• Save
Tech mahindra and mahindra satyam  mergers
Upcoming SlideShare
Loading in...5
×
 

Tech mahindra and mahindra satyam mergers

on

  • 6,592 views

 

Statistics

Views

Total Views
6,592
Views on SlideShare
6,592
Embed Views
0

Actions

Likes
3
Downloads
0
Comments
5

0 Embeds 0

No embeds

Accessibility

Categories

Upload Details

Uploaded via as Microsoft Word

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Tech mahindra and mahindra satyam  mergers Tech mahindra and mahindra satyam mergers Document Transcript

  • ACKNOWLEDGEMENTWhat we study in class is of full worth if we add some practical implementation to it. Thisdissertation report project is one of the opportunity which I got from the department ofmanagement, PGDM, BBDNITM. I would like to thank my respected Dean Sir, Prof. AtulKumar Singh Sir for providing such an opportunity. I would like to thank respected Porf. R.K. Rastogi Sir, for his kind guidance in thecompletion of this report. His motivations and teachings will always be a part of mycorporate life. I would like to thank my friends, Ishan & Rishi for their kind supports. They are theintegral part of the compiler of this report. I would like to thank the entire faculty of PGDM department at BBDNITM who taughtme the managemet lessons. I would like the thank the owner and management staff of the google.com withoutwhich the search of various data couldn‟t be possible. Finally, I want to thank my family members, my parent and my dear friends whoalways believed in me and gave a moral support. Thank u all. CHANDRESH SUPRIT SHARAN 1
  • PrefaceThe importance of any academic schedule would gain advantage and acceptance onlythrough practical experience; hence it is quite necessary to put theories into practice. Thisis made possible by doing the dissertation report exercise. Through this project I tried to make future findings for telecommunication sector andfor new services which are in the queue. This project has provided means and opportunity to have a real feel of thetelecommunication industry. Theory and practice are two aspects of management education. In order to producea dynamic and promising executive, the two have to be blended together. In India, theindustrial knowledge in the domain of management course has received pivotal importance.It exposes the potential managers to the actual work environment and makes them a richinto what actually goes in the industrial climate. Infact it is the implementation of theory inpractice that is the life force of management. 2
  • Table of ContentMergers & Acquisitions 4Distinction between M&A 7Business Valuation 8Financing M&A 8Motives behind M&A 10Effects on Management 13History of M&A 17M&A Failures 23Major M&A 25M&A in India 27Company profile: Tech Mahindra 30 Mahindra Satyam 35Shareholding of Mahindra group 37Financial highlights of Mahindra Satyam 38B/S of Mahindra Satyam 40B/S of Tech Mahindra 41P-L statement of Tech Mahindra 43Executive summary of the case study 45Motive of Merger 46Tech Mahindra Journey 47Mahindra Satyam Journey 49Tech Mahindra & Mahindra Satyam : Fuel click offerings 51 Combined strategy 52 Foundation of growth 53 Significance of offerings 55Proforma of combined metric 56Key details of mergers 57Process/Approvals 58Key Advisiors 59Growth Prospects 59Statstics 60Satyam Investors gain 61Conclusion 62Bibliography 65 3
  • Mergers and acquisitionsMergers and acquisitions refers to the aspect of corporate strategy, corporate financeand management dealing with the buying, selling, dividing and combining ofdifferent companies and similar entities that can help an enterprise grow rapidly in itssector or location of origin, or a new field or new location, without creating a subsidiary,other child entity or using a joint venture. The distinction between a "merger" and an"acquisition" has become increasingly blurred in various respects (particularly in terms ofthe ultimate economic outcome), although it has not completely disappeared in allsituations.AcquisitionAn acquisition is the purchase of one business or company by another company or otherbusiness entity. Consolidation occurs when two companies combine together to form anew enterprise altogether, and neither of the previous companies survives independently.Acquisitions are divided into "private" and "public" acquisitions, depending on whether theacquireee or merging company (also termed a target) is or is not listed on public stockmarkets. An additional dimension or categorization consists of whether an acquisitionis friendly or hostile.Laws in India use the term amalgamation for merger. Section 2(1A0 of the Income TaxAct, 1961 defines amalgamation as the merger of one or more companies with anothercompany or the merger of two or more companies to form a new company in such a waythat all the assets and liabilities of the amalgamating companies become assets andliabilities of the amalgamated company and shareholders holding not less than nine-tenths 4
  • in the value of the shares in the amalgamating company or companies becomeshareholders of the amalgamated company."Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes,however, a smaller firm will acquire management control of a larger and/or longer-established company and retain the name of the latter for the post-acquisition combinedentity. This is known as a reverse takeover. Another type of acquisition is the reversemerger, a form of transaction that enables a private company to be publicly listed in arelatively short time frame. A reverse merger occurs when a privately held company (oftenone that has strong prospects and is eager to raise financing) buys a publicly listed shellcompany, usually one with no business and limited assets.There are also a variety of structures used in securing control over the assets of acompany, which have different tax and regulatory implications: This unreferenced section requires citations to ensure verifiability. The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a going concern, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment. The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase 5
  • to "cherry-pick" the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards such as those that could arise from litigation over defective products, employee benefits or terminations, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers of the individual assets, whereas stock transactions can frequently be structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the sellers shareholders.The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situationwhere one company splits into two, generating a second company separately listed on astock exchange.Based on the content analysis of seven interviews authors concluded five followingcomponents for their grounded model of acquisition: 1. Improper documentation and changing implicit knowledge makes it difficult to share information during acquisition. 2. For acquired firm symbolic and cultural independence which is the base of technology and capabilities are more important than administrative independence. 3. Detailed knowledge exchange and integrations are difficult when the acquired firm is large and high performing. 4. Management of executives from acquired firm is critical in terms of promotions and pay incentives to utilize their talent and value their expertise. 6
  • 5. Transfer of technologies and capabilities are most difficult task to manage because of complications of acquisition implementation. The risk of losing implicit knowledge is always associated with the fast pace acquisition.Preservation of tacit knowledge, employees and literature are always delicate during andafter acquisition. Strategic management of all these resources is a very important factor fora successful acquisition.Increase in acquisitions in our global business environment has pushed us to evaluate thekey stake holders of acquisition very carefully before implementation. It is imperative for theacquirer to understand this relationship and apply it to its advantage. Retention is onlypossible when resources are exchanged and managed without affecting theirindependence.Distinction between mergers and acquisitionsThe terms merger and acquisition mean slightly different things. The legal concept of amerger (with the resulting corporate mechanics, statutory merger or statutory consolidation,which have nothing to do with the resulting power grab as between the management of thetarget and the acquirer) is different from the business point of view of a "merger", which canbe achieved independently of the corporate mechanics through various means such as"triangular merger", statutory merger, acquisition, etc. When one company takes overanother and clearly establishes itself as the new owner, the purchase is called anacquisition. From a legal point of view, the target company ceases to exist, the buyer"swallows" the business and the buyers stock continues to be traded.In the pure sense of the term, a merger happens when two firms agree to go forward as asingle new company rather than remain separately owned and operated. This kind of action 7
  • is more precisely referred to as a "merger of equals". The firms are often of about the samesize. Both companies stocks are surrendered and new company stock is issued in itsplace. For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, bothfirms ceased to exist when they merged, and a new company, GlaxoSmithKline, wascreated. In practice, however, actual mergers of equals dont happen very often.Business valuationThe five most common ways to valuate a business are asset valuation, historical earnings valuation, future maintainable earnings valuation, relative valuation (comparable company & comparable transactions), discounted cash flow (DCF) valuationFinancing M&AMergers are generally differentiated from acquisitions partly by the way in which they arefinanced and partly by the relative size of the companies. Various methods of financing anM&A deal exist:CashPayment by cash. Such transactions are usually termed acquisitions rather than mergersbecause the shareholders of the target company are removed from the picture and thetarget comes under the (indirect) control of the bidders shareholders. 8
  • StockPayment in the form of the acquiring companys stock, issued to the shareholders of theacquired company at a given ratio proportional to the valuation of the latter.Which method of financing to choose?There are some elements to think about when choosing the form of payment. Whensubmitting an offer, the acquiring firm should consider other potential bidders and thinkstrategically. The form of payment might be decisive for the seller. With pure cash deals,there is no doubt on the real value of the bid (without considering an eventual earnout). Thecontingency of the share payment is indeed removed. Thus, a cash offer preemptscompetitors better than securities. Taxes are a second element to consider and should beevaluated with the counsel of competent tax and accounting advisers. Third, with a sharedeal the buyer‟s capital structure might be affected and the control of the buyer modified. Ifthe issuance of shares is necessary, shareholders of the acquiring company might preventsuch capital increase at the general meeting of shareholders. The risk is removed with acash transaction. Then, the balance sheet of the buyer will be modified and the decisionmaker should take into account the effects on the reported financial results. For example, ina pure cash deal (financed from the company‟s current account), liquidity ratios mightdecrease. On the other hand, in a pure stock for stock transaction (financed from theissuance of new shares), the company might show lower profitability ratios (e.g. ROA).However, economic dilution must prevail towards accounting dilution when making thechoice. The form of payment and financing options are tightly linked. If the buyer pays cash,there are three main financing options: 9
  • Cash on hand: it consumes financial slack (excess cash or unused debt capacity) and may decrease debt rating. There are no major transaction costs. It consumes financial slack, may decrease debt rating and increase cost of debt. Transaction costs include underwriting or closing costs of 1% to 3% of the face value. Issue of stock: it increases financial slack, may improve debt rating and reduce cost of debt. Transaction costs include fees for preparation of a proxy statement, an extraordinary shareholder meeting and registration.If the buyer pays with stock, the financing possibilities are: Issue of stock (same effects and transaction costs as described above). Shares in treasury: it increases financial slack (if they don‟t have to be repurchased on the market), may improve debt rating and reduce cost of debt. Transaction costs include brokerage fees if shares are repurchased in the market otherwise there are no major costs.In general, stock will create financial flexibility. Transaction costs must also be consideredbut tend to have a greater impact on the payment decision for larger transactions. Finally,paying cash or with shares is a way to signal value to the other party, e.g.: buyers tend tooffer stock when they believe their shares are overvalued and cash when undervalued.Motives behind M&AThe dominant rationale used to explain M&A activity is that acquiring firms seek improvedfinancial performance. The following motives are considered to improve financialperformance: 10
  • Economy of scale: This refers to the fact that the combined company can oftenreduce its fixed costs by removing duplicate departments or operations, lowering thecosts of the company relative to the same revenue stream, thus increasing profitmargins.Economy of scope: This refers to the efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing anddistribution, of different types of products.Increased revenue or market share: This assumes that the buyer will be absorbinga major competitor and thus increase its market power (by capturing increasedmarket share) to set prices.Cross-selling: For example, a bank buying a stock broker could then sell its bankingproducts to the stock brokers customers, while the broker can sign up the bankscustomers for brokerage accounts. Or, a manufacturer can acquire and sellcomplementary products.Synergy: For example, managerial economies such as the increased opportunity ofmanagerial specialization. Another example are purchasing economies due toincreased order size and associated bulk-buying discounts.Taxation: A profitable company can buy a loss maker to use the targets loss astheir advantage by reducing their tax liability. In the United States and many othercountries, rules are in place to limit the ability of profitable companies to "shop" forloss making companies, limiting the tax motive of an acquiring company.Geographical or other diversification: This is designed to smooth the earningsresults of a company, which over the long term smoothens the stock price of acompany, giving conservative investors more confidence in investing in thecompany. However, this does not always deliver value to shareholders. 11
  • Resource transfer: resources are unevenly distributed across firms (Barney, 1991) and the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources. Vertical integration: Vertical integration occurs when an upstream and downstream firm merge (or one acquires the other). There are several reasons for this to occur. One reason is to internalise an externalityproblem. A common example of such an externality is double marginalization. Double marginalization occurs when both the upstream and downstream firms have monopoly power and each firm reduces output from the competitive level to the monopoly level, creating two deadweight losses. Following a merger, the vertically integrated firm can collect one deadweight loss by setting the downstream firms output to the competitive level. This increases profits and consumer surplus. A merger that creates a vertically integrated firm can be profitable. Hiring: some companies use acquisitions as an alternative to the normal hiring process. This is especially common when the target is a small private company or is in the startup phase. In this case, the acquiring company simply hires the staff of the target private company, thereby acquiring its talent (if that is its main asset and appeal). The target private company simply dissolves and little legal issues are involved. Absorption of similar businesses under single management: similar portfolio invested by two different mutual funds (Ahsan Raza Khan, 2009) namely united money market fund and united growth and income fund, caused the management to absorb united money market fund into united growth and income fund.However, on average and across the most commonly studied variables, acquiring firmsfinancial performance does not positively change as a function of their acquisition activity. 12
  • Therefore, additional motives for merger and acquisition that may not add shareholdervalue include: Diversification: While this may hedge a company against a downturn in an individual industry it fails to deliver value, since it is possible for individual shareholders to achieve the same hedge by diversifying their portfolios at a much lower cost than those associated with a merger. (In his book One Up on Wall Street, Peter Lynch memorably termed this "diworseification".) Managers hubris: managers overconfidence about expected synergies from M&A which results in overpayment for the target company. Empire-building: Managers have larger companies to manage and hence more power. Managers compensation: In the past, certain executive management teams had their payout based on the total amount of profit of the company, instead of the profit per share, which would give the team a perverse incentive to buy companies to increase the total profit while decreasing the profit per share (which hurts the owners of the company, the shareholders).Effects on managementMerger & Acquisitions (M&A) term explains the corporate strategy which determines thefinancial and long term effects of combination of two companies to create synergies ordivide the existing company to gain competitive ground for independent units. A studypublished in the July/August 2008 issue of the Journal of Business Strategy suggests thatmergers and acquisitions destroy leadership continuity in target companies‟ topmanagement teams for at least a decade following a deal. The study found that targetcompanies lose 21 percent of their executives each year for at least 10 years following an 13
  • acquisition – more than double the turnover experienced in non-merged firms.[10] If thebusinesses of the acquired and acquiring companies overlap, then such turnover is to beexpected; in other words, there can only be one CEO, CFO, et cetera at a time.Different Types of M&ATypes of M&A by functional roles in marketThe M&A process itself is a multifaceted which depends upon the type of mergingcompanies.- A horizontal merger is usually between two companies in the same business sector. Theexample of horizontal merger would be if a health cares system buys another health caresystem. This means that synergy can obtained through many forms including such as;increased market share, cost savings and exploring new market opportunities.- A vertical merger represents the buying of supplier of a business. In the same exampleas above if a health care system buys the ambulance services from their service suppliersis an example of vertical buying. The vertical buying is aimed at reducing overhead cost ofoperations and economy of scale.- Conglomerate M&A is the third form of M&A process which deals the merger betweentwo irrelevant companies. The example of conglomerate M&A with relevance to abovescenario would be if health care system buys a restaurant chain. The objective may bediversification of capital investment. 14
  • Arms length mergersAn arms length merger is a merger:1. approved by disinterested directors and2. approved by disinterested stockholders:″The two elements are complementary and not substitutes. The first element is importantbecause the directors have the capability to act as effective and active bargaining agents,which disaggregated stockholders do not. But, because bargaining agents are not alwayseffective or faithful, the second element is critical, because it gives the minority stockholdersthe opportunity to reject their agents work. Therefore, when a merger with a controllingstockholder was: 1) negotiated and approved by a special committee of independentdirectors; and 2) conditioned on an affirmative vote of a majority of the minoritystockholders, the business judgment standard of review should presumptively apply, andany plaintiff ought to have to plead particularized facts that, if true, support an inferencethat, despite the facially fair process, the merger was tainted because of fiduciarywrongdoing.″Strategic MergersA Strategic merger usually refers to long term strategic holding of target (Acquired) firm.This type of M&A process aims at creating synergies in the long run by increased marketshare, broad customer base, and corporate strength of business. A strategic acquirer mayalso be willing to pay a premium offer to target firm in the outlook of the synergy valuecreated after M&A process. 15
  • M&A research and statistics for acquired organizationsGiven that the cost of replacing an executive can run over 100% of his or her annual salary,any investment of time and energy in re-recruitment will likely pay for itself many times overif it helps a business retain just a handful of key players that would have otherwise left. [12]Organizations should move rapidly to re-recruit key managers. It‟s much easier to succeedwith a team of quality players that you select deliberately rather than try to win a game withthose who randomly show up to play.Brand considerationsMergers and acquisitions often create brand problems, beginning with what to call thecompany after the transaction and going down into detail about what to do aboutoverlapping and competing product brands. Decisions about what brand equity to write offare not inconsequential. And, given the ability for the right brand choices to drive preferenceand earn a price premium, the future success of a merger or acquisition depends onmaking wise brand choices. Brand decision-makers essentially can choose from fourdifferent approaches to dealing with naming issues, each with specific pros and cons: [14] 1. Keep one name and discontinue the other. The strongest legacy brand with the best prospects for the future lives on. In the merger of United Airlines and Continental Airlines, the United brand will continue forward, while Continental is retired. 2. Keep one name and demote the other. The strongest name becomes the company name and the weaker one is demoted to a divisional brand or product brand. An example is Caterpillar Inc. keeping the Bucyrus International name.[15] 3. Keep both names and use them together. Some companies try to please everyone and keep the value of both brands by using them together. This can create a 16
  • unwieldy name, as in the case ofPricewaterhouseCoopers, which has since changed its brand name to "PwC". 4. Discard both legacy names and adopt a totally new one. The classic example is the merger of Bell Atlantic with GTE, which became Verizon Communications. Not every merger with a new name is successful. By consolidating into YRC Worldwide, the company lost the considerable value of both Yellow Freight and Roadway Corp.The factors influencing brand decisions in a merger or acquisition transaction can rangefrom political to tactical. Ego can drive choice just as well as rational factors such as brandvalue and costs involved with changing brands.[15]Beyond the bigger issue of what to call the company after the transaction comes theongoing detailed choices about what divisional, product and service brands to keep. Thedetailed decisions about the brand portfolio are covered under the topic brand architecture.History of M&AThe Great Merger Movement: 1895-1905The Great Merger Movement was a predominantly U.S. business phenomenon thathappened from 1895 to 1905. During this time, small firms with little market shareconsolidated with similar firms to form large, powerful institutions that dominated theirmarkets. It is estimated that more than 1,800 of these firms disappeared intoconsolidations, many of which acquired substantial shares of the markets in which theyoperated. The vehicle used were so-called trusts. In 1900 the value of firms acquired inmergers was 20% of GDP. In 1990 the value was only 3% and from 1998–2000 it wasaround 10–11% of GDP. Companies such as DuPont, US Steel, andGeneral Electric thatmerged during the Great Merger Movement were able to keep their dominance in their 17
  • respective sectors through 1929, and in some cases today, due to growing technologicaladvances of their products, patents, and brand recognition by their customers. There werealso other companies that held the greatest market share in 1905 but at the same time didnot have the competitive advantages of the companies likeDuPont and General Electric.These companies such as International Paper and American Chicle saw their market sharedecrease significantly by 1929 as smaller competitors joined forces with each other andprovided much more competition. The companies that merged were mass producers ofhomogeneous goods that could exploit the efficiencies of large volume production. Inaddition, many of these mergers were capital-intensive. Due to high fixed costs, whendemand fell, these newly-merged companies had an incentive to maintain output andreduce prices. However more often than not mergers were "quick mergers". These "quickmergers" involved mergers of companies with unrelated technology and differentmanagement. As a result, the efficiency gains associated with mergers were not present.The new and bigger company would actually face higher costs than competitors because ofthese technological and managerial differences. Thus, the mergers were not done to seelarge efficiency gains, they were in fact done because that was the trend at the time.Companies which had specific fine products, like fine writing paper, earned their profits onhigh margin rather than volume and took no part in Great Merger Movement.Short-run factorsOne of the major short run factors that sparked The Great Merger Movement was thedesire to keep prices high. However, high prices attracted the entry of new firms into theindustry who sought to take a piece of the total product. With many firms in a market,supply of the product remains high. 18
  • A major catalyst behind the Great Merger Movement was the Panic of 1893, which led to amajor decline in demand for many homogeneous goods. For producers of homogeneousgoods, when demand falls, these producers have more of an incentive to maintain outputand cut prices, in order to spread out the high fixed costs these producers faced (i.e.lowering cost per unit) and the desire to exploit efficiencies of maximum volume production.However, during the Panic of 1893, the fall in demand led to a steep fall in prices.Another economic model proposed by Naomi R. Lamoreaux for explaining the steep pricefalls is to view the involved firms acting as monopolies in their respective markets. As quasi-monopolists, firms set quantity where marginal cost equals marginal revenue and pricewhere this quantity intersects demand. When the Panic of 1893 hit, demand fell and alongwith demand, the firm‟s marginal revenue fell as well. Given high fixed costs, the new pricewas below average total cost, resulting in a loss. However, also being in a high fixed costsindustry, these costs can be spread out through greater production (i.e. Higher quantityproduced). To return to the quasi-monopoly model, in order for a firm to earn profit, firmswould steal part of another firm‟s market share by dropping their price slightly andproducing to the point where higher quantity and lower price exceeded their average totalcost. As other firms joined this practice, prices began falling everywhere and a price warensued.One strategy to keep prices high and to maintain profitability was for producers of the samegood to collude with each other and form associations, also known as cartels. These cartelswere thus able to raise prices right away, sometimes more than doubling prices. However,these prices set by cartels only provided a short-term solution because cartel memberswould cheat on each other by setting a lower price than the price set by the cartel. Also, thehigh price set by the cartel would encourage new firms to enter the industry and offercompetitive pricing, causing prices to fall once again. As a result, these cartels did not 19
  • succeed in maintaining high prices for a period of no more than a few years. The mostviable solution to this problem was for firms to merge, through horizontal integration, withother top firms in the market in order to control a large market share and thus successfullyset a higher price.Long-run factorsIn the long run, due to desire to keep costs low, it was advantageous for firms to merge andreduce their transportation costs thus producing and transporting from one location ratherthan various sites of different companies as in the past. Low transport costs, coupled witheconomies of scale also increased firm size by two- to fourfold during the second half of thenineteenth century. In addition, technological changes prior to the merger movement withincompanies increased the efficient size of plants with capital intensive assembly linesallowing for economies of scale. Thus improved technology and transportation wereforerunners to the Great Merger Movement. In part due to competitors as mentioned above,and in part due to the government, however, many of these initially successful mergerswere eventually dismantled. The U.S. government passed the Sherman Actin 1890, settingrules against price fixing and monopolies. Starting in the 1890s with such casesas Addyston Pipe and Steel Company v. United States, the courts attacked largecompanies for strategizing with others or within their own companies to maximize profits.Price fixing with competitors created a greater incentive for companies to unite and mergeunder one name so that they were not competitors anymore and technically not price fixing. 20
  • Merger wavesThe economic history has been divided into Merger Waves based on the merger activitiesin the business world as: Period Name Facet 1897–1904 First Wave Horizontal mergers 1916–1929 Second Wave Vertical mergers 1965–1969 Third Wave Diversified conglomerate mergers 1981–1989 Fourth Wave Congeneric mergers; Hostile takeovers; Corporate Raiding 1992–2000 Fifth Wave Cross-border mergers 2003–2008 Sixth Wave Shareholder Activism, Private Equity, LBOM&A objectives in more recent merger wavesDuring the third merger wave (1965–1989), corporate marriages involved more diversecompanies. Acquirers more frequently bought into different industries. Sometimes this wasdone to smooth out cyclical bumps, to diversify, the hope being that it would hedge aninvestment portfolio.Starting in the fourth merger wave (1992–1998) and continuing today, companies are morelikely to acquire in the same business, or close to it, firms that complement and strengthenan acquirer‟s capacity to serve customers.Buyers aren‟t necessarily hungry for the target companies‟ hard assets. Some are moreinterested in acquiring thoughts, methodologies, people and relationships. Paul 21
  • Graham recognized this in his 2005 essay "Hiring is Obsolete", in which he theorizes thatthe free market is better at identifying talent, and that traditional hiring practices do notfollow the principles of free market because they depend a lot upon credentials anduniversity degrees. Graham was probably the first to identify the trend in which largecompanies such as Google, Yahoo! or Microsoft were choosing to acquire startups insteadof hiring new recruits.Many companies are being bought for their patents, licenses, market share, name brand,research staffs, methods, customer base, or culture. Soft capital, like this, is veryperishable, fragile, and fluid. Integrating it usually takes more finesse and expertise thanintegrating machinery, real estate, inventory and other tangibles.Cross-border M&AIn a study conducted in 2000 by Lehman Brothers, it was found that, on average, largeM&A deals cause the domestic currency of the target corporation to appreciate by 1%relative to the acquirers local currency.The rise of globalization has exponentially increased the necessity for MAIC Trust accountsand securities clearing services for Like-Kind Exchanges for cross-border M&A. In 1997alone, there were over 2333 cross-border transactions, worth a total of approximately $298billion. Due to the complicated nature of cross-border M&A, the vast majority of cross-border actions have unsuccessful as companies seek to expand their global footprint andbecome more agile at creating high-performing businesses and cultures across nationalboundaries.Even mergers of companies with headquarters in the same country are can often beconsidered international in scale and require MAIC custodial services. For example, when 22
  • Boeing acquired McDonnell Douglas, the two American companies had to integrateoperations in dozens of countries around the world (1997). This is just as true for otherapparently "single country" mergers, such as the $29 billion dollar merger of Swiss drugmakers Sandoz and Ciba-Geigy (now Novartis).M&A failureDespite the goal of performance improvement, results from mergers and acquisitions (M&A)are often disappointing compared with results predicted or expected. Numerous empiricalstudies show high failure rates of M&A deals. Studies are mostly focused on individualdeterminants. A book by Thomas Straub (2007) "Reasons for frequent failure in Mergersand Acquisitions"[21] develops a comprehensive research framework that bridges differentperspectives and promotes an understanding of factors underlying M&A performance inbusiness research and scholarship. The study should help managers in the decisionmaking process. The first important step towards this objective is the development of acommon frame of reference that spans conflicting theoretical assumptions from differentperspectives. On this basis, a comprehensive framework is proposed with which tounderstand the origins of M&A performance better and address the problem offragmentation by integrating the most important competing perspectives in respect ofstudies on M&A Furthermore according to the existing literature relevant determinants offirm performance are derived from each dimension of the model. For the dimensionstrategic management, the six strategic variables: market similarity, marketcomplementarities, production operation similarity, production operation complementarities,market power, and purchasing power were identified having an important impact on M&Aperformance. For the dimension organizational behavior, the variables acquisitionexperience, relative size, and cultural differences were found to be important. Finally, 23
  • relevant determinants of M&A performance from the financial field were acquisitionpremium, bidding process, and due diligence. Three different ways in order to best measurepost M&A performance are recognized: Synergy realization, absolute performance andfinally relative performance.Employee turnover contributes to M&A failures. The turnover in target companies is doublethe turnover experienced in non-merged firms for the ten years following the merger. 24
  • Major M&A1990sTop 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999: Transaction value (in mil.Rank Year Purchaser Purchased USD) Vodafone Airtouch1 1999 Mannesmann 183,000 PLC2 1999 Pfizer Warner-Lambert 90,0003 1998 Exxon Mobil 77,2004 1998 Citicorp Travelers Group 73,0005 1999 SBC Communications Ameritech Corporation 63,000 AirTouch6 1999 Vodafone Group 60,000 Communications7 1998 Bell Atlantic GTE 53,3608 1998 BP Amoco 53,000 Qwest9 1999 US WEST 48,000 Communications10 1997 Worldcom MCI Communications 42,000 25
  • 2000sTop 10 M&A deals worldwide by value (in mil. USD) from 2000 to 2010: Transaction valueRank Year Purchaser Purchased (in mil. USD) Fusion: AOL Inc. (America 1 2000 Time Warner 164,747 Online) 2 2000 Glaxo Wellcome Plc. SmithKline Beecham Plc. 75,961 Royal Dutch Petroleum "Shell" Transport & Trading 3 2004 74,559 Company Co. 4 2006 AT&T Inc. BellSouth Corporation 72,671 5 2001 Comcast Corporation AT&T Broadband 72,041 6 2009 Pfizer Inc. Wyeth 68,000 Spin-off: Nortel Networks 7 2000 59,974 Corporation 8 2002 Pfizer Inc. Pharmacia Corporation 59,515 9 2004 JPMorgan Chase & Co. Bank One Corporation 58,761 Anheuser- 10 2008 InBev Inc. 52,000 Busch Companies, Inc. 26
  • Mergers & Acquisition in India :- Deals Year Number Amount (Rs crore) 1998-99 292 16,071 1999-00 765 36,963 2000-01 1,177 32,130 2001-02 1,045 34,322 2002-03 838 23,106 2003-04 834 35,980 2006-07 US$ 33.1 billion 2007-08 US$ 19.8 billionEconomic reforms and deregulation of Indian economy has brought in more domestic aswell as international players in Indian industries. This has caused increased competitivepressure leading to structural changes of Indian industries. M & A is a part of therestructuring strategy of Indian industries. The first M&A wave in India took place towardsthe end of 1990s. The data presented in a Table above reveal that substantial growth in theM&A activities in India occurred in 2000-01. The total number of M&A deals in 2000-01 wasestimated at 1,177 which is 54% higher than the total number of deals in the previous year.Tata Steel-Corus, $12.2 billion :- On 30 January 2007, Tata Steel purchased a 100 percentstake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at 27
  • $12.2 billion. The deal is the largest Indian takeover of a foreign company till date andmade Tata Steel the world‟s fifth largest group.Hindalco-Novelish, $6 billion:- Aluminium and copper major Hindalco Industries, the KumarMangalam Birla- led Aditya Birla Group flagship, acquired Canadian company Novelish Incin a $6-billion all-cash deal in February 2007.Ranbaxy-Daiichi Sankyo, $4.5 billion:- Marking the largest ever deal in the Indian pharmaindustry, Japanese drug firm Daiichi Sankyo in june 2008 acquired the majority stake ofmore than 50 per cent in domestic major Ranbaxy for over Rs 15,000 crore ($4.5 billion).ONGC- Imperial Energy, $ 2.8 billion:- The Oil and Natural Gas Corp took control ofImperial Energy Plc for $2.8 billion in January 2009, after an overwhelming 96.8 per cent ofLondon- listed firm‟s total shareholders accepted its takeover offer. 28
  • Mahindra Satyam &Tech Mahindra Mergers 29
  • Company Profile:- Tech MahindraTech Mahindra Limited is an Indian provider of information technology (IT), networkingtechnology solutions and business process outsourcing (BPO) services to the globaltelecommunications industry. Headquartered at Pune, India. It is a joint venture betweenthe Mahindra Group and BT Group plc, UK with M&M (Mahindra and Mahindra) holding44% and BT holding 39% of the equity.Tech Mahindra clocks revenues over USD 1 billion. Its activities spread across a broadspectrum, including Business Support Systems (BSS), Operations Support Systems (OSS),Network Design & Engineering, Next Generation Networks, Mobility Solutions, Securityconsulting and Testing. The "solutions portfolio" includes Consulting, ApplicationDevelopment & Management, Network Services, Solution Integration, Product Engineering,Infrastructure Managed Services, Remote Infrastructure Management and BSG (comprisesBPO, Services and Consulting). Tech Mahindra is ranked #6 in Indias software servicesfirms behind Tata Consultancy Services, Wipro, Infosys, HCL Technologies and SatyamComputer Services and overall #161 in Fortune India 500 list for 2011.Tech Mahindra hasimplemented more than 15 Greenfield Operations globally and has over 128 activecustomer engagements mostly in the Telecom sector. The company has been involved inabout 8 transformation programs of incumbent telecom operators. With an array of serviceofferings for TSPs, TEMs and ISVs, Tech Mahindra serves.Its executive management team consists of Vineet Nayyar (Vice Chairman, MD and CEO),Sujit Baksi (President – Corporate Affairs & Business Services Group), Sonjoy Anand(Chief Financial Officer), L. Ravichandran (President - IT Services), Amitava Roy (ChiefOperating Officer), Sujitha Karnad (Senior Vice President - HR & QMG for IT Services). 30
  • Milestones 1986 - Incorporation in India 1987 - Commencement of Business 1993 - Incorporation of MBT International Inc., the first overseas subsidiary 1994 - Awarded the ISO 9009 certification by BVQ 1995 - Established the UK branch office 2001 - Incorporated MBT GmbH, Germany incorporated. Re-certified to ISO 9001:1994 by BVQ 2002 - Assessed at Level 2 of SEI CMM by KPMG. Incorporated MBT Software Technologies Pte. Limited, Singapore 2005 - Merged MBT with Axes Technologies (India) Private Limited,including its US and Singapore subsidiaries.Assessed at Level 3 of SEI CMMI by KPMG 2006 - Name changed to Tech Mahindra Limited. Assessed at Level 4 of SEI People-CMM (P-CMM) by QAI India. Raised Rs46.5 million ($1 million) from a hugely successful IPO to build a new facility in Pune, to house about 9,000 staff. Formed a JV with Motorola Inc. under the name CanvasM. 2007 - Acquired iPolicy Networks Private Limited. Launched the Tech M Foundation to address the needs of the underprivileged in our society. 2009 - Tech M wins bid for fraud-hit Satyam Computer Services at Rs 58.90 per share outdoing Larsen & Toubro, the other player in the fray, which bid at Rs 45.90. Rebrands the company to Mahindra Satyam. 2010 - Tech Mahindra expands footprint in Latin America 31
  • Tech Mahindra OfficesTech Mahindra has offices in more than 30 countries. India:Kolkata, Pune, Noida, Chennai, Bangalore, Mumbai, Gurgaon, Chandigarh, Hyderabad UK:London, Milton Keynes U.S.A:Dallas Taiwan:Taipei Singapore Thailand:Bangkok Egypt:Cairo U.A.E: Dubai Australia :Sydney New Zealand:Auckland Northern Ireland:Belfast, Newcastle, County Down PhilippinesTech Mahindra has its BPO presence in Kolkata, Chennai, Chandigarh, Pune, and Noida. Italso has overseas office locations in Belfast and Newcastle.Tech Mahindra has operations in more than 30 countries with 17 sales offices and 13delivery centers. Assessed at SEI CMMi Level 5, Tech Mahindra employs over 42,000workers.The total headcount of the company at the end of December 31, 2011 stood at42,746 out of which software professional headcount stood at 25,218, BPO at 16,419 andsupport staff at 1,109. 32
  • Acquisition of Satyam Computer Services Ltd.After the Satyam scandal of 2008-09, Tech Mahindra bid for Satyam Computer Services,and emerged as a top bidder with an offer of Rs 59 a share for a 31 per cent stake in thecompany, beating a strong rival Larsen & Toubro. After evaluating the bids, thegovernment-appointed board of Satyam Computer announced on 13 April 2009: "its Boardof Directors has selected Venturbay Consultants Private Limited, a subsidiary controlled byTech Mahindra Limited as the highest bidder to acquire a controlling stake in the Company,subject to the approval of the Honble Company Law Board." Through a subsidiary, it hasemerged victorious in Satyam sell-off, a company probably two times its size in number ofpeople.Source of Fund for thisAcquisition :-Tech Mahindra had raised Rs550 crore from Tata Capital and IDFC to fund its takeover ofscam-hit Satyam Computer.Tech Mahindra raised these funds by issuing debentures which are convertible into sharesof Venturbay Consultants, through which it acquired Satyam Computer.Besides, Tech Mahindra had also borrowed Rs1,450 crore from various banks, mutualfunds, institutions and NBFCs at an interest rate of 10%, part of which had been used forfunding the acquisition of Satyam.Disclosing Tech Mahindra‟s source of funds for the deal, a regulatory filing by thebeleaguered IT firm said the funding was from “internal resources, optionally convertibledomestic debt, equity by Tech Mahindra in Venturbay and debt extended by Tech Mahindrato Venturbay.” 33
  • In the first phase of acquisition, Tech Mahindra had paid about Rs1,756 crore for 31%equity through preferential allotment of shares in Satyam which was also listed at NYSEbesides Indian bourses.The filing with the US market regulator SEC said that “Tech Mahindra has infused funds inVenturebay by using cash on hand” in connection with the initial 31% stake purchase andthe subsequent Rs1,129 crore open offer for further 20% equity.CompetitorsIts competitors are i) Tata Consultancy Services, ii) Cognizant Technology Solutions, iii) HCL Technologies, iv) Infosys, v) Wipro, vi) Accenture 34
  • Company Profile:- Mahindra SatyamMahindra Satyam formerly Satyam Computer Services, is an Indian IT services companybased in Hyderabad, India. It was founded in 1987 by B Ramalinga Raju. Mahindra Satyamis 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 varioussectors, and is listed on the Pink Sheets, the National Stock Exchange (India) and BombayStock Exchange (India). In June 2009, the company unveiled its new brand identity“Mahindra Satyam” subsequent to its takeover by the Mahindra Group‟s IT arm, TechMahindra on April 13,2009. It is ranked #5 in Indian IT companies and overall ranked #153by Fortune India 500 in 2011.Industry PresenceMahindra 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 35
  • Offices of Mahindra Satyam Across The GlobeMahindra Satyam headquartered in Hyderabad, India has development centres and/orregional offices in USA, Canada, Brazil, the United Kingdom, Hungary, Egypt, UAE, India,China, Malaysia, Singapore, and Australia.CompetenciesMahindra Satyam offers the following „horizontal‟ services. Extended Enterprise Solutions Web Commerce Solutions Business Intelligence Services Quality Consulting Strategic Outsourcing Services Industry Native Solutions Business Services Group - BSG (BPO) Engineering Services Product managementAccounting scandal of 2009In addition to other controversies involving Satyam, on January 7, 2009, Chairman Rajuresigned after publicly announcing his involvement in a massive accounting fraud.Ramalinga Raju is currently in a Hyderabad prison along with his brother and former boardmember Rama Raju, and the former C.F.O Vadlamani Srinivas. 36
  • Shareholding of The Mahindra Group Share holding 31/03/2012 31/12/2011 30/09/2011 pattern as on :Face value 5 5 5 No. Of % No. Of % No. Of % Holding Shares Holding Shares Holding Shares Promoters holdingIndian Promoters 154374167 25.14 154824006 25.22 153852126 25.06Foreign Promoters 731772 0.12 731772 0.12 731772 0.12Sub total 155105939 25.26 155555778 25.34 154583898 25.18 Non promoters holding Institutional investorsBanks Fin. Inst. andInsurance 108853061 17.73 104402738 17 104641408 17.04FIIs 162573443 26.48 161483160 26.3 162041227 26.39Sub total 289385891 47.13 285693065 46.53 288311392 46.96 Other investorsPrivate CorporateBodies 58548990 9.54 62570789 10.19 57471273 9.36NRIs/OCBs/ForeignOthers 23307820 3.8 23214321 3.78 23039253 3.75GDR/ADR 34293405 5.59 35339610 5.76 40001494 6.52Govt 450124 0.07 451324 0.07 449422 0.07Others 1202671 0.2 1142596 0.19 812678 0.13Sub total 117802038 19.19 122717668 19.99 121773148 19.83General public 51679999 8.42 50007356 8.14 49305429 8.03Grand total 613973867 100 613973867 100 613973867 100 37
  • Financial Highlights of Mahindra SatyamParticulars 2010-11 2009-10Income from Operations 47,761 51,005Other Income 2,899 129Total Income 50,660 51,134Operating Profit / (Loss) (PBIDT) 7,263 5,781Interest and Financing Charges 92 254Depreciation / Amortization 1,499 1,908Exceptional items 6,411 4,169(Loss) before Tax (739) (550)Provision for Tax 537 162(Loss) after Tax (1,276) (712)Equity share capital 2,353 2,352Reserves and Surplus 43,881 43,963Debit balance in Profit and Loss Account 24,622 23,346Earnings per share(Rs Per equity share of Rs 2 each)- Basic (Rs) (1.08) (0.65)- Diluted EPS (Rs) (1.08) (0.65) 38
  • The monthly high and low stock quotations during the financial year2010-11 and performance in comparison to broad based indices aregiven below.Month& Year Price-BSE SENSEX Price-NSE NIFTY High Low High Low High Low High LowApr-10 98.20 89.60 18,047.86 17,276.80 98.25 75.85 5,399.65 5,160.90May-10 96.35 79.75 17,536.86 15,960.15 96.40 72.95 5,278.70 4,786.45Jun-10 94.80 82.75 17,919.62 16,318.39 94.70 82.70 5,366.75 4,961.05Jul-10 93.65 86.00 18,237.56 17,395.58 93.60 86.00 5,477.50 5,225.60Aug-10 90.90 78.55 18,475.27 17,819.99 91.00 78.50 5,549.80 5,348.90Sep-10 113.80 79.00 20,267.98 18,027.12 113.85 78.90 6,073.50 5,403.05Oct-10 92.05 78.50 20,854.55 19,768.96 92.70 78.40 6,284.10 5,937.10Nov-10 90.65 59.75 21,108.64 18,954.82 90.70 59.55 6,338.50 5,690.35Dec-10 70.80 58.90 20,552.03 19,074.57 70.80 59.00 6,147.30 5,721.15Jan-11 73.90 60.00 20,664.80 18,038.48 73.90 59.90 6,181.05 5,416.65Feb-11 66.50 54.40 18,690.97 17,295.62 66.85 54.20 5,599.25 5,177.70Mar-11 69.85 61.60 19,575.16 17,792.17 70.50 61.60 5,872.00 5,348.20 39
  • 40
  • Balance sheet of Tech Mahindra Mar Mar 11 Mar 10 Mar 09 Mar 08 07Sources of fundsOwners fundEquity share capital 126 122.3 121.7 121.4 121.22Share applicationmoney - 0.2 - - 0.14Preference sharecapital - - - - -Reserves & surplus 3,258.00 2,744.20 1,759.20 1,107.00 756.76Loan fundsSecured loans 1,183.70 1,517.70 - - 10.01Unsecured loans 622.7 617.2 - 95 42.64Total 5,190.40 5,001.60 1,880.90 1,323.40 930.78Uses of fundsFixed assetsGross block 1,248.50 1,112.80 896.2 550.5 442.75Less : revaluationreserve - - - - -Less : accumulateddepreciation 648.5 518.8 406.1 259.6 195.72Net block 600 594 490.1 290.9 247.04Capital work-in-progress 110.3 320.8 154.1 138.5 54.65 41
  • Investments 3,114.90 3,113.90 453.5 298.6 283.21Net current assetsCurrent assets, loans &advances 2,244.70 1,807.80 1,654.10 1,488.00 984Less : current liabilities& provisions 879.5 834.9 870.9 892.6 638.12Total net currentassets 1,365.20 972.9 783.2 595.4 345.88Miscellaneousexpenses not written - - - - -Total 5,190.40 5,001.60 1,880.90 1,323.40 930.78Notes:Book value ofunquoted investments 3,114.90 3,113.90 453.5 298.6 283.21Market value ofquoted investments - - - - -Contingent liabilities 341.4 335.5 138.7 169.5 136.38Number of equitysharesoutstanding(Lacs) 1259.55 1223.2 1217.34 1213.63 1212.17 42
  • P-L Statement of Tech Mahindra :- Mar 11 Mar 10 Mar 09 Mar 08 Mar 07IncomeOperating income 4,965.50 4,483.80 4,357.80 3,604.70 2,753.22ExpensesMaterialconsumed - - - - -Manufacturingexpenses 1,435.90 1,176.00 966.1 729.5 574.69Personnelexpenses 1,943.80 1,598.70 1,419.70 1,222.40 840.41Selling expenses 4.9 9.8 10 20.3 24.96Adminstrativeexpenses 630.2 605.8 711.7 793.1 592.29Expensescapitalised - - - - -Cost of sales 4,014.80 3,390.30 3,107.50 2,765.30 2,032.34Operating profit 950.7 1,093.50 1,250.30 839.4 720.88Other recurringincome 27.6 35.6 18.8 10 14.93Adjusted PBDIT 978.3 1,129.10 1,269.10 849.4 735.81Financial expenses 122.7 171.8 2.5 28.3 28.09Depreciation 138.3 129.9 107.4 73.6 46.28Other write offs - - - - -Adjusted PBT 717.3 827.4 1,159.20 747.5 661.43Tax charges 109.3 131.4 103.9 68.9 61.51Adjusted PAT 608 696 1,055.30 678.6 599.92Non recurringitems 80.8 22.9 -80.5 -361.8 -534.69Other non cashadjustments 7.9 23.9 11.8 25.4 33.95Reported netprofit 696.7 742.8 986.6 342.2 99.18Earnigs beforeappropriation 2,470.60 2,092.50 1,506.80 768.3 553.15Equity dividend 51 42.8 48.8 66.8 26.62Preferencedividend - - - - -Dividend tax 8.3 7.3 8.3 11.3 3.73Retained earnings 2,411.30 2,042.40 1,449.70 690.2 522.8 43
  • 44
  • Executive Summary for the mergers of Tech Mahindra & Mahindra Satyam► The Board of Directors of Mahindra Satyam and Tech Mahindra have approved the merger of Mahindra Satyam with Tech Mahindra through a Share Swap► The swap ratio for the merger is 2 shares of Tech Mahindra (face value of Rs. 10 each), for every 17 shares of Mahindra Satyam (face value of Rs. 2 each)► Rationale for the merger: Creation of a single „go-to-market‟ strategy with benefits of scale and enhanced depth and breadth of capabilities, translating into increased business opportunities and reduced expenses Stronger merged entity – financially and in industry positioning Unified management focus and fungible talent pool De-risked business profile Optimized costs and productivity improvement with benefits of scale► Pro forma combined entity: LTM Revenue : US$ 2,432 MM LTM EBITDA : US$ 392 MM Total Headcount : 75,026 45
  • Motioves for the Merger :- The merger will result in the creation of a new offshore services leader with revenues of approximately US$2.4bn in revenues, approximately 75,000+ strong work force and 350+ active clients (including Fortune Global 500 companies), across 54 countries. The joint entity will have a unified „go-to-market‟ strategy with deep competencies and a balanced mix of revenues from Telecom, Manufacturing, Technology, Media & Entertainment, Banking Financial Services and Insurance, Retail and Healthcare. Revenues will be well balanced with a diversified global footprint that would boast of contribution from Americas at 42%, Europe at 35% and Emerging Markets at 23%, The combined entity will leverage Tech Mahindra‟ s expertise in Mobility, System Integration, and delivery of large transformations and to better penetrate the opportunity presented by Mahindra Satyam‟ s diverse set of clients across multiple verticals. Likewise Mahindra Satyam‟ s expertise in Enterprise Solutions will enable a more complete value proposition to be delivered to Tech Mahindra‟ s clients. The combination will benefit from operational synergies, economies of scale, sourcing benefits, and standardization of business processes. 46
  • Tech Mahindra’s Journey: FY 2006 to FY 2009 985 3.5x 280 FY 2006 FY 2009 EBITDA (1) (US$ MM) Client Contribution to Revenue 282 4.7x 32% Others 42% 60 Top 68% 58% Client FY 2006 FY 2009 FY 2006 FY 2009 Revenue (US$ MM) 1,200 935 985 CAGR : 52% 800 648 596 415 575 CAGR : 44% 400 280 410 CAGR : 66% 191 339 233 0 89 FY 2006 FY 2007 FY 2008 FY 2009 Revenue BT Non-BT► Leadership in the Telecom vertical with industry leading growth► Strong Non-BT franchise► Landmark engagements: Barcelona, Andes, US Tier-1 Telecom leader 47
  • April 2009: Mahindra Satyam Opportunity ► Rationale for the acquisition • Diversification into multiple verticals like BFSI, Manufacturing and Retail • Ability to offer a wide range of service offerings like Enterprise Services and Engineering Services to current and future customers • De-risked business model with balanced exposure across geographies • Utilize Mahindra Satyam‟s pool of highly experienced, well trained professional employees • Scale benefits due to substantially larger size of the business ► Stated strategy to merge the two companies. 48
  • Mahindra Satyam’s Journey April 2009 FY 2010 FY 2011 FY2012 Acquisition Stabilization Investment Growth ► Customer ► Customer & ► Core rebuilt ► Focus on attrition Associate with profitable growth confidence investments in and top quartile ► Key reinforced industry operating employee • Core metrics attrition ► New deals & delivery extensions platforms ► Special initiatives ► Mismatch and focus on emerging between • Embargo lifted capabilities technologies costs and revenue • New logos • Vertical ► Complete added expertise & integration ► Lawsuits and skills investigations • Existing client • Go-to-market extensions ► Core extended by and solution • Investments in integration ► Progress on regulatory and shared services Back office and legal legal issues integration ► Cash flow • Launch of stabilised alternative delivery models ► Right leadership put in place 49
  • 50
  • Tech Mahindra and Mahindra Satyam:Full Suite of Offerings Industry focused Solutions Service Lines & Industry VerticalsEnterprise Business SolutionsApplication Development andManagement ServicesInfrastructure ManagementServicesIntegrated Engineering Solutions Consulting & Enterprise SolutionsBusiness Process OutsourcingEnterprise Mobility, Cloud and Security Solutions 51
  • Tech Mahindra and Mahindra Satyam: Combined Strategy Leverage Growth Enhance Acquire Strategy InnovateLeverage :-Existing ClientsExisting OfferingsMerger SynergiesM Cube (M3)Lost CustomersAcquire :-InorganicNew LogosInnovate:-Customer InnovationDelivery ExcellencePlatformEnhance:-Joint OfferingsSolution SetsAlliance & Partnerships 52
  • Tech Mahindra and Mahindra Satyam: Foundations for Growth1. End-to-End Manufacturing Manufacturing heritage enhances value proposition (Art-to-Part) 100+ Manufacturing Accounts 25 F500 Relationships in Manufacturing Automotive, Aerospace, Chemicals & Consumer Electronics2. Strong Telecom Capabilities Specialist focus on Telecom; Market Leader Synergies evident in other verticals through enterprise mobility, CRM & billing solutions ~130 Active Customers Globally 15 major Greenfield rollouts and 8 Transformations Wireline, Wireless, Cable, Satellite3. Enterprise Services ExpertiseStrong credentials across SAP & Oracle CoE Focus Vertical Solution Templates IP Based Solutions Deep expertise in BI & Analytics IP Solution Platform: iDecisions Investments in Cloud offerings 53
  • 4. Vertical BPO that leverages Enterprise Expertise Telecom Retail Manufacturing Financial Services Healthcare & Life Sciences Public ServicesGoal: Driving Growth and ProfitabilityRevenue Growth Account mining Wider portfolio of service offerings to Telecom clients Focus on growth verticals Focus on emerging marketsOperating Metrics Benefiting from cost synergies Multi-lever approach for volume-led margin improvement Right-sizing the talent pyramid Leveraging scale for better utilization 54
  • Co-Innovation Continue dominance in mature practices Accelerate new service offerings GTM with alliances New offerings / markets along with customersTech Mahindra and Mahindra Satyam: Significant Cross-Pollination ofOfferings Telecom Manufacturing BFSI Cloud Services Technology and Media Enterprise Mobility Retail, T&L Security Solutions Healthcare & Life Science Managed Services BPO Enterprise Solutions Shared Services Shared Infrastructure 55
  • Pro Forma Combined Metrics 1400 1200 1000 800 Tech Mahindra 600 Mahindra Satyam 400 200 0 LTM Revenue LTM EBITDA 80,000 70,000 60,000 50,000 40,000 Mahindra Satyam 30,000 Tech Mahindra 20,000 10,000 0 HeadcountPro Forma Shareholding Structure :- ShareholdingParticulars Swap Ratio 2:17 %Promoters shareholding 49.5 Mahindra & Mahindra Ltd 26.3 British Telecommunication Plc 12.8 TML Benefit Trust 10.4Tech M Public Shareholding 16.1MSAT Public Shareholding 34.4Total 100% 56
  • Key details of the Mergers:-► Merger ratio of 2 shares of Tech Mahindra (face value of Rs. 10 each), for every 17shares of Mahindra Satyam (face value of Rs. 2 each) is approved by both the boards► 204 mn shares of Mahindra Satyam held by Venturbay to be transferred to a trust, to beheld as treasury stock.► Rest of the shareholding held in Mahindra Satyam to be cancelled► Tech Mahindra to issue 10.34 crore shares to Mahindra Satyam shareholders► Increase in equity base to Rs 230.8 crore 57
  • Process / Approvals► Board of directors► Stock exchanges (BSE, NSE)► Competition Commission of India► Shareholders and creditors of TechM and Transferor Companies ► Majority in number and 75% in value of the shareholders / creditors – present inthe respective meetings► Regulatory authorities ► Registrar of Companies (Maharashtra and AP) ► Regional Director (West and South) ► Official Liquidator (Maharashtra and AP)►Bombay High Court, Andhra Pradesh High Court and other regulatory authoritiesKey Advisors► Joint valuation advisors • Ernst & Young • KPMG► Independent fairness opinion bankers • Tech Mahindra: Morgan Stanley • Mahindra Satyam: J.P. Morgan► Advisors 58
  • • Enam • Barclays► Legal Advisors • AZB & PartnersGROWTH PROSPECTSThe merger will reduce Tech Mahindras exposure to the telecom sector to 47% by addingother verticals such as manufacturing, media, entertainment, and retail. In addition, theshare of BT, its biggest client will reduce to 17% of revenue from over 35%.The company will integrate its solutions with the various offerings of Satyam. For example,it plans to mine more than 20 of its own accounts by offering services provided by Satyamsuch as enterprise applications and shared corporate services.Employee rationalisation will be another benefit of the merger. The combined entity willhave over 75,000 employees with a focus on appointment of a significant number offreshers.Tech Mahindra is also seeing renewed traction in its core telecom service offerings inregions including Australia, New Zealand, and Asia. 59
  • StatsticsUltimate Outcome :-The combined entity will be 5th largest firm in IT SectorPost-merger, the combined entity will become the countrys fifth largest IT company, afterTCS, Infosys, Cognizant and Wipro. 60
  • Satyam investors gainNotably, by valuing the Satyam stock at about Rs 76, Tech Mahindra is paying 31 per centmore for the business today, than it did when it bought a controlling stake from thegovernment in April 2009.Investors in the Satyam stock who did not tender their shares to the open offer made byTech Mahindra way back in June 2009 today have reason to feel good about their decision.Though the stock is down from its highs of 2009, the merger price of Rs 76 is a good 31 percent above the open offer price of Rs 58 that the Mahindra group offered during the initialopen offer. Selling the Satyam stock and investing in the Sensex basket instead, wouldhave given investors a gain of only 14 per cent.Revenue Contribution & Shareholding Post MergersRevenue contribution Sharholding: post mergerTelecom: 47% Mahindra & Mahindra: 26.3%Manufacturing: 17% BT : 12.8%Technology, media & Trust: 10.4% (treasury share)entertainment: 10% Mahindra Satyam publicBFSI: 11% Shareholders: 34.4% Tech Mahindra publicRetail: 5% shareholders: 16.1%Others: 7% 61
  • ConclusionAs the much talked about and closely watched merger between Tech Mahindra andMahindra Saytam comes into effect from this fiscal 2012-13, the so-called “marriage madein heaven” is likely to change the dynamics of Indian IT sector. Satyam Mahindras strengthand expertise lies in IT services and enterprise solutions, while Tech Mahindra brings astrong experience and competency in the telecom sector. With both firms complimentingeach other, post merger this joint entity will have a significant mileage in the enterprisebusiness and telecom domain.Tech Mahindra and Mahindra Satyams merger - marriage made in heavenThe merger of the two companies brings in immense strategic advantage to both. Thecapabilities and competencies brought together are highly synergetic and will therebyenhance the value to the customer.A strong presence in enterprise business solutions along with the domain expertise intelecom offers a unique positioning to gain traction in the emerging opportunities of cloudcomputing and mobility.For instance, Satyam had started enterprise practice back in 1996, later on added BI andDataware Housing practice in 2000. However, following the scam in 2009, Satyamsbusiness saw some erosion in terms of customers and people but with Mahindra Grouptaking in-charge of the beleaguered firm, it managed to protect its created assets andarchitects.Enterprise solution business – a key for Mahindra Satyams revenue“We are a challenging player in the market and we continue to see growth in the enterprisespace. Our enterprise business contributes close to 44 per cent of the revenue which alsoinclude the revenues from extended enterprise offerings such as content management,shared corporate services,” says Sriram Papani, Mahindra Satyams senior vice president. 62
  • Tech Mahindra has around 120-130 customers, which are largely serviced by core telecomsolutions. However these customers also need enterprise solutions such as ERP, BI andothers that are either provided internally or by some other vendors. “We see a greatopportunity to explore this channel and start providing enterprise offerings also to theseexisting customers as we have deep relationships with Tech Mahindra. So thats a biggrowth opportunity for non-linear growth.” “In last 12-18 months, we have put in somespecific solutions and already are seeing somegreat success in terms of penetrating intoTech Mahindras customer base,” Papani explains. Mahindra Satyam has been servicingsome 40 odd Tech Mahindras customers since 2009, of which it won 20 during last 15months period. Most are global customers spread across geographies – Europe, UK,Middle East, Africa, Australia, North America and few are Indian.Going forward, what strategies will Mahindra Satyam adopt in the post mergerscenario?“Firstly, how can we explore or leverage Tech Mahindras channel strength and convert intorevenue stream. Our second strategy is to go back to our old existing customers to expandour valid share, expand our strength and mining those accounts,” Papani points out.Further, “Given the current economic conditions, it does not give you a great opportunity interms of mining; however, we are able to see, at least build traction and prepare theground. So eventually when IT spending starts going up, I think we will be ready in terms ofestablishing confidence in wining those accounts,” Papani adds.Mahindra Satyams map to re-growth with Tech Mahindra under the mergerMahindra Satyam has around 300 customers, who can be offered telecom solutions suchas enterprise mobility and cloud services. This is where Tech Mahindras strength andcompetency in telecom domain can be leveraged by Mahindra Satyams customers.However, stressing on the enterprise business solutions significance, Papani informs thatMahindras Satyam added 62 new logos during FY12, large proportion of them are on the 63
  • enterprise business. “Of the large number of new logos the company won, if we are ableconvert even 20 per cent of logos into accounts, it gives a huge opportunity for us,” Papanisays. For Mahindra Satyam manufacturing, technology infrastructure, media and BFSI arecore business verticals, while telecom remains key vertical for Tech Mahindra. But post themerger, telecom will become the top focussed sector followed by manufacturing, BFSI,retail and healthcare.Mahindra Satyam and Tech Mahindra to be a giant tech firmThe merger will create 75,000 plus workforce, over 350 active clients and approximaterevenues of $2.4 billion via new offshore services. The management expects a balancedrevenue with a diversified global footprint and contributions -- 42 per cent share fromAmericas, 35 per cent from Europe and 23 per cent from the Emerging markets. Accordingto Papani, company was successful in bringing back 20 old customers during the past fourquarters, who had moved out after the scam surfaced. Also employees confidence is verypositive and good now after the merger. 64
  • Bilbliogragphy:-www.techmahindra.comwww.mahindrasatyam.comwww.rediff.com/companieseconomictimes.indiatimes.commoney.sulekha.comwww.indiainfoline.comwww.wikipedia.comwww.google.com 65