smsoumeetaa-140422214648-phpapp01

8/11/2019 smsoumeetaa-140422214648-phpapp01

1/36

1

A PROJECT ON

CORPORATE LEVEL STRATEGIESTAKEOVER STRATEGY

IN THE SUBJECT

Strategic Management

SUBMITTED BY

Soumeet D. Sarkar

A041

M.Com. Part-I

UNDER THE GUIDANCE OF

Prof. Prerna Sharma

TOUNIVERSITY OF MUMBAI

FOR

MASTER OF COMMERCE PROGRAMME (SEMESTER - II)

In

ADVANCE ACCOUNTANCY

YEAR: 2013-14

SVKMS

NARSEE MONJEE COLLEGE OF COMMERCE &ECONOMICS

VILE PARLE (W), MUMBAI400056.


2/36

2

EVALUATION CERTIFICATE

This is to certify that the undersigned have assessed and evaluated the

project on CORPORATE LEVEL STRATEGIES TAKEOVER

STRATEGY submitted by Soumeet D. Sarkar student of M.Com.Part - I

(SemesterII) in Advance Accountancy for the academic year 2013-14. This

project is original to the best of our knowledge and has been accepted for

Internal Assessment.

Name & Signature of Internal Examiner

Name & Signature of External Examiner

PRINCIPAL

Shri. Sunil B. Mantri


3/36

3

DECLARATION BY THE STUDENT

I, Soumeet D. Sarkar student of M.Com.(PartI) in Advance Accountancy, Roll

No.: A041, hereby declare that the project titled CORPORATE LEVEL

STRATEGIES TAKEOVER STRATEGY for the subject Strategic

Management submitted by me for SemesterII of the academic year 2013-14,

is based on actual work carried out by me under the guidance and supervision

of Prof. Prerna Sharma. I further state that this work is original and not

submitted anywhere else for any examination.

Place: Mumbai

Date:

Name & Signature of Student

Name : Soumeet D. Sarkar

Signature : _________________


4/36

4

ACKNOWLEDGEMENT

This project was a great learning experience and I take this opportunity to

acknowledge all those who gave me their invaluable guidance and inspiration

provided to me during the course of this project by my guide.

I would like to thank Mr. Prerna Sharma - Professor of Strategic Management

(MCOMNarsee Monjee College).

I would also thank the M.Com Department of Narsee Monjee College of

Commerce & Economics who gave me this opportunity to work on this project

which provided me with a lot of insight and knowledge of my current curriculum

and industry as well as practical knowledge.

I would also like to thank the library staff of Narsee Monjee College of

Commerce & Economics for equipping me with the books, journals and

magazines for this project.


5/36

5

CONTENT

Sr. No. PARTICULARS Page No.

CHAPTER IINTRODUCTION

1.1 Meaning & Definition 6

1.2 Financial & Non-financial Benefits 7

1.3 Phases of Strategic Management 7

1.4 Objective of Study 8

1.5 Corporate Level Strategies 9

1.6 Importance of Corporate Strategy 10

1.7 Limitations of Corporate Strategy 11

CHAPTER II TAKEOVER STRATEGY

2.1 Meaning & Definition 12

2.2 Types of Takeover Strategy 13

CHAPTER IIICASE STUDIES

3.1 Vodafone - Hutch 16

3.2 Mahindra - Satyam 21

3.3 Kraft - Cadbury 27

3.4 Tata - Corpus 30

CHAPTER IVCONCLUSION

4.1 Conclusion 34

4.2 Bibliography 36


6/36


7/36

7

Financial Benefits:-

1) Improvement in sales.

2) Improvement in profitability.

3)

Improvement in productivity.

Non-Financial Benefits:-

1) Improved understanding of competitors strategies.

2) Enhanced awareness of threats.

3) Reduced resistance to change.

4) Enhanced problem-prevention capabilities.

Phases of Strategic Management:-

Strategic management is not a static concept, but an ongoing process. The strategic

management process encompasses four distinct phases. In order to succeed, a strategy

must succeed in each phase. It is important, therefore, that anyone planning a business

strategy understands these four phases and the roles that they play.

1. Formulation:- Strategic management begins with the formulation phase, where the

firms management develops an overall strategy for achieving the firm's objectives.

Objectives may include, for example, increasing market share or reducing costs.

The top management team typically is saddled with the responsibility of

developing the firm's overall strategy. They may, however, seek the input of line

managers and front-line workers as they develop their strategy.

2. Implementation:- With a clear strategy formulated, managers can then go about

implementing it. Strategies are usually implemented from the top down. To begin

with, the top management team will inform line managers about the strategic

changes, and line managers will, in turn, pass this information on to their

subordinates. Many strategies fail due to poor implementation, but managers can

avoid this by carefully introducing the new strategy and listening to any employee

concerns about the changes.


8/36

8

3. Evaluation:- When a strategy is implemented, it will hopefully be successful, but

managers cannot assume that every strategy will be. They will, therefore, need to

measure the success of a strategy. To measure this success, the strategy must be

evaluated against the firm's goals. A gap analysis is a useful tool for evaluating

the success of a strategy. This measures the gap that exists between the desired

results and a firm's actual results.

4. Modification:- Sometimes, strategies are successful on the first attempt, but more

often than not, there is room for improvement. If the evaluation of the strategy

shows that the firm has not achieved all its desired goals, then it is necessary to

modify the strategy. For example, if the firm used a cost-leadership strategy to

increase sales, but the sales actually decreased, then the firm would need to

modify this strategy, perhaps using a premium-pricing strategy instead.

Objective of Study:-

1. To understand the different corporate strategies.

2. To analyse the takeover strategy.

3. To study the various case studies related to takeover strategy.


9/36

9

Corporate Level Strategy

It is believed that strategic decision making is the responsibility of top management. At

the corporate level, the board of directors and chief executive officers are involved in

strategy making. Corporate planners and consultants may also be involved. Mostly,

corporate level strategies are futuristic, innovative and pervasive in nature. Decision like

spreading the range of business interests, acquisitions, diversification, structural

redesigning, mergers, takeovers, liquidations come under corporate level strategies. There

are four grand strategic alternatives. They are stability, expansion, retrenchment and any

combination of these three. These strategic alternatives are also called as grand strategies.

A brief description about them are as follows:-

1.

Stability Strategy:- It is adopted by an organization when it attempts to improve

functional performance. They are further classified as follows:-

i. No change strategy.

ii. Profit strategy.

iii. Pause/Proceed with caution strategy.

2. Expansion Strategy:- It is followed when an organization aims at high growth.

They operate through:-

i.

Concentration.ii. Integration.

iii. Diversification.

iv. Cooperation.

v. Internationalization

Mergers, takeovers, joint ventures and strategic alliances come under expansion

through cooperation. International strategies are further classified into global

strategy, transnational strategy, international strategy and multi-domestic strategy.


10/36

10

3. Retrenchment Strategy:- It is followed when an organization aims at a

contraction of its activities. It is done through turnaround, divestment and

liquidation in either of the following three modes:-

i. Compulsory winding up.

ii. Voluntary winding up.

iii. Winding up under supervision of the court.

4. Combination Strategies:- They are followed when an organization adopts a

combination of stability, expansion and retrenchment either at the same time in

different businesses or at different times in the same business. The well-known

companies of the TTK group, based in Southern India, adopted a restructuring

plan in the late 1980s involving following strategies:-

i.

Merger of TTK chemicals with TTK pharma.

ii. TT industries & Textiles Ltd. planned for expansion through joint venture.

iii. TTK Ltd. diversified into the field of non-stick cooking utensils.

iv. TTK maps & publications expanded into the general publishing business

after a turnaround.

Importance of Corporate Strategy

In the present day competitive environment, no business organization can dream of

survival without formulating appropriate corporate strategy. As the environment is

continuously changing, the need for corporate strategic framework is more specific. The

following areas clearly show the importance of corporate strategy:-

1. Corporate strategy rationalizes allocation of scarce resources.

2. Corporate strategy motivates employees examples to shape their work in the

context of shared corporate goals.

3. Strategy assists management to meet unanticipated future changes.

4. Organizational effectiveness is ensured through implementing and evaluating the

strategy.


11/36

11

5. Corporate strategy is a powerful tool to management to deal with the future

which is uncertain and hazy in all respects.

6. Corporate strategy improves the capability of management in coping with the

volatile external environmental forces.

7. Corporate strategy encourages the management to choose the best course of action

to realize the objectives.

8. Strategy planning system provides an objective basis for measuring performance.

Limitation of Corporate Strategy

The corporate strategy has the following specific limitations:-

1. The process of strategy formulation is not an easy one. The process of forming

corporate strategy is complex, cumbersome and complicated.

2. Corporate strategies are useful for long range problems. They are not effective to

overcome current exigencies.

3. The corporate strategy formulation process calls for considerable time, money and

effort. Developing appropriate corporate strategy is not a simple and economical

proposition. For financially weak companies, cost becomes a great hindrance.

4. As future is uncertain and cannot be predicted accurately, the strategic planning

system based on hazy and uncertain estimates is not exact.

5. Implementation of corporate strategy is influenced by organizational factors,

behavioral factors and motivational factors. The gap between formulation and

implementation of corporate strategy does not give desired results to the

organization.


12/36

12

TAKEOVER STRATEGY

Takeovers are taking place all over the world. Those companies whose shares are under

quoted on the stock market are under a constant threat of takeover. In fact every

company is vulnerable to a takeover threat. The takeover strategy has been conceived to

improve corporate value, achieve better productivity and profitability by making optimum

use of the available resources in the form of men, materials and machines. Takeover is

one of the most popular strategies followed by the corporate sector all over the world.

The act or an instance of assuming control or management of or responsibility for

something, especially the seizure of power, as in a nation, political organization, or

corporation. Takeovers are often made as part of a company's growth strategy whereby it

is more beneficial to take over an existing firm's operations and niche compared to

expanding on its own. Takeovers are often paid in cash, the acquiring company's stock

or a combination of both.

Takeovers can be either friendly or hostile. Friendly takeover occurs when the target

firm expresses its agreement to be acquired, whereas hostile acquisitions don't have the

same agreement from the target firm and the acquiring firm needs to actively purchase

large stakes of the target company in order to have a majority stake. In either case, the

acquiring company often offers a premium on the market price of the target company's

shares in order to entice shareholders to sell.

Takeover implies acquisition of control of a company through purchase or exchange

of shares with the objective of gaining control over the management of a company. It

can take place either through acquiring majority shares or by obtaining control of the

management of the business & affairs of the target company. Ordinarily a larger

company takes over a smaller company. On the other hand, in a reverse takeover, a

smaller company acquires control over a larger company. When the shares of the

company are closely held by a small number of persons, a takeover may be affected by

agreement with the holders of those shares. However where the shares of a company are

widely held by the general public, it involves the process as set out in the SEBI

(Substantial Acquisition of Shares and Takeovers) Regulations, 1997.


13/36

13

Types of Takeover Strategy

1. Friendly Takeovers:- A friendly takeover is an acquisition which is approved by

the management. Before a bidder makes an offer for another company, it usually

first informs the company's board of directors. In an ideal world, if the board

feels that accepting the offer serves the shareholders better than rejecting it, it

recommends the offer be accepted by the shareholders.

In a private company, because the shareholders and the board are usually the

same people or closely connected with one another, private acquisitions are

usually friendly. If the shareholders agree to sell the company, then the board is

usually of the same mind or sufficiently under the orders of the equity

shareholders to cooperate with the bidder. This point is not relevant to the UKconcept of takeovers, which always involve the acquisition of a public company.

2. Hostile Takeovers:- A hostile takeover allows a suitor to take over a target

company whose management is unwilling to agree to a merger or takeover. A

takeover is considered hostile if the target company's board rejects the offer, but

the bidder continues to pursue it, or the bidder makes the offer directly after

having announced its firm intention to make an offer. Development of the hostile

tender is attributed to Louis Wolfson.

A hostile takeover can be conducted in several ways. A tender offer can be made

where the acquiring company makes a public offer at a fixed price above the

current market price. Tender offers in the United States are regulated by

the Williams Act. An acquiring company can also engage in a proxy fight,

whereby it tries to persuade enough shareholders, usually a simple majority, to

replace the management with a new one which will approve the takeover. Another

method involves quietly purchasing enough stock on the open market, known as a

creeping tender offer, to effect a change in management. In all of these ways,

management resists the acquisition, but it is carried out anyway.

The main consequence of a bid being considered hostile is practical rather than

legal. If the board of the target cooperates, the bidder can conduct extensive due

diligence into the affairs of the target company, providing the bidder with a


14/36

14

comprehensive analysis of the target company's finances. In contrast, a hostile

bidder will only have more limited, publicly available information about the target

company available, rendering the bidder vulnerable to hidden risks regarding the

target company's finances. An additional problem is that takeovers often require

loans provided by banks in order to service the offer, but banks are often less

willing to back a hostile bidder because of the relative lack of target information

which is available to them.

3. Reverse Takeovers:- A reverse takeover is a type of takeover where a private

company acquires a public company. This is usually done at the instigation of the

larger, private company, the purpose being for the private company to

effectively float itself while avoiding some of the expense and time involved in a

conventional IPO. However, in the UK under AIM rules, a reverse take-over is

an acquisition or acquisitions in a twelve month period which for an AIM

company would:-

Exceed 100% in any of the class tests; or

Result in a fundamental change in its business, board or voting control; or

In the case of an investing company, depart substantially from the

investing strategy stated in its admission document; or

where no admission document was produced on admission, departsubstantially from the investing strategy stated in its pre-admission

announcement; or

depart substantially from the investing strategy.

An individual or organization, sometimes known as corporate raider, can purchase

a large fraction of the company's stock and, in doing so, get enough votes to

replace the board of directors and the CEO. With a new agreeable management

team, the stock is a much more attractive investment, which would likely result in

a price rise and a profit for the corporate raider and the other shareholders.

4. Backflip Takeovers:- A backflip takeover is any sort of takeover in which the

acquiring company turns itself into a subsidiary of the purchased company. This

type of takeover can occur when a larger but less well-known company purchases

a struggling company with a very well-known brand such as Texas Air


15/36

15

Corporation takeover of Continental Airlines but taking the Continental name as it

was better known.

5. Financing a Takeover:-

a) Funding:- Often a company acquiring another pays a specified amount for

it. This money can be raised in a number of ways. Although the company

may have sufficient funds available in its account, remitting payment

entirely from the acquiring company's cash on hand is unusual. More often,

it will be borrowed from a bank, or raised by an issue of bonds.

Acquisitions financed through debt are known as leveraged buyouts, and

the debt will often be moved down onto the balance sheet of the acquired

company. The acquired company then has to pay back the debt. This is a

technique often used by private equity companies. The debt ratio of

financing can go as high as 80% in some cases. In such a case, the

acquiring company would only need to raise 20% of the purchase price.

b) Loan Note Alternatives:- Cash offers for public companies often include a

loan note alternative that allows shareholders to take a part or all of their

consideration in loan notes rather than cash. This is done primarily to

make the offer more attractive in terms of taxation. A conversion of shares

into cash is counted as a disposal that triggers a payment of capital gains

tax, whereas if the shares are converted into other securities, such as loan

notes, the tax is rolled over.

c) All Share Deals:- A takeover, particularly a reverse takeover, may be

financed by an all share deal. The bidder does not pay money, but instead

issues new shares in itself to the shareholders of the company being

acquired. In a reverse takeover the shareholders of the company being

acquired end up with a majority of the shares in, and so control of, the

company making the bid. The company has managerial rights.


16/36

16

Examples of Takeovers

VODAFONE

Vodafone Group is a British multinational telecommunications company headquarteredin London and with its registered office in Newbury, Berkshire. It is the world's third

largest mobile telecommunications company measured by both subscribers and 2013

revenues (in each case behind China Mobile), and had 550 million subscribers as of

December 2013.

Vodafone owns and operates networks in about 30 countries and has partner networks in

over 40 additional countries. Its Vodafone Global Enterprise division provides

telecommunications and IT services to corporate clients in over 70 countries.

The evolution of Vodafone brand started in 1982 with the establishment of Racal

Strategic Radio Ltd subsidiary of Racal Electronics Plc. UK's largest maker of military

radio technology. By initiative of Jan Stenbeck Racal Strategic Radio Ltd. formed a joint

venture with Millicom called Racal Vodafone, which would later evolve into the present

day Vodafone.

Vodafone was launched on 1st January 1985 under the new name, Racal-Vodafone

(Holdings) Ltd, with its first office based in the Courtyard in Newbury, Berkshire, and

shortly thereafter Racal Strategic Radio was renamed Racal Telecommunications Group

Limited. On 29th December 1986, Racal Electronics bought out the minority shareholders

of Vodafone for 110 million; and Vodafone became a fully owned brand of Racal.

In September 1988, the company was again renamed Racal Telecom. On 26th October

1988, Racal Telecom, majority held by Racal Electronics; went public on the London

Stock Exchange with 20% of its stock floated. The successful flotation led to a situation

where the Racal's stake in Racal Telecom was valued more than the whole of Racal

Electronics. Under stock market pressure to realise full value for shareholders of Racal,

Harrison decides in 1991 to demerge Racal Telecom.


17/36

17

HUTCH

Hutch was a mobile telecommunication brand under the company Hutchison

Whampoa that offers a range of GSM and HSPA services throughout Sri Lanka.

Hutchison launched its services in 2004 with the aim of being a nationwide operator

in Sri-Lanka. As of April 2010, Hutch had network coverage of approximate 70% of the

entire island. Initially it was called Call Link.

Hutchison Telecom Lanka is a member of Hutchison Asia Telecom which comprises

mobile telecommunications operations in the emerging markets of Indonesia, Vietnam and

Sri-Lanka. Hutchison Asia Telecom is a key part of Hutchison Whampoa Groups

telecommunications division which includes the 3 Group comprising 3G operations

in Australia, Austria, Denmark, Hong-Kong, Indonesia, Ireland, Italy, Macau, Sweden and

the UK.

Transition from Hutch to Vodafone in India

The Turkish Vodafone migration set the bar high for India. The Indian team raised the

bar and the migration process to Vodafone from Hutch was again a great collaboration

between global and local teams. Ogilvy India have driven the 360-degree integration,

working with the Vodafone Global team very effectively to produce great work withgreat results. A very tough act for the next country to follow.

The simplicity and comprehensive nature of the Hutch to Vodafone transition campaign

was a perfect example of the successful entry of a new brand into a market.

Business Issues

Hutch, the second largest GSM brand in the Indian telecom market had been bought by

Vodafone. A leading player in the high growth Indian market, Hutch enjoyedconsiderable brand equity. It was also a well-loved brand in terms of its unique imagery

and award-winning communication. In making the transition to Vodafone, it was

important to carry forward this equity and exceed expectations.


18/36

18

The objectives for the exercise were to carry along 35 million customers, 400,000 trade

partners and 10,000 employees through the transition and, even more importantly, to

enthuse existing stakeholders and potential customers with the possibilities offered by

Vodafone.

Time Frame

The entire project including positioning, retail identity, campaign development and

implementation was carried out in less than four months, from June to September 2007.

In order to meet this tight time frame, a large amount of work was carried out in

parallel, effectively leveraging the strengths of the network agencies. Ogilvy, Added

Value and Team Vodafone worked in conjunction to develop the India positioning for

Vodafone by July. The briefing for the campaign took place in July. Working with

Team Vodafone and Maxus, Ogilvy arrived at and developed the idea, launch campaign

and launch strategy by August. The touch point list alone, for this project, included over

3,000 different elements. Working in conjunction with the Ogilvy One team and Fitch,

the Ogilvy team developed and executed the entire list in just 45 days so that from Day

One 21st September 2007, the consumer would experience a whole new brand.

Partnership Activity

Getting India to love Vodafone the transition demanded an intensive engagement with

every arm of the WPP teams and the network responded with its very best. Five WPP

agencies came together to help create magic on 21st September 2007. The Ogilvy team

played the role of Brand Team Leader. Their first task was to internalise the new brand

and its tone of voice, which required intensive training across offices. The Ogilvy team

took this task forward and cascaded the new brand to 16 circle teams across six cities.

This helped develop work that spoke the Vodafone tone of voice from day one.

A comprehensive research campaign study led by Added Value was followed by

intensive workshops involving the key stakeholders at Ogilvy and Maxus. Fitch was

briefed not to just redesign the store signage but to create a whole new store experience

for the Vodafone customer. At every interaction point with the consumer, the brand


19/36

19

required a new look in line with the new brand promise. That meant changing

everything from the internal forms to the uniform of the security guard.

The launch campaign, one-on-one communication with existing customers and customer

touch-point elements were developed by Ogilvy and Ogilvy One. Unlike most re-branding

exercises, which are phased over time, Maxus had to execute the transition overnight

across the country. There was a first of its kind alliance with Star (Indias largest TV

network) where the entire advertising was bought for Vodafone for 24 hours across all

the networks 13 channels the worlds first 24 hour TV roadblock.

Ogilvy Action put up over 20,000 high visibility outdoor sites overnight, using over 2

million square feet of vinyl.

Outputs

The launch was the most talked about event in Indian media, with over 450 articles. An

entire episode of CNBC covered the transition as a case study. Day after brand recall

for Vodafone was 80% proclaimed by the industry and media as one of the best

brand launches the country has ever seen. Thirty-five million customers transitioned

seamlessly into brand Vodafone and within six months of launch, it became the brand of

choice for over 44 million subscribers. It was the fastest, most comprehensive and most

effective launch witnessed within the Vodafone network and has today been proclaimed

as the benchmark for all forthcoming launches for Vodafone.

Vodafone Acquires Essar's Stake

In 2007, Vodafone granted options to Essar that would enable the conglomerate to sell

its entire stake for US$5 billion, or to dispose of part of the 33% shareholding at an

independently appraised fair market value. In January 2011, Vodafone objected to Essars

plans to place part of its 33% stake in India Securities, a small public company.

Vodafone feared the move would give an inflated market value to Vodafone Essar. It

had approached the market regulator SEBI and also filed a petition in the Madras High

Court.


20/36

20

The final shareholding pattern post this deal was not provided by the company as it was

not clear whether Vodafone's stake would exceed the 74% FDI limit. Indian laws don't

allow foreign companies to own more than 74% in a local mobile phone operator.

Vodafone has assured it will comply with local rules. Vodafone will have to sell that

1% to some Indian entity, or they will have to consider an Initial Public Offering.

Vodafone also said that final settlement is anticipated to be completed by November

2011. The completion of the deal would be subject to meeting certain conditions which

include Reserve Bank of India's permission as well as valuation of the deal.

On March 31, 2011, Vodafone Group Plc. announced that it would buy an additional

33% stake in its Indian joint venture for US$5 billion after partner Essar

Group exercised an option to sell the holding in the mobile phone operator. The deal

raised Vodafones stake to 75%. Essar left the company after it implemented a put

option over 22% of the venture. Vodafone exercised its call option to buy an 11% stake.


21/36

21

MAHINDRA-SATYAM

Satyam Computers Services Limited (SCSL) was incorporated in the year 1987 as a

private limited company at Andhra Pradesh. Later at 1991 Satyam recognized as a public

limited company. SCSL was fourth largest provider of Information Technology services

in India. In the year 1995 company awarded ISO 9001 certification. Twenty years ago,

Satyam has consistently innovated across various aspects of the enterprise processes,

technology, business and engagement models, and service offerings. Satyam offered a

range of expertise that included:- Software Development Services, Embedded Systems,

Engineering Services (CAD/CAM/CAE), Systems Integration, Enterprise Resource Planning

Solutions, Enterprise Application Integration, Customer Relationship Management, Supply

Chain Management, Product Development, Electronic Commerce, and Consulting. As ITservices became more and more technology-centric and generic, hence Satyam started

offering services to enhance the customer business needs. Satyam starting with deeper

focus on customized IT solution on insurance, financial services, telecom, manufacturing,

transportation, health care, Bioinformatics and Retail sectors. In 2001, the company was

awarded IMC Ramkrishna Bajaj National Award Trophy in the service category. In 2002

the company announced the launch of its operation in China. Satyam cited as 'Top

choice for SAP Support' by Giga Research group in the year 2002. In the year 2003

company announced business continuity centre in Singapore, the first of its kind outside

the India and in the same year Global Solution centre in Malaysia launched. Satyam and

Microsoft signed Memorandum of Understanding to provide world class IT outsourcing

services in Asia-Pacific region. Company was awarded IBM Lotus award in knowledge

& content management solution category in the 10th

annual IBM Lotus award at 2003.

The World Bank had awarded the Outsourcing Contract to Satyam Computer Services

worth of $10-$15 million at 2003. New development centre was inaugurated in

Mississauga, Canada in the year of 2004. Satyam acquired two different companies in

2005. In the fiscal of 2006 Satyam received the CNBC best performing stock of the

year and Excellence in cost management from the Institute of Cost and Works

Accountants of India. Satyam had been ranked the No.1 ITO: Global Process Consulting

vendor by the 2007 Black Book of Outsourcing and had won the Asian Corporate Social


22/36

22

Responsibility Award under the poverty alleviation category. As of 2008 Satyam

Computer Services Ltd. became the first Indian company to list its American Depository

Shares (ADS) on Euronext in Amsterdam.

The Satyam Scandal

The Satyam Computer Services Scandal was a corporate scandal that occurred in India

in 2009 where chairman Ramalinga Raju confessed that the company's accounts had been

falsified. The Global Corporate Community was shocked and scandalised when the

Chairman of Satyam, Ramalinga Raju resigned on 7 th January 2009 and confessed that

he had manipulated the accounts by US$1.47 billion.

Pricewaterhouse Coopers was the statutory auditor of Satyam Computer Services when

the report of scandal in the account books of Satyam Computer Services broke. The

Indian arm of PWC was fined US$6 million by the US SEC(Securities and Exchange

Commission) for not following the code of conduct and auditing standards.

Afermath

Ramalingam Raju along with 2 other accused of the scandal, had been granted bail from

Supreme Court on 4th November 2011 as the investigation agency CBI failed to file the

charge sheet even after more than 33 months Raju being arrested.

On the same day, the Crime Investigation Department(CID) team picked up Vadlamani

Srinivas, Satyam's then CFO, for questioning. He was arrested later and kept in judicial

custody.

On 11th January 2009, the government nominated noted banker Deepak Parekh,

former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to

Satyam's board.

Analysts in India have termed the Satyam scandal India's own Enron scandal. Some

social commentators see it more as a part of a broader problem relating to India's caste-

based, family-owned corporate environment.


23/36

23

The Indian Government has stated that it may provide temporary direct or indirect

liquidity support to the company. However, whether employment will continue at pre-

crisis levels, particularly for new recruits, is questionable.

On 14th

January 2009, Pricewaterhouse, the Indian division of Pricewaterhouse Coopers,

announced that its reliance on potentially false information provided by the management

of Satyam may have rendered its audit reports "inaccurate and unreliable".

On 22nd January 2009, CID told in court that the actual number of employees is only

40,000 and not 53,000 as reported earlier and that Mr.Raju had been allegedly

withdrawing Rs.200 million (US$3 million) every month for paying these 13,000 non-

existent employee.

Acquisition by Mahindra Group

On 13th April 2009, via a formal public auction process, a 46% stake in Satyam was

taken over by Mahindra & Mahindra owned company Tech Mahindra, as part of its

diversification strategy. Effective July 2009, Satyam rebranded its services under the new

Mahindra management as "Mahindra Satyam". After a delay due to tax issues Tech

Mahindra announced its merger with Mahindra Satyam on 21st March 2012, after the

board of two companies gave the approval. The companies merged legally on 25th June

2013.

Mahindra Satyam (formerly Satyam Computer Services Limited) was an Indian IT

services company based in Hyderabad, India. It was founded in 1987 by B Ramalinga

Raju. The company was listed on the Pink Sheets, the National Stock

Exchange and Bombay Stock Exchange. It offered a range of services, including software

development, system maintenance, packaged software integration and engineering

design services. In June 2009, the company unveiled its new brand identity MahindraSatyam subsequent to its takeover by the US$14 billion Mahindra Group's IT arm on

13th April 2009. Tech Mahindra took over on June 24 th 2013.


24/36

24

Takeover by Mahindra

Mahindra Satyam's proposed merger with Tech Mahindra may be delayed all because of

legal issues, and ambiguity over jurisdiction between investigating agencies and the

government. The merger has been delayed due to two tax cases pending with the

Income Tax claiming over Rs.27 billion for both. Tech Mahindra announced

its merger with Mahindra Satyam on 21st March 2012, after the board of two companies

gave the approval. The two firms have received the go-ahead for merger from the

Bombay Stock Exchange and the National Stock Exchange. Competition Commission of

India(CCI) approved the proposed merger of Mahindra Satyam and other companies

with Tech Mahindra. Mahindra Satyam will hold its Annual General Meeting(AGM) on

8th June 2012 to consider the proposal to merge the company with Tech Mahindra. It is

mandatory for the firm to get the AGM nod. The shareholders of both Tech Mahindra

and Mahindra Satyam have unanimously approved the scheme of takeover of Satyam

Computer Services Ltd., Venturbay Consultants, C&S System Technologies, Canvas M

Technologies and Mahindra Logisoft Business Solutions with Tech Mahindra. Mahindra

Satyam chairman, Vineet Nayyar said on 2nd August 2012, that the merger with Tech

Mahindra was at the final stage of getting approval from the Andhra Pradesh and

Maharashtra High Courts. The two firms had received the go-ahead for merger from

the Bombay Stock Exchange and the National Stock Exchange. On June 11 th 2013,

Andhra Pradesh High Court gave its approval for the merger of Mahindra Satyam with

Tech Mahindra, after Bombay High Court already gave its approval. Vineet Nayyar said

that technical approvals from the Registrar of Companies in Andhra Pradesh and

Maharashtra are required which will be done in two to four weeks, and within 8 weeks,

new merged entity will be in place, a new organisation chart would also come into

force led by Anand Mahindra as Chairman, Vineet Nayyar as Vice Chairman and C. P.

Gurnani as the CEO and Managing Director. Tech Mahindra on June 25

th

2013announced completion of Mahindra Satyam's merger with itself to create nation's fifth

largest software services company with a turnover of US$ 2.7 billion. Tech Mahindra got

the approval from the Registrar of Companies for the merger late in the night at 11:45

(pm) on June 24th 2013. July 5th 2013 has been determined date on which the Satyam

shares will be swapped for Tech Mahindra shares which was approved by both the


25/36

25

boards. Mahindra Satyam (Satyam Computer Services), was suspended from trading with

effect from July 4th 2013, following its merger with Tech Mahindra. Tech Mahindra

completed share swap and allocated its shares to the shareholders of Satyam Computer

Services on July 12th 2013. The stock exchanges have accorded their approval for trading

the new shares effective July 12th 2013. On July 24th 2013, a division bench of Andhra

Pradesh High Court admitted a petition filed by Ekadanta Greenfields and Saptaswara

Agro Farms Private Limited challenging the Mahindra Satyam Tech Mahindra merger

order. The order was given by a single judge of the court in June, allowing the merger

and dismissing the objections raised by a few parties. After admitting the petition, the

bench comprising N.V. Ramana and Vilas V. Afzulpurkar posted the matter to August

26th 2013.

How Tech Mahindra turned around Satyam

The company had reported a consolidated net loss of Rs.2.33 billion for the July

September quarter of 2010. Speaking at a press conference ,Vineet Nayyar chairman of

the company said the consolidate cash and cash equivalents at Rs.300 million compared

to Rs.260 million. We will take three years for a turnaround, he informed. Even

though the company got Rs.2.45 billion profit in Q4 for 20102011, but due to outside

payments nearly Rs.5.70 billion for SEK, UPAID and Class Action Suit in Q4 (Total

Rs.6.41 billion for the year 20102011), the company had reported a consolidated net

loss of Rs.3.27 billion for the January March quarter of 20102011. IT firm Mahindra

Satyam posted a consolidated net profit of Rs.2252 million for the quarter ended 30th

June 2011. During the quarter, the company added 2,172 people, taking total headcount

to 31,438 as of 30th June 2011. The company added 36 new customers during the

quarter. The total headcount of the company stood at 32,092 as of the quarter ended

30th September 2011 during which net addition of 654 personnel took place.

The company added 188 employees in quarter three ending 31st December 2011 and

recorded 29.4% quarter-on-quarter in its consolidated net profit of

Rs.3.08 billion. Mahindra Satyam reported a net profit of Rs.5.34 billion for the fourth

quarter ended 31st March 2012. Mahindra Satyam declared 30% dividend, signalling a

complete turnaround, after declaring Q4 results of 2012-2013 in May 2013.


26/36

26

Four years after it took over Satyam Computer Services Ltd, Tech Mahindra Ltd. had

managed to restore the company (re-named Mahindra Satyam) to health from the brink

of collapse. Tech Mahindra subsequently merged Satyam with itself to create Indias fifth

largest information technology company. The Satyam brand, tainted by the misdeeds of

the companys founder B. Ramalinga Raju, has been discontinued.

We have fulfilled the commitment made in 2009, when we acquired Satyam, to jointly

become one of the largest, diversified players leveraging technology for business

solutions, Mahindra and Mahindra Ltd. Chairman Anand Mahindra said in a statement

on 25th

June.

In 2009, the biggest challenge facing Satyams new management was restoring the

confidence of investors, clients and employeeswith many of the latter two leaving the

tainted organization. It helped that Mahindra and Mahindra is one of Indias largest

companies and is led by Anand Mahindra. The new management reached out to some of

the employees who had left the organization in the wake of the accounting scandal.

Many of them re-joined, confident that the new management will be able to rebuild the

company. In the meantime, Mahindra Satyams top management, including Anand

Mahindra, was engaged in constant dialogue with its top clients to prevent them from

deserting the company and get more orders.

Mahindra Satyams financials started improving. The company then leveraged its

relationships with companies such as General Electric Co., AT & T Inc. and Cisco

Systems Inc. to get new business, requesting them to put in a good word on thei r

behalf. The takeover helped Tech Mahindra in burying the stigma attached to the Satyam

brand that has haunted the company ever since Raju confessed to committing fraud. It

also gives the combined entity a stronger balance sheet and a larger client base which it

can leverage to win new business.


27/36

27

CADBURY

Cadbury is a British multinational confectionery company owned by Mondelz

International. It is the second largest confectionery brand in the world after Wrigley's.

Cadbury was established in Birmingham in 1824, by John Cadbury who sold tea, coffee

and drinking chocolate. Cadbury developed the business with his brother Benjamin,

followed by his sons Richard and George. George developed the Bournville estate, a

model village designed to give the company's workers improved living conditions.

Cadbury is best known for its confectionery products including the Dairy Milk chocolate,

the Crme Egg, and the Roses selection box. Dairy Milk chocolate in particular,

introduced in 1905, used a higher proportion of milk within the recipe compared with

rival products. By 1914, the chocolate was the company's best-selling product. Crme

Eggs are made available for sale in the United Kingdom (now available all year) from

January of each year until Easter, and are the best-selling confectionary product in the

country during the period.

The company was known as Cadbury Schweppes Plc. from 1969 until its demerger in

2008, when its global confectionery business, was separated from its US beverage unit

(now called Dr. Pepper Snapple Group). It was also a constant constituent of the FTSE

100 from the index's 1984 inception until the company was bought by Kraft Foods in

2010. Cadbury is headquartered in Uxbridge, London, and operates in more than fifty

countries worldwide.

KRAFT

Kraft Foods Group Inc. is an American grocery manufacturing and processing

conglomerate headquartered in the Chicago suburb of Northfield, Illinois.

The company was formed in 2012 by a demerger from Kraft Foods Inc., which in turn

was renamed Mondelz International. The new Kraft Foods Group is a North American

grocery business, while Mondelz is a multinational snack and confectionary company.

Kraft Foods Group is an independent public company; it is listed on the NASDAQ.


28/36

28

KRAFTs TAKEOVER of CADBURY

On 7th September 2009 Kraft Foods made a 10.2 billion (US$16.2 billion) indicative

takeover bid for Cadbury. The offer was rejected, with Cadbury stating that it

undervalued the company. Kraft launched a formal, hostile bid for Cadbury valuing the

firm at 9.8 billion on 9th November 2009. Business Secretary Peter Mandelson warned

Kraft not to try to make a quick buck from the acquisition of Cadbury.

On 19th January 2010, it was announced that Cadbury and Kraft Foods had reached a

deal and that Kraft would purchase Cadbury for 8.40 per share, valuing Cadbury at

11.5billion (US$18.9billion). Kraft, which issued a statement stating that the deal will

create a "global confectionery leader", had to borrow 7 billion (US$11.5 billion) in

order to finance the takeover.

The Hershey Company, based in Pennsylvania, manufactures and distributes Cadbury

branded chocolate (but not its other confectionery) in the United States and has been

reported to share Cadbury's "ethos". Hershey had expressed an interest in buying

Cadbury because it would broaden its access to faster growing international markets. But

on 22nd January 2010, Hershey announced that it would not counter Kraft's final offer.

The acquisition of Cadbury faced widespread disapproval from the British public, as well

as groups and organizations including trade union Unite, who fought against the

acquisition of the company which, according to Prime Minister Gordon Brown, was very

important to the British economy. Unite estimated that a takeover by Kraft could put

30,000 jobs at risk, and UK shareholders protested over the mergers and acquisitions.

Cadbury's M&A advisers were UBS, Goldman Sachs and Morgan Stanley.

Controversially, RBS, a bank 84% owned by the United Kingdom Government, funded

the Kraft takeover.

On 2nd

February 2010, Kraft secured over 71% of Cadbury's shares thus finalizing the

deal. Kraft had needed to reach 75% of the shares in order to be able to delist Cadbury

from the stock market and fully integrate it as part of Kraft. This was achieved on 5 th

February 2010, and the company announced that Cadbury shares would be delisted on

8th March 2010. On 3rd February 2010, the Chairman Roger Carr, chief executive Todd


29/36

29

Stitzer and chief financial officer Andrew Bonfield all announced their resignations.

Stitzer had worked at the company for 27 years.

On 9th February 2010, Kraft announced that they were planning to close the Somerdale

Factory, Keynsham, with the loss of 400 jobs. The management explained that existing

plans to move production to Poland were too advanced to be realistically reversed,

though assurances had been given regarding sustaining the plant. Staff at Keynsham

criticized this move, suggesting that they felt betrayed and as if they have been sacked

twice. On 22nd April 2010, Phil Rumbol, the man behind the famous guerilla

advertisement, announced his plans to leave the Cadbury company in July following

Kraft's takeover.

In June 2010 the Polish division, Cadbury-Wedel, was sold to Lotte of Korea. The

European Commission made the sale a condition of the Kraft takeover. As part of the

deal Kraft will keep the Cadbury, Hall's and other brands along with two plants in

Skarbimierz. Lotte will take over the plant in Warsaw along with the E Wedel brand.

On 4th August 2011, Kraft Foods announced they would be splitting into two companies

beginning on 1st October 2012. The confectionery business of Kraft became Mondelz

International, of which Cadbury is a subsidiary.


30/36

30

Tata Steels Takeover of Corus

On January 31st 2007, India based Tata Steel Limited acquired the Anglo-Dutch steel

company, Corus Group Plc. For US$ 12.04 billion. The merged entity, Tata-Corus,

employed 84,000 people across 45 countries in the world. It had the capacity to produce

27 million tons of steel per annum. Tata Steel outbid the Brazilian Steelmaker Company

Siderurgica Nacional's (CSN) final offer of 603 pence per share by offering 608 pence

per share to acquire Corus. Tata Steel had first offered to pay 455 pence per share of

Corus, to close the deal at US$ 7.6 billion on October 17 th 2006. CSN then offered 475

pence per share of Corus on November 17th 2006. Finally, an auction was initiated on

January 31st 2007, and after nine rounds of bidding, Steel could finally clinch the deal

with its final bid 608 pence per share, almost 34% higher than the first bid of 455pence per share of Corus.

The deal is the largest Indian takeover of a foreign company and made Tata Steel the

world's fifth largest steel group.

Background

Tata Steel, formerly known as TISCO(Tata Iron and Steel Company Limited), was the

world's 56

th

largest and India's 2

nd

largest steel company with an annual crude steelcapacity of 3.8 million tonnes. It is based in Jamshedpur, Jharkhand, India. It is part

of the Tata Group of Companies. Post Corus merger, Tata Steel is India's second largest

and second-most profitable company in private sector with consolidated revenues of

Rs.1,32,110 crore and net profit of over Rs.12,350 crore during the year ended March

31st 2008. The company was also recognized as the world's best steel producer by World

Steel Dynamics in 2005. The company is listed on BSE and NSE; and employs about

90000 people.

Corus was formed from the merger of Koninklijke Hoogovens N.V. with British Steel

Plc. on 6th October 1999. It has major integrated steel plants at Port Talbot, South

Wales; Skuthorpe, North Lincolnshire; Teesside, Cleveland (all in the United Kingdom)

and Ijmuiden in the Netherlands. It also has rolling mills situated at Shotton, North

Wales (which manufactures Color coat products), Trostre in Llanelli, Llanwern in


31/36

31

Newport, South Wales, Rotterdam and Stockbridge, South Yorkshire, England,

Motherwell, North Lanark shire, Scotland, Hayange, France, and Bergen, Norway. In

addition it has tube mills located at Corby, Stockton and Hartlepool in England and

Oosterhout, Arnhem, Zwijndrecht and Maastricht in the Netherlands. Group turnover for

the year to 31st December 2005 was 10.142 billion. Profits were 580 million before

tax and 451 million after tax.

Industry Profile

The Indian steel industry is more than 100 years old now. The first steel ingot was

rolled on 16th February 1912 - a momentous day in the history of industrial India. Steel

is crucial to the development of any modern economy and is considered to be the

backbone of the human civilization. The level of per capita consumption of steel is

treated as one of the important indicators of socio-economic development and living

standard of the people in any country. It is a product of a large and technologically

complex industry having strong forward and backward linkages in terms of material flow

and income generation. All major industrial economies are characterized by the existence

of a strong steel industry and the growth of many of these economies has been largely

shaped by the strength of their steel industries in their initial stages of development.

India is the seventh largest steel producer in the world, employing over half a million

people directly with a cumulative capital investment of around Rs.1 lakh crore. It is a

core sector essential for economic and social development of the country and crucial for

its defense. The Indian iron and steel industry contributes about Rs.8,000 crore to the

national exchequer in the form of excise and custom duties, apart from earning foreign

exchange of approximately Rs.3,000 crore through exports. Consumption of finished steel

grew by 5.9 % and increased to 24.9 million tones. Steel consumption is likely to

increase in the at a rapid pace in future due to large investments planned in

infrastructure development, increase urbanization and growth in key steel sectors i.e.

automobile, construction and capital goods.


32/36

32

Problems

Though the potential benefits of the Corus deal were widely appreciated, some analysts

had doubts about the outcome and effects on Tata Steel's performance. They pointed out

that Corus' EBITDA (earnings before interest, tax, depreciation and amortization) at 8%was much lower than that of Tata Steel which was at 30% in the financial year 2006-07.

Final Deal Structure

US$3.53.8 billion infusion from Tata Steel (US$2 billion as its equity

contribution, US$1.51.8 billion through a bridge loan).

US$5.6 billion through a LBO (US$3.05 billion through senior term loan, US$2.6

billion through high-yield loan).

Financing the Acquisition

By the first week of April 2007, the final draft of the financing structure of the

acquisition was worked out and was presented to the Corus' Pension Trusties and the

Works Council by the senior management of Tata Steel. The enterprise value of Corus

including debt and other costs was estimated at US$ 13.7 billion.

The Synergies

There were a lot of apparent synergies between Tata Steel which was a low cost steel

producer in fast developing region of the world and Corus which was a high value

product manufacturer in the region of the world demanding value products. Some of the

prominent synergies that could arise from the deal were as follows:-

Tata was one of the lowest cost steel producers in the world and had self-

sufficiency in raw material. Corus was fighting to keep its productions costs under

control and was on the lookout for sources of iron ore.

Tata had a strong retail and distribution network in India and SE Asia. This

would give the European manufacturer an in-road into the emerging Asian

markets. Tata was a major supplier to the Indian Auto Industry and the demand

for value added steel products was growing in this market. Hence there would be


33/36

33

a powerful combination of high quality developed and low cost high growth

markets.

There would be technology transfer and cross-fertilization of R&D capabilities

between the two companies that specialized in different areas of the value chain.

There was a strong culture fit between the two organizations both of which

highly emphasized on continuous improvement and ethics. Tata Steel's Continuous

Improvement Program Aspire with the core values:-

Trusteeship,

Integrity,

Respect for Individual,

Credibility, and

Excellence.

Corus's Continuous Improvement Program The Corus Way with the core values:-

Code of Ethics,

Integrity,

Creating Value in Steel,

Customer Focus,

Selective Growth, and

Respect for our People.

Future Outlook

Before the acquisition, the major market for Tata Steel was India. The Indian market

accounted for sixty-nine percent of the company's total sales. Almost half of Corus

production of steel was sold in Europe (excluding UK). The UK consumed twenty-nine

percent of its production. After the acquisition, the European market (including UK)

would consume fifty-nine percent of the merged entity's total production.


34/36

34

CONCLUSION

There is no one reason about why takeover occurs. But there are a variety of reasons

which create an urge for takeover. First, we will discuss some General Motives behind

Takeover:-

1. Increased Market Power:- Acquisition intended to reduce the competitive balance

of the industry.

2. Overcome Barriers to Entry:- Acquisitions overcome costly barriers to entry

which may make start-ups economically unattractive.

3. Lower Cost and Risk of New Product Development:- Buying established

businesses reduces risk of start-up ventures.

4.

Increased Speed to Market:- Closely related to Barriers to Entry, allows market

entry in a more timely fashion.

5. Diversification:- Quick way to move into businesses when firm currently lacks

experience and depth in industry.

6. Reshaping Competitive Scope:- Firms may use acquisitions to restrict its

dependence on a single or a few products or markets.

Through this report and above cases of takeover, we have concluded some Beliefs which

Encourage Takeovers:-

1. Not only big companies are opting for global takeover, even middle sized

companies are becoming multinationals through acquiring foreign corporations. So

this could be a main reason behind takeover, to become global.

2. If one is preparing to enter global market than creating a totally new entity

would have been much more difficult rather than to acquire an established

successful brand name.

3. Company not having a long term vision, not changing with the market trends, not

using their financial resources properly, and overall, having a very poor

management, can definitely face a takeover possibility.

4. Even companies, overwhelming with debt and unacquainted with their efficiency

level and capacity, faces high chances of takeover.


35/36

35

5. Sometimes, better facilities and lower cost of production in Target Company also

push Acquirer Company to acquire it.

6. Acquirer Company may think that a diversified product mix will reduce risks

while higher end products will add to bottom line.

7. It helps the acquirer company to reduce their dependency for supply of raw

material and labor cost in their home country and gaining access to international

resources.

8. The Acquirer Company may hold a view that the acquisition would provide it

with the opportunity to spread its business across different customer segment and

diverse market.

9. Takeover facilitates sharing of best practices in manufacturing, quality assurance

systems and processes.

10.More resources enable intensive collaborative supply chain initiatives in a more

cost-effective way.


36/36

BIBLIOGRAPHY

1. www.legalserviceindia.com

2. www.investopedia.com

3. www.thetakeoverpanel.org.uk

4. www.simply-strategic-planning.com

5. Das, Bhagaban: Corporate Restructuring, 1stEd., Himalaya Publishing

House, Mumbai 2009.

6. Weinberg, M.A.: Takeover and Amalgamations, 3rd

Ed., Sweet and

Maxwell Publishers, London, 1971.
http://www.legalserviceindia.com/http://www.legalserviceindia.com/http://www.investopedia.com/http://www.investopedia.com/http://www.thetakeoverpanel.org.uk/http://www.thetakeoverpanel.org.uk/http://www.simply-strategic-planning.com/http://www.simply-strategic-planning.com/http://www.simply-strategic-planning.com/http://www.thetakeoverpanel.org.uk/http://www.investopedia.com/http://www.legalserviceindia.com/

smsoumeetaa-140422214648-phpapp01

Documents

Transcript of smsoumeetaa-140422214648-phpapp01