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Merger
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.
Acquisition
An acquisition, also known as a takeover or a buyout, is the buying of one
company (the ‘target’) by another. Merger is when two companies combine
together to form a new company all together. An acquisition may be private
or public, depending on whether the acquiree or merging company is or isn't
listed in public markets. An acquisition may be friendly or hostile. Whether a
purchase is perceived as a friendly or hostile depends on how it is
communicated to and received by the target company's board of directors,
employees and shareholders. It is quite normal though for M&A deal
communications to take place in a so called 'confidentiality bubble' whereby
information flows are restricted due to confidentiality agreements (Harwood,
2005).
In the case of a friendly transaction, the companies cooperate in
negotiations; in the case of a hostile deal, the takeover target is unwilling to
be bought or the target's board has no prior knowledge of the offer. Hostile
acquisitions can, and often do, turn friendly at the end, as the acquiror
secures the endorsement of the transaction from the board of the acquiree
company. This usually requires an improvement in the terms of the offer.
Acquisition usually refers to a purchase of a smaller firm by a larger one.
Sometimes, however, a smaller firm will acquire management control of a
larger or longer established company and keep its name for the combined
entity. This is known as a reverse takeover. Another type of acquisition is
reverse merger a deal that enables a private company to get publicly listed
in a short time period.
A reverse merger occurs when a private company that has strong
prospects and is eager to raise financing buys a publicly listed shell
company, usually one with no business and limited assets. Achieving
acquisition success has proven to be very difficult, while various studies have
shown that 50% of acquisitions were unsuccessful. The acquisition process is
very complex, with many dimensions influencing its outcome. There is also a
variety of structures used in securing control over the assets of a company,
which have different tax and regulatory implications:
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 the company, but since the
company is acquired intact as a going concern, this form of transaction
carries with it all of the liabilities accrued by that business over its past
and all of the risks that company faces in its commercial environment.
The buyer buys the assets of the target company. The cash the target
receives from the sell-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 "cherry-pick" 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
terminations, or environmental damage. A disadvantage of this structure
is the tax that many jurisdictions, particularly outside the United States,
impose on transfers of the individual assets, whereas stock transactions
can frequently be structured as like-kind exchanges or other
arrangements that are tax-free or tax-neutral, both to the buyer and to
the seller's shareholders.
When one company takes over another and clearly establishes 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 buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms 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". The firms are often of about the same size. Both companies' stocks
are surrendered and new company stock is issued in its place. For example,
in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms
ceased to exist when they merged, and a new company, GlaxoSmithKline,
was created.
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 acquisition.
MERGERS AND ACQUISITIONS IN INDIA:
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 is now
one of the leading nations in the world in terms of mergers and acquisitions.
COMPANY PROFILE
Mahindra Satyam (NYSE: SAY), is a leading information, communications and
technology (ICT) company providing top-class business consulting,
information technology and communication services. Leveraging deep
industry and functional expertise, leading technology practices and a global
delivery model, they enable companies achieve their business goals and
transformation objectives.
They are part of the $7.1 billion Mahindra Group, a global industrial
conglomerate and one of the top 10 industrial firms based in India. The
Group’s interests span financial services, automotive products, trade, retail
and logistics, information technology and infrastructure development.
Subsidiaries:
Genesis
Mahindra Group’s revenues increased fourfold over the past six years
to
USD 7.1 billion (FY2010)
Businesses
Automotive: India’s fourth largest Automobile company
Chemical Products
Employees
Genesis
Business
Global presence
Customer profile
Major clients
BT, Cisco, Alcatel Lucent, Microsoft, Motorola, O2, Qwest, StarHub,
TNZ, Hutchison, Unisys, Vodafone, BSNL, Airtel, MTN, Etisalat, Zain, T-
Mobile, NSN, Cox, Telus, Huawei.
Employees
Around 33,000+ professionals across the globe.
Milestones
1987
• Incorporated as private limited company
1991
• Offshore software project with John Deere & Co.— Satyam’s
first Fortune 500 customer—announced
• Recognized as a public limited company; debuts on the
Bombay Stock Exchange (BSE)
2000
• Associate count reaches 10,000
2005
• FLC framework launched across the entire organization
• Largest global development center outside India (in Melbourne) begins
operation
2006
• Sets up the first “Global Innovation Hub” in Singapore
2007
• Satyam becomes the Official IT Services Provider for the FIFA World Cups,
2010 (South Africa) and 2014 (Brazil)
• Announces acquisition of UK-based Nitor Global Solutions Limited
• Opens Global Development Center (GDC) in Malaysia
• Opens Development Center in Vizag, India
• Becomes the first Asian company to feature in the Training Magazine’s list
of Top 125 companies for learning
2008
• Adopts new tagline “Business Transformation. Together.”
• Enters agreement to acquire S&V Management Consultants, a Ghent,
Belgium-based supply chain management (SCM) consulting firm
• Becomes the first company to launch a secondary listing on Euronext
Amsterdam under NYSE Euronext’s new “Fast Path” process for cross listings
in New York and Europe
• Becomes the first company to be invited by the National Stock Exchange
(NSE) to ring the opening bell
2009
• Unveils the new brand identity, “Mahindra Satyam”
• Tech Mahindra announces an open offer to buy an additional 20% in Satyam
from existing shareholders
• Tech Mahindra acquires a 31% stake (Preferential Shares) in Satyam
• Venturbay Consultants Private Limited, a Tech Mahindra subsidiary, emerges as
the highest bidder to acquire a controlling stake in Satyam.
Mahindra Satyam is the first Indian company to join FIFA as the Official IT
Services Provider for the 2010 FIFA World Cup™, South Africa. Mahindra
Satyam was entrusted with the responsibility of developing the core IT event
management system for FIFA and the Local Organizing Committee of South Africa. As
part of this partnership, Mahindra Satyam developed the Event Management Solutions
system with various software modules focusing on specific areas such as
Accreditation, Transportation, Volunteer Management and Space & Material
Management.
The Mahindra Satyam team developed solutions that enriched the experience of all
fans arriving in the stadia to watch the 64 matches and ensured seamless movement
of all the delegates, staff and volunteers. Additionally, these solutions were available
at the right place and the right time, leaving a lasting impression in the world of
sports and a legacy in South Africa.
This demonstrated Mahindra Satyam’s technology prowess to enhance the FIFA World
Cup™ experience from the end-user perspective. Mahindra Satyam developed
Extranets and the Intranet for FIFA. In addition, Mahindra Satyam supported
application users and deployed infrastructure and resources at the venue. The
company also provided helpdesk services for the event.
Livelihood
Key Achievements:
• The largest corporate blood donor recognized by Red Cross Society
(5,000 Units)
• More than 1,000 Thalassemic children supported with fresh blood
• H1N1 Swine flu awareness and hand-washing in schools and
orphanages
• 2009-2010 - Conducted 21 blood donation camps across chapters
• 1,929 units of blood donated to various blood banks
With the company already merged, one is tempted to think that the
management’s assessment of the “net worth” of the company has enhanced.
This view is supported by another statement by the company that client
attrition has practically stopped since the time of the acquisition. Besides,
the company’s open offer for 20% of Satyam’s capital is unlikely to get any
response.
On April 13th 2009 Tech Mahindra took over major stakes of Satyam and
finally on June 21st 2009 a new brand Mahindra Satyam was launched.
CONCLUSION
The merger of Tech Mahindra & Satyam definitely proved to be a
beneficial deal for both the companies as they saved time and
money by just creating a new but reliable brand. Creating a totally
new entity would have been much more difficult because it is
much more difficult to establish a successful brand name.