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VOLUME II, ISSUE 9

28th July 2010 SYMBIONT

The unending scuffle in M&A:
The so called unethical ‘Hostile Takeovers’
By Akash Sablok
FACT-O-METER
Cadbury and Kraft. A surprising tale positive-sum game. Yet those who
India saw a snapped of how two rich and successful con- initiate such activity, the "predators,"
up value of its M&A glomerates can shape up, what can be are commonly viewed as greedy,
deals for Jan-June termed as one of the most talked immoral and uncaring.
2010 at a staggering about and surprising acquisition pri-
$38 billion. A seven
fold increase over the marily because of two reasons: A number of groups benefit as a re-
previous half. sult of merger activity. The old
1. Either of the parties are market shareholders benefit because they
Telecom sector was leaders in the confectionary and receive a premium for their stock.
the largest contributor sweets market. New shareholders benefit because
in the total share with
deals valued at billion 2. It‘s a ‗hostile takeover‘ by the they are buying stock in a company
dollar plus numbering management of Kraft, who nec- that is in the process of becoming
seven which is a essarily ventured into purchas- more efficient and competitive.
record first. ing the brands of Cadbury over Those shareholders who do not ten-
a period of 6 years. der their stock also benefit because
the market value of their shares rises
INSIDE THIS ISSUE
Mergers and acquisitions: These two as a result of the tender offer.
(Click on the words represent how companies buy,
article title) sell and recombine businesses. The general public benefits because
They're also the reason why today's the more efficient company that re-
Financing M&A 4 corporate landscape is a maze of con- sults from the merger is able to re-
glomerations. Insurance companies duce its prices and/or provide higher
Essar Steel 5 own breakfast cereal makers, shop- quality products and services. Em-
acquires Servo ping mall outlets are part of military ployees benefit because a healthy
Steel manufacturing groups, and movie company will be less likely to go out
studios own airlines, all because of of business. It seems like the only
RCom-GTL 7
mergers and acquisitions. group that does not benefit from an
Merger
acquisition or merger is the com-
HCL Infosystems 8 Not all M&As are peaceful, however. pany's present management, which
buys NTS Sometimes, a company can take over stands to lose their jobs as a result of
Essar to buy 9
another one against its will -- the merger. Management uses a vari-
a hostile takeover. How can they do ety of defensive tactics to thwart a
NavaBharat Power
that? takeover. They sometimes run to
SEBI or the state legislature scream-
RNRL merges with 10 There is much evidence to suggest ing that the predator has violated
R-Power that most acquisitions and mergers some antitrust law or some antitake-
result in a net benefit to the economy. over law.
Case Study 12
There are more winners than losers.
Economists would say that it is a The hostile takeover – when a suitor
Quiz 13

2
 SYMBIONT 75% in a company through an open
offer. That restricts complete take-
VOLUME II, ISSUE 9
overs by preventing companies from
outright owning 100% of a company
and deters hostile suitors who don‘t
want to have to deal with a 25% mi-
Examples nority shareholding that opposes
them.
World
But a committee appointed by the
Microsoft– Yahoo Securities and Exchange Board of
India has made a series of propos-
HP– Compaq als that are expected to shake up the
Indian market for mergers and ac-
Vodafone – quisitions, in part by setting the
Mannesmann stage for hostiles. It includes pro-
posed revisions to the current rules
on the size of open offers.
India Another noteworthy recommendation
is to abolish payment of the non-
Kraft-Cadbury compete fee, which is paid by the ac-
quirers to the target company‘s pro-
Mitsui-Sesa Goa moters in lieu of a commitment for
not entering the same business. Such
ICI Plc– Asian Paints payments can be as high as 25% of
the deal value.
Going by the utilitarianism of the
business world, business ethics gets a
commandment where it is proven that
the hostile takeover necessarily defers
and deters the will of the acquire
company‘s management. This results
TRIVIA in loss of right to finances and deci-
sions held by the top management and
cial
Thomson Finan the board of directors.
sh ow
Securities data
t of the
that 14 percen The unethical nature of acquisition
7, worth
mergers in 200 might result in resistance from the
vo lved
$487 billio n, in shareholders due to the following rea-
ers.
hostile takeov sons:
ures are
Since these fig
r last
four times thei re- 1. Change in management might
they
peak in 1988, result in change in rules and
cord for
flect another re corporate policies which govern
2007. the distribution of profits and
interim dividends, hampering
the interest of shareholders.
"If you want to know what a man is really like, make notice how he acts
when he loses money." - Proverb
3
2. Change in governance might
affect the confidence of the
shareholders in the functioning
of the company which is very
pertinent to the success and the
market value of the company‘s
shares.
3. Distribution and sharing of as-
sets and the payoffs of liabili-
ties affects the balance sheet of
either company.
Traditionally no company was al-
lowed to place more than three peo-
ple of the same company and party
in the Board of Directors, but the
new policies under SEBI register an
accumulation of shareholding in the
board that can be underwritten by
the company itself, hence, an inter-
nal preference and interest cannot be
ruled out under such circumstances.
To address the issue of undermining
the ethical behaviour of the acquir-
ing company, SEBI was entitled to
interfere in regards to acknowledge-
ment and deference of any red taped
and sought unethical takeovers,
which is where the rule of 75:35:25
was allowed.
The Takeover Regulation Advisory
Committee was formed by the Secu-
rities and Exchange Board of India
in September 2009 to look at an
overall change in the takeover
norms.
So whether the process is ethical or
not; two things are clear:
1. Hostile takeover is informed
and decided- Ethical
2. The acquire company is forced
to sell its stake – Unethical
It is again a 360 degree question.
 Financing M&A - A Different Perspective
By Surajit Mandal
Once a decision has been taken by a company to
pursue acquisition as part of its business strategy,
and an appropriate target has been identified; it is
obviously crucial that the acquisition can be
funded. Without being able to raise the necessary
funding, the acquisition strategy cannot be imple-
mented. In the books of finance there are a number
of strategies prevailing to finance the M & A deals.
Strategies like Equity and debt funding permuta-
tions, Private equity and VC investment perspec-
tives, Mezzanine debt finance etc. are well proven
and widely used in various combinations to finance
the funding needs of acquisitions.
SECURITIZATION
Securitization of the assets of the target firm is one
of the innovative approaches used by the acquirers
in recent time. Securitisation is an innovative
means for certain companies to raise finance in a
cost-effective manner.
In traditional securitization process the acquiring
company floats a special purpose vehicle (SPV) as
an orphan company and sells the assets of the target
firm to that company. The SPVs mobilize money
from market through the bond issue route or debt.
By this way, acquiring firms ensure the lowest in-
crease of their fixed assets in the balance sheet after
the acquisition (to avoid legal and tax proceedings)
while retaining the full management control and
satisfying acquisition needs.
In contrast to a traditional securitisation, in whole
business securitization the borrowing company
"If past history was all there was to the game, the richest people
would be librarians." - Warren Buffet
4
does not have to sell the assets securitised to a spe-
cial purpose vehicle and therefore is able to retain
operational control. The acquiring firms float sub-
sidiaries for this purpose. The whole business se-
curitisation is particularly attractive for a business
which has significant value attached to assets
which it is unable to reflect on its balance sheet,
such as brands or other intellectual property rights.
A whole business securitisation enables such an
acquisition to realise the value of those assets in a
way which would not be possible using more tradi-
tional financing methods.
BOOTSTRAPPING FINANCE
Bootstrapping Finance is a form of buyout where a
buyer finances an acquisition in part with the tar-
get corporation's excess cash or liquid assets.
It is a way of buying a company over a period of
time. Buyer buys some shares of target firm, and
then uses those shares to borrow more money to
buy more shares, each time promising to give
those shares to the lender if they fail to make re-
payments on their loan. In this way over a period
of time the acquisition takes place.
STOCKSWAP
A stock swap, also known as a share swap, is a
business takeover or acquisition in which the ac-
quiring company uses its own stock to pay for the
acquired company. Each shareholder of the newly
acquired company receives a certain number of
shares of the acquiring company's stock for each
share of stock share holders previously held in the
acquired company. This financing method is very
convenient as the debt requirement is nil, but di-
lutes the management control.
Today‘s CFOs are using the newer methods to fi-
nance the acquisitions to ensure a lower cost of
capital and to avoid the legal requirements and tax
liabilities. They are combining the traditional and
emerging methods to get maximum benefit out of
the acquisition right from the beginning.
 SYMBIONT

VOLUME II, ISSUE 9

Essar Steel acquires Servo Steel in UK
In line with Essar Steel's distribution strategy

By Praveen and Nirmoy

DATE June 28th, 2010
ACQUIRER Essar Steel
ACQUIREE ServoSteel
DEAL VALUE Undisclosed
DEAL NATURE Acquisition
PURPOSE To strengthen the company‘s
distribution network

Essar Steel is going ahead for its ing, cold rolling, galvanising and col-
maiden acquisition in UK with Servos- our coating, pipes with a full distribu-
According to teel, the largest independent steel proc- tion business with service centre and
Essar Steel‘s essor in the UK. The acquisition was steel hyper marts.
spokesperson, made through Essar Steel International
―This is an oper- BV. Essar Steel International BV is a Essar Steel has a global steel produc-
ating plant with a subsidiary of Essar Steel Holdings tion capacity of 8.6 million tonnes per
loyal customer Limited. The company, however, did annum (MTPA). It operates seven ser-
base; so we don‘t not disclose the buyout amount. vice centres in India, Indonesia and
have to go out and Canada with aggregate capacity of
search for new Servosteel has a steel processing ca- over 3 million tonnes.
customers.‖ pacity of 500,000 tonnes per annum. It
is capable of processing the entire flat Essar Steel is part of the Essar Group,
product range - hot rolled coils, cold a leading player in the sectors of steel,
rolled coils, hot rolled pickled, galva- oil and gas, power, communications,
nised and colour coated products. shipping, ports and logistics, construc-
TRIVIA tioaqn and minerals and has opera-
Servosteel, a Dudley-based steel ser- tions in more than 20 countries across
Essar Steel has a vice center in the West Midlands, of- five continents.
global steel produc- fers a one-stop service for SCS
tion capacity of 8.6 (smooth clean surface) technology, Essar Steel Middle East, through its
million tonnes per pickling, slitting and decoiling and subsidiary, had announced its plans to
annum (MTPA). various individual custom tailored ser- set up a 2,50,000-tonne processing
It operates seven vices. and service centre in Dubai's Jebel Ali
service centres in Free Zone in January this year, to
India, Indonesia and Essar Steel, global producer of steel, is serve Essar's expanding regional cli-
Canada with aggre- a fully integrated flat carbon steel ent base in sectors such as automotive,
gate capacity of over manufacturer, with presence in Can- ship building and engineering.
3 million tonnes. ada, the US, and Indonesia besides In-
dia. It has integrated facilities for pro- The steel giant is believed to have sent
duction of extra wide plates, hot roll- feelers to Kandil for raw materials.

"Diversification is a protection against ignorance. It makes little sense for those who know
what they're doing." - Warren Buffet

5
Sumitomo Mitsui to hold 4.5% stake in SYMBIONT

VOLUME II, ISSUE 9

Kotak Mahindra Bank
To explore opportunities in cross border business, investment and
trade flows, with a focus on the Indo-Japanese corridor
By Sudhakar and Prathibha

Mr.Uday Kotak, MD of Kotak Mahindra

Bank said, “The Indian financial services
industry continues its high growth trajec-
tory. We see this as a significant opportunity
for two financial conglomerates to leverage
their strengths to serve the Indo-Japan cor-
ridor across a range of financial services".

Kotak Mahindra Bank Ltd has entered
into an agreement with Sumitomo
Mitsui Banking Corporation, Japan
(―SMBC‖), for a preferential issue to
SMBC of 16.4 mn shares of Kotak,
which amounts to approximately 4.5%
stake on a post-issue basis for Rs.
1,366 cr. The proposed investment is
at a price of Rs. 833 per share. The
preferential issue is subject to share-
holder and other necessary regulatory
approvals.
SMBC is the core financial institution
of Sumitomo Mitsui Financial Group
(―SMFG‖), the second largest banking
group in terms of market cap in Japan
with approximately USD 1.37 trillion
of total assets and USD 3.02 billion of
net profit as of March 31, 2010.
SMBC is engaged in the business of
providing financial services by itself,
and through its affiliates and group
companies, spanning commercial, re-
tail and wholesale banking, securities
businesses, asset management, project
finance, consumer finance and credit
card services.
It was established in April 2001 throu-
DATE
gh the merger of two leading Japa-
nese banks, Sakura Bank of the Mit- June 29th, 2010
sui group and Sumitomo Bank of the
Sumitomo group, both of which have
had a long business tradition globally ACQUIRER
as well as domestically for nearly
100 years each. SMBC, as a core Sumitomo Mitsui
member of SMFG, works together
with other member firms in the ACQUIREE
Group to offer customers highly so-
phisticated, comprehensive financial
Kotak Mahindra
services. SMBC also owns SMBC
Capital India Pvt Ltd, which is a Bank
100% owned subsidiary in India fo- DEAL VALUE
cused on providing advisory services
to clients in the infrastructure and
Rs.1366 crores
other similar sectors.
The intent of this cooperation be- DEAL NATURE
tween the two groups is to explore
opportunities arising from cross bor- Acquisition
der business, investment and trade
flows, with a substantial focus on the PURPOSE
India-Japan corridor. The coopera-
tion would cover various businesses
of mutual interest including asset To look into asset
management, alternate assets, invest- management, in-
ment banking, and wholesale bank- vestment banking,
ing such as infrastructure finance etc. and wholesale
banking

"Doing more and more with less and less is one form of being generous. In fact, the easiest
way to become rich is by being generous." - Robert Kiyosaki

6
 SYMBIONT RCOM-GTL tower merger creates a global
VOLUME II, ISSUE 9
tele-infrastructure giant.
This is one of the major measures that ADAG is undertaking to
clear debt and to lighten the burden of upswing tower cost
By Surajit and Chinnu
Date June 28, 2010
Acquirer GTL Infrastructure
Acquiree Reliance Communication
Deal Value Rs 31250 Cr.
Deal Nature Merger
Purpose To strengthen the Asset built up position

Reliance Infratel, the telex-infrastructure of the merged entity is expected to

FACT arm of the Anil Ambani led Reliance act as a catalyst to attract addi-
communication has agreed to merge with tional tenancies from 2G, 3G and
The combined tower the ManojTirodkar led GTL Infrastruc- BWA players and it may catapult
operations of ture for a cash and stock deal.Valuation GIL‘s number of tenants per tower
Reliance Communi- of RCom‘s tower arm is estimated as Rs from current 1.2 to over 2.5, after
cations and GTL 31250 Cr. @ Rs 62.5 L per tower. considering the additional tenancy
Infrastructure would RCom‘s debt of 18000Cr (out of total of over 75,000 to the existing num-
be the largest tele- debt of 33000Cr) will be transferred to ber of 1,25,000 tenants. A higher
coms infrastructure the books of GTL, and about 2 million tenancy is necessary to improve
firm in the world share holders of RCom will get free operating efficiency and reduce the
not controlled by a listed shares of GTL. time necessary to retrieve invest-
carrier. ments. Hence, the success of the
The transformational deal will be imple- new entity largely depends upon
mented through a demerger of Reliance the management‘s ability to im-
Infratel‘s tower assets into GTL Infra. prove tenancy ratio.
The related assets (Other than towers)
will however remain with Incidentally, telecom operators
RCom. Reliance infratel is transferring which are already tenants via this
their entire portfolio of 50000 towers to deal and have been brought on
TRIVIA the GTL. The post merger entity will board are RCOM, Aircel, Etisalat
become the World‘s largest telecom in-
GTL has been DB Telecom, MTS, Uninor Tele-
frastructure company, which operates
recognized as a neutrally. com, Videocon Mobile, Tata Tele-
4Ps power brand services, Vodafone and S Tel.
and also as the top For reliance communication the debt
10 in the S&P burden will reduce considerably and fi- If one takes into account the future
ESG India Index. nancial position will improve in their demand for telecom infrastructure
book. Moreover share holders of RCOM across the country from 14 players
will get a bonus in the form of GTL in 2G, and winners in the recent
listed shares. For GTL the deal is signifi-
auction for 3G.
cant as the independence and neutrality

"Finding your entrepreneurial spirit and making it strong is more important than the
idea or business you are developing." - Robert Kiyosaki

7
HCL Infosystems buys 60% stake in SYMBIONT

VOLUME II, ISSUE 9

NTS Group
The deal aims at creating greater business opportunities through
deeper customer service to the NTS Group
By Tom and Seetha

“With the addition of NTS, HCL Infosys-

tems will now expand its global footprint in
the Middle East and African markets with
the direct operations to address Systems
Integration and services needs in these re-
gions,” said Mr George Paul, Executive
Vice-President, HCL Infosystems

DATE
HCL Infosystems has acquired a 60 per cloud-based computing solution ser-
cent stake in Dubai-based IT services vice for its customers. July 8th, 2010
and solutions company, NTS Group, for
an estimated $6.5 million. The new offering straddles infra-
structure-as-a-service (IaaS) and ACQUIRER
―With the addition of NTS, HCL Info- software-as-a-service (SaaS), and
systems will now expand its global foot- HCL said it would deliver the bene- HCL
print in the Middle East and African fits such as reduced capital ex- Infosystems
markets with the direct operations to penses, increased data security, re-
address Systems Integration and ser- duced power and cooling, green ACQUIREE
vices needs in these regions,‖ the com- computing and disaster recovery.
pany said in a statement. The solution will also provide 24x7 NTS Group
technical support to manage scal-
NTS provides solutions ranging from IT ability and performance.
hardware to software services and con- DEAL VALUE
sulting. Specific areas covered by NTS The acquisition is part of our strat-
include computer hardware, enterprise egy to go global. Although we have $ 6.5 million
software solutions, infrastructure and a small presence in the Middle East
networking solutions, e-security solu- and African markets cur-
DEAL NATURE
tions and web development services. rently, NTS will become our beach-
NTS Group has over 100 technology head in addressing these markets on
and support employees in the United a larger scale,‖ said Acquisition
Arab Emirates. HCL Infosystems‘ executive vice-
president George Paul. PURPOSE
―HCL will be augmenting existing NTS
Dubai business with its system integra- About NTS Group To create
tion, product, services and solutions NTS is a six-year old privately-held
systems, product,
portfolio to create larger business,‖ it organisation that provides IT hard-
said.Meanwhile, HCL Infosystems has ware and software services to a host services and
announced the launch of HCL O'zone, a of business houses across Gulf. solutions portfolio

"If past history was all there was to the game, the richest people
would be librarians." - Warren Buffet

8
 SYMBIONT

VOLUME II, ISSUE 9

Essar to buy NavaBharat Power Ltd.
Will enable Essar power to take advantage of India‘s Planning
Commission‘s target of additional power generation
By Anjali and Rachna
DATE Only entered into a binding agreement
ACQUIRER Essar Power
ACQUIREE NavBharat Power Ltd.
DEAL VALUE Amount not disclosed
DEAL NATURE Acquisition
PURPOSE To accelerate growth and feed new expansion
plans to increase power generation capacity

Essar Power Ltd, a subsidiary of London
Stock Exchange (LSE)-listed Essar En-
ergy Holdings Ltd, has entered into bind-
ing agreements to purchase 100% stake
in Navabharat Power Pvt. Ltd, which is
building a 2,250MW coal-fired power
FACT
plant in Dhenkanal district, Orissa.
Navabharat
The purchase is part of Essar Power‘s
Power, is a joint
commitment to foreign investors to raise
venture between
its power generation capacity to
Malaxmi Energy
11,470MW by 2014. However Essar
Ventures and
Power has not disclosed the amount it
Nava Bharat
will pay for NavaBharat, only stating
Ventures. The
that it would initially acquire 76% stake
project includes
and the rest after completing certain pro-
the allocation of
ject milestones.
112 MMT of coal
from the Rampia
Essar, a late entrant in the power sector,
block and addi-
will have to pay a premium to build its
tionally, 4.7 MMT
portfolio in time to fulfill its commit-
coal linkage with
ment to overseas investors. The acquisi-
Coal India.
tion of NavaBharat will enable Essar
power to take advantage of India‘s Plan-
ning Commission‘s target of additional
power generation of around 78,577MW
to provide electricity to all non-
electrified villages, and to all rural
households through the Rajiv Gandhi
GrameenVidyutikaranYojana.
The acquisition will save the com-
pany about two years it would
have otherwise spent looking for
coal mines, buying land, signing
power purchase agreements with
state governments and getting en-
vironmental clearances. The
Navabharat power plant has se-
cured coal mines from Rampia
coal block with an estimated an-
nual output of 112 million tonnes
and from Coal India Ltd that will
give it 4.7 million tonnes, annu-
ally. It had been planning an in-
vestment of $2 billion (Rs9, 380
crore) to build the plant. Essar
Power will develop the plant in
two phases of 1,050MW and
1,200MW, and expects to tie up
funds for the first phase by Decem-
ber 2010, a company statement
said. The group needs to raise
nearly Rs10, 025 crore to complete
the two phases.
In April, the Essar Group raised
$2.5 billion by selling shares of
Essar Energy, the group‘s holding
company for the energy business,
and listed on LSE.

"If you lend someone $20, and never see that person again; it was
probably worth it." - Unknown

9
RNRL merges with second fiddle SYMBIONT

VOLUME II, ISSUE 9

Reliance Power
This is the deal that caused the Ambani brothers to scout for an
out of court settlement
By Chippy and Surya

“However, the merger was necessary as the

government’s gas utilization policy had made
it clear that a gas trading company would not
be favoured while allocating gas, and the en-
tity receiving the gas should have power gen-
eration capacities, which R-Power has”, said
Mr. Anil Ambani, CEO, ADAG Group

DATE
In a mega Rs 50,000-crore deal, Anil pating in future growth prospects of
Ambani group announced merger of Reliance Power's diversified gen-
RNRL with another group firm Reliance eration portfolio of 37,000 MW and July 4th, 2010
Power, which would now become a di- its substantial coal reserves in India
rect beneficiary of the gas deal signed and abroad. ACQUIRER
with Mukesh Ambani-led Reliance In-
dustries. On the other hand, Reliance Power
Reliance Natural
would reap benefits from RNRL's
coal bed methane blocks, and fuel Resources Ltd.
As part of the all-stock deal, Reliance
Power will give one of its shares for supplies through the latter's coal ACQUIREE
every four held in RNRL. supply logistics and shipping busi-
RNRL shareholders, including the pro- ness, it said, adding that combined Reliance Power
moters, would get Reliance Power entity would have over sixty lakh
shares worth about Rs 7,150 crore, as shareholders, the largest for any en-
per the current market prices. Out of tity in the world. DEAL VALUE
these, promoters would get shares worth
over Rs 3,600 crore. The combined en- Referring to the Gas Supplies Mas- Rs 50,000 crores
tity would have a net worth of over Rs ters Agreement signed by RNRL
16,000 crore, including RNRL's net with RIL, it said Reliance would
drive "substantial benefit" from it. DEAL NATURE
worth of around Rs 1,900.
Announcing the deal, the two compa- Besides, gas prospects from
nies said in a joint statement "Reliance RNRL's coal bed methane blocks as Merger
Power's plans for setting up upto 10,000 also its 10% share in an oil and gas
MW gas-based power plants (would) be block in Mizoram. PURPOSE
accelerated" and Reliance Power would
RNRL was born out of demerger of
"derive substantial benefit from RNRL's To derive benefit
Gas Supply Master Agreement .‖ DhirubhaiAmbani's Reliance em- from RNRL's Gas
pire. The purpose of creation of
Supply Master
RNRL shareholders will benefit from RNRL was for sourcing, supply and Agreement with
the proposed amalgamation, by partici transportation of fuels, primarily
natural gas. RIL

"In the business world, the rear-view mirror is always clearer than
the windshield." - Warren Buffet

10
 VOLUME II, ISSUE 9
CROSSWORD
THE WORD POWER
By Ashim, Anish and Shweta
Across
3. This Indian IT firm has acquired 60 per cent
stake in Dubai-based IT services firm NTS
Group for $6.5 million to expand globally
and tap the Middle East and African mar-
kets. (3)
4. A spin-off is a transaction in which a parent
creates a new legal subsidiary and distributes
shares in the subsidiary to its current share-
holders as a stock dividend. (7)
5. This is a case of selling a small portion of
the company as an Initial Public Offering.
(8)
7. This software giant has agreed to acquire
privately held Scalent, a maker of data cen-
ter software, founded in 2003, for an undis-
closed amount. (4)
8. Indian Firm Fortis agreed to pay $ 2.3 bil-
lion to acquire this Singapore based Health-
care Firm with an offer of SG$3.8 per share
against Khazanah's SG$ 3.7. (7)
11
SYMBIONT
Down
1. The Ruias-owned Essar Steel has acquired
this UK-based steel firm, the largest inde-
pendent steel processor in the country. (10)
2. International Business Machine Corp has
agreed to buy this privately held security
software company continuing an acquisition
spree to expand its line of corporate security
products (11th security-related acquisition
since 2006). (6)
3. This Global Bank has agreed to acquire the
Indian retail and commercial banking busi-
ness of Royal Bank of Scotland for a pre-
mium of $95 million over the net asset value
of the business. (4)
6. This shipping-to-telecom conglomerate
agreed to acquire Navabharat Power Pvt Ltd
which is setting up a 2,250-mega watt (Mw)
coal-fuelled power plant at Dhenkanal in
Orissa. (5)
 CASE STUDY
Indian Banking sells its trump card, now a hot seat for
major Mergers & Acquisitions

By Puneet Singh

Mergers and acquisitions in banking are now synonymous to major trading and banking nations due to
the strategic intent behind it. A large number of international and domestic banks all over the world are
engaged in merger and acquisition activities. One of the principal objectives behind the mergers and
acquisitions in the banking sector is to reap the benefits of economies of scale.

With the help of mergers and acquisitions in the banking sector, the banks can achieve significant
growth in their operations and minimize their expenses to a considerable extent. Another important ad-
vantage behind this kind of merger is that in this process, competition is reduced because merger elimi-
nates competitors from the banking industry.

Mergers and acquisitions in banking sector are forms of horizontal merger because the merging entities
are involved in the same kind of business or commercial activities. Sometimes, non-banking financial
institutions are also merged with other banks if they provide similar type of services.

Through mergers and acquisitions in the banking sector, the banks look for strategic benefits in the
banking sector. They also try to enhance their customer base.

In the context of mergers and acquisitions in the banking sector, it can be reckoned that size does mat-
ter and growth in size can be achieved through mergers and acquisitions quite easily. Growth achieved
by taking assistance of the mergers and acquisitions in the banking sector may be described as inor-
ganic growth. Both government banks and private sector banks are adopting policies for mergers and
acquisitions.

In many countries, global or multinational banks are extending their operations through mergers and
acquisitions with the regional banks in those countries. These mergers and acquisitions are named as
cross-border mergers and acquisitions in the banking sector or international mergers and acquisitions in
the banking sector. By doing this, global banking corporations are able to place themselves into a domi-
nant position in the banking sector, achieve economies of scale, as well as garner market share.

Mergers and acquisitions in the banking sector have the capacity to ensure efficiency, profitability and
synergy. They also help to form and grow shareholder value.

In the context of India, the major classification of banking Mergers and Acquisitions can be framed as:
Acquisition of smaller cooperative banks which helps in consolidation.
Acquisition of banks which help in resource and capacity expansion at the least cost.

There is lot of action on mergers and acquisitions in the co-operative banking sector in Maharashtra.
There are 636 UCBs in the state, with total deposits of around Rs 60,000 crore. One out of every five
UCB is not financially sound.

Mumbai-based Abhyudaya Co-operative Bank, is set to acquire one more co-operative bank — Sant
Janabai Urban Co-operative Bank — in Parbhani district of Marathwada. This will be the third acquisi-
tion for the bank which recently took over Citizen‘s Co-operative Bank.

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While Saraswat Bank acquired Maratha Mandir, Cosmos Bank took over four urban cooperative banks.
These included Secunderabad-based Premier Urban Co-operative Bank and Annapurna Mahila Co-
operative Bank, Baroda-based Unnati Co-operative Bank and Co-operative Bank of Ahmedabad. Cos-
mos is on a consolidation phase now, and will look at further acquisitions much later.

In some cases, financially distressed banks are also subject to takeovers or mergers in the banking sec-
tor and this kind of merger may result in monopoly and job cuts. The best and the most recent example
of the same issue is the takeover of Bank of Rajasthan by ICICI Bank. The swap ratio was 1:4 and
there was a major hue and cry over the change in management from public sector type dealing to pri-
vate hands.

Deregulation in the financial market, market liberalization, economic reforms, and a number of other
factors have played an important function behind the growth of mergers and acquisitions in the banking
sector. Nevertheless, there are many challenges that are still to be overcome through appropriate meas-
ures.

Mergers and acquisitions in banking sector are controlled or regulated by the apex financial authority
of India, the Reserve Bank of India (RBI).

As far as the history goes, the deals have just gone bigger and better by the day. But let me end this
case study with one question, does consolidation ensure a possible future cartel?

1. Which major bank is merging with SBI?

CATECHIZE THE QUESTION MARKS

2. Piramal has recently sold its diagnostic unit for Rs.600 crores to which
company?
3. DE Shaw has inked a deal with which major Indian conglomerate?
4. Which paints company holds a 25% stake in Punjab National Bank‘s
insurance business?
5. Marvel Entertainment was acquired by which huge entertainment and
adventure company?
6. Arava Power has seen investment from which electronics giant for $15
million?
7. United Spirits was about to acquire which major beverages firm?
QUIZ

8. Wockhardt has recently sold 10 hospitals to which pharma giant?

9. SPSS is now under which famous IT firm?
10. How many offers were made by BhartiAirtel to MTN?
11. The NCR bred, DT Cinemas, was in talks with which entertainment
company for a possible acquisition?
12. Under what name does Reliance operate its US acquired chain of multi-
plexes?
13. Piramal acquired the intellectual rights of which company?
14. Reliance is eyeing its third gas deal with which US company?
15. IBM has acquired which company for its marketing solutions?

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 CROSSWORD
ANSWERS

QUIZ
ANSWERS

1. State Bank of Indore

2. SRL
3. RIL
4. Berger Paints
5. Disney
6. Siemens
7. Diageo
8. Fortis
9. IBM
10. 31
11. PVR Cinemas
12. Reliance Media Works
13. BSV Anesthetics
14. Atlas Marcellus Shale
15. Red Pill

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 INSPIRED BY
Prof. Anirban Ghatak
Christ University Institute of Management, Kengeri

Sincere acknowledgment of the efforts of all the contributors for

their knowledge filled articles, crossword and quiz

ABOUT SYMBIONT
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