Case Studies on Recent Mergers & Acquisitions in India Introduction
Mergers & Acquisitions (“M&A”) is a strategy through which two or more business entities enter into a series of financial transaction through which amalgamation or takeover of the relevant entities takes place for various purposes. These became extremely popular in the late 19 th century and are carried out even today in huge numbers. In the last twenty years, a record number of M&A transactions have taken place in India as well as across the globe. Commercial legislations like the Companies Act, 2013, the Competition Act, 2002 the Income Tax Act, 1961 and other relevant regulations govern the legal, regulatory and compliance aspects of these transactions. Therefore, all entities have to be mindful of all pertinent legislations when entering into an M&A transaction. M&A transactions may seem simple prima facie, however, they can often have a very complex side. Each transaction is entered into for a different purpose – the terms and conditions of each may vary significantly from the other; thus, even the result of one deal/transaction may be quite different from that of another deal. Mergers and acquisitions can be categorized into several types depending on the objective that the entities seek to achieve through the transaction, the way in which the transaction is structured and the nature of the entities entering into the transaction – some types are horizontal mergers, vertical mergers, congeneric mergers, conglomerate mergers, hostile takeovers etc. Thus, the aim of this blog is to discuss and establish the relevance of some major Mergers and Acquisitions in India deals that have taken place in the past across various sectors such as banking, telecom, hospitality, construction etc. Every merger has a definite objective underlying it and has lessons to offer for similar deals in future. Since laws and regulations have a significant bearing on M&A transactions, this blog shall make references to them wherever necessary. Vodafone-Idea Merger In August of 2018, the National Company Law Tribunal approved the merger of the U.K based Vodafone Group (comprising of Vodafone Mobile Services Limited (VMSL) & Vodafone India) with Aditya-Birla Group’s Idea Cellular. The purpose of the merger was to create the largest telecom network in India with the highest customer base in India. Post the merger, the Vodafone group owns approximately 45% stake in the merged entity whereas Idea Limited has a share of approximately 26%.
The telecom market India is an oligopolistic market and the two companies were facing stiff competition from the two other major operators, Reliance’s Jio and Bharti-Airtel. Moreover, a ruling of the Supreme Court which ordered them to pay crores worth of Adjusted Gross Revenue necessitated that the two companies combine in order to leverage each other’s customer base in order to comfortably pay the dues. L&T’s Acquisition of Mindtree One of the most talked about acquisition in the Indian M&A market last year, was the acquisition of information technology services company Mindtree by construction and engineering major Larson and Toubro (L&T). The deal was one of a kind because it has been called the first ever hostile takeover in the Indian market. It was a hostile takeover as L&T, who was interested in acquiring a controlling stake in Mindtree to enlarge its technology arm, offered to purchase Mindtree’s shares from its promoters who unanimously rejected the same. Thereafter, L&T purchased a 20.32% stake in Mindtree from its nonpromoter shareholder Mr. V.G.Siddhartha. Thereafter, it purchased 15% stake from, post which it acquired a stake of another 31% after making an open offer, to finally acquire approximately 60% shareholding in the company. The merger was followed by resignations by at least three co-founder promoters. Flipkart’s acquisition of Myntra 2014 saw the merger of two of the biggest e-commerce majors of that time in the Indian market, Flipkart and Myntra. With e-commerce gaining fast popularity and stiff competition from foreign players like Amazon, Flipkart thought it fit to avail the benefit of the Myntra’s 30% market share in fashion ecommerce. Since both the entities were involved in the same industry, this is an example of a horizontal merger. Even post the acquisition, Myntra continue to operate as a separate entity, though under 100% ownership of Flipkart. Sun-Pharmaceuticals & Ranbaxy Merger In April 2014, Sun Pharmaceuticals announced its acquisition of Ranbaxy, one of the largest acquisitions that has ever taken place in the history of the pharmaceutical industry. Sun Pharmaceuticals acquired Ranbaxy from Daiichi-Sankyo, a pharmaceutical company based out of Japan which had acquired Ranbaxy in 2008. However, due to some objections raised by the FDA in terms of quality standards for its drugs, Daiichi Sankyo had to not only face flak from the regulatory authorities but had also suffered damage to reputation and resultant loss in customer base. It was therefore looking to disassociate itself from Ranbaxy when Sun-Pharma saw this as a good opportunity to get hold of the Ranbaxy’s strong presence in the research and development in the area of the pharmaceuticals. Moreover, after the acquisition Sun Pharma is now India’s largest pharmaceutical company and the 5 th largest globally. In return for the transaction, Ranbaxy’s shareholders got a 14% stake in the entity post the acquisition. The acquisition has definitely proved to be profitable to Sun Pharma. It saw an increase in its revenue as it got to leverage the customer-base of the Ranbaxy that preferred its generic and affordable range of drugs.
Thomas Cook & Sterling Holidays Merger Thomas Cook India Limited merged with Sterling Holiday Resorts (India) Limited in 2014 in a deal that consisted of part-cash and part-stock consideration. The transaction helped Thomas Cook gain access to Sterling’s inventory of over 1500 rooms in various resorts in the most sought after tourist destinations in India. On the other hand, Sterling Holidays benefitted by being associated with the reputation of Thomas Cook, one of the biggest companies in the tourism sector. The transaction which took place in several tranches involved purchase of 23% stake by Thomas Cook in Sterling Resorts, post which Thomas Cook had made an open offer for acquisition of additional stock in the company. This is an example of a
congeneric merger as both were involved in the tourism industry, their customer-bases and process chains were unrelated. Vedanta & Cairn India Merger In April 2017, Vedanta Resources announced acquisition of Cairn India, both involved in the natural resources sector. The minority shareholders of Cairn India were against the proposed transaction, which resulted in negotiations being dragged for a period of almost two years. Ultimately, they consented to it once Vedanta offered them one equity share and four redeemable preference shares in the merged entity for every share of Cairn India. Moreover, the merger helped Cairn India get access to the wide asset base of Vedanta Limited. Vedanta, on the other hand, a wholly owned subsidiary of London based Vedanta Resources sought to discharge its debt obligations with the heavy cash reserves of Cairn India. Since the transaction involved merger of a subsidiary into its holding company, this is an example of an upstream merger. Mergers and Acquisitions at Ricky Chopra International Counsels Ricky Chopra International Counsels (RCIC) is an international law firm with offices across various cities like Gurugram, New York etc. The mergers and acquisitions team at RCIC is indeed one of the most reputed M&A teams globally. The lawyers at RCIC have experienced to give expert M&A advice for transactions taking place both in India and abroad across a gamut of sectors including media, banking, corporate chains etc. The team assists the clients at every stage of the transaction, ranging from negotiations, drafting, regulatory filings etc. Apart from the strategic aspects, the lawyers of the firm are also well-versed with the detailed procedural aspects of M&A transactions, which helps the client in executing the transaction in a smooth and hassle-free manner. The firm has expertise in rendering cutting-edge advice suited for each client and the sheer commitment and passion of the lawyers of the firm has helped it develop a long-term relation with all of its clients.
Conclusion As might be evident from the above discussion, mergers and acquisitions are prevalent across sectors and form a crucial determinant of the health of any economy. As far as the current scenario of M&A in India is concerned, there has been an increase in M&A transactions as a result of acquisition of distressed entities under the IBC resolution process. The growth outlook for the future might also seem uncertain at the moment given the corona virus pandemic however, industrialists are optimistic especially for sectors that have witnessed a start-up boom like ed-tech, fin-tech, FMCG, payments systems, e-commerce etc. Moreover, the Ministry of Finance has also announced merger of ten Public Sector Banks (for example merger of Syndicate bank with Canara Bank, merger of United Bank of Commerce and Oriental Bank of India with Punjab National Bank etc.) in order to reduce bad loans and help revive the economy. In the private sector, debt-stricken airlines such as the Jet Airways and Air India, are have already invited Expression of Interest (EoI) from prospective buyers who might be willing to acquire them.