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CHAPTER- 1

INTRODUCTION

1.1 Introduction

Mergers and Acquisitions have become a major component in the economic

and financial environment all over the world. Indian firms have been gradually

exposed more to both national and international competition and competitiveness.

Hence, in recent times firms have started blending their operations around their core

corporate activities through corporate integration.

Mergers and Acquisitions have been a popular element of corporate strategy

and have become a common phenomenon. Corporate enterprises have used Mergers

and Acquisitions for refocusing in the lines of core global competitiveness,

competence, market share and combinations. A clustering of Merger and Acquisition

activities have played a magnificent improvement in the transformation of the

industrial sector in India. There has been an excess of Mergers and Acquisitions

happening in every sector of Indian industry.

The corporate enterprises which need to be fast growing, adaptable to

technology, strive for efficient performance and maintain a dominant market position

is not possible currently without Mergers and Acquisitions in the present context and

it is impossible to be competitive in the global economy. Mergers and Acquisitions

count among the most spectacular and most obvious strategic demonstrations on the

economic scales of companies.

In the review of literature, attention has been paid to Merger and Acquisition

activities. Various studies have been conducted in order to determine the trends and

key motive factors resulting in Mergers and Acquisitions. The key motives for the

acquirers are value matters and the waves of increasing Mergers and Acquisitions

transactions. It is even more relevant to examine whether value is created or not after

Mergers and Acquisitions. Few studies have observed that the Merger and Acquisition

activities have created value to the bidders firm in the short run as well as in the long

run.

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It is widely accepted and proved that Mergers and Acquisitions are important for a

firm to set up strategies in order to meet the various challenges. The strategies a firm

chooses to follow should be in line with an overall aim of value creation. A decision

to enlarge organisational capabilities through Merger and Acquisition activities has to

converse to the underlying strategy of the firms. The effect of Mergers and

Acquisitions, in this study, tried to evaluate through calculation of Firm Value. Firm

Value according to this study can be defined as “Firm Value is written as the total of

following three components. Those are Capital investment assets in place, Present

value of Economic Value Added of assts in place and Expected present value of

Economic Value Added from the future investment. In this model, instead of Net

Present Value results, the calculation considers Economic Value Added into the

equation to evaluate Firm Value interms of assets. However Firm Value can be

calculated by using Economic Value Added (EVA) model. But few studies have

pointed out that sometimes a Firms Value is eventually destroyed when the firms

engage in Merger and Acquisition activities. The basis for this conclusion is drawn

from the fact that the major Mergers and Acquisitions transactions are the ones

resulting in huge losses. Apart from the ‘huge loss deals’ the residual firms essentially

gain results from Merger and Acquisition activities.

The uses of both Financial Performance indicators and Economic Value Added

model are calculated individually. It requires in-depth analysis in case of each Merger

and Acquisition. This analysis can be applied to any other cases of Mergers and

Acquisitions and also it can work as a model to assess the firm value and value

addition calculation to the proposed companies

Mergers and Acquisitions are inevitable to get economies of scale of operation in the

globalise economy. Size of the firm determines the capability of winning competition.

In the long run sustainability of the firm depends on multiple market mix and product

mix strategies which requires Mergers and Acquisitions. The firm value of selected

firms increase in post acquisition period but there is no commissive increase in value

addition. Immediately after the acquisition for 3 – 5 years there may be some decline

in the earning per share and price earning ratio but after the gestation period it will

benefit the companies. Diversification in both product and market is able the

companies to overcome the economic upheavals and business cycle problems.

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1.2 Problem Statement

The findings from the review of literature are the main inspiration for this thesis and

the aspiration of the thesis is to combine the reviews and relate them to Indian firms in

an analysis of value creation. In other words, to study the Impact of Mergers and

Acquisitions in terms of financial health, synergies, firm value and value addition in

post acquisition.

In this study the analysis is done in relation to both profitability and leverage

figures, which involves focus upon both long term and short term value creation.

The aim of the study is to investigate value creation in Merger and Acquisition

activities based on the key motive factors of the activity. The study is mainly

stimulated by observation and aims to examine through the Mergers and Acquisitions

impact on the value of the firm. Especially, focussing on bidding firms located in

India.

The expressions and the research approach in this study are lined up with existing

research in the field. Hence, no separate definitions are obtained here except for a

clearing up of Mergers and Acquisitions activity. The sample size consists of both the

Mergers and Acquisitions are referred to as a deal.

1.3 Objectives of the Study

• To examine the financial health in terms of profitability, leverage and capital

market position of selected Mergers and Acquisitions in India.

• To evaluate the synergies in terms of financial, managerial and operational

performance of selected Mergers and Acquisitions in India.

• To examine the impact of Mergers and Acquisitions on value of the firm.

• To determine the value addition or short fall of selected Mergers and Acquisitions

in India.

• To compute and make a comparative analysis of financial health, synergies, firm

value and value addition in the pre and post period of selected Mergers and

Acquisitions in India.

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1.4 Hypotheses of the study

Based on the research gap areas from the literature survey this research has identified

the following hypotheses for the study.

Null hypothesis

• There is no significant difference between the financial health of selected firms in

pre and post Mergers and Acquisitions.

• There is no significant difference between the synergies of selected firms in pre

and post Mergers and Acquisitions.

• There is no significant difference between the firm value of selected firms in pre


• There is no significant difference between value addition of selected firms in pre


1.5 Research Methodology

1.5.1 Type of Research

Descriptive Research: Descriptive research means attempts to observe and

describe a phenomenon about the universe or population being studied. This study is

mainly dependent on secondary source of data. It describes the problem that already

exists. Therefore this type of study comes under descriptive research.

1.5.2 Sample Technique

This study has been carried out at the micro level study for the researcher. The

companies included in the analysis were selected based on the top ten Mergers and

Acquisitions during the year 2010. A particular deal was excluded in some cases

where no sufficient information was available for the deal based on the sample period.

So, convenient sampling was made.

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1.5.3 Sample and Sample size

The study focuses on the top ten Mergers and Acquisitions that took place in

India, during the year 2010. Due to the accessibility of reliable data, the transactions

were selected based on the high value deals. A list of companies involved in Mergers

and Acquisitions during the year 2010 were compiled from the capital line and

prowess database. Mergers and Acquisitions cases, where at least 3 years of data were

not available for pre merger period, were removed from the study sample. The study

selected ten companies mentioned below:

Table: 1.1 Selected ten M&A in the year 2010

Sl

No Bidding firms Target firms

Deal

value

Nature of

transaction

Type of

industry

1. Bharthi Airtel Ltd Zain Africa BV $1070cr Acquisition Tele

communication

2. Hinduja Global

Solutions Ltd

U K based CRM-

Careline Service £0.45cr Acquisition

Financial

services

3. Hindustan Zinc Ltd Anglo American

Plc zinc $134cr Acquisition Metals

4. Lanco Infratech

Ltd Griffen coal $84.5cr Acquisition Infrastructure

5. Fortis Health Care

Ltd

Parkway Holdings

Ltd $68.53cr Acquisition Healthcare

6. Jindal Steel &

Power Ltd

Shadeed Iron &

Steel Ltd $46.4cr Acquisition Iron & steel

7. Mahindra and

Mahindra Ltd

South Korean

based Ssang Yong $46.3cr Acquisition Automobiles

8. Tata Chemicals

Ltd UK- British Salt $1300cr Acquisition Chemicals

9. GTL Infrastructure

Ltd Aircel Towers $180cr Acquisition Infrastructure

10. Reliance Power

Ltd

Reliance Natural

Gas $1100 cr Acquisition Oil & Gas

(Source: www.imaa.org & Ernst and Young advisors, India)

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Brief Profile of Selected Acquirers of Indian firms

1. Bharti Airtel Ltd

Bharti Airtel popularly named as Airtel. Bharti Airtel is an Indian multinational

telecomm service provider head quartered in New Delhi. It has operations in 20

countries across the globe. The company ranked the 5th position in global mobile

services company in terms of number of subscribers.

Head Quarter: New Delhi, India

CEO: Christian de Faria

Founder: Sunil Bharti Mittal

Founded: July 7,1995

In June 2010, India’s largest mobile service provider Bharti Airtel completed

the acquisition deal of African operations in the same sector known as Zain. The

strategic reason behind this acquisition was to expand the market internationally.

Bharti Airtel has operations in 18 countries through the strategic deal. Bharti Airtel

had acquired Zain Africa B V for a value of $10.7 billon. The deal had a payment of

$7.9 billion in cash, and $1.7 billion bill of consolidated debt liabilities under the

negotiations between the Bharti and Zain. The government has a benefit of Rs123

billion from the 3G spectrum in an auction.

Key motive behind Mergers and Acquisitions activity

• To improve quality of customers

• Market expansion

• Long term economies of scale

• Entering into international market

This acquisition deal is India’s second largest cross border Mergers and Acquisitions

deals after Tata Steel’s $13 billion acquisition of Corus in 2007. It resulted with

Bharti Airtel becoming the world’s 5th the largest mobile phone service provider for

subscribers, opportunity to the company access to South Africa, permit to tap the

market with high potential. According to the standard and poor credit analysis the deal

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provided meaningful opportunities in South Africa which has relatively between

product penetrations and to improve Zain’s relatively lower Earnings Before Interest,

Tax, Depreciations and amortisations. To fund the deal Bharti Airtel took a loan of

$8.3 billion through loans sanctioned by Standard Chartered, SBI, Bank of America,

Merrill Lynch, HSBC, Bank of Tokyo, V-FJ Ltd, Barclays and DBS Group Holdings.

The deal seems as being expensive and in the light of the present environment in the

Indian Telecom sector. The bottom-line anticipated to decline at 5.1% Cumulative

Annual Growth Rate (CAGR) in the financial year 2010-2012. Bharti Airtel

documented 17.4% growth in total revenue in the first quarter of 2011. It mainly

focused on account of growth at 16% in the mobile business and additional revenue of

Rs.958 crore contributed by Zain Africa BV. Bharti Airtel shares increased 1.52% to

Rs.310.95. According to the International Financial Reporting Standards, Bharti

Airtel’s consolidated profit after tax rose 115.1% (Rs.610 crores), 13.3% rise in total

revenue of Rs.21939 crore in December 2013 to 2012. Bharti Airtel had 287 million

customers across the globe at the year end of December 2013. Bharti Airtel was

undervalued before merger; it is a chance to get a strong credit line for future aspects.

Table: 1.2 Competition of Bharti Airtel Ltd

Sl

No Name

Last

Price

Market

Cap

(in Cr)

Sales

Turnover

Net

Profit

Total

Assets

1. Bharti Airtel 337.00 134712.38 49918.50 6600.20 61126.00

2. Idea Cellular 135.20 47915.69 26179.47 1689.31 33337.60

3. Reliance Comm 143.05 29525.90 11176.00 730.00 63469.00

4. Tata Comm 392.95 11199.08 4376.40 542.43 8087.80

5. Tata Teleservices 12.35 2414.34 2731.18 -560.08 4176.16

6. MTNL 34.60 2179.80 3391.74 7825.13 8754.27

7. Tulip Telecom 4.25 61.63 945.03 -735.00 3667.36

8. Goldstone infra 11.10 40.05 80.32 2.12 110.79

9. Nu tek India 1.20 18.54 139.23 -28.04 605.15

(Source: www.economictimes.com)

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2. Hinduja Global Solutions Ltd

Hinduja Global Solutions Ltd is a world leader in Business Process Management.

The basic nature of the operations is business process outsourcing service providers

head quartered in Bangalore. It has business in 10 countries around the globe and it

has more than 50 operating centres in India. Earlier Ashok Leyland Information

Technology merged with Hinduja Finance Corporation to form Hinduja Global

Solutions. From the year 2003 the operations are rigorously commenced in the

company. Hinduja Global Solutions has so many acquisitions; the major acquisitions

are Customer Contract Centre Inc in Philippines in the year 2006, AFFINA LLC –

Database Management and Contract Centre marketing research company in 2010. In

the same year it had another acquisition of 100% stake in UK- based Careline

Services- contact Centre Management Service Providers.

Head Quarter: Bangalore, India

CEO: Ramakrishnan P Hinduja

Founder: Hinduja

Founded: 2000

Hinduja Global Solutions engaged in information technology enabled services.

The Hinduja Global Solutions has 60 delivery services in India, UK, US, Canada,

France, Italy, Netherland and Philiphines. It was awarded “Best Mid-Sized Contract

Centre” won for Preston centre in the year 2013. It handles over 50000 customer

interactions through different channels in 14 languages. This acquisition helps the

strategic drive of Hinduja Global Solutions for growth and enhances the future scope

of company services.


• Entry to new markets.

• Optimising opportunities to growth

• Multi – geographic contracts

• Expansion and strengthening markets

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Careline Services is a UK based contact centre management outsourcing business.

The name was changed after this acquisition as a step to demonstrate ONE Hinduja

Global Solutions across the world wide. The Careline termed as Hinduja Global

Solutions-UK has reached the expectations of the growing provider in the European

market place. The UK and European operations preformed as peer expectations of

management and in the present year they added three new clients in the telecom,

consumer, automotive and public verticals. The performance focussed on selective

opportunities to increase better profitability in India. Hinduja Global Solutions has

reported a turn over of $412 million in financial year 2014.

Table: 1.3 Competition of Hinduja Global Solutions Ltd

Sl

No Name

Last

Price

Market

Cap

(in Cr)

Sales

Turnover

Net

Profit

Total

Assets

1. TCS 2419.35 473884.85 64672.93 18474.92 44141.57

2. Infosys 3212.90 184496.34 44341.00 10194.00 42092.00

3. Wipro 555.95 137167.05 39133.30 7387.40 28275.50

4. HCL Tech 1461.50 102301.55 12517.82 3704.72 10852.88

5. Tech Mahindra 2114.90 49570.81 16295.13 2685.47 5287.30

6. Oracle Fin Serv 3217.15 27072.61 3159.47 1148.36 7292.35

7. MphasiS 425.00 8932.17 1328.97 223.08 3901.16

8. Mindtree 861.55 7204.77 3031.60 451.20 1643.60

9. Hexaware Tech 152.20 4570.94 1019.95 333.97 888.63

10.Persistent 1085.00 4340.00 1184.12 248.57 1007.47

11.Cyient 352.65 3954.35 1224.49 254.92 1167.03

12.NIIT Tech 449.85 2732.77 1308.48 208.40 954.72

13.Polaris Tech 210.15 2094.58 2005.25 83.97 1175.60

14.Zensar Tech 427.95 1980.47 921.80 187.22 646.94

15.Tata Elxsi 608.80 1895.69 772.10 75.11 223.23

16.Rolta 111.65 1801.24 1142.89 459.39 4729.40

17.Financial Tech 261.70 1205.88 334.71 228.55 3275.11

18.Hinduja Global

Solutions 571.25 1178.18 866.35 134.56 907.48


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3. Hindustan Zinc Ltd

Hindustan Zinc Ltd is an Indian leading Zinc producer with 80% domestic share

and operates several coal fixed power plants. The sterlite owns 64.9% of Hindustan

Zinc Ltd share capital.

Head Quarter: Udaipur, India

CEO: Akilesh Joshi

Founder: Anil Agarwal

Founded: 1966

Hindustan Zinc Ltd acquired Anglo American Zinc one of the top 5 global Zinc

manufacturers. The total consolidation of $1340 million included the holdings in

100% owned Skorpion Mine in Namibia for $698 million, 100% shares owned

Lisheen mine in Ireland of $308 million and 74% owned in Black Mountain mining of

$332 million.

The whole transaction of Anglo American Zinc Acquisition was funded through

the firm’s existing cash reserves as on 31 March 2010. The Vedanta had cash and

cash equivalent of $7.2 billion.

Hindustan Zinc Ltd became the largest producer of Zinc by overtaking Tech and

Xstrata Resources in Zinc manufacturing after the acquisition of Anglo American

Zinc Plc. It paid $1.3 billion for acquisition which planned to be financed through

Hindustan Zinc Ltd. The Hindustan Zinc Ltd had cash and fixed deposits around

Rs.11900 crore which was used to fund the acquisition.


• To in increase the class of infrastructure

• For organic growth potentials

• Operational and strategic fitness

• Increasing production capacity

• For long term development through high profitability

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The results of this acquisition lends to an increase in the Hindustan Zinc Ltd

production capacity to 4 lakhs tonnes in Zinc and a yearly increase of 0.6%

production in lead in the following years.

All cash deals helped Hindustan Zinc Ltd to utilise better its scarce infrastructure.

It increased Hindustan Zinc Ltd Zink and Lead manufacturing by 53% and an

additional add on 76% of Hindustan Zinc Ltd reserves expansion of presence in

Europe and Africa.

Hindustan Zinc Ltd expected to increase output of 36% in upcoming years but in

recent announcements the company has a decline in output by 23.1%. Due to this

decline in the production has lead to an increase in the operating costs. The cost of

production increased by 23.5% in quarter to quarter it is a highly negative

consequence to the company. The higher other income makes to inline profit after tax

due to increase in the operating costs.

The company has a present market capitalisation of Rs.69041.40 crore. In the

current year the company has maintained more than 90% dividend rate. The

Hindustan Zinc Ltd total revenue inline was due to the lower output offset by customs

and increase in products premium.

Table: 1.4 Competition of Hindustan Zinc Ltd

Sl

No Name

Last

Price

Market

Cap

(in Cr)

Sales

Turnover

Net

Profit

Total

Assets

1. Hindustan Zinc 167.80 70900.85 13636.04 6904.62 37417.61

2. Hind Copper 112.70 10427.21 1488.88 286.42 1645.02

3. Tinplate 78.40 820.59 1059.07 62.80 716.70

4. Precision Wires 125.40 145.01 983.56 14.44 292.27

5. Nissan Copper 3.00 18.86 4.64 -198.38 369.41

6. Cubex Tubings 8.15 11.67 43.73 0.15 58.88

7. Bilpower 3.15 6.62 3.85 -34.62 122.87


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4. Lanco Infratech Ltd

Lanco Infratech is a conglomerate Indian business involved in real estate,

constructions and power. Lanco Infratech grouped company was listed among the

fastest growing companies in the world. Lanco Infratech has operations in Singapore,

China, Indonesia, Italy and Netherlands.

Lanco Infratech had to increase power generation capacity in India and bring coal

from Griffen mines to India. Lanco Infratech has connected the league of mine

developers and operators by producing more than 2 billion tonnes of coal resources.

Lanco Infratech made a strategic move into the western Australian industrial coal

market acquisition through its Australian subsidiary with an aim to increase the

capacity.

Head Quarter Gurgaon, India

CEO G Venkatesh Babu

Founder Lagadapathi Rajagopal

Founded 1986

Lanco Infratech acquired Australian- Griffen Coal for A$ 730 million. This deal is

the second biggest investment by an Indian enterprise in Australia, after the deal of

Adani Enterprises acquiring Linc of an Australian firm for $2.7 billion.


• Increase in production

• Increase in the capacity

• Opportunity to utilise available resources

Lanco Infratech was funded through ICICI providing a loan of A$480 million and

the remaining amount through three instalments. The acquisition helped Lanco

Infratech to increase production of 40-50 million tonnes of coal for future projects by

access of 4 million tonnes of thermal coal. Hence it resulted in increase of production

of another 15 million tonnes.

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Presently, Lanco Infratech has achieved coal production touching 5 million tonnes

per annum with this Lanco Infratech has reached the break even point. Lanco

infratech is reported a net loss of A$43 million at the end of 31- March-2012 for the

expansion of Griffen coal by investing A$132 million.

Table: 1.5 Competition of Lanco Infratech Ltd

Sl

No Name

Last

Price

Market

Cap

(in Cr)

Sales

Turnover

Net

Profit

Total

Assets

1. Larsen 1753.40 162599.41 56598.92 5493.13 43016.01

2. BHEL 260.90 63857.88 39108.83 3460.78 31859.30

3. Adani Ports 269.85 55860.34 4345.78 2016.17 14503.28

4. Siemens 985.70 35102.74 11352.66 193.95 4030.30

5. ABB 1138.60 ̀ 24127.89 7721.99 179.31 3297.67

6. Jaiprakash Asso 72.10 15999.59 13116.11 413.89 33549.04

7. GMR Infra 31.05 12086.01 786.29 1165.90 10953.76

8. Thermax 960.30 11442.58 4302.16 252.97 2214.30

9. Engineers Ind 319.00 10748.28 1823.59 479.76 2237.55

10. IRB Infra 250.80 8335.69 2212.24 288.21 2706.63

11. ILAndF S Trans 210.55 5194.69 3404.58 266.03 5863.23

12.NBCC 392.70 4712.40 4066.96 247.14 950.70

13.Jaypee Infra 33.15 4604.31 3318.69 299.16 13662.62

14.Va Tech Wabag 1450.00 3872.94 1152.24 88.58 692.08

15.Essar Ports 86.50 3701.23 40.13 -25.75 2993.40

16.BEML 776.10 3232.03 2911.51 4.68 3294.35

17.Lanco infratech 12.70 3057.91 2236.40 -959.99 7780.63


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5. Fortis Healthcare Ltd

Fortis Healthcare Ltd is a well equipped chain of super speciality hospitals with its

head quarter situated in New Delhi. Fortis Healthcare had major acquisition of EHCL,

EHSSIL, EHSSHL and EHRCL in the year 2005, 99.99% of International Hospital

Ltd, Noida in March 2006 and in the same year acquired 100% in Oscar Bio-Tech Pvt

Ltd. Fortis Healthcare is the largest hospital in terms of number of beds.

Head Quarter New Delhi, India

CEO Malvinder Mohan Singh

Founder Parvinder Singh

Founded 2001

Fortis Healthcare acquired 23.9% stake in Singapore based – Parkway Holdings

Ltd from Texas Pacific Group. The acquisition of 23.9% stakes in Parkway holdings

raised the net profit of Fortis Healthcare to 41.34% in quarter four of 2012.

The Parkway Holdings Ltd acquisition has given an opportunity of international

expansion to Fortis Healthcare. This is the company’s third major deal from the last 5

years after Wockhardt Hospitals and Escorts Heart Institute.


• Entry to International Market

• Market Expansion

• Increasing the capacity

The transaction increased Fortis Healthcare network to 62 and became the biggest

hospital network in Asia which had more than 10000 beds. The deal had each price of

Parkway Shares at Singapore $3.56 higher than the closing price of S$3.12 by paying

premium at 14% after completion of the transaction. The Fortis Healthcare share price

rose more than 5% in 52 weeks of high at Rs.179.20.

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Parkway is one of Asia’s top healthcare service providers. Fortis Healthcare has a

further construction of Fortis international Institute of Bio- Medical Sciences, which

has been built in Gurgoan. It is also under the progress and it became third Greenfield

hospital having multi super –speciality. With this the company had aggressive growth.

Presently, Fortis Healthcare has a capacity of 6000 beds through 40 hospitals reported

in the year 2012.

Fortis Healthcare had further announced in September 2011 it acquired Fortis

Healthcare International Ltd of 100% acquisition for a purchase consideration of $665

million. From this integration there were multiple synergies of talent, growth, cost

efficiencies and medical verticals. From this activity the consolidated entity has

strength of more than 4000 doctors.

Fortis Healthcare has operation networks in India, New Zealand, Australia

Vietnam, Hong Kong, Mauritius, Singapore, Srilanka, Dubai and Canada with over

12000 beds, 75 hospitals, 191 day care specialty, 210 diagnostic centres and over 600

care centres in March 2014.

Table: 1.6 Competition of Fortis Healthcare Ltd

Sl No Name Last

Price

Market

Cap

(in Cr)

Sales

Turnover

Net

Profit

Total

Assets

1. Apollo Hospital 1031.50 14350.76 3861.63 330.72 3625.31

2. Fortis Health Care 124.00 5738.57 368.90 23.99 4203.04

3. Poly Medicure 477.30 1051.65 252.24 24.03 148.66

4. Opto Circuits 38.95 943.83 261.11 42.16 2254.94

5. Indraprastha 46.00 421.70 677.58 35.44 222.86

6. Kovai Medical 250.50 274.10 334.14 23.72 264.42

7. Lotus Eye Care 10.15 21.11 28.69 0.04 51.44

(Source; www.economictimes.com)

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6. Jindal Steel and Power Ltd

Jindal Steel and Power Ltd is a steel and energy producer with head quarter

situated in New Delhi, India. Jindal Steel and Power Ltd have an approximate

turnover of $3.56 billion. Jindal Steel and Power Ltd is a diversified product portfolio

in India. Jindal Steel and Power Ltd is a diversified part of Jindal Group. The

manufacturing plants are situated in Chattisgrah, Odisha and Jharkhand.

Jindal Steel and Power Ltd have undergone backward integration and forward

integration to be comparatively economical and efficient steel and power producers.

Jindal Steel and Power Ltd also expanded the identity too internationally by entering

Africa, Oman, Australia, and Indonesia. Jindal Steel and Power Ltd is a leading

producer of steel, power, oil, gas, mining and infrastructure in India.

Head Quarter: New Delhi, India

CEO: Ravi Uppal

Founder: Om Prakash Jindal

Founded: 1952

Jindal Steel and Power Ltd acquired Shadeed Iron and Steel Co.LLC, has a

agreement for 100% shares purchase and the total value of the deal was reported to be

$464 million. Jindal Steel and Power Ltd was funded through tie up with international

banks for $400 million and the balance of the deal amount was financed through

internal finance.


• Strategic Expansion

• Economies of scale

• Expanding geographical reach

The acquisition has key motives as a step of strategic expansion by increasing the

production capacity. Jindal Steel and Power Ltd have strong demand in North African

countries, estimated supply short fall of more than 15 million tonnes. Shadeed Iron

17

and Steel Company have a manufacturing capacity of 15 million tonnes per annum. It

helps to meet the demand of Jindal Steel and Power Ltd by this. The firm claims to be

the largest steel plant. It is the first and largest Steel Melting Shop (SMS).

Jindal Steel and Power Ltd has more than 10% growth compared to the export

sales and in retail volume growth has comparatively increased to 78% growth from

second quarter to third quarter of 2014. Jindal Steel and Power Ltd announced 15%

growth in flat product sales in 2014 with earnings before depreciation, interest, tax

and amortisations margin of 20% at 6 years Compound Annual Growth Rate

(CAGR).

Table; 1.7 Competition of Jindal Steel & Power Ltd

Sl

No Name

Last

Price

Market

Cap

(in Cr)

Sales

Turnover

Net

Profit

Total

Assets

1. Jindal Steel 330.15 30204.96 14544.02 1291..95 31849.01

2. Gallantt Ispat 463.40 1356.21 473.81 14.98 370.98

3. Sarda Energy 297.70 1067.25 1270.51 75.38 1440.49

4. Tata Sponge 685.60 1055.82 782.22 101.17 722.62

5. Monnwt Ispat 137.30 903.79 2309.77 66.63 8186.35

6. Adhunik Metalic 53.25 657.64 1671.86 2.82 2438.22

7. Gowawari Power 168.95 553.42 1540.92 55.94 1229.59

8. MSP Steel 30.50 2688.71 1192.76 21.00 1576.33

9. Jai Balaji Ind 28.00 206.59 1968.10 -318.95 2763.01


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7. Mahindra & Mahindra Ltd

Mahindra & Mahindra Ltd is the largest vehicle producer in India. Mahindra and

Mahindra is an Indian multinational company. The automobile manufacturer’s head

quarter is situated in Mumbai. Mahindra and Mahindra have operations in Australia,

Asia, Middle East, Africa, Europe, South Africa and North America. Mahindra and

Mahindra have tractors to airplanes, and, the Mahindra group automobiles to

Information Technology Consulting Services.

Mahindra and Mahindra manufactures important products and services for

Defence, Energy and Farm Equipments. Mahindra and Mahindra has a diversified

business through their 18 industries like, farm equipments, automotive products &

services, agri business, consulting services, aerospace components, information

technology, industrial equipments, hospitality, retail, real estate, logistics and motor

cycle racing. Mahindra and Mahindra has growth of $16.5 billion and more than

180000 employees over 100 countries around the world.

Head Quarter: Mumbai, India

CEO: Anand Mahindra

Founder: Jagadeesh Chandra Mahindra

Founded: October 02 1945

Mahindra and Mahindra Ltd acquired 70% of majority stake in the South Korean

based Automobile – Ssang Yong Motor Company (SYMC). Mahindra and Mahindra

emerged as the preferred acquirer for Ssang Yong Motor Company in August 2010.

The deal value of 70% acquisition of SsangYong was $463 million. SsangYong’s

premium of Recreational Vehicles (RV) and Sports Utility Vehicles (SUV) in Korea

has operations from the past five decades.

SsangYong has a healthy domestic network with more than 130 dealers’ exports

in 90 countries through more than 1200 dealers. The total deal value is $ 463 million,

out of this $378 million was invested in stock and the remaining $85 million through

19

investment in corporate bonds. With this Mahindra and Mahindra completed 70% of

acquisition in SsangYong.


• As a business strategy –to penetrate international market

• To be a global passenger vehicle industry

• To Protect brand identity and to ensure quality

• For global procurement and new car development

Recently Mahindra and Mahindra launched new car models. It increased their

dealership in South Africa. There has been a sudden increase in sales from 2012. The

turnover of Mahindra and Mahindra and Ssang Yong Motor Company has increased

by 118% in the segment of Light Commercial Vehicles (LCV) and passenger cars.

Mahindra and Mahindra plans to invest another $900 million in the next 4 years

for the development of six engines and three new platforms with an integration of

South Korean based Ssang Yong Motors. Mahindra and Mahindra reported a growth

of 6.3% in 2012 in terms of sales and 23% of growth in domestic cars.

Table: 1.8 Competition of Mahindra & Mahindra Ltd

Sl

No Name

Last

Price

Market

Cap

(in Cr)

Sales

Turnover

Net

Profit

Total

Assets

1. Maruti Suzuki 2627.35 79367.00 43700.63 2783.05 19968.10

2. M&M 1232.65 75917.97 40508.50 3758.35 17885.99

3. Hind Motors 10.20 188.47 722.89 -71.20 40.11


20

8. Tata Chemicals Ltd

Tata Chemicals Ltd is a global entity with their core focus on life like living, farm

and industry essentials. Tata Chemicals Ltd is a market leader in India for the branded

segment – Iodised Salt. Tata Chemicals Ltd is the second largest producer of soda the

world. Tata Chemicals Ltd, provide key ingredients to few of the largest producers of

detergents, glass and industrial products. The company has manufacturing facilities in

Africa, Asia, Europe and North America. Tata Chemicals Ltd has world class

Research and Development facilities in the area of Bio – Technology and Nano

Technology.

Head Quarter: Mumbai, Maharastra,India

CEO: Ramakrishnan Mukundam

Founder: Dorabji Tata

Founded: 1939

In the year 2008, Tata Chemicals Ltd acquired 100% stake of the US based

General Chemicals Industry Product Inc., for $1.05 billion to became the second

largest producer of Soda Ash in the world. The plant has a capacity of 3.85 billion

tonnes of Urea and 2.2 billion tonnes of Ammonia per day.

Tata Chemicals Ltd is a wholly owned UK arm Brunner Mond acquired Cheshire

Salt Holding Ltd., a parent company of British Salt. British Salt profitability increased

through the Gas storage business resulting in promising business models and raised

the potential cash flows for the company.


• Entry to the food segment in the UK

• Increase in potential cash flows

• Technology upgradation

• To secure long term brine suppliers

• Improve overall financial performance

21

This acquisition helped improve overall financial performance of Tata

Chemicals Ltd. The deal value of the acquisition was £93 million. Through this

acquisition the production capacity from British Salt added another atleast 720 lakhs

tonnes per year. The overall deal value was facilitated through debt on non – resource

basis.

British Salt is a leading vacuum salt producer which has its own brine wells in the UK

with a residual life of 50 years. It has a capacity to manufacture 8 lakhs tonnes of pure

white salt every year. Tata Chemicals Ltd, reported 8% growth in profit after tax of

Rs.55 billion and 16% growth in sales of Rs111.02 billion in 2011.

Table: 1.9 Competition of Tata Chemicals Ltd

Sl

No Name

Last

Price

Market

Cap

(in Cr)

Sales

Turnover

Net

Profit

Total

Assets

1. Pidilite Ind 328.05 16817.23 3878.24 468.61 1732.44

2. UPL 344.00 14743.99 4968.27 415.73 5395.80

3. Tata Chemicals 342.65 8729,22 8725.26 436.07 7764.38

4. Guj Flourochem 498.00 5470.53 1140.94 74.43 3285.89

5. BASF 880.00 3809.14 4429.89 127.87 1502.00

6. Solar Ind 2040.00 3691.99 904.03 83.84 613.27

7. Linde India 365.90 3120.55 1428.46 77.33 2344.34

8. Aarti Ind 223.00 1975.59 2632.77 148.69 1478.40

9. Vinati organics 352.00 1737.91 696.13 86.15 442.07

10. Guj Alkali 201.75 1481.59 1896.06 185.02 2023.70


22

9. GTL Infrastructure Ltd

GTL Infrastructure is a multinational Indian enterprise. GTL Infrastructure is a

global group enterprise in the core business of shared telecom infrastructure in India.

GTL Infrastructure has a portfolio of over 30,000 towers in India. GTL Infrastructure

builds, operates, owns and maintains the network infrastructures and provide

infrastructure facilities to cellular telecom operators.


CEO: Manoj G Tirodkar

Founder: Manoj G Tirodkar

Founded: 2004

GTL Infrastructure is listed in BSE and NSE at the market capitalization of

Rs.1397 crore. With this, the company was first listed in Asia Pacific to get the listed

shared telecom infrastructure. GTL Infrastructure completed acquisition of 17,500

tower and 21,000 tenancies of Aircel Towers at an enterprise value of Rs.8026 crore.

GTL Infrastructure acquired Aircel Cellular Tower Business for Rs.8400 crore

through a cash deal. From this transaction Aircel rolled out an additional 20,000

towers and expected a revenue base of Rs.1,800 crores with an EBDITA of more than

Rs.1,200 crores in the financial year 2011.


• Increase in scale of operations

• Providing better services

• Increase in profitability

• Economies of scale

GTL Infrastructure already had 15,000 towers and integrated with Aircel’s

17,500 towers. So the firm consolidated 32,500 towers for its operations.

23

The transaction enabled GTL Infrastructure to achieve high deal tower

portfolio in average revenue per user and helped provide attractive services through

2G, 3G and broadband wireless operations.

GTL Infrastructure has raised money through debt and equity. In the total deal

value of Rs.3400 crore was raised through fresh equity and the remaining amount of

the deal was raised through Rs.5000 crores which was funded by SBI Caps.

Most of the telecom companies are selling or transferring their tower

operations of another firm to reduce the costs to meet the market demand and

anticipating recovering the capital expenditure within 3 to 12 years.

Table: 1.10 Competition of GTL Infrastructure Ltd

Sl

No Name

Last

Price

Market

Cap

(in Cr)

Sales

Turnover

Net

Profit

Total

Assets

1. Bharti Infratel 266.70 50407.37 4999.30 1089.90 17672.40

2. Honeywell

Autom 5150.00 4553.38 1706.99 86.16 780.97

3. HFCL 18.40 2280.45 2018.78 147.48 985.03

4. Astra Microwave 148.80 1217.56 531.16 50.93 242.63

5. ITI 31.70 912.96 708.72 -344.26 1778.23

6. GTL Infra 3.65 844.64 578.73 -551.24 6524.24

7. GTL 26.15 411.33 2265.11 -469.78 4442.90

8. NELCO 6.35 65.09 87.79 -44.47 470.64

9. MIC Electronics 20.60 41.46 87.79 -9.18 470

10.Shayam Telecom 33.90 38.21 348.50 -1.35 59.59

(Source:www.economictimes.com)

24

10. Reliance Power Ltd

Reliance Power is a part of Dhirubhai Ambani Group. It has a core business of

construction, development and operations of power projects in national and

international markets. It generates power from naphtha, coal, natural gas and diesel.

The firm has products and services which includes retail, agricultural and industrial

consumers.

Reliance Power operations has two segments which are associated business

activities and power generation. The company and its subsidiaries target to utilise a

variety of fuel resources for developing a better portfolio of power projects. The head

quarter is situated in Mumbai.


CEO: J P Chalasani

Founder: Anil Dhirubhai Ambani

Founded 2007

Reliance Power merged with Reliance Natural Resources and the deal value waas

at $11 billion. This activity was considered as the biggest transaction in the year 2010.

This activity made an easy path for Reliance Power to get the resources for its power

project.

The Reliance Power and Reliance Natural Resources merger was swap fixed at

1:4. Hence, the four shares of Reliance Natural Resources Ltd were converted as one

share of Reliance Power. The payment has made on the fixed swap basis.


• Accelerating power plants plan

• Accelerating backward integration

• Increasing the capacity of the plant

• Becoming the largest coal reserves

25

The merger has market capitalisation of Reliance power to shrink over Rs.52000

crore. Reliance Power has retained all employees and the assets of Reliance Natural

Resources Ltd. Reliance Power had a turnover of Rs.298 crore after the merger. The

combined firm networth exceeded Rs.1000 crore by having 6,00,000 shareholders.

Reliance Power Ltd has 4 billion tonnes of coal reserves in India and across the

country. The merger accelerated plans to set up 10000 MW gas power plants and get

pure thermal power for its power projects. Reliance Power has advantage of a

diversified portfolio of 37000MW for its power projects.

Table: 1.11 Competition of Reliance Power Ltd

Sl

No Name

Last

Price

Market

Cap

(in Cr)

Sales

Turnover

Net

Profit

Total

Assets

1. NPTC 157.70 130030.97 72018.93 10974.74

2. Power Grid

Corpo 140.35 73425.36 15230.29 4497.42

3. Reliance Power 108.10 30323.42 91.69 56.48 133641.17

4. NHPC 27.20 30112.22 5537.04 978.79 95033.34

5. Tata Power 106.80 28885.40 8627.04 954.08 18702.97

6. Reliance Infra 796.00 20934.00 11356.93 1587.94 45258.o2

7. Adani Power 65.60 18811.09 11010.04 595.26 29343.83

8. Newyyeli Lignite 99.60 16709.99 5967.23 1501.88 15462.02

9. JSW Energy 84.60 13874.86 5802.61 602.48 11610.54

10.SJVN 24.50 1013473 1873.58 1114.63 10286.28

11.CESC 713.85 5510.00 5510.00 652 8611.66


26

1.5.4 Sources of data

The research study is based on secondary data taken from the financial reports of

selected firms. The data relating to companies, history, growth and developments of

the industrial sectors have been collected from books, magazines, published papers,

articles, reports and from several news papers, other industry oriented reports,

research organisations and various internet sites.

1.5.5 Period of the Study

The present study examines the value creation of merged firms from 3 years pre

merger to 3 years post merger.

1.5.6 Tools of Analysis

a) Financial Tools:

I. Ratio Analysis

Ratio analysis is extensively accepted and the most widely used financial

tool. “Ratio is a mathematical relationship between one value to another value”. An

accounting ratio shows the mathematical relationship between two numbers. Ratio is

used for evaluating the performance of the business concern and the operations of a

company from scientific facts. Accounting and financial ratios are used for evaluating

the earning capacity, financial soundness, credit worthiness and operating efficiency

of business entities.

II. Economic Value Added (EVA)

Economic Value Added defined as “the incremental difference in rate of

return over a firm’s overall cost of capital”. Economic Value Added result as positive

or negative. In case of Economic Value Added, negative means the firm is destroying

the value of funds invested. Economic Value Added is a yardstick for an investment

measuring the value of surplus or deficit. In other words, the Economic Value Added

is calculated as a sum of excess return made on investment and invested capital.

Economic Value Added is calculated by using the following formula:

27

Economic Value Added = (Return on invested capital) – (Cost of Capital) (Capital

invested)

b) Statistical Tools:

I. Mean: Mean is used to refer to the measure of the central

tendency. Mean is a total sum of data divided by the number of observation. Mean is a

well known and established statistical measure. It is useful to compare the many sets

of data. Mean is always calculated based on all the observations. The results of the

mean is least affected by variations in sampling.

II. Standard Deviation: Standard Deviation was introduced by Karl

Pearson in the year 1823. It is a widely used measure of dispersion. Standard

Deviation is denoted by a small sigma sign.

III. Co – efficient of Variation: Co-efficient of Variation is a statistic

measure used to compare the variability from the sets of data. It is expressed in terms

of percentage. When Co-efficient of Variation is less it indicates consistency or less

variation, whereas when Co-efficient of Variation is more it’s indicates high variation

or less consistency.

IV. Paired T-test: To investigate the impact of Mergers and

Acquisitions activities ratios have been calculated for three years before and after the

transactions. Paired samples T- test has been conducted to assess the difference in pre

Mergers and Acquisitions financial performance and post Mergers and Acquisitions

financial performance. The paired sample t-test compares the mean of two variables

from the same group. It determines whether the difference between the means of two

variables is significantly different from zero. In this study, the two variables are mean

ratio of the acquired firm before and after the Mergers and Acquisitions period. The

paired samples T- test thus determines whether there is a significant change in the

variables ‘before and after’ mergers and acquisition. A positive t-value indicates a

higher mean value for post Mergers and Acquisitions period.

V. Skewness: Generally skewness means ‘lack of symmetry’. It

observes higher value or lower value from the total variable. The extreme values have

28

longer tails. Positive skewness is a higher variation towards the variable which has

higher value. Negative skewness is a higher variation towards the variable which has

lower value.

VI. Kurtosis: means to identify the distribution, shape and the nature

of hump in other words, it is concerned with peakedness or flatness of the distribution

frequency curve. Prof. Karl Pearson named it ‘convexity of the curve’ or ‘Kurtosis’.

Kurtosis is classified based on the shape namely; Lepto-Kurtic (negative Kurtosis),

Meso- kurtic(Normal Kurtosis), Platy-kurtic(positive Kurtosis).

1.6 Significance of the study

This study aims to increase knowledge regarding financial ratios. This study fills a

gap between the conceptual study and the practical performance. Therefore, the study

has examined the research gaps by evaluating and applying various statistical and

financial tools and techniques and the knowledge about the statistical test. More than

this the study contributes to the society as well as to the companies.

• Contribution to the society

� This study finds the real situation of the financial position of selected firms to

the society by making an analysis in pre and post Mergers and Acquisitions.

� This study helps to take effective decisions by the stakeholders of selected firms.

� Promoters will be able to take adequate decision by evaluating better strategies.

• Contribution to the industry/ company

� This study provides the information regarding to financial health during the

period of Mergers and Acquisitions. It helps to maintain the better position.

� This study helps to know about the impact of Mergers and Acquisitions on value

of the firm.

29

1.7 Scope of the study

This study has considered the top ten Mergers and Acquisitions and its trends

on Indian firms. However, the value evaluation of Merger and Acquisition activities is

confined to the select Indian acquiring firms, wherein Merger and Acquisition

activities occurred in the year 2010. The remarkable increase in Mergers and

Acquisitions and the value matters leads to making a comparative study of pre and

post Mergers and Acquisitions by considering 3 years of the pre and post acquisition

period.

1.8 Limitations of the study

The major limitations of the study are as below

• This study is purely based on secondary data announced from the annual reports of

companies. The consistency and the findings are dependent upon the published

annual reports. The short comings of the use of secondary data are inevitable.

• There is no common view from the experts groups on the different approaches for

evaluation of profitability and liquidity of the firm.

• This study is limited to 3 years of pre and post Mergers and Acquisitions period,

for data analysis. The information relating to the year in which Mergers and

Acquisitions has taken place (2010) the information taken place that year is

ignored.

• Financial ratios have their own limitations, which is also applied to the study.

• The study is carried out on the basis of 10 limited numbers of companies only. Any

generality for universal application can not be applicable here.

• The financial analysis only considers the facts which are expressed in terms of

money.

• The study focuses on the bidding firms from India. Therefore, the target firms may

be inbound or outbound acquisitions of India.

30

1.9 Outline of chapter scheme

Chapter- 1 is an Introduction. In this chapter a general introduction of the study,

Problem statement, Objectives of the study, hypothesis, methodology- type of

research, sample techniques, sample size, a brief profile of selected acquirers of

Indian Firms consisting of information about history, nature of business, acquisitions,

mode of payment, key motive factor behind the acquisition, post-period performance,

competition levels, comparison of the competition level based on market

capitalisation, turnover, net profits and total assets, Sources of data, period of the

study, tools of analysis, significance of the study, scope of the study and limitations of

the study are discussed.

Chapter – 2 deals with review of literature. Various research articles, journals and

books are referred. This chapter focuses on Mergers and Acquisitions and includes a

brief about Mergers and Acquisitions, worldwide Mergers and Acquisitions, trends of

Mergers and Acquisitions in India, key motives for Mergers and Acquisitions, impact

of Mergers and Acquisitions- positive impact and negative impact of Mergers and

Acquisitions are discussed.

Chapter – 3 deals with data analysis & interpretation. In this chapter analysis of

profitability, liquidity and leverage positions of selected firms have been explained.

This chapter is classified into 2 main heads: a) examination of the financial health of

the selected firms in pre & post Mergers and Acquisitions period by comparing the

ratios under 2 categories, which are 1) profitability, leverage and market capital

ratio,2)financial synergy, managerial synergy and operating synergy standards. b)

Examination of the impact of value of the firm, value added/ shortfall and net present

value of the investment. All the ratios under the above two categories are tested with

the help of Paired ‘t’ Test. The analysis tools - meaning and the framework of analysis

are also discussed.

Chapter – 4 deals with findings, suggestions and conclusion. It also consolidates the

summary of findings, suggestions are presented, the conclusions are drawn and

implications are stated.

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