Indian telecom industry

ASIAN JOURNAL OF MANAGEMENT RESEARCH
Online Open Access publishing platform for Management Research
© Copyright by the authors - Licensee IPA- Under Creative Commons license 3.0
Research Article ISSN 2229 – 3795
ASIAN JOURNAL OF MANAGEMENT RESEARCH 163
Volume 4 Issue 1, 2013
Impact of mergers on firm’s performance: An analysis of the Indian
telecom industry
Neha Verma1
, Rahul Sharma2
1- Research Scholar, Jaypee Business School, Noida, India
2- Assistant Professor, Jaypee Business School, Noida, India
vermaanehaa@gmail.com
ABSTRACT
Mergers and Acquisitions (MandA) are the leading corporate strategies followed by
organizations looking for improved value creation and profitability. This research paper aims
to study the impact of types of mergers on the performance of Indian Telecom industry, by
examining some pre and post-merger financial and operating variables. For the purpose of the
study, companies which have been merged during the period 2001-02 to 2007-08 have been
selected. The present study is an endeavor to find out the impact of type of mergers on the
post-merger performance compared with pre-merger performance. The scope of the study is
restricted to Indian Telecom sector.
Keywords: Financial variables, Mergers and Acquisitions (MandA), Pre and Post MandA
performance.
1. Introduction
Escalating competitiveness and rapid technological advancements are the basis of the
globalization process. It broadly favors the influence, existence and participation of foreign
owned firms in national economies. This triggers a lot of corporate restructuring activities of
domestic firms. In an effort of growth, companies have two alternatives; organic growth or
inorganic growth through MandA. The choice of MandA depends on the strategy and vision
of the company. Companies, at times, merge or acquire in order to try and improve long-
term competitive advantage in achieving strategic goals. Most of the MandA deals are
motivated, for the reasons to obtain financial and operating synergies, to increase market
power, to obtain access to distribution channel, for diversification, to gain entry into new
geographical region etc.
The shift in industrial policy in 1991 paved the way for first wave of MandA in India. Policy
reforms facilitating MandA begins with the removal of restrictive provisions of Monopolies
and Restrictive Trade Practices (MRTP) Act followed by reforms in Foreign Exchange
Regulation Act FERA) in 1993 and Foreign Exchange Management Act (FEMA) in 2000
(Vyas et al.,2012). The rapid growth of Indian economy has encouraged domestic enterprises
to commence more aggressive investment activities which have resulted in a remarkable
growth of MandA in the last decade. Domestic firms have taken steps to strengthen their
position to face increasing competitive pressures (Basant, 2000).
Despite of a substantial volume of research on corporate MandA’s, results are still uncertain
regarding the valuation effects of mergers and acquisitions on acquiring companies. This

Impact of mergers on firm’s performance: An analysis of the Indian telecom industry
Neha Verma, Rahul Sharma
164
paper investigates the impact of type of mergers on the post financial and operating
performance in Indian Telecom Industry.
1.1 Mergers and acquisitions in Indian telecom industry
The Indian Telecommunication Industry is the third largest in the world and the second
largest among the emerging economies of Asia. Today, it is the fastest growing market in the
world. The telecommunication sector continued to record considerable success and has
emerged as one of the key sectors responsible for India’s resurgent economic growth. The
number of MandA’s in Telecom Sector has been increasing significantly. Currently, a slew of
MandA in Telecom Sector are going throughout the world. The aim behind such MandA’s is
to attain competitive benefits in telecommunications industry. The MandA’s in telecom
industry are regarded as horizontal mergers as the entities going for MandA are operating in
the same industry. The MandA’s in the telecommunication industry help the
telecommunications service providers to cut down on their costs, achieve greater market
share and accomplish market control. Mergers and acquisitions in Telecom Sector also have
some negative effects, which include monopolization of the telecommunication
products and services, unemployment and others. However, the governments of
various countries take suitable steps to control these problems. The MandA’s in the
telecommunication sector in India are governed by the Telecom Regulatory Authority of
India (TRAI).1
India has become a source of telecom MandA’s in the last decade. MandA have also been
driven by the development of new telecommunication technologies. The first MandA deal in
India was the sale of Mumbai licence by Max group to Hutchison Whampoa group of Hong
Kong. The deal fetched over half a billion dollars for Max group and was touted as a major
success for Indian entrepreneur in telecom venture. This followed a series of MandA;
Vodafone’s acquisition of 10% equity in Bharti in 2006 for US$ 1 billion, Maxis acquisition
of Aircel at enterprise value of US$ 1 Billion and Birla Group’s acquisition of Tata’s stake in
Idea Cellular.2
This research paper aims to analyze the impact of type of mergers on the post merger
financial and operating performance of Indian Telecom Industry during the period 2001-02 to
2007-08. This paper consists of five parts including the introduction, the second part
undertakes literature review, third part enlists research objectives and explains research
design, fourth part discusses the results and analysis and the last part gives the conclusion.
2. Review of literature
There are unconvincing results on the literature on the consequences of MandA’s on
corporate performance. The review of literature is carried out to identify measures used to
examine the post MandA financial performance in order to conclude possible factors that
might affect post MandA performance.
1
This instance is taken from ‘Economy Watch’ 17th
July, 2010, http://www.economywatch.com/mergers-
acquisitions/international/telecom-sector.html
2
Sanjoy Banka, “Mergers & Acquisitions (M&A) in Indian Telecom Industry- A Study”, December 2006, the
Chartered Accountant

165
Pawaskar (2001) analyzed pre and post merger operating performance of 36 acquiring firms
during the year 1992-1995, using financial ratios of profitability, growth, leverage, liquidity
and tax provision. The study concluded that acquiring firms performed better in terms of
profitability in the industry. The study also concluded that the type of merger did not affect
the post-merger performance of the firms.
Yeh and Hoshino (2002) examined the effects of mergers on the firm’s operating
performance using a sample of 86 Japanese corporate mergers from 1970 to 1994. The results
reveal insignificant negative changes in productivity, significant decrease in profitability and
sales growth rate after mergers. Gugler et al. (2003) examined and analyzed the effects of
mergers to determine the effects of mergers on corporate performance across national,
international, and sector levels. The results of comparing mergers suggested that no
significant difference was found between the performance of cross-border mergers and
domestic ones.
Choi and Harmatuck (2006) investigated the improvements in the operating performance in
the long-run, define motives behind MandA’s and tested consistency between stock market
returns and operating performance. The results suggested that market returns are positive at
an insignificant level and operating performance also increased a little at an insignificant
level.
Table 1: Summary of the literature review
Author Objective Methodology Results
Pawaskar
(2001)
To analyze the pre-
and post-merger
operating
performance of 36
acquiring firms in
India.
Financial ratios of
profitability, growth,
leverage, liquidity and
tax provisions
Acquiring firms performed
better in terms of
profitability. The study also
inferred that type of mergers
did not affect the post-
merger performance.
Yeh and
Hoshino
(2002)
To investigate the
effect of mergers on
the firm’s operating
performance.
Total Productivity,
Return on Equity,
Return on Assets and
Growth in
Employment
Insignificant negative
change in productivity,
profitability and was
detected after the mergers.
Gugler et
al.
(2003)
To analyze the effects
of mergers around the
world over the past
15 years.
Sales and Profitability
Ratios
Profitability is positive in all
five years after the mergers
and is significant in every
year. Most mergers led to
higher actual profits than
projected and lower sales.
Choi and
Harmatuck
(2006)
To investigate the
improvements in the
operating
performance
and to find the
reasons behind
MandA.
Operating Cash Flow
The results stated slight
improvement in the post
operating performance but at
insignificant level.
Cabanda
and
Pajara
(2007)
To examine the
financial and
operating
performance of
shipping companies
Acid Test Ratio,
Assets Turnover,
Return on Assets and
Sales, Net Profit
Margin, Capital Exp.
The results suggested
statistically insignificant
gains in the ratios. Other
performance variables did
not show significant gains

166
after mergers. /Total Asset and
Capital Exp./Sales
after merger in the short run.
Lau et al.
(2008)
To examine the
operating
performance of
merged firms.
Profitability,
Leverage, Cash Flow,
Efficiency and
Growth.
The results provide some
evidence that mergers
improved the operating
performance.
Ismail et al.
(2010)
To examine post-
merger operating
performance of
companies involved
in MandA.
Profitability,
Liquidity, Solvency,
Efficiency and
Cash Flow Position
The results concluded that
MandA failed to improve
efficiency, liquidity,
solvency and cash flow
position.
Cabanda and Pajara (2007) examined the financial and operating performance of Philippines
shipping companies resulting from the merger event. The study concluded that post mergers
performance in the Philippine shipping industry did not improved in both the short-run and
the long- run. Lau et al. (2008) examined the operating performance of merged firms for a
sample of 72 Australian mergers between 1999 and 2004. The results provide a little
evidence that mergers improve the post merger operating performance. Ismail et al. (2010)
examined operating performance of a sample of Egyptian companies involved in MandA
transactions in the period from 1996 to 2003. Empirical results revealed that there was a
significant gain in profitability following MandA especially in the construction sector. Other
performance measures as efficiency, liquidity, solvency and cash flow position did not
showed significant improvements after mergers in both sectors.
2.1 Research objective
The objective of the present research paper is to analyze the impact of types of mergers on
post merger performance outcomes of the companies in the Indian Telecom Sector which
were merged during the period 2001-02 to 2007-08. The study aims to identify which type of
merger has been more successful in ameliorating the performance of merging firms, among:
(a) Horizontal Mergers (b) Vertical Mergers (c) Conglomerate Merger and which type of
merger is better in comparison of other for improving the post merger performance, in the
Indian Telecom Sector during the period.
The objectives of the study are:
1. To analyze the effect of types of mergers (horizontal, vertical and conglomerate) on the
post merger performance of firms.
2. To analyze the difference between the effects of Horizontal and Vertical mergers on post
merger performance
3. To analyze the difference between the effects of Vertical and Conglomerate mergers on
post merger performance
4. To analyze the difference between the effects of Horizontal and Conglomerate mergers on
post merger performance.
Accordingly, the research hypothesis have been formulated which is discussed in the
subsequent section.
3. Research methodology
3.1 Sample selection

167
A total of 39 merger deals have been selected from Indian Telecom Sector spreading a time
period from 2001-02 to 2007-08 for the purpose of this study. The list of companies involved
in mergers during the period was compiled from the database of CMIE- Business Beacon.
The merger cases where at least two years of data was not available for pre and post-merger
period were removed from the final sample for the study. The final sample of firms in the
study includes:
Table 2: Sample of Mergers (2001-02 to 2007-08)
Merger Type Total No. of Mergers
Horizontal Mergers 14
Vertical Mergers 19
Conglomerate Mergers 6
Total 39
Source: CMIE- Business Beacon
3.2 Data collection
To study the impact of types of mergers on financial and operating performance of the
companies in the Indian Telecom Sector, data for six years has been taken into consideration
which includes three years data from Pre-Merger period and three years data from post-
Merger period of the companies which were involved in the MandA. Data for all the 39 deals
of mergers has been collected for all the seven years for the following eight parameters in
total-
1) Financial Performance Variables:
1. Profit after Tax (PAT)
2. Current Ratio (CR)
3. Debt-Equity Ratio (D/E)
4. Return on Net Worth (RONW)
5. Return on Capital Employed (ROCE)
2) Operating Performance Variables:
1. Stock Turnover Ratio (STR)
2. Debtors Turnover Ratio (DTR)
3. Creditors Turnover Ratio (CTR)
4. Asset Turnover Ratio (ATR)
The data on financial performance ratios has been extracted from CMIE database PROWESS.
Researchers have selected year 2001-02 to 2007-08 to identify MandA deals in the Telecom
sector. Thus, three years pre and post financial ratios are considered for each case; For deals
in 2001-02 (pre deal years- 1998-99, 1999-00 and 2000-01 and post deal years- 2002-03,
2003-04 and 2004-05), for deals in 2002-03 (pre deal years- 1999-00, 2000-01 and 2001-02
and post deal years include- 2003-04, 2004-05 and 2005-06), for deals in 2003-04 (pre deal
years- 2000-01, 2001-02 and 2002-03 and post deal years include- 2004-05, 2005-06 and
2006-07), for deals in 2004-05 (pre deal years- 2001-02, 2002-03 and 2003-04 and post deal

168
years include- 2005-06, 2006-07 and 2007-08) and for deals in 2005-06 (pre deal years-
2002-03, 2003-04 and 2004-05 and post deal years include- 2006-07, 2007-08 and 2008-09),
for deals in 2006-07 (pre deal years- 2003-04, 2004-05 and 2005-06 and post deal years
include- 2007-08, 2008-09 and 2009-10) and for deals in 2007-08 (pre deal years- 2004-05,
2005-06 and 2006-07 and post deal years include 2008-09, 2009-10 and 2010-11) are
considered to analyze the financial and operating performance of the merging and acquiring
companies of Indian Telecom Sector.
3.3 Hypotheses development
To test the objectives mentioned above, the following alternate hypotheses are formulated:
1. H01: The types of mergers (Horizontal, Vertical and Conglomerate) have no significant
effect on the post merger performance of firms.
2. H02: There is no significant difference between the effect of Horizontal and Vertical
mergers on post merger performance
3. H03: There is no significant difference between the effect of Vertical and Conglomerate
mergers on post merger performance
4. H04: There is no significant difference between the effect of Horizontal and
Conglomerate mergers on post merger performance
3.4 Method of analysis
The pre-merger (i.e. three years before the merger) and post-merger (i.e. three years after the
merger) averages of above financial and operating ratios have been compared and tested for
differences, using paired sample “t” test for the two samples (pre and post mergers). The
observations of each pair of firms in the sample are not independent, since the merging firm
retains its identity before and after merger. Hence “paired two-sample t-test for means” was
considered appropriate for measuring the merger stimulated financial and operating
performance changes in the post-merger period. The year of completion of merger, denoted
as year 0, was excluded from the evaluation. The sample of firms engaged in mergers was
divided into three groups, based on type of mergers i.e., horizontal, vertical and conglomerate
mergers and consequently pre and post merger performance was compared. Thereafter, the
different combinations of merger types were compared to test for relative effects in post and
pre-merger performance. To compare the relative impact of different types of mergers, the
mean differences in pre and post-merger ratios for the sample firms have been compared for
three different sets:
1. Horizontal Mergers vs. Vertical Mergers
2. Vertical Mergers vs. Conglomerate Mergers
3. Horizontal Mergers vs. Conglomerate Mergers using paired two-sample “t” test for
means to test for any statistical differences in the post-merger performance.
4. Results and analysis
By using financial and operating ratios, following results have been analyzed to measure the
performance of various types of mergers and their effects in the post merger performance of
the firms.

169
4.1Analysis of the different types of mergers
4.1.1 Horizontal mergers
The Comparative mean pre and post merger performance and results from tests for statistical
significance for horizontal mergers have been summarized in Table 3 (a) of Annexure.
The results indicated that there was an increase in the mean profit after tax from Rs. 4680.32
Millions to Rs. 10082.64 Millions, but the gain was not statistically significant (t-value of -
1.916) and a decline in the mean current ratio from 2.43 times to 1.08 times during the post-
merger period which was also not statistically significant. There was an increment in the
mean debt equity ratio during post-merger period and the increment was not statistically
significant (t-value of -2.196). There was a statistically insignificant decrease in the mean
return on net worth and insignificant increase in mean return on capital employed with t-
values of 0.084 and -2.073 respectively. There was also a statistically insignificant increase in
the mean stock turnover ratio after the merger i.e. from 8429.59 to 18844.49 times. There was
a statistically insignificant decrease in the mean debtor’s turnover ratio and mean asset
turnover ratio with t-values of 0.555 and 0.320 respectively. Whereas, there was a statistically
insignificant decrease in the mean creditor’s turnover ratio from 6.36 to 8.61 times confirmed
by the low t-value of -1.187.
The results indicated that in the case of horizontal mergers in Indian Telecom industry, there
was insignificant increase/decrease in the financial and operating performance in the post
merger scenario.
4.1.2 Vertical mergers
The comparative mean pre and post merger performance and results from tests for statistical
significance for vertical mergers have been summarized in Table 3 (b) of Annexure.
The results from the analysis suggests that there was an increase in the mean profit after tax
from Rs. 5593.44 Millions to Rs. 9377.12 Millions, but the gain was not statistically
significant (confirmed by the low t-value of -1.087) and a decline in the mean current ratio
from 2.61 times to 1.23 times during the post-merger period which was also not statistically
significant (t-value of 3.245) for the vertical mergers. There was also a decrease in the mean
debt equity ratio during post-merger period and the decrease was not statistically significant
either. There was a statistically insignificant increase in the mean return on net worth from
34.44 to 79.99 % and insignificant decrease in mean return on capital employed from 18.24
to 16.32 % with t-values of -1.031 and 0.335 respectively. There was also a statistically
insignificant decrease in the mean stock turnover ratio after the merger. There was a
statistically insignificant marginal increase in the mean debtor’s turnover ratio from 14.65 to
14.90 times. Whereas, the mean creditor turnover ratio showed a significant decrease in post
merger period with t-value of 12.133 and mean asset turnover ratio showed a statistically
insignificant decline in the post merger performance with a low t-value of 1.480. From the
above results, it is seen that in case of vertical mergers in Indian Telecom sector, there was
insignificant decline or improvements in the financial and operating performance in the post
merger period.
4.1.3 Conglomerate mergers

170
The comparative mean pre and post merger performance and results from tests for statistical
significance for conglomerate mergers have been summarized in Table 3 (c) of Annexure.
The comparison of the mean pre and post merger performance ratios depicts that there was an
increase in the mean profit after tax which was however statistically insignificant with a t-
value of -1.067. The mean current ratio and mean debt equity ratio had declined
insignificantly from 1.608 and 2.717 during the post-merger period. Mean return on net worth
and mean return on capital employed had both increased in the post-merger period, but the
increments are not statistically significant with t-values of -1.071 and -1.284 respectively.
There was a rise in the mean stock turnover ratio from 33771.89 to 31709.44 times during
post merger period, but the rise was not statistically significant. There was an insignificant
increment in mean debtor turnover ratio with t-value of -2.650 and there was an insignificant
decrease in the creditor turnover ratio from 8.58 to 3.82 times. However, asset turnover ratio
depicted an insignificant marginal rise from 0.88 to 1.04 times in the post merger period with
a t-value of -0.444.
From above results and analysis, it appears that for merging firms involved in conglomerate
mergers in Indian Telecom industry, showed an insignificant improvements/decline in the
post merger performance. Comparison of pre and post merger financial and operating ratios
for all the three types of mergers individually, demonstrated that vertical mergers had caused
the highest decline in the post merger performance of the merging companies, followed by
horizontal and conglomerate mergers. However, on comparing all the three mergers this
decline in vertical mergers was not very significant in comparison of the other two. Based on
the results, the alternate hypothesis (H1) is rejected. This means the null hypothesis is
accepted, that the types of mergers (horizontal, vertical and conglomerate) have no significant
positive effect on the post merger performance of firms. Since, an insignificant
increase/decrease was found after the statistical analysis of the pre and post financial and
operating ratios in the post merger performance of the firms in the Indian Telecom Sector
during the period 2001-02 to 2007-08.
4.2 Comparison of types of mergers
The differences in mean pre and post merger financial and operating performance ratios for
each combination of merger types were estimated and statistically tested for differences using
paired sample t-test for means.
4.2.1 Horizontal vs. vertical mergers
horizontal and vertical mergers and the results from t-tests for statistical significance is
summarized in Table 4 of Annexure.
The comparison of the differences in mean pre and post merger financial and operating ratios
showed that the there was a higher increase in the mean profit after tax in the case of
horizontal mergers (5402.31%) as compared to vertical mergers (3783.68%) which is
statistically insignificant with t-value of 0.356 . The decline in current ratio was
insignificantly higher in case of vertical merger than horizontal mergers with t-value of 0.053.
The debt equity ratio decreased insignificantly in the case of vertical mergers (-1.43 times)
with t-value of 1.685 and return on net worth where insignificantly decreased in horizontal
mergers (-3.43%), henceforth insignificantly increased in the case of vertical mergers
(45.55%) with a very low t-value of -0.591. The return on capital employed increased in

171
horizontal mergers and declined in vertical mergers in the post merger period which was also
insignificant. The operating ratios on a whole also declined in the vertical mergers. The stock
turnover ratio significantly increased in horizontal merger (10414.90 times) but declined
significantly in vertical mergers (-4753.91 times). There was also a significant increase in
creditor’s turnover ratio in horizontal mergers and significant decrease in vertical mergers.
Other turnover ratios insignificantly affected the post merger performance of the firms. The
results in this pair of comparison showed mixed evidence in the case of financial ratios where
no significant changes were found, showed a significant differences in the degree of change
of operating ratios between the two types of mergers. Horizontal mergers seemed to have
done better in improving profitability and operating ratios. However, the differences between
the two mergers were statistically insignificant.
Therefore, based on the above results the hypothesis (H2) is rejected. This means that the null
hypothesis is accepted i.e. there is no significant difference between the effect of horizontal
and vertical mergers on post merger performance of firms.
4.2.2 Vertical vs. conglomerate mergers
vertical and conglomerate mergers and the results from t-tests for statistical significance is
summarized in Table 5 of Annexure. The comparison of the differences in mean pre and post
merger financial and operating ratios showed that the there was a higher increase in the mean
profit after tax in the case of conglomerate mergers as compared to vertical mergers which is
statistically insignificant with t-value of -0.905 . The decline in current ratio was
insignificantly higher in case of vertical merger (-1.38 times) than conglomerate mergers (-
0.38 times) with t-value of -4.477. The debt equity ratio decreased insignificantly and return
on net worth insignificantly increased more in conglomerate mergers, henceforth
insignificantly increased in the case of vertical mergers. The return on capital employed
increased in conglomerate mergers (15.43%) and declined in vertical mergers (-1.92%) in the
post merger period which was also insignificant. The stock turnover ratio insignificantly
declined more in the case of vertical mergers (-4753.91 times) as compared to conglomerate
mergers, where it declined by (-2062.45 times) with t-value of -0.079 in the post merger
period. There was also an insignificant increase in debtor turnover ratio in conglomerate
mergers as compared to vertical mergers with a t-value of -2.411. There was also a higher
insignificant decrease in creditors turnover ratio in conglomerate mergers (-8.14 times) and
insignificant decrease in vertical mergers (-8.14 times) with confirmed by high t-value of -
1.247. The asset turnover ratio insignificantly increased in conglomerate mergers and
insignificantly decreased in vertical mergers. However, the differences between the two
mergers were statistically insignificant. Conglomerate mergers showed more improvements
in the post merger period than vertical mergers; however none demonstrated statistically
significant changes. Therefore, based on the above results the hypothesis (H3) is rejected.
This means that the null hypothesis is accepted i.e. there is no significant difference between
the effect of vertical and conglomerate mergers on post merger performance of firms.
4.2.3 Horizontal vs. conglomerate mergers
vertical and conglomerate mergers and the results from t-tests for statistical significance is
summarized in Table 6 of Annexure.

172
The comparison of the differences in mean pre and post merger financial and operating ratios
showed that the there was a higher increase in the mean profit after tax in the case of
horizontal mergers as compared to conglomerate mergers which is statistically insignificant
with t-value of 0.161 . The decline in current ratio was insignificantly higher in case of
horizontal mergers (-1.35 times) than those of conglomerate mergers (-0.38 times) with t-
value of -1.728. The debt equity ratio increased insignificantly in the case of horizontal
mergers and decreased insignificantly in conglomerate mergers. The mean return on net
worth where insignificantly decreased in horizontal mergers (-3.43%), henceforth
insignificantly increased in the case of conglomerate mergers (464.69%) with a very low t-
value of -1.191. The return on capital employed increased in horizontal mergers and
conglomerate mergers in the post merger period which was also insignificant. The stock
turnover ratio insignificantly increased in horizontal merger and decreased in conglomerate
mergers with t-value of 0.342. There was also a insignificant increase in creditors turnover
ratio in conglomerate mergers (11.38 times) and insignificant decrease in horizontal mergers
(-2.28 times) which confirmed by low t-value of-2.798. Mean asset turnover ratio increased
insignificantly in conglomerate mergers and decreased insignificantly in horizontal mergers
with t-value of 0.443.
In summary, there are no significant differences in the degree of change of financial and
operating ratios between the two types of mergers. Therefore, based on the above results, the
hypothesis (H4) is rejected. This means that the null hypothesis is accepted i.e. there is no
significant difference between the effect of horizontal and vertical mergers on post merger
performance of firms.
5. Conclusion
The study analyzes the pre and post merger financial and operating performance for the entire
sample set of mergers during the period 2001-02 to 2007-08, shows that there was no
significant difference in the performance of firms in the post-merger period in the Indian
Telecom Sector. The comparison of pre and post merger financial and operating performance,
for the different types of mergers suggested that no statistical improvement or decline was
seen in the post merger period for all the firms taken in the sample which suggests that the
type of mergers have no effect on the post merger performance. These results are consistent
with the results on post merger performance in other studies specified in the literature, which
suggested that the financial and operating performance either remains constant or deteriorate
after mergers for merging firms. The variations between different combinations of mergers
(i.e. horizontal, vertical and conglomerate), was statistically insignificant, leading to the
conclusion that merger outcomes were similar for all merger types i.e. they did not affect the
post merger performance of the firms during the period of study.
5.1Annexure
5.1.1 Results for the analysis of different types of mergers:
H01: The types of mergers have no significant effect on the post merger performance of firms.
H11: The types of mergers (horizontal, vertical and conglomerate) have significant effect on
the post merger performance of firms.

173
Table 3 (a): Horizontal Mergers
Horizontal Mergers
Pre-MandA
(3 yrs Before)
Post-MandA
(3 yrs After)
t-value
(0.05 significance)
Profit after Tax (Rs. Millions) 4680.32 10082.64 -1.916
Current Ratio 2.43 1.08 3.101
Debt Equity Ratio 3.05 12.91 -2.196
Return on Net Worth -36.60 -40.03 0.084
Return on Capital Employed -22.86 -4.35 -2.073
Stock Turnover Ratio 8429.59 18844.49 -1.718
Debtor Turnover Ratio 13.08 10.79 0.555
Creditor Turnover Ratio 6.36 8.61 -1.187
Asset Turnover Ratio 0.94 0.89 0.320
Table 3 (b): Vertical Mergers
Vertical Mergers
Pre-MandA
(3 yrs Before)
Post-MandA
(3 yrs After)
t-value
(0.05 significance)
Profit after Tax (Rs. Millions) 5593.44 9377.12 -1.087
Debt Equity Ratio 9.22 7.785 0.311
Return on Net Worth 34.44 79.987 -1.031
Return on Capital Employed 18.24 16.32 0.335
Stock Turnover Ratio 13670.52 8916.61 0.578
Debtor Turnover Ratio 14.65 14.90 -0.047
Creditor Turnover Ratio 15.62 7.48 12.133
Asset Turnover Ratio 1.52 0.98 1.480
.
Table 3 (c): Conglomerate Mergers
Conglomerate Mergers
Pre-MandA
(3 yrs Before)
Post-MandA
(3 yrs After)
t-value
(0.05 significance)
Profit after Tax (Rs. Millions) -572.15 4024.55 -1.067
Debt Equity Ratio 27.40 4.13 2.717
Return on Net Worth -407.36 57.33 -1.071
Return on Capital Employed -4.45 10.98 -1.284
Stock Turnover Ratio 33771.89 31709.44 0.049
Creditor Turnover Ratio 8.58 3.82 1.416
Asset Turnover Ratio 0.88 1.04 -0.444
8.2 Results for the analysis of Comparison of different types of mergers:
Table 4: Horizontal Mergers vs. Vertical Mergers
Horizontal Mergers Vs.
Vertical Mergers
Horizontal
Mergers
Vertical Mergers
t-value
(0.05
significance)
Profit after Tax 5402.31 3783.68 0.356
Current Ratio -1.35 -1.38 0.053
Debt Equity Ratio 9.87 -1.43 1.685
Return on Capital Employed 18.51 -1.92 1.413

174
Stock Turnover Ratio 10414.90 -4753.91 5.809
Debtor Turnover Ratio -2.28 0.25 -1.560
Creditor Turnover Ratio 2.26 -8.14 4.390
Asset Turnover Ratio -0.05 -0.54 2.700
H02: No significant difference between the effects of Horizontal and Vertical mergers on post
merger performance.
H12: There is a significant difference in the effects of Horizontal and Vertical mergers on
Table 5: Vertical Mergers vs. Conglomerate Mergers
Vertical Mergers Vs.
Vertical Mergers
Conglomerate
Mergers
t-value
(0.05
significance)
Profit after Tax 3783.68 4596.70 -0.905
Current Ratio -1.38 -0.38 -4.477
Debt Equity Ratio -1.43 -23.26 4.364
Return on Net Worth 45.55 464.69 -0.885
Return on Capital Employed -1.92 15.43 -1.397
Stock Turnover Ratio -4753.91 -2062.45 -0.079
Creditor Turnover Ratio -8.14 -4.75 -1.247
Asset Turnover Ratio -0.54 0.17 -19.692
H03: No significant difference between the effects of Vertical and Conglomerate Mergers on
H13: There is a significant difference in the effects of Vertical and Conglomerate mergers on
Table 6: Horizontal Mergers vs. Conglomerate Mergers
Horizontal Mergers Vs.
Horizontal
Mergers
Conglomerate
Mergers
t-value
(0.05 significance)
Profit after Tax 5402.31 4596.70 0.161
Current Ratio -1.35 -0.38 -1.728
Debt Equity Ratio 9.87 -23.26 4.156
Return on Capital Employed 18.51 15.43 0.169
Stock Turnover Ratio 10414.90 -2062.45 0.342
Debtor Turnover Ratio -2.28 11.38 -2.798
Creditor Turnover Ratio 2.26 -4.75 1.397
Asset Turnover Ratio -0.05 0.17 -0.950
H04: No significant difference between the effects of Horizontal and Conglomerate Mergers
on post merger performance.
H14: There is a significant difference in the effects of Horizontal and Conglomerate mergers
on post merger performance.

175
6. References
1. Basant Rakesh., (2000), Corporate response to economic reforms, Economic and political
weekly, 35(10), pp 813-822.
2. Cabanda, E. and M. Pajara-Pascual., (2007), Merger in the Philippines: Evidence in the
corporate performance of William, Gothong, and Aboitiz (WGandA) Shipping
companies, Journal of business case studies, 3(4), pp 87-100.
3. Choi, J. and D. Harmatuck., (2006), Post- Operating performance of construction mergers
and acquisitions of the United States of America, Canadian journal of civil engineering,
33(3), pp 266-278.
4. ‘Economy Watch’ 17th
July, 2010 viewed on 10th
January, 2013, available at
http://www.economywatch.com/mergers-acquisitions/international/telecom-sector.html,
accessed on August 2013.
5. Gugler, K., D. Mueller, B. Yurtoglu and C. Zulehner., (2003), The effects of merger: An
International comparison, International journal of industrial organization, 21, pp 625-653.
6. Ismail, T. H., A. A. Abdou and R. M. Annis., (2010), Exploring improvements of post-
merger corporate performance- the case of Egypt, ICFAI University journal of business
strategy (forthcoming).
7. Lau, B., A. Proimos and S. Wright., (2008), Accounting measures of operating
performance outcomes for australian mergers, Journal of applied accounting, 9(3), pp
168-180.
8. Majumdar, Sumit K., Moussawi, Rabih and Yaylacicegi, Ulku., (2007), Quest for
efficiency: Assessing the impact of mergers on performance in the US
telecommunications industry, Working paper, Available at SSRN:
http://ssrn.com/abstract=1008601
9. Pawaskar, V., (2001), Effect of mergers on corporate performance in India, Vikalpa,
26(1), pp 19-32.
10. Vidhisha Vyas, Krishnan Narayanan and A. Ramanathan., (2012), Determinants of
mergers and acquisitions in indian pharmaceutical industry, Eurasian journal of business
and economics, 5 (9), pp 79-102.
11. Yeh, T. and. Y. Hoshino., (2002), Productivity and operating performance of Japanese
merging firms: Keiretsu-related and independent mergers, Japan and the World Economy
14, pp 347-366.

Indian telecom industry

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Indian telecom industry

Similar to Indian telecom industry (20)

Recently uploaded

Recently uploaded (20)

Indian telecom industry