Merger and acquisition analysis

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Merger and Acquisition

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  • At a swap ratio of 25:118, the deal value comes at Rs 3,042 crores, translating into a P/BV ratio of 5.4x and 2.9x to the adjusted book value of Rs 559 crores and un-adjusted book value of Rs 1,080 crores respectively as on 31st Dec. 2009Valuations paid by ICICI Bank looks very expensive, as public sector banks and private sector banks are currently traded at an average P/BV ratio of 1.2x and 2.2x respectively.
  • Marketing: ICICI Bank its customer centric strategy that places branches as the focal points of relationship management, sales, and service in geographical micro markets. New- found branch - focused strategylt help us improve presence in north India and increase its branch network by 25% to about 2, 500 across the country eg. ICICI Bank has about 2, 000 branches while BOR has 463 spread across the countryIt will also give us the ability to grow CASA and push inclusive banking
  • To beat the slowdown, Bharti has been scouting overseas, with a focus on high growth-potential emerging markets. After failing to get a deal with South Africa's MTN Group, the company has set up a new unit to drive overseas expansion
  • Merger and acquisition analysis

    1. 1. Assignment on Merger &Acquisition Submitted By Sudheer Parashar MBA 4th Semester Submitted To Mr. Gorav Bagra ABS Submitted 1
    2. 2. BANK OF RAJASTHAN TO MERGE WITH ICICI BANK 1 ICICI and BOR 2
    3. 3. Corporate Profile Key Rationale ICICI BOR Type Private Sector Private Sector Industry Banking Financial Services Banking Loan, Capital Market and Allied Industries Year of Incorporation 1994 1943 Branch 2530 463 Products  Finance and insurance  Retail Banking  Commercial Banking  Mortgages  Credit Cards  Private Banking  Asset Management  Investment Banking  Corporate or wholesale banking,  Personal banking ,  Commercial banking,  Retail banking,  Finance and insurance,  Investment Banking,  Auxiliary services,  Merchant banking, Trust and custodial services ICICI and BOR 3
    4. 4. Financial Profile (At March 31, 2010) Key Rationale ICICI BOR Total Income 32999.36 1496.67 PAT 4.024.98 102.13 Total Assets 363,399.71 17300.06 CAR(Min. 8%) 19.14% 7.74% Net NPA Ratio 2.12 1.6 Total Deposit 2,020.17 billion 1506.35 Borrowing 942.64 billion 0.65 ICICI and BOR 4
    5. 5. Merger ICICI bank approved merging of Bank of Rajasthan with itself on 18 May 2010. The share swap ratio was announced at 25:118 (25 shares of ICICI Bank for 118 shares of BOR). The Reserve Bank of India on 13th August 2010 gave its nod to the merger. ICICI and BOR 5
    6. 6. Deal Structure Company Swap Ratio Out. Share(Crore) Price Before Announceme nt Market Cap Deal Value (Crore) ICICI 25 111 889.35 99221 3042 BOR 118 16 99.5 1597 ICICI and BOR 6
    7. 7. Reason beyond Merger Marketing  Customer centric strategy  New- found branch - focused strategy  Improve presence in north India  It will also give us the ability to grow CASA and push inclusive banking ICICI and BOR 7
    8. 8. Continue…. Reason beyond Merger Operational Increase Base of Customer Increase in retail deposit base. Consequently, ICICI Bank would get sustainable competitive advantage over its competitors in Indian Banking ICICI and BOR 8
    9. 9. Financial valuation= Rs. 3041/ 463 branches (Rs. 6.6 crore at an average rate) Continue…. Reason beyond Merger ICICI and BOR 9
    10. 10. StrategicApproach Although valuation in monetary terms does have a strong impact in any merger but without consideration of about 30 lakh customers and approx. 4000 employees, the deal might turned to a big failure. ICICI and BOR 10
    11. 11. Conclusion  ICICI Bank’s branch network, already the largest among Indian private sector banks, and especially strengthen its presence in northern and western India. It would combine Bank of Rajasthan’s branch franchise with ICICI Bank’s strong capital base, to enhance the ability of the merged entity to capitalize on the growth opportunities in the Indian economy. This is the third acquisition by ICICI Bank. It had earlier acquired Bank of Madura way back in 2001 and the Maharashtra-based Sangli Bank in 2007 which shows that ICICI Bank believe in the expansion by the strategic move through amalgamation ICICI and BOR 11
    12. 12. Bharti Airtel completed a deal to buy Kuwait-based Zain Telecom's African business for $10.7 billion 2 Bharti Airtel and Zain 12
    13. 13. Corporate Profile Bharti Airtel: Bharti Airtel is the largest wireless service provider in our country and the 5th largest integrated telecom operator in the world. It has presence in all the 22 telecom circles in India and operations in Srilanka, Bangladesh and Africa. The company provides its wireless services under the GSM (Global System for Mobile Communication) technology Zain Africa Wholly owned subsidiary of Zain, incorporated in Netherlands and held the African operations of Zain. The company was originally named Celtel which was acquired by Zain in 2005 and renamed as Zain International BV. The same has been acquired by Bharti Airtel now through Bharti Airtel Netherlands BV Bharti Airtel and Zain 13
    14. 14. Financial Profile Basis Bharti Airtel Zain Combined Revenue $ Billion 8.03 3.64 11.67 Rs. 36961.6 16744 53705.6 Net Profit/Loss $ Billion 1.84 -0.1 1.74 Rs. 8469.9 -310.6 8159.3 EBITDA $ Billion 3.3 1.2 4.5 Rs. 15167.8 5520 20687.8 EBITDA Margins % 40 32 Bharti Airtel and Zain 14
    15. 15. Deal Structure Acquirer Bharti Airtel Limited Seller Mobile Telecommunications Company KSC Target Zain Africa International BV Acquisition Bharti Airtel Limited indirectly acquired 100% of Zain Africa International BV and its business operations in Africa from Zain under a privately negotiated agreement Mode of Acquisition Security (Share) Sale Consideration USD 10.7 billion Bharti Airtel and Zain 15
    16. 16. Financial Decision In Feb 2010, Bharti paid $10.7 billion for Zain Africa, which is 10 times EV to EBITDA multiple for Zain. Bharti was valued at 7.2 times EV to EBITDA. Zain Africa has made a net loss of $112 million in the nine months to September 2009. The deal is highly volatile and carries huge commercial risk. Bharti structured the deal as LBO with loan worth $8.3 billion with LIBOR plus 195 basis points. With extremely high cost of acquisition, interest payable on loans availed and meager revenues for next few years. Bharti Airtel and Zain 16 Financially does not make any Sense
    17. 17. Earning dilution for Bharti in FY12E ($ Million) Bharti Zain Consolidated Revenues 10956 4007 14963 EBITDA 4135 1402 5537 EBITDA Margin % 37.7% 35% 37% Interest 9 749 758 Dep 1511 900 2411 PBT 2615 -247 2368 Tax 418 418 Minority Interest 55 -74 -19 Tax Shield on Interest 15% -112 -112 PAT 2141 -60 2081 % reduction in PAT -2.8 Bharti Airtel and Zain 17
    18. 18. Key Driver of Deal  Saturation in India telecom market  Over dependence on India market  Low tariff and high volume model in Africian Bharti Airtel and Zain 18
    19. 19. Reason Beyond Merger Africa is attractive for Bharti as the mobile user base is low there, with just over a third of the population having a mobile. Telecom Zain's 15 African operations included in the deal have a combined user base of about 42 million. Indian market is also showing early signs of saturation, with penetration reaching about 45 percent. Bharti Airtel and Zain 19
    20. 20. Strategy Bharti gains access to at least three African countries where Zain enjoys a clear hegemony Two-thirds of the mobile market in Niger, Malawi and Chad (operating margins in excess of 40%). Moreover, despite its poor financial performance in Africa, Zain’s average revenue per user (ARPU) of $8.2 is much better than Bharti’s $5. This means, Bharti may be able to rake in profits from these markets if it controls costs effectively. Bharti Airtel and Zain 20
    21. 21. Conclusion It is a structural shift on the telecom space because the growth rates are topping out and over the last few quarters, the operating profit margins for most of the players have been under pressure. The direction which Bharti took was to address that concern to sustain growth rates over the next few years. However, valuations that one is paying are little bit on the higher side. However, Bharti is going to be generating pretty good amount of cash flows over the next few quarters. Bharti’s key strategic move gives a strong presence in the high potential African telecom market. However, we are optimistic that if Zain starts performing, the deal could reap returns to Bharti in the long term. Bharti Airtel and Zain 21
    22. 22. Sun Pharma to acquire Daiichi Sankyo owned by Ranbaxy in deal worth $3.2billion 3 Sun Pharma and Ranbaxy 22
    23. 23. Sun Pharmaceutical Industries Limited  SPIL is an multinational pharmaceutical company headquartered in Mumbai, Maharashtra that manufactures and sells pharmaceutical formulations and active pharmaceutical ingredients (APIs) primarily in India and the United States.  The company offers formulations in various therapeutic areas: ascardiology, psychiatry, neurology, gastroenterology and diabetology.  It also provides APIs such as warfarin, carbamazepine, etodolac, and clorazepate, as well as anticancers, steroids, peptides, sex hormones, and controlled substances Sun Pharma and Ranbaxy 23
    24. 24. Ranbaxy Ranbaxy is a member of the Daiichi Sankyo Group. Daiichi Sankyo is a leading global pharma innovator, headquartered in Tokyo, Japan Sun Pharma and Ranbaxy 24
    25. 25. Deal Structure Sun Pharma to acquire Ranbaxy Ranbaxy shareholders to get 0.8 shares of Sun Pharm a stock for every share of Ranbaxy Deal size approximately US$ 4 billion; ~ 2.2x LTM sales US$ 250 million of revenue and operating synergies by 3rd year post close Daiichi Sankyo to become the second largest shareholder in Sun Pharma. Strategic business relationship to continue with Sun Pharma Voting Agreements Daiichi Sankyo to vote in favor of transaction (~63.5% ownership) Sun Pharma promoters to vote in favor of transaction (~63.7% ownership) Sun Pharma and Ranbaxy 25
    26. 26. Financial Structure All-stock transaction totalling equity value of USD 3.2 billion. The transaction is worth over USD 4 billion. The deal values Ranbaxy shares at Rs 457 apiece, representing an 18 percent premium to its 30-day volume-weighted average share price on April 4, 2014. On a pro forma basis, the combined entity’s revenues are estimated at USD 4.2 billion with EBITDA of USD 1.2 billion for the twelve month period ended December 31, 2013. The transaction value implies a revenue multiple of 2.2 based on 12 months ended December 31, 2013 On April 11, 2014, Ranbaxy Laboratories closed at Rs 467.90, up Rs 6.25, or 1.35 percent. The 52-week high of the share was Rs 505.00 and the 52-week low was Rs 253.95. The latest book value of the company is Rs 3.41 per share. At current value, the price-to-book value of the company was 137.21. Sun Pharma and Ranbaxy 26
    27. 27. Purpose beyond Merger 5th largest global specialty generic pharma company No. 1 pharma company in India, one of the fastest growing markets No. 1 Indian pharma company in US market Over US$ 2 billion in sales Pipeline of 184 ANDAs including high-value FTFs No. 1 in generic dermatology, No. 3 in branded Approaching US$ 1 billion sales in high-growth emerging markets Expanding presence in Western Europe Sun Pharma and Ranbaxy 27
    28. 28. Reasons  Both drug makers have been facing quality issues in the lucrative US market, but the deal between them have created world's fifth- largest generic drug maker. Ranbaxy has a significant presence in the Indian pharma market and in the US where it offers a broad portfolio of ANDAs and first-to- file opportunities. In high-growth emerging markets, it provides a strong platform which is highly complementary to Sun Pharma’s strengths Sun Pharma and Ranbaxy 28
    29. 29. Sun Pharma and Ranbaxy 29
    30. 30. Conclusion The combination of Sun Pharma and Ranbaxy will create the largest pharmaceutical company in India. Sun expects to realize revenue and operating synergies of USD 250 million by third year post closing of the transaction. The combined entity will have operations in 65 countries, 47 manufacturing facilities across 5 continents, and a significant platform of specialty and generic products marketed globally, including 629 ANDAs Daiichi Sankyo, the Japanese owner of India's biggest drug-maker by sales, will hold a stake of about 9 percent in Sun Pharmaceutical after the deal. Sun Pharma and Ranbaxy 30
    31. 31. Kingfisher Airlines Merge with Air Deccan 4 Kingfisher and Air Deccan 31
    32. 32. KingfisherAirlines  Kingfisher Airlines, a premium Full-Service Carrier, is a private airline based company in Bangalore, India. Currently, it holds the status of India's largest domestic airline, providing world-class facilities to its customers. Owned by Vijay Mallya of United Beverages Group, Kingfisher Airlines started its operations on May 9, 2005, with a fleet of 4 brand new Airbus - A320, a flight from Mumbai to Delhi to start with. The airline currently operates on domestic as well as international routes, covering a number of major cities, both in and outside India Kingfisher and Air Deccan 32
    33. 33. Air Deccan  Air Deccan is India’s first LCC.  It was founded and operated by Deccan Aviation Ltd. by Captain Gopinath in 2003 with regular scheduled flights from Bangalore to Mangalore and Hubli.  Deccan was known popularly as the common man's airlines.  Air Deccan triggered price wars in the Indian Skies which forced other players to match Air Deccan’s prices.  The consumers benefited while carriers lost. Air Deccan gained market share but at the cost of profitability Kingfisher and Air Deccan 33
    34. 34. Merger.. Air Deccan airlines merged with Kingfisher Airlines and decided to operate as a single entity from April, 2008. Following the merger of Deccan with Kingfisher, in August 2008, Kingfisher renamed Deccan as Kingfisher Red. After the merger, the company has a combined fleet of 71 aircrafts, connects 70 destinations and operates 550 flights in a day. The combined entity has a market share of 33%. Kingfisher and Air Deccan 34
    35. 35. Reason  Negotiation power and costs saved in fuel and maintenance will be the a expect savings of about Rs 300-400 crore (Rs 3-4 billion) Annually to accrue because of the synergies achieved due to the merger added benefits. Expect savings of about Rs 300-400 crore (Rs 3-4 billion) annually to accrue because of the synergies achieved due to the merger. The raison d'etre for demerger of scheduled air services from Kingfisher Airlines into Deccan Aviation is to preserve the tax offset. Kingfisher and Air Deccan 35
    36. 36. Objective Focus more on the international routes Wider domestic reach. Low cost carrier Full-service carrier Immense synergies as both operate Airbus Kingfisher and Air Deccan 36
    37. 37. Conclusion As result of deal both the company has a combined fleet of 71 aircrafts, connects 70 destinations and operates 550 flights in a day. Kingfisher would operate as a single largest (private) airline in the sub- continent. Besides, operational synergies (engineering, inventory management and ground handling services, maintenance and overhaul), the management and staff of both the airlines would be integrated They would be stronger lessors, aircraft manufacturers and will also spend less on training and employees. Costs would also reduce which is associated with maintenance of aircraft. The savings in cost would be lower by about 4-5% (Rs 300 crores) devising a more optimal routing strategy it could help in rationalizing the fare.. Kingfisher and Air Deccan 37
    38. 38. Verizon wins approval for $130 billion takeover of Vodafone's share of its wireless network 5 Verizon and Vodafone 38
    39. 39. Verizon Verizon Wireless is the largest U.S. wireless company, with 100.1 million retail connections as of the end of the second quarter of 2013. It operates the country’s largest 4G LTE (advanced wireless broadband) network, which, as of July 2013, was available to 301 million people in 500 markets across the U.S. As of the end of the second quarter of 2013, The company had 73,400 employees and operated more than 1,900 retail locations in the U.S Verizon and Vodafone 39
    40. 40. Vodafone Vodafone Group Plc (Vodafone), is a mobile communications company. Vodafone Red offers consumers and businesses a package with mobile data allowances, unlimited calls and texts, plus cloud and back-up services to secure personal data In February 2014, Verizon Communications Inc completed the acquisition of Vodafone Group Plc's 45% indirect interest in Verizon Wireless. In April 2014, Vodafone Group Plc acquired100 %of its Indian subsidiary, Vodafone India Limited (VIL) Verizon and Vodafone 40
    41. 41. Financial: Vodafone shareholders are due to receive roughly 72 pence in Verizon shares and 30 pence in cash for each Vodafone share they own. Verizon will pay Vodafone $58.9 billion in cash. To fund this portion of the consideration, Verizon has entered into a fully executed $61.0 billion Bridge Credit Agreement with J.P. Morgan Chase Bank, N.A., Morgan Stanley Senior Funding, Inc., Bank of America, N.A. and Barclays. Verizon intends to reduce the commitments under the Bridge Credit Agreement with the issuance of permanent financing. In addition, Verizon expects to maintain capital structure, balance sheet and financial policies consistent with investment-grade credit metrics, in part based on 100 percent access to Verizon Wireless’ cash flow Verizon and Vodafone 41
    42. 42. Reason: The deal however halves the size of the Vodafone Group to a company worth around USD100 billion, pushing it down from the worlds's second largest phone company to the fourth, behind China Mobile, AT&T and Verizon Verizon and Vodafone 42
    43. 43. Conclusion: Verizon is paying Vodafone $130 billion to gain full control of Verizon Wireless, which will help it compete in the U.S. Vodafone now has the war chest to embark on some serious M&A, but who’s the target Acquiring Vodafone's stake in Verizon Wireless provides us with opportunities for greater financial flexibility, enhanced operational efficiency and innovations that will benefit customers This transaction allows both Vodafone and Verizon to execute on their long-term strategic objectives. Our two companies have had a long and successful partnership and have grown Verizon Wireless into a market leader with great momentum Verizon and Vodafone 43

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