MERGERS AND ACQUISITIONS

A PROJECT REPORT
Submitted by
AISHWARYA SHANKER
ROLL No:2138
UNDER THE SUPERVISION OF
DR. MANISHA VERMA
in partial fulfillment for the award of the degree
of
B.COM (HONS)
2014-2015

DELHI UNIVERSITY
HANS RAJ COLLEGE
DELHI-110007

DECLARATION
I hereby declare that my project report on Mergers and Acquisitions is an
authentic work carried out by me under the guidance of Dr. Manisha Verma
under the partial fulfillment of the degree of B. Com (Honours) and has not been
submitted anywhere else for the award of any other degree or diploma. I have
mentioned the source of information wherever required.

Aishwarya Shanker

Dr. Krishan Sachdeva

Dr. ManishaVerma

Teacher-In-Charge

Project Mentor

ACKNOWLEDGEMENT

A sincere and dedicated effort has been put into the making of the project. I have
yearned to make the project in a concise manner and arrange the topic in a straight
forward and logical manner.
It is my pleasure to acknowledge Dr. MANISHA VERMA (Project Mentor) who
has been ever willing to provide me help, guidance and support.
I am deeply indebted to my parents and friends, for constantly inspiring me and
keeping my morale high. I would also like to thank the people who provided me
the required guidance and support.
I sincerely hope that the project lives up to expectations and does justice to its
contents.

Aishwarya Shanker

Index
S.NO.

Topic

Details

1.

Chapter 1 Introduction

2.

Chapter 2

1.1 Introduction
1.2 Objectives of the
study
1.3 Research
methodology
1.4 Plan of Study
1.5 Limitations
2.1 Main Concept

Conceptual Framework

2.2Types of Mergers

Page no.
1-3

4-15

2.3Demerger
2.4Difference between
M&As
2.5Benefiits of M&As
2.6Financial Accounting
for M&As
2.7Valuation of M&As
3.

Chapter 3

Literature Review

16-17

Various Acts governing

M&As in India

18-24

Flipkart Acquired
Myntra
Ola cabs acquired
Taxi for Sure
TCS amalgamated
with CMC
Conclusions

25-31

Literature Review
4.

Chapter 4
Regulatory Framework
of M&As

5.

Chapter 5
Case Studies

6.

Chapter 6
Conclusions

32-34

1|Page

CHAPTER 1: INTRODUCTION
1.1 Introduction
Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate
finance world. Every day, Wall Street investment bankers arrange M&A transactions, which
bring separate companies together to form larger ones. When they're not creating big companies
from smaller ones, corporate finance deals do the reverse and break up companies
through spinoffs, carve-outs or tracking stocks.
Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or
even billions, of dollars. They can dictate the fortunes of the companies involved for years to
come. For a CEO, leading an M&A can represent the highlight of a whole career. And it is no
wonder we hear about so many of these transactions; they happen all the time. Next time you flip
open the newspaper's business section, odds are good that at least one headline will announce
some kind of M&A transaction.
Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this
question, this tutorial discusses the forces that drive companies to buy or merge with others, or to
split-off or sell parts of their own businesses. Once you know the different ways in which these
deals are executed, you'll have a better idea of whether you should cheer or weep when a
company you own buys another company - or is bought by one. You will also be aware of the tax
consequences for companies and for investors.

The main Idea

One plus one makes three: this equation is the special alchemy of a merger or and acquisition.
The key principle behind buying a company is to create shareholder value over and above that of
the sum of the two companies. Two companies together are more valuable than two separate
companies - at least, that's the reasoning behind M&A.
This rationale is particularly alluring to companies when times are tough. Strong companies will
act to buy other companies to create a more competitive, cost-efficient company. The companies
will come together hoping to gain a greater market share or to achieve greater efficiency.
Because of these potential benefits, target companies will often agree to be purchased when they
know they cannot survive alone.
India in the recent years has showed tremendous growth in the M&A deal. It has been actively
playing in all industrial sectors. It is widely spreading far across the stretches of all industrial
verticals and on all business platforms. The increasing volume is witnessed in various sectors
like that of finance, pharmaceuticals, telecom, FMCG, industrial development, automotive and
metals.

2|Page

The volume of M&A transactions in India has apparently increased to about 67.2 billion USD in
2010 from 21.3 billion USD in 2009. At present the industry is witnessing a whopping 270%
increase in M&A deal in the first quarter of the financial year. This increasing percentage is
mainly attributed to the increasing cross-border M&A transactions. Over that increasing interest
of foreign companies in Indian companies has given a tremendous push to such transactions.
Large Indian companies are going through a phase of growth as all are exploring growth
potential in foreign markets and on the other end even international companies is targeting Indian
companies for growth and expansion. Some of the major factors resulting in this sudden growth
of merger and acquisition deal in India are favorable government policies, excess of capital flow,
economic stability, corporate investments, and dynamic attitude of Indian companies.
The recent merger and acquisition 2011 made by Indian companies worldwide are those of Tata
Steel acquiring Corus Group plc, UK based company with a deal of US $12,000 million and
Hindalco acquiring Novelis from Canada for US $6,000 million.
With these major mergers and many more on the annual chart, M&A services India is taking a
revolutionary form. Creating a niche on all platforms of corporate businesses, merger and
acquisition in India is constantly rising with edge over competition.

1.2 Objectives of the Study

To understand the framework of mergers and acquisitions.
To study the philosophy behind Mergers and acquisitions with the help of various case
studies.
To arrive at meaningful conclusions about Mergers and Acquisitions.
Besides, this paper aims to look at the Mergers & Acquisitions (M&A) as the strategic
concepts for the nuptials of Corporate Sector
1.3 Research Methodology
This research paper is descriptive in nature and is based on the secondary data attained from the
various secondary resources such as old research papers various e-journals, books, websites,
whitepapers, newspapers and some of the governmental data etc. The information describes the
Indian companys mergers and acquisitions, their valuation and their regulatory framework.
1.4 Plan of study
The plan of study is as follows:1. Chapter 1, Introduction includes :
1.1 Introduction
1.2 Objectives

3|Page

2.

3.
4.
5.
6.

1.3 Research Methodology

1.4 Limitations
Chapter 2, Conceptual Framework includes :
2.1 Main concept
2.2 Types of merger
2.3 Demerger
2.4 Difference between mergers and acquisitions
2.5 Benefits of M&As
2.6 Financial Accounting for M&As
2.7 Valuation for M&As
Chapter 3, Literature review
Chapter 4, regulatory Framework of M&As
Chapter 5, Case Studies
Chapter 6, Conclusions

1.5 Limitations

The project only covers the mergers and acquisitions relating to India hence narrow
in scope
Could not find more recent case studies relevant to the project.
Major data have been collected from secondary sources; there is a possibility for the
manipulation of data

4|Page

CHAPTER 2: Conceptual Framework of

M&As
2.1 MAIN CONCEPT

An entrepreneur may grow its business either by internal expansion or by external expansion. In
the case of internal expansion, a firm grows gradually over time in the normal course of the
business, through acquisition of new assets, replacement of the technologically obsolete
equipment and the establishment of new lines of products. But in external expansion, a firm
acquires a running business and grows overnight through corporate combinations. These
combinations are in the form of mergers, acquisitions, amalgamations and takeovers and have
now become important features of corporate restructuring. They have been playing an important
role in the external growth of a number of leading companies the world over. They have become
popular because of the enhanced competition, breaking of trade barriers, free flow of capital
across countries and globalization of businesses. In the wake of economic reforms, Indian
industries have also started restructuring their operations around their core business activities
through merger, acquisition and takeovers because of their increasing exposure to competition
both domestically and internationally.
Mergers and acquisitions (M & As) have been a very important market entry strategy as well as
expansion strategy. This present era is known as competition era. In this era companies, to avoid
the competition, go for merger, and enjoy sometimes monopoly. Corporate India is waking up to
the new millennium imperative of mergers and acquisitions in a desperate search for a panacea
for facing the global competition. This is hardly surprising as stiff competition is, in a sense,
implicit in any bid to integrate the national economy with the global economy. The ongoing
process of liberalization has exposed the unproductive use of capital by the Indian corporate both
in public and private sectors. Consolidation through mergers and acquisitions (M & As) is
considered one of the best ways of restructuring structure of corporate units. The concept of
mergers and acquisitions is very much popular in the current scenario, so it is significantly
popular concept, after 1990s, where India entered in to the Liberalization, Privatization and
Globalization (LPG) era. The winds of LPG are blowing over all the sectors of the Indian
economy but its maximum impact is seen in the industrial sector. It caused the market to become
hyper-competitive. As competition increased in the economy, so to avoid unhealthy competition
and to face international and multinational companies, Indian companies are going for mergers
and acquisitions.
Basically, a merger involves a marriage of two or more entities. Merger is defined as blending of
two or more entity into a single entity. The shareholders of each blending entity will become the
substantially the shareholders in the entity which is to carry on the blended entity.

5|Page

Merger is defined as combination of two or more companies into a single company where
one survives and the other lose their corporate existence. The survivor acquires the assets
as well as liabilities of the merged company or companies.
A merger is a combination of two companies where one corporation is completely absorbed by
another corporation. The less important company losses its identity and becomes part of the more
important corporation, which retains its identity. A merger extinguishes the merged corporation
and the surviving corporation assumes all the right, privileges, and liabilities of the merged
corporation. A merger is not the same as a consolidation in which two corporations lose their
separate identities and unite to form a completely new corporation.
A merger is a combination of two or more businesses into one business. Laws in India use the
term 'amalgamation' for merger. The Income Tax Act, 1961 [Section 2(1A)] defines
amalgamation as the merger of one or more companies with another or the merger of two or
more companies to form a new company, in such a way that all assets and liabilities of the
amalgamating companies become assets and liabilities of the amalgamated company and
shareholders not less than nine-tenths in value of the shares in the amalgamating company or
companies become shareholders of the amalgamated company.
According to the Oxford Dictionary the expression merger or amalgamation means Combining
of two commercial companies into one and Merging of two or more business concerns into
one respectively. 2 A merger is just one type of acquisition. One company can acquire another
in several other ways including purchasing some or all of the companys assets or buying up its
outstanding share of stock.
To end up the word MERGER may be taken as an abbreviation which means:

ecourses for

ACQUISITION:-

Acquisition in general sense is acquiring the ownership in the property. Acquisition is the
purchase by one company of controlling interest in the share capital of another existing

6|Page

company. This means that even after the takeover although there is change in the management of
both the firms retain their separate legal identity.

AMALGAMATION:-

Halaburys laws of England describe amalgamation as a blending of two or more existing

undertakings into one undertaking, the shareholders of each blending company becoming
substantially the shareholders in the company which is to carry on the blended undertaking.

CONSOLIDATION:-

Consolidation is known as the fusion of two existing companies into a new entity in which both
the existing companies extinguish. Thus, consolidation is mixing up of the two companies to
make them into a new one in which both the existing companies lose their identity and cease to
exist. The mixes up assets of the two companies are known by a new name and the shareholders
of two companies become shareholders of the new company. . For example, merger of Hindustan
Computers Ltd, Hindustan Instruments Ltd, Indian Software Company Ltd and Indian
Reprographics Ltd into an entirely new company called HCL Ltd.

COMBINATION:-

Combination refers to mergers and consolidation as a common term used interchangeably but
carrying legally distinct interpretation. All mergers, acquisitions and amalgamations are business
combinations.

TAKEOVER:-

A takeover generally involves the acquisition of a certain block of equity capital of a company
which enables the acquirer to exercise control over the affairs of the company. Normally merger,
amalgamation, acquisition, takeover are used interchangeably.

2.2 TYPES OF MERGER

There are mainly four types of mergers based on the competitive relationships between the
merging parties:
1) Horizontal Mergers
2) Vertical Mergers

7|Page

3) Conglomerate Mergers
4) Reverse Mergers

(1) HORIZONTAL MERGERS:

Horizontal Mergers is a combination of two or more firms in the same area of business.
Horizontal merger is a merger of two companies which are essentially operating in the same
business. The main purpose of this merger is to obtain economy of scale in production by
eliminating duplication of facilities, reducing of competition, reduction of cost, increase in share
price and market segments. For example, the merger of ICICI Bank and Bank of Madura is a
horizontal merger. But the merger of ICICI bank and Mahindra Tractor it is not a horizontal
merger.
Horizontal mergers raise three basic competitive issues. The first is the elimination of
competition between the merging firms, which, depending on their size, may be significant. The
second is that the unification of the merging firms operations may create substantial market
power and could enable the merged entity to raise prices by reducing output unilaterally. The
third problem is that by increasing concentration in the relevant market, the transaction may
strengthen the ability of the markets remaining participants to co-ordinate their pricing and
output decisions. The fear is not that the entities will engage in secret collaboration but that the
reduction in the number of industry members will enhance co-ordination of behavior.
2) VERTICAL MERGERS:Vertical merger is a combination of two or more firms involved in different stages of production
or distribution of the same product. It is a merger of one company with another having different
stages of production / distribution process of the same product / service. In short the merging
companies are engaged in different stages of production or distribution. The main objective is to
increase profitability by the previous distributors. For example, ICICI Ltd With ICICI Bank is an
example of vertical merger with backward linkage as far as ICICI Bank is concerned.
Vertical merger may take the form of forward or backward merger. When a company combines
with the supplier of material, it is called backward merger and when it combines with the
customer, it is known as forward merger. And their two benefits: first, the vertical merger
internalizes all transactions between manufacturer and its supplier or dealer thus converting a
potentially adversarial relationship into something more like a partnership. Second,
internalization can give the management more effective ways to monitor and improve
performance. Vertical mergers may also be anticompetitive because their entrenched market
power may impede new business from entering the market.

8|Page

Vertical integration by merger does not reduce the total number of economic entities operating at
one level of the market, but it may change patterns of industrial behavior. Whether a forward or
backward integration, the newly acquired firm may decide to deal only with the acquiring firm,
thereby altering competition among the acquiring firm's suppliers, customers, or competitors.
Suppliers may lose a market for their goods, retail outlets may be deprived of supplies, or
competitors may find that both supplies and outlets are blocked. This raises the concern that
vertical integration will foreclose competitors by limiting their access to sources of supply or to
customers. Vertical mergers may also be anticompetitive because their entrenched market power
may impede new businesses from entering the market.
3) CONGLOMERATE MERGER:Conglomerate merger is an amalgamation of two companies engaged in different line of
business, in other words, the merging companies are engaged in diverse business activities.6 For
example, ICICI Ltd merger with Mahindra tractor and Reliance Industries Ltd. merged with
Reliance Petroleum Ltd. Conglomerate transactions take many forms, ranging from short term
joint ventures to complete mergers. Whether a conglomerate merger is pure, geographical or a
product line extension it involves firms that operate in separate market. Conglomerate
transactions ordinarily have no direct effect on competition. Conglomerate merger can supply a
market or demand for firms thus giving entrepreneurs liquidity at an open market price and with
a key inducement to form new enterprises. Conglomerate merger also provide opportunity for
firms to reduce capital cost and overhead and achieve other efficiencies. This type of merger may
also reduce the number of smaller firms and increase the merged firms political power, thereby
impairing the social and political goal of retaining independent decision making center
guaranteeing small business opportunities and preserving democratic processes.
4) REVERSE MERGER:Reverse merger is a merger of an ordinary merger, achieved the same general industry but in the
same line of business. In case of a reverse merger a healthy company merges into a financially
weak company and the former company is dissolved. For example the merger of machine tool
manufacturer with the manufacturer of industrial conveyor system. The principal change the
name of the company to the name of their company and elect their nominees to the board of
directors. A private company merged with an existing public company or a subsidiary of a public
company. In a reverse merger an operating private company merges with a public company
which has no assets or known liabilities.
2.3 DEMERGER:
It has been defined as a split or division. As the same suggests, it denotes a situation opposite to
that of merger. Demerger or spin-off, involves splitting up of conglomerate (multi-division) of
company into separate companies.
This occurs in cases where dissimilar business are carried on within the same company, thus
becoming unwieldy and cyclical almost resulting in a loss situation. Corporate restructuring in
such situation in the form of demerger becomes inevitable a part from core competencies being
main reason for demerging companies according to their nature of business, in some cases,

9|Page

restructuring in the form of demerger was undertaken for splitting up the family owned large
business empires into smaller companies.
Thus, demerger also occur due to reasons almost the same as mergers i.e. the desire to perform
better and strengthen efficiency, business interest and longevity and to curb losses, wastage and
competition. Undertakings demerge to delineate businesses and fix responsibility, liability and
management so as to ensure improved results from each of the demerged unit. Demerged
Company, according to Section (19AA) of Income Tax Act, 1961 means the company whose
undertaking is transferred, pursuant to a demerger to a resulting company.
2.4 DIFFERENCE BETWEEN MERGER AND ACQUISITION:
WHAT IS A MERGER?
The word Merger has a strictly legal meaning and has nothing to do with how the combined
companies operate in the future. A merger occurs when one corporation is combined with and
disappears into another corporation. All mergers are statutory mergers, since all mergers occur as
specific formal transactions in accordance with the laws, or statutes, of the states where the
companies are incorporated. The post-transaction operations or control of a company has no
relevance on whether a merger has occurred or not.

An Acquisition is the process by which the stock or assets of a corporation are owned by a
purchaser. The transaction may take the form of a purchase of stock or a purchase of assets.
N:
Difference between Merger and Acquisition is subtle. It is true that the terms Mergers and
Acquisitions are used in a way that it seems, both are synonymous. But, the fact is that, there is a
slight difference in the two concepts.
In case of a Merger, two firms, together, form a new company. After merger, the separately
owned companies become jointly owned and get a new single identity. When two firms get
merged, stocks of both the concerns are surrendered and new stocks in the name of new merged
company are issued. Generally, Mergers take place between two companies of more or less of
same size. In these cases, the process is called Merger of Equals.
But, in case of Acquisition, one firm takes over another and establishes its power as the single
owner. Here, generally, the firm which takes over is the bigger and stronger one. The relatively
less powerful smaller firm loses its existence after Acquisition and the firm which takes over,
runs the whole business by its' own identity. Unlike Merger, in case of Acquisition, the stocks of
the acquired firm are not surrendered. The stocks of the firm that are bought by the public earlier
continue to be traded in the stock market. But, often Mergers and Acquisitions become
synonymous, because in many cases, the big firm may buy out a relatively less powerful one and
thus compels the acquired firm to announce the process as a Merger. Although, in reality an
Acquisition takes place, the firms declare it as a Merger to avoid any negative impression.

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Another difference between Merger and Acquisition is that, when a deal is made between two
companies in friendly terms, it is proclaimed as Merger, even in case of a buyout. But, if it is an
unfriendly deal, where the stronger firm swallows the target firm, even when the target company
is not willing to be purchased, then it is called an Acquisition.
ACQUISITION AND TAKEOVER:
An acquisition may be defined as an act of acquiring effective control by one company over
assets or management of another company without any combination of companies. Thus, in an
acquisition two or more companies may remain independent, separate legal entities, but there
may be a change in control of the companies. When an acquisition is 'forced' or 'unwilling', it is
called a takeover. In an unwilling acquisition, the management of the 'target' company would
oppose a move of being taken over. But, when managements of acquiring and target companies
mutually and willingly agree for the takeover, it is called acquisition or friendly takeover. Under
the Monopolies and Restrictive Practices Act, takeover means acquisition of not less than 25
percent of the voting power in a company. While in the Companies Act (Section 372), a
company's investment in the shares of another company in excess of 10 percent of the subscribed
capital can result in takeovers. An acquisition or takeover does not necessarily entail full legal
control. A company can also have effective control over another company by holding a minority
ownership.
2.5 BENEFITS OF MERGERS AND ACQUISITIONS
Accelerating a company's growth particularly when its internal growth is constrained due to
paucity of resources, internal growth requires that a company should develop its operating
facilities manufacturing, research, marketing, etc. But, lack or inadequacy of resources and time
needed for internal development may constrain a company's pace of growth. Hence, a company
can acquire production facilities as well as other resources from outside through mergers and
acquisitions. Specially, for entering in new products/markets, the company may lack technical
skills and may require special marketing skills and a wide distribution network to access
different segments of markets. The company can acquire existing company or companies with
requisite infrastructure and skills and grow quickly.
This may happen because of:(1) ECONOMIES OF SCALE:Arise when increase in the volume of production leads to a reduction in the cost of production
per unit. This is because, with merger, fixed costs are distributed over a large volume of
production causing the unit cost of production to decline. Economies of scale may also arise
from other indivisibilities such as production facilities, management functions and management
resources and systems. This is because a given function, facility or resource is utilized for a large
scale of operations by the combined firm.
(2) OPERATING ECONOMIES:-

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Arise because, a combination of two or more firms may result in cost reduction due to operating
economies. In other words, a combined firm may avoid or reduce over-lapping functions and
consolidate its management functions such as manufacturing, marketing, R&D and thus reduce
operating costs. For example, a combined firm may eliminate duplicate channels of distribution,
or crate a centralized training center, or introduce an integrated planning and control system.
(3) SYNERGY:Implies a situation where the combined firm is more valuable than the sum of the individual
combining firms. It refers to benefits other than those related to economies of scale. Operating
economies are one form of synergy benefits. But apart from operating economies, synergy may
also arise from enhanced managerial capabilities, creativity, innovativeness, R&D and market
coverage capacity due to the complementarily of resources and skills and a widened horizon of
opportunities.
(4) CROSS SELLING: For example, a bank buying a stockbroker could than sell its banking products to the stock
brokers customers, while the broker can sign up the banks customers for brokers accounts.
(5) TAXES SAVINGS: A profitable company can buy a loss making unit to use the targets tax write offs. In India,
according to the Income Tax Act, many tax benefits are available to the amalgamating as well as
amalgamated company.
(6) GREATER VALUE GENERATION:Companies go for Mergers and Acquisition from the idea that, the joint company will be able to
generate more value than the separate firms. When a company buys out another, it expects that
the newly generated shareholder value will be higher than the value of the sum of the shares of
the two separate companies.
(7) GAIN IN MARKET SHARE:Mergers and Acquisitions can prove to be really beneficial to the companies when they are
weathering through the tough times. If the company which is suffering from various problems in
the market and is not able to overcome the difficulties, it can go for an acquisition deal. If a
company, which has a strong market presence, buys out the weak firm, then a more competitive
and cost efficient company can be generated. Here, the target company benefits as it gets out of
the difficult situation and after being acquired by the large firm, the joint company accumulates
larger market share. This is because of these benefits that the small and less powerful firms agree
to be acquired by the large firms.
(8) RESOURCE TRANSFER:-

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Resource are unevenly distributed across firms and the interaction of target and acquiring firm
resources can create value through either overcoming information or combining scarce
resources.

Limitations of M&As
Mergers involves the following limitations
Elimination of healthy competition
Striving for bigness
Concentration of economic power
Monopoly affecting the customer and suppliers
Adverse effects on national economy.

2.6 FINANCIAL ACCOUNTING FOR MERGER AND ACQUISITION:

Merger and Acquisition Accounting is done either by Purchase Method or by Pooling of Interests
Method as per Accounting Standard 14.
1) POOLING OF INTEREST METHOD:This method assumes that the transaction is simply an exchange of equity securities. Therefore
the capital stock account of the target firm is eliminated, and the acquirer issues new stock to
replace it. The two firms assets and liabilities are combined at their book values as of the
acquisition data. The end result of a pooling of interests transaction is that the total assets of the
combined firm are equal to the sum of the assets of the individual firms. No goodwill is
generated, and there are no charges against earnings. A tax free acquisition would normally be
reported as a pooling of interests.
But, there are some drawbacks of this Purchase Method. When Merger and Acquisition
Accounting is done through this Purchase Method, then there is a chance of over rating the
Depreciation Charges. This is because, in Purchase Method, book value of assets are used in
accounting, but the book value of assets is generally lower than the fair value if there is inflation
in the economy.
2) PURCHASE METHOD:Under the purchase method assets and liabilities are shown on the merged firms at book value or
their market values as of the acquisition date. This method is based on the idea that the resulting

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values should reflect the market value established during the bargaining process. The total
liabilities of the combined firm equal the sum of the two firms individual liabilities. The equity
of the acquiring firm is increased by the amount of the purchase price. Purchase accounting
usually results in increased depreciation charges because the book value of most assets is usually
less than fair value because of inflation. For tax purpose depreciation does not increase because
the tax base of the assets remains the same. Since depreciation under pooling accounting method
is based on the old book values of the assets accounting income is usually higher under the
pooling method. Some firms may dislike the purchase method because of the goodwill created.
The reason for this is that goodwill is amortized over a period of years.
2.7 VALUATION OF M&As
1. Comparative Ratios - The following are two examples of the many comparative metrics
on
which
acquiring
companies
may
base
their
offers:
o

Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring
company makes an offer that is a multiple of the earnings of the target company.
Looking at the P/E for all the stocks within the same industry group will give the
acquiring company good guidance for what the target's P/E multiple should be.
o Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring
company makes an offer as a multiple of the revenues, again, while being aware
of the price-to-sales ratio of other companies in the industry.
2. Replacement Cost - In a few cases, acquisitions are based on the cost of replacing the
target company. For simplicity's sake, suppose the value of a company is simply the sum
of all its equipment and staffing costs. The acquiring company can literally order the
target to sell at that price, or it will create a competitor for the same cost. Naturally, it
takes a long time to assemble good management, acquire property and get the right
equipment. This method of establishing a price certainly wouldn't make much sense in a
service industry where the key assets - people and ideas - are hard to value and develop.
3. Discounted Cash Flow (DCF) - A key valuation tool in M&A, discounted cash flow
analysis determines a company's current value according to its estimated future cash
flows. Forecasted free cash flows (net income + depreciation/amortization - capital
expenditures - change in working capital) are discounted to a present value using the
company's weighted average costs of capital (WACC). Admittedly, DCF is tricky to get
right, but few tools can rival this valuation method.

Synergy:
The Premium for Potential Success
For the most part, acquiring companies nearly always pay a substantial premium on the stock
market value of the companies they buy. The justification for doing so nearly always boils down
to the notion of synergy; a merger benefits shareholders when a company's post-merger share
price increases by the value of potential synergy.

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Let's face it, it would be highly unlikely for rational owners to sell if they would benefit more by
not selling. That means buyers will need to pay a premium if they hope to acquire the company,
regardless of what pre-merger valuation tells them. For sellers, that premium represents their
company's future prospects. For buyers, the premium represents part of the post-merger synergy
they expect can be achieved. The following equation offers a good way to think about synergy
and how to determine whether a deal makes sense. The equation solves for the minimum
required synergy:

In other words, the success of a merger is measured by whether the value of the buyer is
enhanced by the action. However, the practical constraints of mergers, which we discuss in part
five, often prevent the expected benefits from being fully achieved. Alas, the synergy promised
by
deal
makers
might
just
fall
short.
What to Look For
It's hard for investors to know when a deal is worthwhile. The burden of proof should fall on the
acquiring company. To find mergers that have a chance of success, investors should start by
looking
for
some
of
these
simple
criteria:

Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring company
makes an offer that is a multiple of the earnings of the target company. Looking at the
P/E for all the stocks within the same industry group will give the acquiring company
good guidance for what the target's P/E multiple should be.
Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring company
makes an offer as a multiple of the revenues, again, while being aware of the price-tosales ratio of other companies in the industry.

Mergers are awfully hard to get right, so investors should look for acquiring companies with a
healthy grasp of reality.

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Chapter 3
Literature Review
It is clear that you cannot stay in the top league if you only grow internally. You cannot catch
up just by internal growth. If you want to stay in the top league, you must combine. -- Daniel
Vasella, Chief Executive Officer, Novartis, July 2002. The topic of mergers & acquisitions
(M&A) has been increasingly investigated in the literature in the last two decades (Appelbaum et
al., 2007) in response to the rise in M&A activities as well as the increasing complexity of such
transactions themselves (Gaughan, 2002).
Corporate mergers and acquisitions (M&A) have long received a lot of attention from the
corporate world, the public as well as the academic world. Many corporations across the world
have been considering M&A strategies to realize cost synergies against increased competition,
pricing pressures, gaps in product mix and asset concentration (Hoang, Thuy Vu Nga
Lapumnuaypon, Kamolrat, 2007). Mergers and acquisitions (M&A) as an external growth
strategy has gained spurt because of increased deregulation, privatization, globalization and
liberalization adopted by several countries the world over. Mergers and acquisitions (M&A)
have become an important medium to expand product portfolios, enter new markets, acquire new
technology, gain access to research and development, and gain access to resources which would
enable the company to compete on a global scale (Yadav, A. K. and B.R. Kumar,: 2005, pp. 5163).

However, there have been instances where Mergers and acquisitions (M&A) enter into for nonvalue maximization reasons, i.e., to just build the companys profile and prestige (Malatesta, P.
H.,:1983, pp. 155-181; Roll, R.,: 1986, pp. 197-216). Even though different companies have
diverse reasons for engaging in mergers and acquisitions, the main purpose is to create
shareholders value over and above that of the sum of two companies (Sudarsanam, 2005).
Prakash and Balakrishna (2006) consider mergers and acquisitions as a strategic means for
achieving sustainable competitive advantage in the corporate world but Prakash and Balakrishna
(2006) investigate that the gains to be derived from M&A have increasingly become dependent
upon the successful integration of cultures of the combining organizations and people, the role of
human factors in determining merger outcomes has assumed greater relevance. Maquieira,
Megginson, and Nail (1998) examine 260 mergers in the US between 1963 and 1996 and record
significant net synergistic gains in non-conglomerate mergers and insignificant net gains in
conglomerate mergers. The study of Bradley, Desai, and Kim (1988) empirically examine that a
successful merger offer increases the combined value of the merged entity by an average of
7.4%.
A comparative study of mergers and other forms of corporate investment at both industry and
firm levels in US has been performed by Andrade and Stafford (2004) in order to investigate the

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economic role of mergers. Merilise Smit (2007) identifies that the success of a merger between
two or more companies depends as much on cultural fit as it does on strategic fit and financial fit
and the proper management of change and employee response thereto. Swami Prasad (2007)
analyses the trends, direction and composition of cross border M&A in India and also throws
light on certain issues in cross border M&A deals.

The aim of the doctoral thesis of Christina Oberg (2008) is to identify categories and patterns of
how customers impact and are impacted by an M&A. Christina Oberg (2008) emphasizes that
the customers are important elements of the motives behind M&A and they are rarely seen as
actors affecting and being affected by an M&A. The synergy motive is regarded as the most
popular motive for M&A (Wang, J.,: 2007, p. 17). One important source of synergy is from the
transfer of some valuable intangible assets, such as know-how, between targets and acquirers
(Seth, et al.,: 2000, pp. 387-405; Wang, J.,: 2007, p. 17). Most companies pursue to save
production cost through M&A, because low costs are vital for corporations profitability and
success. Economies of scale can help companies achieve that goal. Economies of scale refer to
the average unit cost of production going down as production increases (Brealey, et al.,: 2006;
Seth, A.,: 1990, pp. 99-115; Wang, J.,: 2007, p.19). M&A appears to become a greater part of
corporate strategy (Blunck, B. W.,: 2009, p.10) on account of modern deal design and anti-trust
regulation, as well as specific changes in business models and competition brought on by the
shareholder value paradigm, ongoing computerization, deregulation and globalization (Jensen,
M. C.,: 1993, pp. 831-880; Sudarsanam, S., 2003). One of the strategies for growth which
companies in the top 100 of the fortune 500 list 2007 , such as Wal-Mart Stores, Exxon Mobil,
Royal Dutch Shell, ING Group, Proctor and Gamble, AT & T, Barclays, Vodafone and Mittal
Steel have adopted, is by merging and acquiring (Rizvi, Y., 2008). The above literature of review
indicates that the M&A has become the important strategic concepts for the nuptials of corporate
sector as these strategic concepts help companies achieve value maximization and non-value
maximization objectives.

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Chapter 4
Regulatory framework of Mergers and
Acquisitions in India
Laws Regulating Merger
Following are the laws that regulate the merger of the company:-

(I) The Companies Act , 2013

1. The Framework Chapter XV of the 2013 Act deals with Compromises, Arrangements and
Amalgamations. In this chapter, the Act consolidates the applicable provisions and related
issues of compromises, arrangements and amalgamations; however, other provisions are also
attracted at different stages of the process. Amalgamation means an amalgamation pursuant to
the provisions of the Act. In an amalgamation the undertaking comprising of property, assets and
liabilities, of one (or more) company are absorbed by and transferred either to an existing
company or a new company. Simply put, the transferor integrates with the transferee and the
former loses its entity and dissolves without winding-up. The 2013 Act creates a new regulator,
the National Law Company Tribunal (Tribunal) who, upon its constitution, will assume
jurisdiction (the High Courts will no longer have any jurisdiction) of the court for sanctioning
mergers. Once the Tribunal is constituted, expected to be formed sometime this year, and related
rules finalized, the provisions under the 2013 Act would be implemented. Before detailing the
key changes under the new law, a brief overview of the existing process will be useful. Under the
1956 Act, companies which have reached a consensus to merge must prepare a scheme of
amalgamation/merger (Scheme). The lenders (financial institutions or banks) of the transferor
and the transferee must approve1 the Scheme in principle, followed by the subsequent approval
of the respective Board of Directors of the merging entities. If the merging entities are listed
companies, then the listing agreements executed with the stock-exchanges require the company
to communicate price-sensitive information to the stock exchange immediately, to seek an
approval from the capital market regulator, Securities and Exchange Board of India (SEBI)
simultaneous with the public notification. This essentially happens after the approval of the
Board to the Scheme. The next step is to apply to the High Court having jurisdiction over the
registered office of the company seeking an order to convene shareholders and creditors meeting.
Without getting into further details of the process, the key point is that any objector amongst the
stakeholders can object to the Scheme in the court proceedings. The element of preparing the
Scheme has been retained under the 2013 Act. Unlike the 1956 Act, the new regime (a)
recognizes cross border mergers, (b) sets out separate procedure for merger of small companies
and those of holding with wholly-owned, (c) prescribes thresholds for objections, and (d)
describes mandatory filings to ensure legal compliance.

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2. The Changes to the process

(a) Regulatory/Third party approvals: As shareholders and creditors consents are essential, the
1956 Act, therefore, contemplates issue of a notice to them. The 2013 Act requires service of the
notice of the merger along with documents (such as copy of the Scheme and valuation report) not
only upon the shareholders and creditors but also on various regulators including the Ministry of
Corporate Affairs (through Regional Director, Registrar of Companies and Official Liquidator),4
Reserve Bank of India (RBI) (where non-resident investors are involved), SEBI (only for listed
companies), Competition Commission of India (where the prescribed fiscal thresholds are
crossed and the proposed merger could have an adverse effect on competition), Stock Exchanges
(only for listed companies), Income Tax authorities and other sector regulators or authorities
which are likely to be affected by the merger.5 This ensures compliance of the Scheme with
other regulatory requirements imposed on the merging entities. In fact, under the 1956 Act the
courts have made mergers subject to approval of the regulators. The 2013 Act prescribes a 30
day time frame for the regulators to make representations, failing which the right would cease to
exist. This is a positive step because in the 1956 Act no such time frame was provided leading to
considerable delays in the court proceedings.
(b) Approval of the Scheme through postal ballot: The 1956 Act required presence of the
shareholders and creditors in the physical meetings, either in person or by proxy, to cast vote
for/against the Scheme. In the 2013 Act, the shareholders and creditors also have the option to
cast vote through postal ballot while considering a Scheme. The 1956 Act did not allow this and
the shareholders and creditors could only cast votes physically. This right will ensure wider
participation of the shareholders and creditors, particularly for those who are scattered all over
the country and who find it difficult to be either physically present or provide a proxy. Postal
ballot, therefore, will offer them a greater flexibility to cast their votes.
(c) Valuation Report: Though the 1956 Act is silent on disclosing the valuation report to the
stakeholders, as a matter of transparency and good corporate governance, the listed companies
used to make available the valuation report for inspection and also during the course of the
meetings. Courts also required annexing of the valuation report to the application submitted
before them. The 2013 Act now mandates annexing of the valuation report to the notices for the
meetings to enable ready access to the shareholders and creditors
(d) Objections: A bane under the 1956 Act was that it permitted the individual shareholders and
creditors to raise frivolous objections to arm-twist and unnecessarily harass the companies
following the meetings. Such right to object to the Scheme would no longer be available to any
and every person. Objections can be raised by shareholders holding 10% or more equity and
creditors whose debt represent 5% or more of the total debt as per the last audited financial
statements. By raising the bar, the new law aims to ensure that the frivolous objections/litigation
can be avoided.
(e) Accounting Standards: As a matter of practice, frequently the Scheme provided for
accounting treatment that would deviate from the prescribed accounting standards necessitating a
note to this effect in the balance sheet of the company. This was frowned upon by the tax

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authorities. Consequently, in case of listed companies, the listing agreement was amended to
provide that an auditors certificate stating that the accounting treatment is in accordance with
the accounting standards was required to be filed for seeking approval of the stock exchanges.
The 2013 Act makes such prior certification from an auditor mandatory for both listed and
unlisted companies.
(f) Merger of a listed company into an unlisted one: 10 The 2013 Act specifically provides for
the Tribunals order to state that the merger of a listed company into an unlisted company will
not ipso facto make the unlisted company listed. It will continue to be unlisted until the
applicable listing regulations and SEBI guidelines in relation to allotment of shares to public
shareholders are complied with. Further, in case the shareholders of the listed company decide to
exit, the unlisted company would facilitate the exit with a pre-determined price formula which
shall be within the price specified by SEBI regulations. The Indian securities law prescribes strict
enforcement of listing requirements by companies intending to get listed. SEBI had, however,
eased these requirements for listed companies proposing merger by granting them exemptions
from complying with the initial public offering requirements11 on a case-to case basis. Recently
SEBI had issued guidelines12 stating that if the Scheme provides for listing of shares of an
unlisted company without complying with the initial public offering requirements, then, upon
court approval of the Scheme, the unlisted company has to file a specific application seeking
such exemption from SEBI. Such an application has to be filed upon, inter-alia, allotment of
equity shares to the holders of securities of the listed company. The changes under the 2013 Act
are in line with SEBI requirements. The 1956 Act was silent on this aspect.
3. Penalties
The penalties for contravention of the provisions under the 1956 Act were a maximum of INR
50,000 (approximately US$ 80617) which apply to the company as well as officer-indefault.
However under the 2013 Act, separate penalties have been levied on the company and its
defaulting officer. To bring in more accountability, quantum for companies has been increased
from the aforesaid sum to a minimum of INR 100,000 (approximately US$ 1,612) and maximum
of INR 2,500,000 (approximately US$ 40,322). Defaulting officer(s) will also be punishable with
imprisonment up to one year or with a minimum fine of INR 100,000 (approximately US$
1,612) and maximum INR 300,000 (approximately US$ 4,838) or both.18 Such stringent penal
provisions will not apply to mergers of small companies and that of a holding company with its
wholly-owned subsidiaries unless their merger is transferred to the Tribunal and approved by it.
(II)TheCompetitionAct,2002
Following provisions of the Competition Act, 2002 deals with mergers of the company:(1) Section 5 of the Competition Act, 2002 deals with Combinations which defines
combination by reference to assets and turnover
(a) Exclusively in India and
(b) In India and outside India.

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For example, an Indian company with turnover of Rs.3000 crores cannot acquire another Indian
company without prior notification and approval of the Competition Commission. On the other
hand, a foreign company with turnover outside India of more than USD 1.5 billion (or in excess
of Rs.4500 crores) may acquire a company in India with sales just short of Rs.1500 crores
without any notification to (or approval of) the Competition Commission being required.
(2) Section 6 of the Competition Act, 2002 states that, no person or enterprise shall enter into a
combination which causes or is likely to cause an appreciable adverse effect on competition
within the relevant market in India and such a combination shall be void.
All types of intra-group combinations, mergers, demergers, reorganizations and other similar
transactions should be specifically exempted from the notification procedure and appropriate
clauses should be incorporated in sub-regulation 5(2) of the Regulations. These transactions do
not have any competitive impact on the market for assessment under the Competition Act,
Section 6.
(III) Foreign Exchange Management Act, 1999

The foreign exchange laws relating to issuance and allotment of shares to foreign entities are
contained in The Foreign Exchange Management (Transfer or Issue of Security by a person
residing out of India) Regulation, 2000 issued by RBI vide GSR no. 406(E) dated 3rd May,
2000. These regulations provide general guidelines on issuance of shares or securities by an
Indian entity to a person residing outside India or recording in its books any transfer of security
from or to such person. RBI has issued detailed guidelines on foreign investment in India vide
Foreign Direct Investment Scheme contained in Schedule 1 of said regulation.
(IV) SEBI Takeover Code 1994

SEBI Takeover Regulations permit consolidation of shares or voting rights beyond 15% up to
55%, provided the acquirer does not acquire more than 5% of shares or voting rights of the target
company in any financial year. [Regulation 11(1) of the SEBI Takeover Regulations] However,
acquisition of shares or voting rights beyond 26% would apparently attract the notification
procedure under the Act. It should be clarified that notification to CCI will not be required for
consolidation of shares or voting rights permitted under the SEBI Takeover Regulations.
Similarly the acquirer who has already acquired control of a company (say a listed company),
after adhering to all requirements of SEBI Takeover Regulations and also the Act, should be
exempted from the Act for further acquisition of shares or voting rights in the same company.
(V) The Indian Income Tax Act (ITA), 1961
Merger has not been defined under the ITA but has been covered under the term 'amalgamation'
as defined in section 2(1B) of the Act. To encourage restructuring, merger and demerger has
been given a special treatment in the Income-tax Act since the beginning. The Finance Act, 1999
clarified many issues relating to Business Reorganizations thereby facilitating and making
business restructuring tax neutral. As per Finance Minister this has been done to accelerate

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internal liberalization. Certain provisions applicable to mergers/demergers are as under:

Definition of Amalgamation/Merger Section 2(1B). Amalgamation means merger of either
one or more companies with another company or merger of two or more companies to form one
company in such a manner that:
(1) All the properties and liabilities of the transferor company/companies become the properties
and liabilities of Transferee Company.
(2) Shareholders holding not less than 75% of the value of shares in the transferor company
(other than shares which are held by, or by a nominee for, the transferee company or its
subsidiaries) become shareholders of the transferee company.
The following provisions would be applicable to merger only if the conditions laid down in
section 2(1B) relating to merger are fulfilled:
(1) Taxability in the hands of Transferee Company Section 47(vi) & section 47
(a) The transfer of shares by the shareholders of the transferor company in lieu of shares of the
transferee company on merger is not regarded as transfer and hence gains arising from the same
are not chargeable to tax in the hands of the shareholders of the transferee company. [Section
47(vii)]
(b) In case of merger, cost of acquisition of shares of the transferee company, which were
acquired in pursuant to merger will be the cost incurred for acquiring the shares of the transferor
company. [Section 49(2)]
(VI) Mandatory permission by the courts
Any scheme for mergers has to be sanctioned by the courts of the country. The company act
provides that the high court of the respective states where the transferor and the transferee
companies have their respective registered offices have the necessary jurisdiction to direct the
winding up or regulate the merger of the companies registered in or outside India.
The high courts can also supervise any arrangements or modifications in the arrangements after
having sanctioned the scheme of mergers as per the section 392 of the Company Act. Thereafter
the courts would issue the necessary sanctions for the scheme of mergers after dealing with the
application for the merger if they are convinced that the impending merger is fair and
reasonable.
The courts also have a certain limit to their powers to exercise their jurisdiction which have
essentially evolved from their own rulings. For example, the courts will not allow the merger to
come through the intervention of the courts, if the same can be effected through some other
provisions of the Companies Act; further, the courts cannot allow for the merger to proceed if
there was something that the parties themselves could not agree to; also, if the merger, if
allowed, would be in contravention of certain conditions laid down by the law, such a merger
also cannot be permitted. The courts have no special jurisdiction with regard to the issuance of

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writs to entertain an appeal over a matter that is otherwise final, conclusive and binding as per
the section 391 of the Company act.
Legal Procedure for Bringing About Merger of Companies
(1) Examination of object clauses:
The MOA of both the companies should be examined to check the power to amalgamate is
available. Further, the object clause of the merging company should permit it to carry on the
business of the merged company. If such clauses do not exist, necessary approvals of the
shareholders, board of directors, and company law board are required.
(2) Intimation to stock exchanges:
The stock exchanges where merging and merged companies are listed should be informed about
the merger proposal. From time to time, copies of all notices, resolutions, and orders should be
mailed to the concerned stock exchanges.
(3) Approval of the draft merger proposal by the respective boards:
The draft merger proposal should be approved by the respective BODs. The board of each
company should pass a resolution authorizing its directors/executives to pursue the matter
further.
(4) Application to high courts:
Once the drafts of merger proposal is approved by the respective boards, each company should
make an application to the high court of the state where its registered office is situated so that it
can convene the meetings of shareholders and creditors for passing the merger proposal.
(5) Dispatch of notice to shareholders and creditors:
In order to convene the meetings of shareholders and creditors, a notice and an explanatory
statement of the meeting, as approved by the high court, should be dispatched by each company
to its shareholders and creditors so that they get 21 days advance intimation. The notice of the
meetings should also be published in two newspapers.
(6) Holding of meetings of shareholders and creditors:
A meeting of shareholders should be held by each company for passing the scheme of mergers at
least 75% of shareholders who vote either in person or by proxy must approve the scheme of
merger. Same applies to creditors also.
(7) Petition to High Court for confirmation and passing of HC orders:
Once the mergers scheme is passed by the shareholders and creditors, the companies involved in

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the merger should present a petition to the HC for confirming the scheme of merger. A notice
about the same has to be published in 2 newspapers.
(8) Filing the order with the registrar:
Certified true copies of the high court order must be filed with the registrar of companies within
the time limit specified by the court.
(9) Transfer of assets and liabilities:
After the final orders have been passed by both the HCs, all the assets and liabilities of the
merged company will have to be transferred to the merging company.
(10) Issue of shares and debentures:
The merging company, after fulfilling the provisions of the law, should issue shares and
debentures of the merging company. The new shares and debentures so issued will then be listed
on the stock exchange.

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Chapter 5: Case Studies

Flipkart acquired Myntra (2014)
Philosophy behind the acquisition of Flipkart and Myntra.
As Indias community of online shoppers grows, so will the traditional and online players that
make smart and strategic moves to enjoy the major share by optimizing operations for profit. The
main idea behind any merger and acquisition is to gain competitive advantage in global market
and accelerate companys growth particularly when its growth is constrained due to paucity of
resources. For entering in new product/markets, the company may lack technical skills and may
require special marketing skills and a wide distribution network to access different segments of
market. The joining or merging of the two companies creates additional value which we call
"synergy" value. Synergy value can take three forms:
Revenues: By combining the two companies, we will realize higher revenues then if the two
companies operate separately.
Expenses: By combining the two companies, we will realize lower expenses then if the two
companies operate separately.
Cost of Capital: By combining the two companies, we will experience a lower overall cost of
capital.
Many mergers are driven by the need to cut costs. However, the best mergers seems to have
strategic reasons for the business combinations. These include:
Positioning-Taking advantage of future opportunities that can be exploited when the two
companies are combined. For example, a telecommunications company might improve its
position for the future if it were to own a broad band service company. Companies need to
position themselves to take advantage of emerging trends in the marketplace.
Gap Filling-One company may have a major weakness (such as poor distribution) whereas the
other company has some significant strength. By combining the two Flipkart - Myntra; From a
Merger to an Acquisition 77 companies, each company fills-in strategic gaps that are essential
for long-term survival.
Bargain Purchase-It may be cheaper to acquire another company then to invest internally. For
example, suppose a company is considering expansion of fabrication facilities. Another company
has very similar facilities that are idle. It may be cheaper to just acquire the company with the
unused facilities then to go out and build new facilities on your own.

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Diversification-It may be necessary to smooth-out earnings and achieve more consistent longterm growth and profitability. This is particularly true for companies in very mature industries
where future growth is unlikely. It should be noted that traditional financial management does
not always support diversification through mergers and acquisitions. It is widely held that
investors are in the best position to diversify, not the management of companies since managing
a steel company is not the same as running a software company.
Short Term Growth-Management may be under pressure to turnaround sluggish growth and
profitability. Consequently, a merger and acquisition is made to boost poor performance.
Undervalued Target-The Target Company may be undervalued and thus, it represents a good
investment. Some mergers are executed for "financial" reasons and not strategic reasons [Evans,
2000].
Marking the above explanation Flipkart which started with online bookstore similar to Amazon
and now sells products across categories, including fashion and electronics. It now also sells
white goods and furniture. It hit the billion-dollar milestone in annual gross merchandise value
last month. Subsequently Fashion, which delivers over 35% in operating margin, is among the
most contested categories in ecommerce and has seen the emergence of players like Jabong,
Fashionara and Limeroad and even web-only brands like Yepme and Zovi. The number is
growing every month and on track to grow between 100-150 per cent over next 3-4 years. The
overall Lifestyle category in India is $45 billion, growing at 16% CAGR. The industry will cross
$100 billion in 2015 with somewhere between 5- 10% of this being online. Flipkart moved to
market place model in feb 2013 where third party merchants sell goods to shoppers through
flipkart site. It allows e-commerce companies to scale up faster & save storage & other inventory
related cost as the products are held by merchants. For Flipkart, setting up a huge fashion vertical
means boosting margins, because fashion has the highest margins-35 to 40 per cent-among all
products sold online. Myntra has big plans with its private brands like Anouk, Dress berry and
Roadster, which promise margins as high 60 per cent. Myntra will continue to operate as a
separate brand, and its founder Mukesh Bansal will occupy a seat on Flipkart's board, heading all
fashion at the new entity. Flipkart will bring in its capabilities in customer service and
technology. Both companies will also net customers that have shopped on both portals-about 80
per cent of the country's online shoppers have shopped on either Myntra or Flipkart. However,
the companies will not integrate the back end. The two teams will also function separately.
VALUATION
To begin with Flipkart will invest $100 million in fashion business. On the other hand Myntras
goal is to generate 20,000 crore in gross sales by 2020 for which the site needs more than $150200 million fresh funds. Flipkart and Myntra deal will create the first Indian e-tailing
powerhouse, and provide a big fillip to India's still nascent but very promising e-commerce
industry. Myntra sells products from over 650 brands like Nike, HRX by Hrithik Roshan, Biba
and Steve Madden and clocked revenue of about Rs 1,000 crore in the previous financial year.
As part of the acquisition, Myntra co-founder Mukesh Bansal will join Flipkart's board and will
also oversee Flipkart's fashion business. Flipkart and Myntra will remain as two separate entities,
but people holding stock options in Myntra will now hold the same in Flipkart. The current deal

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appears to be win-win for both companies, and could be the making of a giant company, better
positioned to address India's growing demand for online retail-one that could put up strong
competition against rivals Flipkart, which also operates under the marketplace model allowing
retailers to offer products on its platform, has since its inception raised over $500 million.
Common investors such as early-stage investor Accel Partners and investment fund Tiger Global
are expected to remain invested in Myntra, as also recent investor Premji Invest, which
participated in the 300 crore funding round in the fashion portal in February. The two companies
now have three common investors Accel, Tiger and Belgiumbased family office Sofina. Myntra's
other investors are IDG Ventures India and Kalaari Capital.
BENEFITS IN LONG TERM
This giant deal will not only help to generate revenues for the companies but will also create
opportunities for young talents of India. As industry grows it will require engineering teams,
customer agents and logistic support to meet the demand. Flipkart will increase hiring from
13,000 to 25,000, and out of this 1,200 will be engineers. The e-commerce firm acquired fashion
portal Myntra, according to source, the later too plans to double its headcounts this fiscal from a
team of 500 employees.
One of the major catalysts for e-commerce is the breadth of Internet penetration in a country.
The current penetration rate in India is at 10.1 per cent penetration rate, Indiahas a huge Internet
consumer base of around 125.0 million (as of 2011), the third largest in the world after US and
China. By end-2012, the number of Internet users is expected to increase to 150.0 million. A
study conducted by IMRB and IAMAI observed that of the total 99.0 million urban Internet
users, 80.0 million were active compared to 31.0 million active users out of the total 38.0 million
in rural areas as of June 2012. At its current pace, this number could multiply three-fold to nearly
380.0 million by 2015, surpassing the US and China. Notably, rural India has witnessed a
significant increase in penetration of active Internet users from 2.1 per cent in 2010 to 3.7
percent in June 2012. By end- 2012, the number of active rural Internet users would touch 38
million as against 24 million a year ago. However, even with its large consumer base, just 1.0 per
cent of the total (less than 10.0 million Internet users) is engaged in e-commerce activities, thus
reflecting a huge untapped opportunity. This number is expected to touch 39.0 million users by
2015 as Internet penetration increases and ecommerce becomes more secured. The changing
consumer lifestyles, supported by the younger population base of India, have given a boost to the
e-commerce business. More than half of the total 1.2 billion population of India falls under the
below 25 years of age bracket. Also, 65.0 per cent of Indias population, representing the
working age group of 15 to 64 years, would aid the further growth of e-commerce, driven by
their rising disposable income. Notably, discretionary spending in India is expected to jump to
70.0 per cent by 2025 from 52.0 per cent in 2005. With the underlying opportunities, the industry
is set to benefit, driven by strong fundamentals and provision of continuous assistance by various
PE and VC firms to fund their expansion plans. Notably, on the investment front, the sector
enjoyed inflow of around $800 million in 2011, up from $110 million in 2010. Investments made
in ecommerce businesses by PE firms alone more than quadrupled to $467 million in 2011
compared to $99 million in 2010. The number of deals increased to 78 compared to just 22 in
2010. The robust deal activity continued in 2012, with $242 million invested during the January-

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April period. The trend over the period reflects that the average deal size has more than doubled
due to increasing traction in e-commerce activities, which requires larger investments for growth.
If India achieved developed country levels of share of the Internet in ICT expenditure through
increased Internet-driven usage and applications, the Internets contribution to Indias GDP
could potentially double, to about 3.2 percent even at todays levels of expenditure. Even if we
apply aspiring country benchmarks, India has the potential to almost double its share of Internetrelated GDP to 2.8 to 3.3 percent by 2015. Industry surveys suggest that e-commerce industry is
expected to contribute around 4 percent to the GDP by 2020. In comparison, according to a
NASSCOM report, by 2020, the IT-BPO industry is expected to account for 10% of Indias
GDP, while the share of telecommunication services in Indias GDP is expected to increase to 15
percent by 2015. With enabling support, the e-commerce industry too can contribute much more
to the GDP. The projected growth of e-tailing in India will successfully address all the above
challenges. The cost of distribution will reduce because the multilayered distribution system will
be replaced by an order fulfillment process arranged in a hub and spoke model. The layers of
distributors will not be required here as this role will be fulfilled by warehousing and logistics
operations which offer margin enhancement opportunities for manufacturers and better prices for
consumers.
OLA CABS ACQUIRE TAXIFORSURE (2015)
According to a report in The Times of India, mobile app cab service, Ola (formerly Olacabs) has
acquired its smaller Bengaluru-based rival, TaxiForSure (TFS) for USD 200 million (approx Rs
1,260 crore) in a major consolidation move, giving the combined entity a clear leadership in the
domestic tech-backed transportation market.
Raghunandan G, Co-founder, TFS, said the consolidation (with Ola buying TFS) was mirroring
what was happening globally in the tech-backed taxi market. "This would only create more value
for all stakeholders and customers. Instead of burning money on competing against each other,
now we can use those resources to offer better services to commuters," he elaborated.
VALUATION
Raghunandan and Aprameya Radhakrishna, Co-founder, TFS, will take home USD 35 million
(Rs 220 crore) in cash and one per cent of Ola stock, sources said. "The share swap ratio is 88:12
(88 TFS shares for 12 Ola shares) along with about a 30 per cent cash component. The net
dilution for Ola is approximately seven per cent," sources added. Both the founders, who owned
about 25 per cent stake in TFS, will step down from the company after serving in an advisory
role for the next three months.
Ola, co-founded by IIT-Bombay batchmates, Bhavish Aggarwal and Ankit Bhati, will retain the
1,700 employees of TFS and appoint Arvind Singhal as CEO. Ola and TFS, both of which were
founded in 2011, will run independently, the two companies said in a statement. The combined
entity will fight against San Francisco-based Uber, which has been an aggressive competitor for
both the Indian cab aggregators. Investment bank Avendus Capital advised TFS on the sale.

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TFS had raised around USD 60 million from risk investors and had been scouting for fresh
capital, but opted for a complete sale. The existing investors also preferred a consolidation deal
in a cash-guzzling sector with raging fare wars. While Accel India is encashing about 30 per cent
of its stake and taking the rest in Ola stock, Accel US and Helion Venture Partners are taking
100 per cent Ola stock. Other investors in TFS include Bessemer Venture Partners and Blume
Ventures.
BENEFITS IN LONG TERM
There is significant complimentary value that this acquisition adds, both on the supply and
demand side, for Ola and TaxiForSure. TaxiForSure follows a different model of supply and
distribution by working with cab operators, compared to Olas model of working with driverentrepreneurs. TaxiForSure has also focused heavily on the economy segment of cab consumers
with innovative offerings like Tata Nanos as part of their fleet and Rs 49 as base fares in the past.
For customers, drivers and operators on the TaxiForSure platform, nothing will change.
Customers can continue to book a cab through the app and call centre and drivers will continue
to get access to customers on TaxiForSures technology platform as always.
Commenting on the development, Bhavish Aggarwal, Co-founder and CEO, Ola, said, Ola and
TaxiForSure share the same vision of revolutionising urban mobility. TaxiForSure has a great
team and they have built a very exciting business in a short time. Theres a lot of complementary
value in the strategy TaxiForSure has followed. Im very excited to welcome the TaxiForSure
team onboard and look forward to working with them towards realising our common vision.
Raghunandan G, Co-founder and CEO, TaxiForSure, added here, TaxiForSure coming together
with Ola will provide us with more opportunity than ever, to do what we do best. Post this
acquisition, the combined entity will be strong enough and better capitalised to offer the best
value to all our stakeholders, including our customers. This development ensures that industry
attractiveness is preserved and the combined entity can race ahead and continue to create
unprecedented value for all stakeholders.
With this acquisition, investors in TaxiForSure will roll over their stock into Ola.
TCS AMALGAMATES WITH CMC (2014)
About Tata Consultancy Services Ltd. (TCS)
Tata Consultancy Services is an IT services, consulting and business solutions organization that
delivers real results to global business, ensuring a level of certainty no other firm can match.
TCS offers a consulting-led, integrated portfolio of IT, BPS,infrastructure, engineering and
assurance services. This is delivered through its unique Global Network Delivery Model,
recognized as the benchmark of excellence in software development. A part of the Tata group,
Indias largest industrial conglomerate, TCS has over 310,000 of the worlds best-trained
consultants in 46 countries. The company generated consolidated revenues of US $13.4 billion
for year ended March 31, 2014 and is listed on the National Stock Exchange and Bombay Stock
Exchange in India.

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Tata Consultancy Services (TCS) (BSE: 532540, NSE: TCS), the leading IT services, consulting
and business solutions firm announced that the Board of Directors of TCS and CMC Limited
(CMC), a subsidiary of TCS, have approved the amalgamation of CMC with TCS pursuant to
the provisions of Sections 391 to 394 of the Companies Act, 1956.
VALUATION
As per the amalgamation scheme, approved by the two companies' boards at separate meetings
on Thursday, shareholders of CMC will receive 79 equity shares of Re 1 each of TCS for every
100 equity shares of Rs 10 each of CMC held by them.
The swap ratio has been arrived at based on the valuation report prepared by B S R and
Associates LLP. The appointed date for the proposed scheme is April 1, 2015.
Based on the last traded share price of the two firms, the overall merger is worth $1.05 billion.
However, TCS is not creating treasury stock and the merger would lead to fresh issue of shares
worth Rs 3,134 crore (around $500 million).
Shares of CMC closed at Rs 2,187.65 on BSE, up 1.9 per cent, while TCS' shares dropped 0.8
per cent to close at Rs 2,678.85, in weak Mumbai market on Thursday.The proposed merger
announcement came after market hours.
The amalgamation will enable TCS to consolidate CMC's operations in a single company with a
rationalised structure, enhanced reach, greater financial strength and flexibility, aiding in
achieving economies of scale, more focused operational efforts, standardisation and
simplification of business processes and productivity improvement, CMC said in the statement.
Incorporated in 1975 as a state-run IT services firm, CMC was acquired by TCS in 2001.
Currently, TCS owns 51.12 per cent equity stake in CMC. It would not create treasury stock as
part of the merger.
CMC in engaged in design, development and implementation of software technologies and
applications, providing professional services in India and overseas, and procurement, installation,
commissioning, warranty and maintenance of imported and indigenous computer and networking
systems, and in education training.
TCS Q2 net up

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Meanwhile, TCS reported net profit of Rs 5,244.28 crore for the quarter ended September 30,
2014 up 13.2 per cent over the year-ago period but down 5.8 per cent sequentially. Excluding a
one-time gain from an exceptional item in Q1, sequential net profit rose 3.2 per cent over the
previous quarter.
The profit numbers were marginally below street expectations.
Total income increased from Rs 20,951.53 crore for the quarter ended September 30, 2013 to Rs
24,479.11 crore last quarter.
The company said it had 20,350 gross employee additions last quarter with a net addition of
8,326 people. It took total employee base to 313,757 people with a utilisation rate of 86.2 per
cent (excluding trainees) and 81.3 (including trainees). The firm also crossed the milestone of
having 100,000 women employees last quarter.
BENEFITS IN LONG TERM
The amalgamation will enable TCS to consolidate CMCs operations in a single company with
rationalized structure, enhanced reach, greater financial strength and flexibility aiding in
achieving economies of scale, more focused operational efforts, standardization and
simplification of business processes and productivity improvements.

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CHAPTER 6
Conclusions
Continuous growth and survival are the ultimate objectives of any organization and M&A is one
of the forms of survival strategy. One of the most important ways to grow profitably and
maximizing shareholders wealth is the nuptials of Companies in Corporate World. But
painstaking pre-merger planning including conducting appropriate due diligence, valuable
communication during the integration, efficient management and committed leadership, and pace
at which the integration plan is done, together is required to handle these nuptials of companies
successfully. Mergers and Acquisitions (M&A) are the expression of strategic concepts
pertaining to the corporate sector. They envisage management of processes related to selling,
buying and combining one or more companies for obtaining a common cause. Common cause
consists of aiding, financing or assisting a company to grow at a much faster rate. Corporate
Mergers and Acquisitions are very crucial for any country's economy. This is so because the
Corporate Mergers and Acquisitions can result in significant restructuring of the industries and
can contribute to rapid growth of industries by generating Economies of Scale, increased
competition in the market and raise the vulnerability of the stockholders as the value of stocks
experience ups and downs after a merger or acquisition. Although the concept of Merger and
Acquisition are different from one another but both can be used as engines of growth. As a
result, M&As are considered as most strategic concepts to make sure growth for the companies
in the Corporate world..
The strategic partnership of Myntra and Flipkart will provide a guidance for traditional players.
Theyll leverage existing capabilities and platforms by pursuing adjacent growth. They can
expand to vertical segments, collaborate with brands by designing their websites and open offline
stores to grow their customer base. The rapid growth of Indian e-commerce (especially eretail)
are attracting global players and increasing investors interest. India needs to extend the benefits
of the Internet into sectors of the economy that have so far not been touched. Strong internet
infrastructure need to be extended beyond the top cities into Tier 2 and Tier 3 cities, and deeper
into the semi-urban and rural parts of the country, that are home to 70 percent of the population
and represent an estimated 50 percent of total household consumption. The Indian government
has restricted foreign companies from selling their products in India through the online medium.
This regulation safeguards Indian companies against competition from global leaders such as
eBay and Amazon. Currently, 100 per cent FDI is allowed in business-to-business (B2B) e-

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commerce in India, but when it comes to business-to-consumer (B2C), it is prohibited. Besides,

there is a mandatory 30 per cent local sourcing norm for foreign players. According to a recent
report by IAMAI-KPMG, Indian inventory-based e-commerce sector failed to grow as much as
international counterparts that have FDI support despite having one of the largest internet
populations. While B2C players have been in conversation with the government from the
beginning of 2013. However, new government might allow FDI in e-commerce. Government
should provide legal framework and guidelines in ecommerce to expand companies horizons,
basic rights such as intellectual property, prevention from fraud, consumer protection,
confidentiality, and etc. through which they can expand their businesses by lowering cost and
can contribute maximum to the progression of Indian economy.
On the other hand,
The acquisition of TaxiForSure helps Ola Cabs strengthen its presence in the market, especially
after the aggressive pricing strategy adopted by its closest rival now, Uber. Quite recently, Uber
has slashed its price to further low to acquire a lions share of the market. Founded in 2009, Uber
has rapidly expanded its operations in 55 countries and sitting at a mammoth valuation of $42
billion. Initially, it was Uber who showed its interest in acquiring TaxiForSure but the talks fell
apart as TaxiForSure investors reportedly found Ola Cabs a better choice to go with in India. The
failed attempt forced Uber to look towards Meru, another Radio Taxi service provider.
According to few person known to the matter have claimed that the talk is in the final stage and
could be concluded anytime in the near future.
The largest player in the taxi booking space has acquired what is essentially a rival which is
under a tenth of its own size for $200 million (Rs 1,240 crore).
Firstly, it pre-empts Uber snapping TaxiForSure, which could have created a serious competition
for Ola. Notably, media reports have suggested Uber is in talks to buy Meru, which can allow it
to still bounce back and become a much more significant player in India (read here for more on
that). But for now Ola has made sure it has significant legroom to stay ahead of Uber in the near
future in the country, something even Flipkart cannot claim against Amazon in India.
Then comes inventory synergies or rather additions. Ola says it has 70,000 cabs and 30,000
autorickshaws on its network. TaxiForSure, in turn, has around 15,000 cabs besides an
undisclosed number of autos (it started autos recently). Here, Ola claims it is going to keep
TaxiForSure independent and there would not be any inventory sharing. In other words in cities
where both operate, they would continue to compete against each other.

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This is quirky, as logic would command it to integrate TaxiForSures inventory with itself even
though it may, for various reasons, continue to operate two separate services at the front end.
Ola argues this is because both focus on different segments. But for the front end consumer it
does not matter if the provider is bringing cabs owned by a fleet operator or represents a driver
who owns his/her own car (which is the main differentiator in business model).
However, a little peek at the markets where Ola is present and where TaxiForSure is present
gives a clue of whats the game-plan.
Ola says it is present in 67 cities while its website shows it has presence in around 85 cities.
TaxiForSure in turn is present in some 47 cities. We asked this question to Ola and they repeat
that they operate in all the markets where TaxiForSure is present. That does not gel with the
numbers.
So the logical conclusion would be that Ola is going to use TaxiForSures inventory without
saying so, which is fair enough.

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REFERENCES
Websites

http://innovativejournal.in/index.php/ijbm/article/viewFile/389/374
http://newscentral.exsees.com/item/fed912818a046bbb54e59d8fbcac88a52230ce5f60e489e3c3218c287318174e

http://www.legalserviceindia.com/article/l463-Laws-Regulating-Mergers-&-Acquisition-In-India.html
http://www.univie.ac.at/aicher/dateien/M&A%20Int%202013-2014%20%20documents/Mergers_and_Acquisitions_Basics__All_You_Need_To_Know%20%20Donald%20DePamphilis.pdf

http://www.icaiknowledgegateway.org/littledms/folder1/chapter-13-merger-acquisitionsrestructuring.pdf