Mergers and Acquisitions in India 2006-2010

Rajat Kataria

10ESPHH010006

Guided By: S P R Vittal

Mergers & Acquisitions in India

from 2006 to 2010

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Table of Contents

Executive Summary ............................................................................................................................4

Introduction to Merger and Acquisition ..............................................................................................5

Merger ...................................................................................................................................................... 5

Acquisition ................................................................................................................................................ 5

Distinction between mergers and acquisition .....................................................................................5

Types of Mergers ...............................................................................................................................6

Benefits of Mergers............................................................................................................................7

Other motives for Merger ..................................................................................................................7

Costs of mergers and acquisitions .......................................................................................................8

Regulatory and Legal Framework .......................................................................................................9

M&A Activities in 2006 ..................................................................................................................... 11

Sectoral Breakup ..................................................................................................................................... 12

Top Deals – Indian Targets ...................................................................................................................... 14

Top Deals – Overseas Targets ................................................................................................................. 14

M&A Activities in 2007 ..................................................................................................................... 15


Top Deals ................................................................................................................................................. 18



M&A Activities in 2008 ..................................................................................................................... 20


Top Overseas Deals ................................................................................................................................. 23



M&A Activities in 2009 ..................................................................................................................... 25


Top Deals ................................................................................................................................................. 26

M&A Activities in 2010 ..................................................................................................................... 27


Top Deals ................................................................................................................................................. 29

Top M&A Deals 2006 to 2010 and Analysis ....................................................................................... 29

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Porter’s Model on Telecom Sector .................................................................................................... 30

PEST Analysis of Telecom Sector ....................................................................................................... 31

Bibliography .................................................................................................................................... 32

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Executive Summary

M&A is the important approach to expansion and development of today’s enterprises, which can help

the enterprises quickly have access to market channels and expand market share, thereby bringing

about economic scale benefits for enterprises. There has been an increase in both the number and size

of Mergers and Acquisitions (M&A) in all sectors of Indian economy. However, the deal economy

worldwide had suffered in the years 2008 and 2009 since the global economy went through one of its

worst crises since the Great Depression of 1929. The legendary financial institutions like Lehman

Brothers collapsed while several other financial behemoths had to be saved from going into bankruptcy.

Naturally, there was less money available to do deals and corporates cut down on expansion both

organically and inorganically. The effect was showing on in India too even though the economy showed

signs of revival in the latter part of the year. However, the outlook seems brighter in year 2010. The

activities are picking up and more deals are happening.

2006 - Corporate finance activity in India witnessed 697 deals worth Rs 865 bn (US$ 19 bn) in 2006, a

rise of 18% in deal value over last year. The average deal size for 2006 was around Rs 1,241 mn (US$ 28

mn).

2007 - Domestically 2007 saw another record year of deal activity, with total mergers and acquisitions

(M&A) and private equity (PE) deals up 82% from Rs. 865 bn (US$ 21 bn) in 2006 to Rs. 1,576 bn (US$ 38

bn) in 2007. As well as volume, both number (867 against 697) and average size of deals also rose

significantly.

2008 - A total of 455 M&A transactions were announced, down from 605 in 2007, with a combined

value of Rs.1,027 bn (US$ 23 bn). The average value of M&A deals was approx Rs.2.3 bn (US$ 52 mn).

2009 – During 2009, Indian companies were involved in a total of 356 M&A deals, down 34% from 2008.

The median deal value in 2009 (for the 151 deals which had announced transaction values) was $22.3

million, an increase from the $16.06 million in 2008. The combined value of deals was $12.5 billion.

2010 – For the year 2010, India's M&A deal value has reached a whopping US$68.3 billion, having grown

three-folds compared to the value recorded in 2009," E&Y said on Thursday. India recorded 554 cross

border deals worth US$54.9 billion. The average deal size last year rose to US$120 million.

In all the years, telecom sector has emerged as the most opportunistic sector. It is followed by BFSI,

Metals & Ores and Oil & Gas Sector.

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Introduction to Merger and Acquisition

Merger

A merger occurs when two or more companies combines and the resulting firm maintains the identity of

one of the firms. One or more companies may merger with an existing company or they may merge to

form a new company.

Usually the assets and liabilities of the smaller firms are merged into those of larger firms. Merger may

take two forms-

1. Merger through absorption

2. Merger through consolidation.

Absorption Absorption is a combination of two or more companies into an existing company. All companies except

one loose their identity in a merger through absorption.

Consolidation

A consolidation is a combination if two or more combines into a new company. In this form of merger all

companies are legally dissolved and a new entity is created. In consolidation the acquired company

transfers its assets, liabilities and share of the acquiring company for cash or exchange of assets.

Acquisition

A fundamental characteristic of merger is that the acquiring company takes over the ownership of other

companies and combines their operations with its own operations. An acquisition may be defined as an

act of acquiring effective control by one company over the assets or management of another company

without any combination of companies.

Takeover A takeover may also be defined as obtaining control over management of a company by another

company.

Distinction between mergers and acquisition

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 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.

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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 acquisition.

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.

Types of Mergers

Mergers are of many types. Mergers may be differentiated on the basis of activities, which are added in

the process of the existing product or service lines. Mergers can be a distinguished into the following

four types:-

1. Horizontal Merger

2. Vertical Merger

3. Conglomerate Merger

4. Concentric Merger

Horizontal merger

Horizontal merger is a combination of two or more corporate firms dealing in same lines of business

activity. Horizontal merger is a co centric merger, which involves combination of two or more business

units related to technology, production process, marketing research and development and

management.

Vertical Merger

Vertical merger is the joining of two or more firms in different stages of production or distribution that

are usually separate. The vertical Mergers chief gains are identified as the lower buying cost of material.

Minimization of distribution costs, assured supplies and market increasing or creating barriers to entry

for potential competition or placing them at a cost disadvantage.

Conglomerate Merger

Conglomerate merger is the combination of two or more unrelated business units in respect of

technology, production process or market and management. In other words, firms engaged in the

different or unrelated activities are combined together. Diversification of risk constitutes the rational for

such merger moves.

Concentric Merger

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Concentric merger are based on specific management functions where as the conglomerate mergers are

based on general management functions. If the activities of the segments brought together are so

related that there is carry over on specific management functions such as marketing research,

Marketing, financing, manufacturing and personnel.

Benefits of Mergers

�� Diversification: - Companies that desire rapid growth in size or market share or diversification in the

range of their products may find that a merger can be used to fulfill the objective instead of going

through the tome consuming process of internal growth or diversification. The firm may achieve

the same objective in a short period of time by merging with an existing firm. In addition such a

strategy is often less costly than the alternative of developing the necessary production capability

and capacity. If a firm that wants to expand operations in existing or new product area can find a

suitable going concern. It may avoid many of risks associated with a design; manufacture the sale of

addition or new products. Moreover when a firm expands or extends its product line by acquiring

another firm, it also removes a potential competitor.

�� Synergism: - The nature of synergism is very simple. Synergism exists when ever the value of the

combination is greater than the sum of the values of its parts. As broadly defined to include any

incremental value resulting from business combination, synergism in the basic economic

justification of merger. The incremental value may derive from increase in either operational or

financial efficiency.

�� Increased market share

�� Lower cost of operation and/or production

�� Higher competitiveness

�� Industry know how and positioning

�� Financial leverage

�� Improved profitability and EPS

�� The Income Tax Advantages -In some cases, income tax consideration may provide the financial

synergy motivating a merger, e.g. assume that a firm A has earnings before taxes of about rupees

ten crores per year and firm B now break even, has a loss carry forward of rupees twenty crores

accumulated from profitable operations of previous years. The merger of A and B will allow the

surviving corporation to utility the loss carries forward, thereby eliminating income taxes in future

periods.

Other motives for Merger

Merger may be motivated by two other factors that should not be classified under synergism. These are

the opportunities for acquiring firm to obtain assets at bargain price and the desire of shareholders of

the acquired firm to increase the liquidity of their holdings.

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1. Purchase of Assets at Bargain Prices - Mergers may be explained by opportunity to acquire assets,

particularly land mineral rights, plant and equipment, at lower cost than would be incurred if they

were purchased or constructed at the current market prices. Many of the mergers can be financed

by cash tender offers to the acquired firm’s shareholders at price substantially above the current

market. Even so, the assets can be acquired for less than their current casts of construction. The

basic factor underlying this apparently is that inflation in construction costs not fully rejected in

stock prices because of high interest rates and limited optimism by stock investors regarding future

economic conditions.

2. Increased Managerial Skills or Technology - Occasionally a firm will have good potential that is finds

it unable to develop fully because of deficiencies in certain areas of management or an absence of

needed product or production technology. If the firm cannot hire the management or the

technology it needs, it might combine with a compatible firm that has needed managerial,

personnel or technical expertise. Of course, any merger, regardless of specific motive for it, should

contribute to the maximization of owner’s wealth.

3. Acquiring new technology -To stay competitive, companies need to stay on top of technological

developments and their business applications. By buying a smaller company with unique

technologies, a large company can maintain or develop a competitive edge.

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.

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Regulatory and Legal Framework

The legal framework of M&A involves study of following acts –

� The Companies Act, 1956 - Sections 390 - 396A, 108A, 17, 319 and 42.

� SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 1997

� The Competition Act, 2002 - Sections 5 and 6 deal with “Combination” and “Regulation of

Combination” respectively.

� The Income Tax Act

To pursue the benefits of merger and acquisition, various rules and regulations have been made time to

time. He regulatory or legal aspect of M&A involves following –

� Proposal Analysis – Having conceived the idea of amalgamation or merger between two or more

companies the management of respective companies have to look into the pros and cons of the

merger scheme. The prospects of the target firm are evaluated with respect to its overall

contribution after acquisition.

� Determination of Exchange Ratio – The merger or acquisition requires exchange of shares. The

exchange ration is to be negotiated.

� Approval of the Board of Directors – The scheme of acquisition envoved as the result of

negotiations is put finally before the BoD of the respective companies for their approval.

� Approval of Shareholders – The scheme as approved by the respective Boards, is placed before

the shareholders of the respective companies for their approval. Sections 390 to 396A of

Companies Act, 1956 contain provisions regarding amalgamation of two or more companies.

According to Section 391, the scheme should be approved at the meeting of the members or

class of members, as the case may be, of the respective companies representing 3/4th in value

and majority in numbers, whether present in persons or by proxies. In case of acquisition, the

restrictions placed by Section 372 of the Companeis Act 1956 have to be kept in view.

� Consideration of Interest of the Creditors – According to Section 391, the scheme should also be

approved by majority of creditors in number and 3/4th in value.

� Approval of Court – The scheme of the amalgamation as approved has to be submitted to court

for its approval. The court would approve the scheme only when it is satisfied that the scheme is

just and reasonable for all concerned. An amalgamation scheme will not be approved by the

court unless it has received report from the Registrar of Companies that the affaires of the

company or companies to be wound up, as a result of amalgamation, had not been conducted in

a manner prejudicial to the interests of the members or to the public interest.

Section 394A of the Companies Act, 1956, further provides that before passing as order for sanctioning

of any amalgamation scheme, the court must give notice for every application made to it for this

purpose to the Central Govt. to that effect.

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The provision of the Companies Act and MRTP gives only procedural requirements of an amalgamation

scheme. The actual scheme is designed on the basis of the tax implications that it will have especially

from the view point of the Income Tax. The following are some of the important provisions of the

various tax laws, which affect the amalgamation to be valid under the Income Tax Act –

� All properties of the amalgamating company must be transferred to the amalgamated company.

� All liabilities of the amalgamating company must be transferred to the amalgamated company

� At least 9/10th of the shareholders of the amalgamating company must become the

shareholders of the amalgamated company.

According to Section 34, the amalgamated company can continue to claim future depreciation on the

assets transferred to it under the scheme of amalgamation.

Section 45 and 47 deals with provisions relating to capital gains. The transfer of assets of an

amalgamating company to amalgamated company under a scheme of amalgamation is not considered

to be a transfer for the purpose of capital gains, provided the amalgamated company is an Indian

Company.

Sections 32A, 33 and 33A deals with the investment allowances, development rebate and development

allowance.

Sections 35 and 35A consider the expenditure on scientific research, acquisition of patents rights or

copyrights.

Unabsorbed depreciation and past losses of amalgamating company cannot be carried forward by the

amalgamated company.

According to Section 170, the amalgamating company will have to pay taxes on income upon the date of

amalgamation. The amalgamated company will have to pay taxes after that date. However, in the event

of default by the amalgamating company, the amount of tax not paid will be resourceable from the

amalgamated company. In this way the merger or acquisition takes place.

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M&A Activities in 2006

The India story continued to attract investors from overseas as well as from within India in 2006.

Corporate finance activity in India witnessed 697 deals worth Rs 865 bn (US$ 19 bn) in 2006, a rise of

18% in deal value over last year. The average deal size for 2006 was around Rs 1,241 mn (US$ 28 mn).

The purchase of Hutchison’s Indian telecoms business was the biggest deal of the year.

Information technology, telecom and finance deals have dominated all M&A activity with a share of 48%

of total deal value.

Sector Deal Size

Information Technology 104 deals, totaling Rs 167 bn (US$ 3.7 bn)

Telecom 19 deals, totaling Rs 151 bn (US$ 3.4 bn)

Finance 109 deals, totaling Rs 101 bn (US$ 2.2 bn)

Oil & Gas 15 deals, totaling Rs 80 bn (US$ 1.8 bn)

Pharmaceuticals & healthcare 46 deals, totaling Rs 53 bn (US$ 1.2 bn)

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Sectoral Breakup

Information Technology:

The information technology sector experienced a 115% growth in deal value with some big ticket

acquisitions announced in 2006. The outsourcing segment attracted deals worth 29% of total deal value

of this sector. Deals in the information technology arena have taken place at relatively high PE ratios

with the values ranging from 18 to greater than 40. The takeover of Mphasis BFL by Electronics Data

Systems has happened at 43 times its 2006 profits. The deal size was Rs 16.9 bn (US$ 377 mn).

The largest deal in this sector was the Rs 53.7 bn (US$ 1,194 mn) acquisition of i-Flex Solutions Ltd by

Oracle. Oracle had acquired a controlling stake in i-Flex Solutions from Citigroup in 2005. This year they

attempted to consolidate their holding by acquiring an additional stake through a preferential issue as

well as through a tender offer. The preferential issue was for a 5.23% stake worth Rs 5.8 bn (US$ 129

mn) and the tender offer was for a 35% stake of which they have been able to secure around 28.3% for

some Rs 48 bn (US$ 1,064 mn).

Telecom:

The fast growing Indian telecom market saw a fair amount of consolidation in the first half of 2006. The

Aditya Birla Group bought out the Tata Group in Idea Cellular for Rs 44 bn (US$ 979 mn). Hutchison

Whampoa increased their stake in their Indian subsidiary by 5% by acquiring Rs 20 bn (US$ 450 mn)

worth of shares from the Hindujas, and Telekom Malaysia was finally able to gain a foothold in India by

acquiring a 49% stake in Spice Telecom for Rs 8 bn (US$ 179 mn).

The attractiveness of the telecom business in India is highlighted by the relatively higher average PE

ratio of over 50 in these deals.

Towards the close of the year various private equity players invested Rs 44 bn (US$ 970 mn) in Idea

Cellular for a 34.5% stake. The investors included Providence Equity Partners, TA Associates,

ChrysCapital, Citigroup, and others. Idea Cellular plans to list on the Indian stock exchanges soon so

these investors have a chance to get a big upside. These deals have happened at a PE ratio greater than

60 times the company’s 2006 profits. This offers an opportunity to private equity players to repeat the

success Warburg Pincus had on its investment in Bharti Airtel, which is today India’s leading cellular

telecom company.

Finance:

The Indian financial services sector has attracted a substantial amount of private equity interest. Private

equity investors have contributed 69% of the deal value in the sector. Valuations have also been high

with the average PE ratio around 55 and in some deals this has gone over 100.

The largest deal in this sector was the sale of a 12.9% stake held by Standard Life in Housing

Development Finance Corporation (HDFC) to Citigroup for Rs. 30.4 bn (US$ 675 mn).

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Franklin Templeton took over their Indian subsidiary in the mutual fund business by buying out the 25%

stake held by the Rajan Raheja Group for Rs 4 bn (US$ 89 mn). Franklin Templeton India has assets

under management of Rs 238 bn (US$ 5 bn) as of December 2006.

The other major private equity transaction was the investment of Newbridge Capital in the Shriram

Group. The Shriram Group is a South India based financial services group. Newbridge invested Rs 2.2 bn

(US$ 48.4) in Shriram Holdings (Madras) Ltd, which will give them an effective stake of 49% in the

company after conversion of all instruments.

Oil & Gas:

The large deals in the oil & gas sector were pre IPO placements by two companies: Cairn India and

Reliance Petroleum.

The largest deal was the pre-IPO placement by Cairn India to Petronas International. Petronas invested

Rs 28 bn (US$ 628 mn) for a 9.8% stake. The company raised an additional Rs 5 bn (US$ 118 mn) from

various other investors. The subsequent initial public offering by Cairn India received only a lukewarm

response and the shares listed at a 7.5% discount to the IPO price. Cairn India has oil exploration

interests in Western and Southern India.

In the first half of 2006 the Mukesh Ambani- controlled Reliance Petroleum sold a 10% stake to financial

investors for Rs 27 bn (US$ 600 mn) prior to its IPO. Chevron has also taken a 5% stake in Reliance

Petroleum for Rs 13.5 bn (US$ 300 mn).

Pharmaceuticals & healthcare:

The pharmaceutical sector had private equity investors of up to 19% of total deal value. This relatively

lower investor interest has resulted in lower PE ratios with the average at 18.

The largest deal in the pharmaceuticals sector was the takeover of Matrix Laboratories by Mylan of USA.

Matrix Laboratories was started by N Prasad and colleagues when they took over a small pharmaceutical

company for Rs 80 mn (US$ 1.7 mn) in 2000. Mylan Laboratories paid Rs 24 bn (US$ 539 mn) for a 51.5%

stake and has made a successful tender offer for a further 20% worth Rs 9 bn (US$ 210 mn). Matrix

Laboratories today has sales of Rs 8 bn (US$ 177 mn). This deal took place at a PE of around 26 times its

2006 profits, the highest in this sector.

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Top Deals – Indian Targets

Top Deals – Overseas Targets

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2007 turned into a remarkable year for Indian M&A, both at home and abroad. Spending more money

on overseas acquisitions than foreign companies did in their own market, Indian companies have made

their presence felt globally. Domestically 2007 saw another record year of deal activity, with total

mergers and acquisitions (M&A) and private equity (PE) deals up 82% from Rs. 865 bn (US$ 21 bn) in

2006 to Rs. 1,576 bn (US$ 38 bn) in 2007. As well as volume, both number (867 against 697) and

average size of deals also rose significantly.

The real story of the year is overseas, where Indians bought up companies in Europe and the USA,

splashing out some Rs. 1,367 bn (US$ 33 bn).

The largest PE deal of the year was Temasek Holdings, along with ICD, Macquarie, AIF Capital, Citigroup

and India Equity Partners, acquiring a 10% stake in Bharti Infratel, a telecom tower subsidiary of Bharti

Airtel, for Rs. 41 bn (US$ 1 bn).

Other major deals included Goldman Sachs, Swiss Re and Nomura acquiring a 6% stake in ICICI Financial

Services, a financial services holding company, for Rs. 27 bn (US$ 646 mn); and Carlyle acquiring a 6%

stake in HDFC Ltd., a housing finance company, for Rs. 26 bn (US$ 643 mn).

Unlike in the past when growth was led by a few sectors, 2007 has seen a more broadly based activity.

The telecom sector overtook the IT Industry and dominated the M&A scene with a 33% share in the

total deal value. It was followed by finance with a 15% share, cement and building material 7%, oil and

gas 5% and metals 5%. One of the emerging sectors for this year has been aviation, shipping and

logistics accounting for 4% of the total deal value.

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Sector Size of Deal

Telecom 23 deals, totaling Rs 514 bn (US$ 13 bn)

Finance 164 deals, totaling Rs 233 bn (US$ 6 bn)

Cement and building materials 23 deals, totaling Rs 112 bn (US$ 3 bn)

Oil & Gas 16 deals, totaling Rs 85 bn (US$ 2 bn)

Metal 32 deals, totaling Rs 87 bn (US$ 2 bn)

Sectoral Breakup

Telecom:

The largest deal of the sector was Vodafone acquiring a 67% stake in Hutchison Essar, now Vodafone

Essar, India’s fourth largest telecom player. With more than five contenders, including India’s Reliance

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Infocomm, Egypt’s Orascom and Malaysia’s Maxis amongst others, the deal finally concluded in March

2007 after a three month long battle. Vodafone paid Rs. 447 bn (US$ 10.9 bn) for the stake. It also paid a

further Rs. 17 bn (US$ 415 mn) to Essar Group to secure management control of the company.

The second largest deal of the telecom sector was the sale by Bharti of a 9% stake in Bharti Infratel for

Rs. 41 bn (US$ 1 bn). Other companies that sold stakes in their tower businesses included Reliance

Telecom Infrastructure and Aster Infrastructure. Bharti Infratel, Vodafone Essar and Idea Cellular

merged their tower businesses to form a new entity Indu Tower Ltd.

Finance:

The Indian financial services sector continued to attract overseas as well as domestic investments taking

15% of the total deal flow by value and 19% by number. The share of PE deals was over 65%. The largest

deals in the sector were the in the US$ 646 mn investment in ICICI Financial Services and the US$ 644

mn investment in HDFC Ltd.

The securities broking segment was the largest recipient of the investment with a 26% share. Among the

bigger deals were Citigroup Venture Capital’s acquisition of 75% in Sharekhan for Rs. 7 bn (US$ 170 mn)

followed by Orient Global Tamarind Fund acquiring a 6.5% stake in India Infoline for Rs. 5.6 bn (US$ 135

mn) and ICICI Venture and Baring together acquiring 32% stake in Karvy Stock Broking for Rs. 5 bn (US$

122 mn).

The second largest segment to attract investors was the stock exchanges, accounting for a 21% share,

with National Stock Exchange and Bombay Stock Exchange attracting investments worth Rs. 25 bn (US$

608 mn) and Rs. 24 bn (US$ 576 mn) respectively from various PE and trade investors.

Cement and building materials:

The sector made up for 7% of the total deal value out of which 87% was driven by a single acquirer,

Holcim. Holcim strengthened its position in India by increasing its holding in Ambuja Cement from 22%

to 56% through various open market transactions and an open offer for a total investment of Rs. 75 bn

(US$ 1.8 bn). It also increased its stake indirectly by 12% in ACC Cement for Rs. 20 bn (US$ 486 mn).

Imerys from France acquired Ace Refractory from ICICI Ventures for Rs. 6 bn (US$ 134 mn). The average

PE in the sector was 13 x (TTM).

Oil & Gas:

Reliance Industries (RIL) alone accounted for 68% of the total deal value with its two deals. Mukesh

Ambani, along with associates, consolidated his holding in RIL through an issue of convertible warrants

which, upon conversion, would increase his stake to 55% from current 50% in the Company.

RIL enhanced its already strong position in the sector with the merger of Indian Petrochemicals

Corporation (IPCL) into RIL at a deal size of Rs. 42 bn (US$ 1 bn). RIL had acquired 26% in IPCL in 2002

from the government and an additional 20% through a consequent open offer.

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Another important transaction in the sector was by German company Linde AG. Linde increased its

holding in BOC India from 55% to 74% through a preferential allotment of equity shares. It paid

approximately Rs. 6 bn (US$ 146 mn) for the stake.

Metals

The metal sector accounted for 5% of the total deal values. The largest deal in the sector was Vedanta’s

acquisition of a 71% stake in Sesa Goa, 51% from Mitsui & Co and 20% through an open offer, for a total

consideration of Rs. 56 bn (US$ 1.4 bn). Another major transaction was the investment of Rs. 13 bn (US$

320 mn) by Aditya Birla Group companies to consolidate their position in Hindalco Industries through a

preferential allotment.

Other Sectors

The media sector (4%) saw 45 deals and a lot of private equity interest with the largest deal being the

investment of Rs. 11 bn (US$ 259 mn) by Temasek investing in Inx Media, a TV broadcast company.

Other deals included an investment of Rs. 7 bn (US$ 166 mn) by South Asia Entertainment Holdings Ltd.

(a group company of Astro All Asia Networks Plc) in Sun Direct TV for a 20% stake and Blackstone in

Ushodaya Enterprise taking a 26% stake for Rs. 6 bn (US$ 146 mn).

Engineering had a 4% share in total deal value with its largest deal being the acquisition of Anchor

Electricals by Japan based Matsushita for Rs. 20 bn (US$ 488 mn). In the automotive sector (automotives

and auto components 3%) Robert Bosch acquired an additional 9% stake in its subsidiary Motor

Industries Co. through an open offer, for Rs. 14 bn (US$ 330 mn) increasing its holding to 70%. Also

M&M acquired 63% stake in Punjab Tractors for Rs. 14 bn (US$ 340 mn) which increased its share in the

tractors market to 40%.

The aviation sector (2%) saw consolidation with a few large deals. Jet Airways, took over Sahara Airline

and Kingfisher Airlines acquired a significant stake in Deccan Aviation. Separately, the Government

decided to merge the operations of the two state owned carriers, Indian Airlines and Air India.

Top Deals

The largest deal of the year was India’s steel giant Tata Steel acquiring Anglo-Dutch giant Corus. After a

four month long battle Tatas finally defeated the rival bidder CSN, paying a premium of 34% over the

original bid price made in October 2006. Tata Steel paid US$ 12.1 bn for Corus’ 18 mn ton steel capacity.

The deal made Tata Steel the world’s 6th largest steel manufacturer.

Another high-profile, multi-billion dollar deal was by India’s leading copper and aluminum manufacturer

Hindalco. Hindalco spent US$ 3.33 bn to acquire Atlanta based Novelis, a leading aluminum sheet

maker. The deal brought in the readymade cans and screw-caps market in the US with the two most

famous clients — Coca-Cola and Anheuser-Busch. It also provided Hindalco with a significant presence in

the automotive and transportation industry making it one of the world’s largest aluminum rolling

companies.

The third largest cross border deal of the year was Suzlon Energy acquiring Germany based Repower for

US$ 1.8 bn. The deal was finalized only after the withdrawal by the French nuclear energy group Areva

19

after four long months. With this acquisition, following the acquisition of component supplier Hansen

last year, Suzlon has further consolidated its position in the international wind energy market.

Some other large cross border deals included Essar Group acquiring Canada based Algoma Steel for US$

1.6 bn and United Spirits acquiring UK based Whyte & Mackay for US$ 1.2 bn.



20


The year of 2008 was badly affected by the global slowdown. The value of international investment

dropped by over one-third in India. Globally M&A activity recorded a drop of 31%. This is especially

true in the major growth industries of Telecom and Pharma, where consolidation has increased and

seems set to continue.

The total value of M&A and PE deals for the year was down only 4% on 2007, at Rs.1,511 bn (US$ 34 bn)

– the first year to year decrease since 2002-03. Average deal size has survived the general downward

affliction, recording an increase from Rs1.8 bn (US$ 41 mn) to nearer Rs.2.1 bn (US$ 48 mn).

Telecom and Pharma have been stalwarts for India Inc., with the two sectors cumulatively responsible

for almost 50% of this year’s M&A deal value. Japanese acquisitions – telecom major NTT DoCoMo Inc’s

entry into the country via its stake acquisition of Tata Teleservices, and Daiichi Sankyo’s increased stake

in Ranbaxy Laboratories Ltd – have proved to be highlights of the year.

Out of the Rs.1027 bn (US$ 23 bn) that flowed through M&A deals this year, international investment

contributed 65%, whilst domestic deals accounted for 35%.

Sector Deal Size

Telecom 33 deals, totaling Rs.492 bn (US$ 11.2 bn)

Pharmaceuticals and Healthcare 58 Deals, totaling Rs.235 bn (US$ 5.3 bn)

Finance 118 deals, totaling Rs 198 bn (US$ 4.5 bn)

Media 41 deals, totaling Rs.67 bn (US$ 1,5 bn)

21

Sectoral Breakup

Telecom:

This sector claimed 33% share of total deal value for the year. The largest deal was NTT DoCoMo’s

Rs.117 bn (US$ 2.7 bn) acquisition of a 26% stake in Tata Teleservices, the single largest deal announced

this year. This investment by the Japanese company points towards the confidence foreign investors

have in the Indian telecom market’s growth prospects – India already has over three times the number

of Japan’s cellular subscribers.

Following in NTT DoCoMo’s footsteps was Telekom Malaysia’s purchase of 14.99% in Idea Cellular for

Rs.72.9 bn (US$ 1.7 bn). Europe did not miss out in the party, as Telenor, the Norwegian firm, picked up

a 60% stake in Unitech wireless for Rs.61.2 bn (US$ 1.4 bn).

Pharmaceuticals and Healthcare:

The Pharmaceuticals & Healthcare sector contributed significantly to this year’s M&A activity,

dominated by the huge Daiichi-Ranbaxy deal. The acquisition of the entire promoter stake (35%) in

Ranbaxy Laboratories by the Japanese Pharma giant Daiichi Sankyo, combined with a preferential share

22

issue (11% for Rs.36 bn, US$ 818 mn) and an open offer to outside investors (for up to 20%) was a

landmark acquisition in two ways. Firstly it represents the single largest foreign direct investment into a

publicly listed company in India, and secondly it whetted the appetites of investors for further promoter

sellouts, something previously deemed unlikely at best.

Frensius Kabi’s acquisition for Rs.8.2 bn (US$ 186 mn) of 73.27% of Dabur Pharma Ltd, with a

subsequent 17.62% stake acquired though an open offer for Rs.2.1 bn (US$ 48 mn), was the second

headline deal to take place in the first half of the year.

Finance:

Finance sector had a tough time of it this year. The major deal for the year was HDFC Bank’s acquisition

of Centurion Bank of Punjab, priced at Rs.99.4 bn (US$ 2,3 bn). It accounted for more than half the

sector total by value, making HDFC the 7th largest bank in India. For a single deal to outdo the total value

of deals in H2 by over three times is rare, and signals the severity with which the sector has been hit by

the crisis that began in the US sub-prime mortgage market.

The largest deal in broking segment was HSBC’s 2-staged acquisition in IL&FS Investments Ltd. Initially

HSBC purchased a 73.21% stake in IL&FS for Rs.11 bn (US$ 250 mn), followed by an open offer for an

additional 20% for Rs.2.9 bn (US$ 66 mn).

Media

The sector constituted 4.4% of the total deal value. It saw most of its action in H1, which was

responsible for over 80% of the total deal value. Of this percentage, the two large acquisitions by

Nimesh Kampani and Walt Disney account for 62% of the year’s value. Nimesh Kampani’s invested

Rs.26 bn (US$ 591 mn) in Ushodaya Enterprises, a south India based newspaper publisher.

Walt Disney increased its holding in UTV Software Communications via two transactions. Walt Disney

paid Rs.8 bn (US$ 91 mn) to raise its stake from 14.9% to 32%, followed by an open offer for another

20%, valued at Rs.7 bn (US$ 160 mn). It also invested Rs.1.2 bn (US$ 27 mn) for 15% stake in UTV Global

Broadcasting, a subsidiary of UTV Software.

Other Sectors

There were 59 deals in the Information Technology sector worth Rs.59 bn (US$ 1.3 bn), 3.9% of the total

deal value. The major deal was Tata Consultancy Services Ltd acquiring a 96% stake in Citigroup Global

Services Ltd – Citigroup’s India-based BPO Arm - for Rs.22 bn (US$ 500 mn).

The Power sector (4% share) saw 25 deals worth Rs.61 bn, (US$ 1.4 bn) 61% of the coming through PE

transactions. The largest deal involved Trans-India Acquisitions Corporation that acquired an 80% share

in Solar Semiconductor Ltd for Rs.16.5 bn (US$ 375 mn). The second largest deal was LN Mittal and

Farallon Capital acquiring 28.6% of Indiabulls Power Services for Rs.15.8 bn (US$ 359 mn).

The Real Estate sector witnessed 22 deals, with a combined value of Rs.58 bn (US$ 1.3 bn) – a total deal

value share of 3.9%. The big deals include Ashmore Group acquiring a 35% stake in Sweta Estates Pvt.

Ltd for Rs.24 bn (US$ 545 mn), and Indiabulls Real Estate’s acquisition of Dev Property Development Plc

for Rs.10 bn (US$ 227 mn).

23

Top Overseas Deals

The largest international deal of the year by an Indian company came in the shape of Sterlite Industries’s

acquisition of Asarco for Rs.114.4 bn (US$ 2.6 bn), very closely followed by Oil and Natural Gas

Corporation’s acquisition of 100% of Imperial Energy, which came towards the end of H2. ONGC paid

Rs.114 bn (US$ 2.6 bn) for the UK Company, its largest overseas acquisition to date. The transaction was

not straightforward, with the falling price of crude oil making the offer price appear extremely expensive

– the bid was made when the price of oil was $130 a barrel, a long way from the sub $40 a barrel at year

end – and the Imperial shareholders taking until the last moment to agree to the sale.

Tata Motors flexed its international muscles through its successful bid to acquire Jaguar and Land Rover

from Ford Motors for Rs.94 bn (US $2,1 bn), thus buying its way into the European and US luxury car

markets. It has since paid dearly for the purchase in terms of the Indian parent’s troubles financing the

deal.

GMR Infrastructure Ltd made history for the Indian power sector; the Rs.42 bn (US$ 955 mn) it paid for a

50% stake in the Dutch firm, InterGen NV, made it the largest overseas energy acquisition by an Indian

company. Through this deal GMR hopes to gain leverage in the international power market as well as

increasing its domestic profile in a sector where India demands investment.


24


25


After the collapse of Lehman Brothers, every one can feel the tremors of global recession. The effect

was showing on in India too even though the economy showed signs of revival in the latter part of the

year.

The year saw 650 private equity and M&A deals with a total announced value of $16.9 billion. The value

of inbound deals reduced from $13.6 billion in 2007 and $9.7 billion in 2008 to $4.6 billion this year

while the value of outbound deals was $1.8 billion in 2009 compared to $26.8 billion in 2007 and $9.94

billion in 2008.

The year 2009 saw a surge of domestic M&A activity. The value of domestic deals disclosed has

increased to $6.02 billion in 2009 even though the volume of domestic deals has decreased from 207

deals in 2008 to 187 in 2009.

Oil & Gas, Telecom and Pharma, Healthcare & Biotech sectors were the leaders as far as sectoral values

were concerned. These sectors garnered $2.53 billion, $1.78 billion and $1.04 billion worth of deals

respectively. Together, they accounted for as much as 53% of the total M&A deal value during 2009

Top 5 sectors by M&A deal value can be shown as follows –

Sector Deal Size

Energy 26 deals totaling $ 3613 mn

Telecom 20 deals totaling $ 1663 mn

Manufacturing 70 deals totaling $ 1615 mn

IT/ITeS 50 deals totaling $ 1142 mn

Pharmaceuticals & Research 19 deals totaling $ 857 mn

Finance 36 deals totaling $ 721 mn

Sectoral Breakup

Energy:

The largest M&A deal in India was the Reliance Petroleum-Reliance Industries merger. The merger of

Reliance Petroleum and Reliance Industries, valued at INR 83 bn (US$1.7 bn).

26

Aside from the big ticket deals three funds, IDFC Project Equity Co, IFCI VC Fund and UTI picked up

16.62% each in Sabarmati Gas Ltd for a combined INR 779 mn (US$16 mn) in the soul PE deal.

Telecom

Quippo Teleservices Infrastructures’ INR 23.7 bn (US$483 mn) acquisition of a 49% stake in Tata

Teleservices’ Wireless arm led the way. After completion, Quippo Telecom became the second largest

telecom infrastructure company in terms of towers in the country with 18,000 towers.

Information Technology

Tech Mahindra acquired Satyam Computer Services for US$ 591 mn. The major merger and acquisition

outbound deal in IT/ITES sector was US based Oracle Corporation acquiring India’s IT major Sun

Microsystem. The deal involved a transaction of USD 7400 million.

Finance

The major M&A deal that occurred in the BFSI sector was India based Union Bank, BOI acquired 6.78 per

cent stake of MCX Stock Exchange for USD 178.57 million. State Bank of India acquired State Bank of

Indore for US$ 283 mn.

Pharma

French drug maker Sanofi-Aventis will pick up a controlling stake in unlisted Hyderabad-based vaccine

maker Shantha Biotechnics, making it the first big-ticket deal in the Indian biotech sector. It acquired

80% stake in the company.

Top Deals

S.No. Target Buyer Seller Sector Price ($

mn)

1 Reliance

Petroleum Ltd.

Reliance Industries Ltd. Energy 1667

2 Shantha

Biotechnics Ltd.

Sanofi-aventis BioMerieux SA Pharma 625

3 Mahindra Satyam Tech Mahindra Ltd. IT 591

4 General Motors

India Pvt. Ltd.

Shanghai Automotive

Industry Corp.

General Motors

Company

Automobile 500

5 REpower Systems

AG

Suzlon Energy Ltd. Martifer SGPS Energy 499

6 Wireless TT Info

Services Ltd.

Quippo Telecom

Infrastructure Ltd.

Tata Teleservices

(Maharashtra)

Ltd.

Telecom 489

7 UnitechWireless

Ltd.

Telenor ASA Unitech Ltd. Telecom 475

8 Oil India Ltd. Indian Oil Corporation

Ltd., Bharat Petroleum

Corp. Ltd., Hindustan

Petroleum Corp.

The Government

of India

Energy 450

9 V S Dempo & Co Sesa Goa Ltd. Metals 366

27

Pvt. Ltd.

10 Petroliam

Nasional Berhad

(Petronas)

Cairn India Ltd. Energy 240


Riding high on its insatiable appetite for foreign assets, India Inc announced merger and acquisition

deals worth a record USD 55 billion this year, including a record number of billion-dollar transactions. So

for this year, the total announced deal value, according to research firm VCCEdge - amounted to USD

54.6 billion, significantly more than the previous high of USD 42 billion achieved in 2007.

This year, corporate India has announced 546 M&A deals. In October USD 390 Million worth of

outbound deals were stuck. Inbound deals where foreign companies acquired Indian businesses

amounted to $100 million. The total value of domestic deals in October 2010 was $40 million.

As per the sector wise the major mergers and acquisitions occurred in telecom, metal & mining and

energy sector. During the first six months of FY ‘11, telecom sector topped the list with 31.51 per cent

share of the total valuation of M&A deals that took place in India, followed by Oil & Gas sector

accounted for 24.08 per cent, Pharma & healthcare sector accounted for 14 per cent while BFSI and

Metals & Ore sector accounted for 9 per cent and 8 per cent respectively.

Other sectors like IT & ITES, steel, consumer non durable, cement, real estate, hospitality, media &

entertainment, consumer durable and healthcare and aviation witnessed 92 M&A deals for an amount

totaling to USD 4.44 billion, contributing only 8.43 per cent share in total M&A deals.

Top M&A Sectors in 2010:

Telecom

32%

Oil & Gas

24%Pharma &

Healthcare

14%

Metals & Ores

9%

Banking &

Financial Services

8%

Mining

4%

Others

9%

US $ mn

Telecom

Oil & Gas

Pharma & Healthcare

Metals & Ores

Banking & Financial Services

Mining

Others

28

Sector Volume Deal Size (US $ mn)

Telecom 16 14616

Oil & Gas 8 11273

Pharma & Healthcare 57 6245

Metals & Ores 33 4100

Banking & Financial Services 73 3640

Mining 8 1974

Others 103 4391

Sectoral Breakup

Telecom:

The sector saw the year's biggest deal, with Indian mobile telecoms operator Bharti Airtel, buying Zain

Africa in a $10.7bn deal in May.

Another deal was GTL Infrastructure’s 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.

Mining:

Led by Vedanta Group firm Sesa Goa's buyout of mining business of VS Dempo, Indian companies saw

16 M&A deals worth $981 million in the mining space in 2009. "Indian metal & mining companies

completed 16 deals worth $981 million in 2009, an increase of 45 per cent in deal count and 173 percent

in deal value as against 2008," E&Y said in the report titled '2009: The Year of Survival and Revival.'

HealthCare:

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.

Energy:

Merger of Reliance Power and RNRL: 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.

Banking & Finance:

The major deal in this sector was ICICI Bank’s acquisition of Bank of Rajasthan. This deal was worth Rs.

3000 crore and it provided synergies to ICICI Bank.

29

Top Deals

S.No. Acquirer Target Sector Deal Size (US $

mn)

1 Bharti Airtel Zain Africa BV Telecom 10700

2 Reliance Power RNRL Oil & Gas 11000

3 GTL Infrastructure Aircel Ltd Telecom 1787

4 Reckitt Benckiser Group

plc Paras Pharmaceuticals Pharma 726

5

Fortis Healthcare Ltd

Quality Healthcare Asia

Ltd Pharma 685

6 ICICI Bank Bank of Rajasthan BFSI 667

7 JSW Steel Ltd Ispat Industries Metals & Ores 459

8 Tata Chemicals Ltd British Salt FMCG 143

Top M&A Deals 2006 to 2010 and Analysis

We see that in past 5 years, the most active sectors are telecom, Pharma, oil & gas and metal sectors.

Although, deals are also happening in other sectors like IT/ IT Service and BFSI, they are not as big as

above mentioned areas.

Rank M&A Deal Sector Deal Size ($

Bn) Year

1 Tata Steel - CORUS Metal 12.2 2007

2 Reliance Power - RNRL

Oil &

Gas 11 2010

3 Vodafone - Hutchison Telecom 10.8 2007

4 Bharti - Zain Telecom Telecom 10.7 2010

5 Hindalco - Novelis Metal 6 2007

6 Ranbaxy - Daiichi Sankyo Pharma 4.5 2009

7 Piramal - Abbott Pharma 3.7 2010

8 ONGC Videsh - Imperial

Oil &

Gas 2.8 2008

9 Tata Tele - NTT DoCoMo Telecom 2.7 2008

10 Centurian Bank - HDFC Bank Banking 2.4 2008

30

Its clear from the below pie chart that among the important deals of last 5 years, the most active sector

is Telecom sector followed by Metal and Oil & Gas Sector.

Porter’s Model on Telecom Sector India continues to be one of the fastest growing telecom markets in the world. Reforms introduced by

successive Indian governments over the last decade have dramatically changed the nature of

telecommunications in the country.

India's teledensity has improved from under 4% in March 2001 to around 53% by the end of

March 2010. Cellular telephony has emerged as the fastest growing segment in the Indian

telecom industry. The mobile subscriber base (GSM and CDMA combined) has grown from

under 2 m at the end of FY00 to touch 584 m at the end of March 2010 (average annual growth

of nearly 76% during this ten year period). Tariff reduction and decline in handset costs has

helped the segment to gain in scale. The cellular segment is playing an important role in the

36%

21%

27%

12%

4%

Deal Size ($ Bn)

Telecom

Oil & Gas

Metal

Pharma

Banking

31

industry by making itself available in the rural and semi urban areas where teledensity is the

lowest.

The fixed line segment has actually seen a decline in the subscriber base. It has declined to 36.96

m subscribers in March 2010 from 37.96 m in March 2009. The decline was mainly due to

substitution of landlines with mobile phones.

As far as broadband connections (>=256 kbps) are concerned, India currently has a subscriber

base of 8.8 m. It has grown at an average annual growth rate of 40% since 2008. The auction for

broadband wireless license and spectrum has concluded recently. The government is expected

to allocate spectrum before the end of this year. This will further boost the broadband

penetration in the country.

Porter’s 5 forces model analysis on Telecom Sector:

Supply Intense competition has resulted in prompt service to the subscribers.

Demand Given the low tariff environment and relatively low rural and semi urban penetration levels, demand will continue to remain higher in the foreseeable future across all the segments.

Barriers to entry High capital investments, well-established players who have a nationwide network, license fee, continuously evolving technology and lowest tariffs in the world.

Bargaining power of suppliers

Improved competitive scenario and commoditization of telecom services has led to reduced bargaining power for services providers.

Bargaining power of customers

A wide variety of choices available to customers both in fixed as well as mobile telephony has resulted in increased bargaining power for the customers.

Competition Competition has intensified with the entry of new cellular players in circles. Reduced tariffs have hurt all operators.

PEST Analysis of Telecom Sector

Political Factors –

• Antitrust Regulations

• Environmental

• Protection Laws

• Tax Laws

• Special Incentives

• Foreign Trade Regulations

• Attitudes toward foreign Companies

• Laws on hiring and promotion

• Stability of government

Economic Factors –

• FDI limit increased to 74%

• GDP trends

• Interest Rates

• Money Supply

• Inflation Rates

• Unemployment levels

• Price control

• Devaluation / Revaluation

• Cost

Sociocultural Factors –

• Lifestyle Changes

• Career expectation

• Consumer activism

Technological Factors –

• Total Government spending for Research

& Development

• Total Industry spending for Research &

32

• Rate of family formation

• Growth rate of population

• Age distribution of population

• Regional shift in population

• Life expectation

• Birth rates

Development

• Focus of Technological efforts

• Patent Protection

• New Products

• Technology transfer from lab to

marketplace

• Productivity improvements through

automation

• Internet availability

Bibliography

http://www.business-standard.com/india/news/ma-activity-in-india33/393267/

http://www.indiaprline.com/2010/02/24/ma-activity-declines-34-during-2009/

http://www.ventureintelligence.in

http://www.cmie.com/

http://www.helium.com/items/1561489-mergers-and-acquisitions

http://business.mapsofindia.com/india-business/top-indian-business-deals-2009.html

http://indiacurrentaffairs.org/india-inc-on-global-expansion-outbound-merger-and-acquisition-ma-

deals-up-38-fold-during-2010-2011/

http://proquest.umi.com/pqdweb?index=12&did=2104717511&SrchMode=1&sid=3&Fmt=3&VInst=PR

OD&VType=PQD&RQT=309&VName=PQD&TS=1301938757&clientId=97929

http://www.investmentbank.kotak.com/services/mergers-and-acquisitions/

http://www.reportbuyer.com/telecoms/country_overviews_telecommunications/telecommunications_i

ndustry_india_pest_framework_analysis.html

http://www.equitymaster.com/research-it/sector-info/telecom/

http://www.currentanalysis.com/markets/telecomindustry/?gclid=CNfWwL_mhKgCFYd66wod9V03qw

Documents

Mergers and Acquisitions in India 2006-2010