MERGERS, ACQUITIONS & CORPORATE RESTRUCTURING

Term Paper on Merger of Mahindra & Satyam

Submitted To: Prof. Anita Yadav Dept. Of MBA, PESIT

Submitted By: Rajneesh Thapa USN: 1PT11MBA64 Sec: F2 Roll No. 03

INTRODUCTION
Merger and acquisition is often known to be a single terminology defined as a process of combining two or more companies together. The fact remains that the so-called single terminologies are different terms used under different situations. Though there is a thin line difference between the two but the impact of the kind of completely different in both the cases. Merger is considered to be a process when two or more companies come together to expand their business operations. In such a case the deal gets finalized on friendly terms and both the companies share equal profits in the newly created entity. When one company takes over the other and rules all its business operations, it is known as acquisitions. In this process of restructuring, one company overpowers the other company and the decision is mainly taken during downturns in economy or during declining profit margins. Among the two, the one that is financially stronger and bigger in all ways establishes it power. The combined operations then run under the name of the powerful entity who also takes over the existing stocks of the other company. Another difference is, in an acquisition usually two companies of different sizes come together to combat the challenges of downturn and in a merger two companies of same size combine to increase their strength and financial gains along with breaking the trade barriers. A deal in case of an acquisition is often done in an unfriendly manner, it is more or less a forceful or a helpless association where the powerful company either swallows the operation or a company in loss is forced to sell its entity. In case of a merger there is a friendly association where both the partners hold the same percentage of ownership and equal profit share.

Definition of M & A
A general term used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.

MERGERS AND ACQUITIONS IN INDIA

The financial year 2007-08 witnessed a slew of acquisitions across diverse sectors of the economy in India. Unlike in the past, such activity was not limited to acquisitions within India or of Indian companies. Of all sectors, steel was the most dominant in terms of stake sales as deals valuing $ 3.862 billion took place in Q1 of 2007-08 by the Indian companies in the global arena. Energy ranked second, with automotive and auto components close on its heels.1 In the domestic segment, iron ore, aviation and steel were the most prolific in terms of mergers and acquisitions. With Indian corporate houses showing sustained growth over the last decade, many have shown an interest in growing globally by choosing to acquire or merge with other companies outside India. One such example would be the acquisition of Britains Corus by Tata an Indian conglomerate by way of a leveraged buy-out. The Tatas also acquired Jaguar and Land Rover in a significant cross border transaction. Whereas both transactions involved the acquisition of assets in a foreign jurisdiction, both transactions were also governed by Indian domestic law. Whether a merger or an acquisition is that of an Indian entity or it is an Indian entity acquiring a foreign entity, such a transaction would be governed by Indian domestic law. In the sections which follow, we touch up on different laws with a view to educate the reader of the broader areas of law which would be of significance.

Mergers and acquisitions are methods by which distinct businesses may combine. Joint ventures are another way for two businesses to work together to achieve growth as partners in progress, though a joint venture is more of a contractual arrangement between two or more businesses.

Mergers may be of several types, depending on the requirements of the merging entities:
Horizontal Mergers: Also referred to as a horizontal integration, this kind of merger takes place between entities engaged in competing businesses which are at the same stage of the industrial process. A horizontal merger takes a company a step closer towards monopoly by eliminating a competitor and establishing a stronger presence in the market. The other benefits of this form of merger are the advantages of economies of scale and economies of scope. Vertical Mergers: Vertical mergers refer to the combination of two entities at different stages of the industrial or production process. For example, the merger of a company engaged in the construction business with a company engaged in production of brick or steel would lead to vertical integration. Companies stand to gain on account of lower transaction costs and synchronization of demand and supply. Moreover, vertical integration helps a company move towards greater independence and self-sufficiency. The downside of a vertical merger involves large investments in technology in order to compete effectively. Congeneric Mergers: These are mergers between entities engaged in the same general industry and somewhat interrelated, but having no common customer-supplier relationship. A company uses this type of merger in order to use the resulting ability to use the same sales and distribution channels to reach the customers of both businesses. Conglomerate Mergers: A conglomerate merger is a merger between two entities in unrelated industries. The principal reason for a conglomerate merger is utilization of financial resources, enlargement of debt capacity, and increase in the value of outstanding shares by increased leverage and earnings per share, and by lowering the average cost of capital. A merger with a diverse business also helps the company

to foray into varied businesses without having to incur large start-up costs normally associated with a new business.

Cash Merger: In a typical merger, the merged entity combines the assets of the two companies and grants the shareholders of each original company shares in the new company based on the relative valuations of the two original companies. However, in the case of a cash merger, also known as a cash-out merger, the shareholders of one entity receive cash in place of shares in the merged entity. This is a common practice in cases where the shareholders of one of the merging entities do not want to be a part of the merged entity. Triangular Merger: A triangular merger is often resorted to for regulatory and tax reasons. As the name suggests, it is a tripartite arrangement in which the target merges with a subsidiary of the acquirer. Based on which entity is the survivor after such merger, a triangular merger may be forward (when the target merges into the subsidiary and the subsidiary survives), or reverse (when the subsidiary merges into the target and the target survives).

ACQUISITIONS
An acquisition or takeover is the purchase by one company of controlling interest in the share capital, or all or substantially all of the assets and/or liabilities, of another company. A takeover may be friendly or hostile, depending on the offeror companys approach, and may be effected through agreements between the offeror and the majority shareholders, purchase of shares from the open market, or by making an offer for acquisition of the offerees shares to the entire body of shareholders. Friendly takeover: Also commonly referred to as negotiated takeover, a friendly takeover involves an acquisition of the target company through negotiations between the existing promoters and prospective investors. This kind of takeover is resorted to further some common objectives of both the parties.

Hostile Takeover: A hostile takeover can happen by way of any of the following actions: if the board rejects the offer, but the bidder continues to pursue it or the bidder makes the offer without informing the board beforehand. Leveraged Buyouts: These are a form of takeovers where the acquisition is funded by borrowed money. Often the assets of the target company are used as collateral for the loan. This is a common structure when acquirers wish to make large acquisitions without having to commit too much capital, and hope to make the acquired business service the debt so raised. Bailout Takeovers: Another form of takeover is a bail out takeover in which a profit making company acquires a sick company. This kind of takeover is usually pursuant to a scheme of reconstruction/rehabilitation with the approval of lender banks/financial institutions. One of the primary motives for a profit making company to acquire a sick/loss making company would be to set off of the losses of the sick company against the profits of the acquirer, thereby reducing the tax payable by the acquirer. This would be true in the case of a merger between such companies as well. Acquisitions may be by way of acquisition of shares of the target, or acquisition of assets and liabilities of the target. In the latter case it is usual for the business of the target to be acquired by the acquirer on a going concern basis, i.e. without attributing specific values to each asset / liability, but by arriving at a valuation for the business as a whole. An acquirer may also acquire a target by other contractual means without the acquisition of shares, such as agreements providing the acquirer with voting rights or board rights. It is also possible for an acquirer to acquire a greater degree of control in the target than what would be associated with the acquirers stake in the target, e.g., the acquirer may hold 26% of the shares of the target but may enjoy disproportionate voting rights, management rights or veto rights in the target.

INTRODUCTION TO THE COMPANY

Mahindra Satyam formerly Satyam Computer Services, is an Indian IT services company based in Hyderabad, India. It was founded in 1987 by B Ramalinga Raju. Mahindra Satyam is a part of the Mahindra Group, which is one of the top 10 industrial firms based in India. The company offers consulting and information technology (IT) services spanning various sectors, and is listed on the Pink Sheets, the National Stock Exchange (India) and Bombay Stock Exchange (India). In June 2009, the company unveiled its new brand identity Mahindra Satyam subsequent to its takeover by the Mahindra Groups IT arm, Tech Mahindra on April 13, 2009.

MERGER
Mahindra Satyam's proposed merger with Tech Mahindra may be delayed all because of legal issues, and ambiguity over jurisdiction between investigating agencies and the government. The merger has been delayed due to two tax cases pending with the Income Tax claiming over 2700 crores for both. Tech Mahindra announced its merger with Mahindra Satyam on March 21, 2012,after the board of two companies gave the approval. The two firms have received the go-ahead for merger from the Bombay Stock Exchange and the National Stock Exchange. Competition Commission of India(CCI) approved the proposed merger of Mahindra Satyam and other companies with Tech Mahindra. Mahindra Satyam will hold its annual general meeting (AGM) on June 8,2012 to consider the proposal to merge the company with Tech Mahindra. It is mandatory for the firm to get the AGM nod to go ahead with the merger. The shareholders of both Tech Mahindra and Mahindra Satyam have unanimously approved the scheme of amalgamation and merger of Satyam Computer Services Ltd, Venturbay Consultants, C&S System Technologies, Canvas Technologies and Mahindra Log iSOFT Business Solutions with Tech Mahindra. Mahindra Satyam Chairman, Vineet Nayyar said on 2 August 2012, that the merger with Tech Mahindra was at the final stage of getting approval from the Andhra Pradesh and Maharashtra High Courts.

ROW WITH INCOME TAX DEPARTMENT

The Income Tax Department had issued notices to the company seeking 617crore tax for the assessment years from 2003-04 to 2008-09, when the company was run by the founder B Ramalinga Raju and his team. The Central Board of Direct Taxes has attached the properties of Mahindra Satyam on February 3, 2012,stating the attachment of properties was according to Section 281 B of the Income Tax Act. Section 281 B refers to recovery of tax and allows the tax department to issue provisional orders to the assesse to safeguard revenues accrued to it. The Income Tax department had slapped notice on the company after disallowing exemptions claimed by the software firm. The company has received notices of demand for 1,037crore and 1,075crore for assessment years 2002-03 and 200708, respectively. However, the Andhra Pradesh High Court granted a breather to Mahindra Satyam, by staying the Income Tax Department's provisional order to attach properties of the IT firm.

TURNAROUND
The company had reported a consolidated net loss of Rs.233.3crore for the JulySeptember quarter of 2010. Speaking at a press conference, Vineet Nayyar, chairman of the company said the consolidate cash and cash equivalents at Rs.30crore compared to Rs.26crore. We will take three [years] for a turnaround, he informed. Even though the company got 245crores profit in Q4 for 20102011, but due to outside payments nearly 570crores for SEK, UPAID and Class Action Suit in Q4 (Total 641crores for the year 2010-2011), the company had reported a consolidated net loss of Rs.327crore for the JanuaryMarch quarter of 2010-2011. IT firm Mahindra Satyam posted a consolidated net profit of Rs.225.2crore for the quarter ended June 30, 2011. During the quarter, the company added 2,172 people (net), taking total headcount to 31,438 as of June 30, 2011. The company added 36 new customers during the quarter. The total headcount of the company stood at 32,092 as of the quarter ended September 30, 2011 during which net addition of 654 personnel took place. The company added 188 employees in quarter three ending December 31, 2011 and recorded 29.4% quarter-on-quarter in its consolidated net profit of Rs.308crore. Mahindra Satyam reported a net profit of Rs.534.21crore for the fourth quarter ended March 31, 2012.

RECENT NEWS AND DEVELOPMENT

Mahindra Satyam will acquire a minority stake of 15% for 35crore in Dion Global Solutions Limited, the Delhi-based firm owned by billionaire brothers Malvinder Mohan Singh and Shivinder Mohan Singh, that provides solutions for capital markets globally. Mahindra Satyam acquired Delhi based BPO firm vCustomer's International operations for US $27 million. This is the first 100% acquisition by Mahindra Satyam since it became part of Mahindra Group.

Mahindra Satyam provides services in the following areas:

Aerospace and Defence Banking, Financial Services & Insurance Energy and Utilities Life Sciences & Healthcare Manufacturing, Chemicals & Automotive Public Services & Education Retail Consumer Packaged Goods Travel, Transport, Logistics Telecom, Infrastructure, Media and Entertainment & Semiconductors

Mahindra Satyam IT Campus, HITEC City

Mahindra Satyam is the largest IT employer of Hyderabad with its 4 campuses:

Mahindra Satyam Technology Center [Bahadurpally] Mahindra Satyam Info City [Hitec City] Gachibowli Campus [In DLF SEZ] Mahindra Satyam Learning World [Hitec City] Mahindra Satyam SEZ [Hitec City] Mahindra Satyam Info Services Ltd., Resapuvanipalem, Visakhapatnam

The company currently has eight campuses in Hyderabad. Mahindra Satyam headquartered in Hyderabad, India has development centres and/or regional offices in USA, Canada, Brazil, the United Kingdom, Hungary, Egypt, UAE, India, China, Malaysia, Singapore, and Australia.

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. As both the companies have a good image in the market it was a better option to merge both the companies and create a new brand. Due to the financial status of Satyam, Mahindra was able to take over the majority stakes of Satyam and take over the company.

REFERCE: http://en.wikipedia.org/wiki/Mahindra_Satyam https://www.google.co.in Fred Weston, Kwang S Chung, Susan E Hoag Mergers, Restructuring And Corporate Control Pearson Education, 4/e