PRESENTATION

SVNIT
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TABLE OF CONTENTS

 Abstract ........................... 3
 Introduction ..................... 5
 Literature review ............. 8
 Case study...................... 10
 Conclusion ..................... 14
 Bibiliography .................. 15
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Abstract
 Mergers and acquisitions present interesting avenues to study
different aspects of corporate finance, corporate governance,
managerial behavior and market responses. In this thesis, we study
mergers and acquisitions from three difference angles spread out in
three fairly detailed topic. In the first topic, we study the impact of
two conflicting forces, namely, high promoter holdings and lack of
debt-funding, on the method of payment choice and its impact on
bidder returns. We study the short run effects of M&A
announcements on acquiring firm’s shareholder wealth. The analysis
of abnormal returns indicates that the M&A announcements in India
display positive effects on shareholder wealth, irrespective of the
method of payment. Cash deals display positive abnormal returns,
and in some event windows we observe significant positive
abnormal returns for stock-deal bidders, as well. This phenomenon
is contrary to the wealth-effect predictions of the information
asymmetry models, and also contrary to the extant evidence that
suggests that M&A deals do not create value for acquirer’s
shareholders. We offer pseudo-cash deal and ownership hypotheses
to explain this anomaly. The promoter holdings and availability of
internal funds are important factors that determine the choice of
payment method in Indian mergers and acquisitions.

 The second essay investigates corporate risk-taking through the

lens of principal-principal conflicts. The classical agency theory
centres on the problems arising from dispersed ownership, and
focuses on aligning the interests of principals and managers. In
emerging markets, we have two sets of principals, the promoters
with significant shareholdings and other dispersed shareholders. By
default of its design, the concentrated ownership structure may help
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mitigate the problems arising out of conflicts between principals and

agents, but might give rise to new set of problems in the form of
principal-principals conflicts. India, where firms are largely
organized as business groups or family businesses, with complex
cross-holdings and pyramidal structures, presents a distinctive
venue to test the presence of such conflicts. Our primary focus is to
test if the principal-principal conflicts transpire in the form of risk
aversion when Indian bidders seek to merge or acquire. We observe
that Indian bidder’s resort to risk-aversion only when promoters
hold majority stake. We argue that in business group firms this
happens due to ‘tunnelling distortion’, whereas in standalone firms,
this occurs due to ‘portfolio concentration’.
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INTRODUCTION OF MERGER AND

ACQUISITION

MERGER:-
A ‘merger’ is a combination of two or more entities into one; the desired
effect being not just the accumulation of assets and liabilities of the
distinct entities, but organization of such entity into one business. The
possible objectives of mergers are manifold - economies of scale,
acquisition of technologies, access to sectors / markets etc. Generally, in
a merger, the merging entities would cease to be in existence and would
merge into a single surviving entity.

There are 6 methods to merge companies,

1). 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. These forms of merger are heavily scrutinized by the
competition commission.

2). 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.
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3). 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.

4). 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.

5). Cash Merger:-

In a ‘cash merger’, also known as a ‘cash-out merger’, the shareholders
of one entity receives cash instead of shares in the merged entity. This is
effectively an exit for the cashed out shareholders.

6). 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).
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ACQUISITION:-
An ‘acquisition’ or ‘takeover’ is the purchase by one person, of controlling
interest in the share capital, or all or substantially all of the assets and/or
liabilities, of the target. A takeover may be friendly or hostile, 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 target’s shares to the entire body of
shareholders.
An acquirer may also acquire a greater degree of control in the target
than what would be associated with the acquirer’s 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.
Another form of acquisitions may be by way of demerger. A demerger is
the opposite of a merger, involving the splitting up of one entity into two
or more entities. An entity which has more than one business, may decide
to ‘hive off’ or ‘spin off’ one of its businesses into a new entity. The
shareholders of the original entity would generally receive shares of the
new entity. If one of the businesses of a company is financially sick and
the other business is financially sound, the sick business may be
demerged from the company.
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Mergers and Acquisitions

Merger of National Institute of Miners’
Health with ICMR-NIOH
Union Cabinet has recently approved the merger of National Institute of
Miners' Health (NIMH) with ICMR - National Institute of Occupational
Health (NIOH). This Union Cabinet was chaired by PM Narendra Modi that
approved to dissolve NIMH and merge with ICMR-NIOH, Ahmedabad.

This merger will absorb all the working people with NIMH in NIOH in the
similar post/pay scale as the case may be and their pay be protected.
NIMH, ICMR, NIOH, MoM and Department of Health Research (DHR),
MoH&FW to take actions required for effecting dissolution and
merger/amalgamation of NIMH with NIOH.

Salesforce acquired analytics platform

Tableu
Salesforce is a US-based Cloud computing firm which announced
acquisition of leading analytics platform Tableau Software on June 11,
2019. Salesforce managed this deal for USD 15.7 billion in an all-stock
deal. Salesforce writes in press release that world's #1 CRM and #1
analytics platform come together to supercharge customers' digital
transformations.

Salesforce will play an even greater role in driving digital transformation

with Tableau, enabling companies around the world to tap into data
across their entire business and surface deeper insights to make smarter
decisions, drive intelligent, connected customer experiences and
accelerate innovation.

With Tableau and Einstein together, Salesforce will deliver the most
intelligent and intuitive analytics and visualization platform for every
department and every user at any company.

Tableau will make both Customer 360 and Salesforce's analytics

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capabilities stronger than ever, and enable the company to reach a much
broader set of customers and users.

Tableau will operate independently under the Tableau brand, driving

forward a continued focus on its mission, customers and community.

As part of the world's #1 CRM company, Tableau will remain

headquartered in Seattle, Wash. and will continue to be led by CEO Adam
Selipsky and the current leadership team.

The acquisition of Tableau is expected to be completed during

Salesforce's fiscal third quarter ending October 31, 2019.
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CASE STUDY-

Idea and Vodafone Merger: A saga of

becoming India’s Largest Telecom
Company
The merger will leave Bharti Airtel off its hook from being the number one
from past 15 years. There are several aspects that are to be looked into
while developing an understanding about the features associated with
merger and the impact it would make on the consumers and the telecom
industry as a whole.

Key Highlights of Vodafone-Idea Merger

The merger will give a higher stake to the promoters of Idea as compared
to Vodafone India so that in the long run both the companies are able to
gain access to equal hold

1. The first step for AB group would be the acquisition of 4.9 percent of
shares from Vodafone. This would amount to a total of Rs. 3874 crore
wherein each share is worth Rs. 108. This would be helpful in
increasing the share holding capacity of Idea to 26 percent
2. While Vodafone holds 45.1 percent of the shares in the merger,
Idea would be allowed to buy another 9.6 percent but at a cost of Rs. 130
per share in the period spread over next four years. However, if Idea is
unable to come up equal to the shareholding percentage of Vodafone, it
can go forward and buy the number of shares required further but at the
price prevailing in the market
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3. The chairman of the new combined entity would be Kumar

Mangalam Birla while Vodafone would appoint the chief financial
officer. The CEO of the new entity would be named jointly by both the
companies under a joint agreement
4. The merger also gives the promoters of both the entities with a right
to nominate 3 members each for the board. There would be a total of
12 members on the board of which 6 would be independent

Significance of the Merger for Consumers

The merger holds significance for the consumers also, as a rapid change
can be expected in the market organisation and the telecom industry
development.

1. The Indian telecom industry would see the domination of three telecom
giants of which Vodafone-Idea would be the largest. Additionally, Bharti
Airtel and Jio have been found as the dominating counterparts in
the telecom industry.
2. The process of branding will be individual for both the companies have
been found to have a complementary nature with respect to each other.
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Impact of Merger on Telecom Industry

There are also several other implications that this merger will bring forth
on the telecom industry.

1. Firstly, there can be initiatives based on the renewal of price

discipline for the disruptive entry by Jio has caused some serious
misbalance
2. Secondly, the poor financial health of the telecom sector can be
observed and through such mergers there will be infusion of health and
life since India is the fastest growing market in terms of the
subscriber base.
3. Through the merger, Vodafone and Idea will overcome their debts
and large sum of credit will be infused in the system
4. The deal has also saved both the telecom companies from selling
off their business, as was being planned by them initially and this would
directly impact the quality of services being provided by different players
in the industry
The merger will surely boost the pace of the telecom sector. It has also
been found that the savings, synergies and also the spectrum will have
substantial impact on the escalating growth. There will be saving of over
60 percent of the operations cost and this will aid in improving the
quality and performance of the service through investments from the
saved money. Enhancement in network infrastructure will be
observed while the operational efficiencies have a chance to reach
excellence. Moreover, the revenue market share is expected to rise
for all the locations and the spectrum of the entity would exceed the
initial caps.
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Important points about merger

o Vodafone will own 45.1 % stake in the combined entity while Kumar
Mangalam Birla and other promoters of the Idea Cellular group will
hold 26 % stake. 4.9 % of the stake will be transferred to the Aditya
Birla group of Idea Cellular for Rupees 3874 crore in cash right after
the merger. Over due course of time Idea Cellular and its promoter
Aditya Birla group will buy another 9.5 % of the stake over a period
of five years from Vodafone to realize the motto of 'merging of
equals'. Rest of the ownership rights will be vested with the public.
o Prior to materialising the transactional arrangement both Idea and
Vodafone are intending to sell off their stand alone tower assets
which might be a partial or full disposal of investments.
o The merger scheme will be executed within 24 months period of
time that is by the year of 2018 with apt approvals from
shareholders, creditors, stock exchanges and concerned regulatory
authorities. The naming of the new telecom entity has been
reserved for a future date, based on ample consultations with the
relevant stakeholders.
o The worth of the implied telecom entity is Rupees 828 billion for
Vodafone India and Rupees 722 billion for Idea.
o The main driving force behind such a grandiose merger is to develop
high-quality digital infrastructure that would aid the Digital
infrastructure that would aid the Digital India vision. It is also
proposed to scale up sustainable consumer choice in a competitive
market via expanding new technologies including mobile money
services.
o With regard to the constitution of a Board of Directors for the new
telecom entity, promoters of Idea cellular and Vodafone India will
have the right to nominate three directors each into the board
constituting six of them while the remaining six will be Independant
directors. Kumar Mangalam Birla of Aditya Birla group has been
nominated as the new chairman while, Thomas Reisten of the
Vodafone india has been nominated as the Chief Financial Officer.
Similarly Balesh Sharma of Vodafone India has been niminated as
the Chief Operating Officer, while the position of CEO will be
assigned based on joint consultations and decisions made by both
the parties.
o The deal will see to it that Aditya Birla group, the erstwhile
promoter of Idea Cellular has more stake in the merged entity while
Vodafone having quite a lesser stake making it the merger among
the equals. It will be realized by subsequently raising Idea Cellular's
stake in the merged entity within a five year time frame.
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Conclusion

• Following the poor financial health of the telecom sector most of the
players in the same were in a consolidation mode. Reliance
Communications owned by Anil Ambani, Aircel and MTS are working on a
probable merger while Bharati Airtel recently announced that it was
taking over Telenor's India business. Since the inception of Idea and
Vodafone onto the Indian market back in 2007, none of the two has
tasted the bitterness of loss in terms of market revenue and market share
till the roll out of Reliance Jio Infocomm in September 2016. Though the
merger plans seems as pretty as the the icing of a cake, implementation
of the same is not going to be a cakewalk as the proposed new entity has
to overcome several hurdles especially in the form of approvals of the
concerned regulators and make it to the proper wrap up of the deal.

• It is also expected that the merger move will soon push more
merger moves in the telecom sector. Though the merging would make the
new entity the number 1 telecom operator in the country and the second
telecom operator at the international level after China Mobile, it is
anticipated that it would cause messier price wars between the telecom
enterprises in near future with the emerging Indian market being
dominated by the newly merged Idea- Vodafone entity, Reliance Jio,
Bharati Airtel and BSNL. The move has been branded as quite a solace to
both Idea Cellular and Vodafone, shaken up by the disruptive entry of Jio
into the telecom segment, particularly for Vodafone which is still in the
process of fighting the Rupees 20,000 crore tax dispute with the Indian
authorities. Other perks and advantages that would trickle down to the
customers via the telecom sector includes improvement in network
infrastructure,operational efficiencies, streamlining of tele-data services,
distributional centres as well as systems.
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BIBLIOGRAPHY
 https://www.ideacellular.com/

 https://www.airtel.in/

 https://m.aajtak.in/

 https://en.m.wikipedia.org/wiki/Mergers_and_acquisiti
ons

 https://www.businessinsider.in/stock-
market/news/these-are-the-5-largest-mega-mergers-so-
far-in-2019/articleshow/71455156.cms

 https://www.google.com/amp/s/m.economictimes.com
/topic/mergers-and-acquisitions/amp