group founded by Shri Dhirubhai H. Ambani (1932-2002). Reliance
Infocomm has established a pan-India, high-capacity, integrated (wireless and
wireline) and convergent (voice, data and video) digital network, to offer services
spanning the entire Infocomm value chain - infrastructure, services for enterprises
and individuals, applications and consulting. The Reliance Group is India's largest
business house with total revenues in the financial year ended March 2003 of Rs
800 billion (US$ 16.8 billion), cash profit of over Rs 98 billion (US$ 2.1 billion),
net profit of over Rs 47 billion (US$ 990 million), market capitalisation Rs 974
billion (US$21.7 billion) and exports of Rs 119 billion (US$ 2.5 billion).
FLAG Telecom has an established customer base of more than 180 leading
operators, including all of the top ten international carriers. FLAG owns and
manages an extensive optical-fiber network spanning four continents and
connecting key business markets in Asia, Europe, the Middle East and the USA.
FLAG also owns and operates a low latency global MPLS based IP network, which
connects most of the world's principal international Internet exchanges. FLAG
offers a focused range of global products, including global bandwidth, IP, Internet,
Ethernet and co-location services.
Pre-Merger:

RELIANCE Infocom had announced its plan to acquire FLAG Telecom, an

international provider of wholesale telecom network transport and communications,
for an aggregate amount of $207 million (around Rs 1,000 crore) on 15th October,
2003.
The Agreement and Plan of Amalgamation for the acquisition was signed between
Reliance Gateway Net Pvt Ltd, a fully owned subsidiary, and FLAG Telecom
Group.
An announcement by FLAG said that this works out to $95.61 per share, a
premium of more than 50 per cent over closing price of the company which is listed
on the London Stock Exchange and Nasdaq.
This is the first international acquisition by Reliance and the largest such
international acquisition in the services sector by an Indian company, according to
Mr Anil Ambani, Vice-Chairman and Managing Director, Reliance Industries.

The agreement is for the acquisition of 100 per cent of the fully diluted equity of
the company.
The acquisition is subject to regulatory approvals and FLAG shareholders'
approval.

Reasons for Merger:

Reliance believes that the acquisition price is "very attractive and offers great value
for FLAG shareholders". FLAG has 50,000 km of undersea optic fibre cable which
will complement Reliance Infocomm's vast 3G digital network in the country.
FLAG would be a very compatible horse in the Reliance stable. FLAG is
understood to have 10 gbps of international bandwidth coming into the country.
Reliance believes that its acquisition price of US$207 million is very attractive and
offers great value to Flag's shareholders.

Investment Bankers:
Advisors to Reliance on this transaction are Davis Polk & Wardwell, legal advisors
and Deutsche Bank, financial advisors. Advisors to FLAG Telecom are Akin Gump
Strauss Hauer & Feld LLP, legal counsel and Houlihan Lokey Howard & Zukin
(Europe) Limited, financial advisors.

Challenges:
VSNL had had the exclusive rights to market FLAG's capacity in India under an
agreement through which it bought some bandwidth for 25 years.
FLAG's submarine cable's landing station is at the VSNL gateway in Mumbai and
is owned by VSNL, now a Tata group company.
The agreement an important first step towards concluding the acquisition of Flag, is
subject to certain conditions, including the receipt of regulatory approvals and the
approval of Flag's shareholders. A meeting of Flag's shareholders was expected to
be held in December 2003 to approve the amalgamation.

Post-Merger:
This acquisition, when consummated, will be the first international acquisition by
Reliance and the largest such international acquisition in the services sector by an
Indian company. Flag's global fiber optic network will complement Reliance's next
generation digital network in India and enable Reliance to serve its customers
worldwide more effectively by offering end to end solutions.
Flag is in the business of providing bandwidth through its undersea cable network.
It owns and operates a global telecom network comprising of over 50,000 kms of
undersea fiber optic cable that spans four continents and connects the key regions
of Asia, Europe, Middle East and the USA. Through its network, Flag offers a
variety of telecom products and services to its customers consisting of major
telecom carriers, Internet service providers, and other bandwidth intensive users
such as broadcasters.
Reliance Infocomm Ltd. is a part of the Reliance group founded by Shri Dhirubhai
H. Ambani (1932-2002) and is India's largest business house with total revenues of
Rs 80,000 crore (US$ 16.8 billion), cash profit of over Rs 9,800 crore (US$ 2.1
billion), net profit of over Rs 4,700 crore (US$ 990 million) and exports of Rs
11,900 crore (US$ 2.5 billion).
The merger was successful.

Conglomerate Merger
Merger of P&G and Gillette
On January 28, 2005, Cincinnati-based P&G announced its investment deal to
acquire Boston-based Gillette for $57 bn to become the world's largest consumer
goods company. The annual sales of the combined entity would be $60.7 bn. After
its purchase of Gillette, P&G would have 21 billion-dollar brands with a market
capitalization of $200bn.
Pre-Merger:
According to the deal, P&G will be paying 0.975 for each share of Gillette, valuing
the acquisition at a 20% premium to shareholders of Gillette. The shareholders of
P&G were apprehensive of the company's share prices being diluted. To avoid such
problems, P&G had promised to buy back its shares, worth $18-$22 bn, over the
following 12-18 months. P&G planned to pay Gillette 40% in cash and the rest
60% in stock. The extra 20% premium paid by P&G for Gillette's stock was going
to make it 20% more difficult for the deal to pay dividends to stock holders. By
acquiring Gillette, P&G will be adding the world's best shaving products to its
portfolio. This is what P&G's CEO A G Lafley thinks is necessary to overtake their
close competitors, particularly in developing countries.
According to The Wall Street Journal, Gillette chairman and chief executive officer
James Kilts will earn more than $153 million if the deal goes through, including
gains on his stock options and stock rights, an estimated $23.9 million payment
from P&G, and a change-in control payment of $12.6 million. The transaction,
which is subject to certain conditions including approval by Gillette's and P&G's
shareholders and regulatory clearance, was expected to close in the fall of 2005.
Post-Merger:
Both the firms' CEOs termed the deal as a friendly move, and added that it would
benefit both the firms equally. According to analysts, the merging companies had
many similarities a corporate history that is more than a century old, billion-dollar
brands, and pioneering consumer product marketing initiatives. The merger was
also said to have been based on a different model where innovation was the focus
rather than scale. It was called a unique case of acquisition by an innovative
company to expand its product line by acquiring another innovative company.
Analysts described the merger as a "perfect marriage".

Challenges:
Future Gillette retirees might suffer as they faced diminished medical benefits. In
addition, 6,000 layoffs were expected to be among Gillette workers in Boston,
where the company had its world headquarters. As a result of the merger, another
concern was the impact on the city of Boston regarding the number of empty floors
in the 52-story Prudential Building, adding to the citys existing merger-driven glut
of sublease office space. The board of directors had also been challenged on the
valuation they had placed on the merger.
Some analysts felt that regulatory concerns raised by the merger could relate to
product overlaps between both companies, in order to determine whether the
combined firm would have the power to set prices. There were concerns that strong
overlaps in toothbrushes and toothpaste could result in regulators seeking some
divestitures, although P&G would like to keep as many Gillette brands as it can.

Reasons for Merger:

The P&G-Gillette merger is one of the biggest mergers in the history of the
consumer goods industry. The merger gives P&G access to new products, markets
and change the dynamics of the consumer goods industry.
The Gillette Company was a market leader in several global product categories
including blades and razors, oral care and batteries. Total sales for Gillette during
its pre-acquisition year ended December 31, 2004, were $10.5 billion.
Gillette and P&G have similar cultures and complementary core strengths in
branding, innovation, scale and go-to-market capabilities, making it a terrific fit.

Investment Bankers:
In connection with the merger, the Procter & Gamble board of directors considered
the opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Procter &
Gambles financial advisor.
Goldman, Sachs & Co. and UBS Securities LLC have rendered their respective
opinions to the Gillette board of directors.

Post-Merger:
On October 1, 2005, P&G completed the acquisition of The Gillette Company.
Pursuant to the acquisition agreement, which provided for the exchange of 0.975
shares of The Procter & Gamble Company common stock, on a tax-free basis, for
each share of The Gillette Company, P&G issued 962 million shares of The Procter
& Gamble Company common stock. The value of these shares was determined
using the average Company stock prices beginning two days before and ending two
days after January 28, 2005, the date the acquisition was announced. P&G also
issued 79 million stock options in exchange for Gillettes outstanding stock options.
Under the purchase method of accounting, the total consideration was
approximately $53.4 billion including common stock, the fair value of vested stock
options and acquisition costs. This acquisition ultimately resulted in a new
Grooming reportable segment. The Gillette oral care, batteries and personal care
businesses were subsumed within the Health Care, Fabric Care and Home Care,
and Beauty reportable segments, respectively.
The merger was successful.