Symbiont -A Newsletter on Mergers & Acquisitions by Christ University- June 2010

8/9/2019 Symbiont -A Newsletter on Mergers & Acquisitions by Christ University- June 2010

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Companies are entities that have a life period. If not companies per se, may bethe brands which they own, have a lifecycle, in which their valuation takes acorrection with every move. Brands (or

firms) valuation is done on the basisof the market value it commands. This

becomes indispensable when these en-tities enter into dealings with them.The correct pricing and future valua-tion in current prices gives a fair pic-ture to the two companies to decide ona standard price which should essen-tially qualify as a win-win situation.Pricing of a deal is based on two con-cepts: Time of valuation and goodwillof the brand. The major factor is timeof valuation. And this is where mostcompanies slip the path by either pull-ing the trigger too soon or too late.

Valuation before Time: Currently re-ferring to brands, companies some-times hasten the equation of brandsunder them by concurrently either de-veloping a better one or leaving thedomain. This generally happens in thecase of overnight successful brands.The initial investment is recovered in arecord time with the brand gathering asufficient goodwill. Moreover, gener-ally for such brands there are queues of

bigger corporate houses to have a sliceof profits. The win-win situation is bestexplained here when a company tendsto sell off its asset (the brand) to moveaway and the other company fuels in

growth and expansion plans. The profitstanding is rich and high for both.

Valuation too late : It isnt a typicalwin-win situation but it can be therichest of all for the acquirer if the ta-

bles can turn around. Generally redun-dant, defunct or initially over valued

brands fall here. This is a neutralsituation for the seller because of tworeasons (i) The brand can offer nomore profits or is either a recurringcost instead of revenue and (ii) The

brand is generally valued at the bareminimum value to the benefit of theacquirer.

This explains the criticality of under-standing just exactly when to separateor adopt a brand or company. Gener-ally when the entities are companies,the purpose of merger is to share corecompetency and acquisition is to re-duce sunk cost of acquiring an assetrather than creating an asset. Compa-nies pose bigger challenges becausethe acquirer companies need to cater to two important issues (i) Is the crea-tion of my customer value independ-ent or dependant on the capabilities of the company being acquired and (ii)Will the revenue period be extendedor the aim is to grow faster or shortterm big profits.

Whether a company merges or ac-quires a brand or another company,the criticality of time cannot be ruledout. As we saw in the recessionary

period , the spur of M&As needed areality check. After all, the only thinga company looks at is profitability.

I N S I D E T H I S

I S S U E :

Blue Star plans to

acquire DS GuptaConst.

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Sun TV Network buys stake in

Spice Jet

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Payback pitchesin i-mint

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Dabur acquiresFem Care

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GCPL buysArgencos

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Crossword 8

Case Study:Indian Telecom

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The Coalesce 10

SYMBIONTV O L U M E I I

I S S U E 8

M&A: Do we smell the rat too soon? By Akash Sablok

2 8 T H J U N E

2 0 1 0

(Click on thearticle title)


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P A G E 3

Blue Star proposes an acquisition of DS

Gupta Construction

with long standing relationships andimpressive credentials in segmentssuch as hotels, hospitals, educationaletc. It has also executed projects for several green buildings.

The plumbing and fire fighting con-tracting skills were being developed in

-house. However, the Companythought it prudent to acquire these capabilities inorganically through a stra-tegic acquisition, in order to leveragethe growth opportunities available.

With this acquisition, not only will theCompany be in a position to aggres-sively pursue integrated MEP busi-ness, but will also bid for stand alone

contracting projects by cross-sellingits services to its existing air condi-tioning and electrical contracting cus-tomers. In fact, in several of the stand-alone air conditioning jobs that BlueStar has executed in the past, D SGupta Construction has been the

plumbing and fire fighting contractor.This is Blue Stars effort to accommo-date Backward integration in their functioning.

Central air conditioning and commer-cial refrigeration major, Blue Star Limited intends to strengthen itsElectro Mechanical Projects businessthrough the strategic acquisition of the businesses of D S Gupta Con-struction Pvt Ltd, the largest inde-

pendent plumbing and fire fighting

contracting company in India, as agoing concern. This move will fortifyan important pillar in Blue Stars in-tegrated Mechanical, Electrical,Plumbing & Fire fighting (MEP)contracting offering for its commer-cial and residential real estate cus-tomers. The promoters of D S GuptaConstruction will continue to managethe business for the foreseeable fu-ture.

About D S Gupta ConstructionD S Gupta Construction Pvt Ltd isheadquartered in Mumbai with aturnover of Rs 130 crore in FY10.Established over two decades ago, ithas pan India operations and is re-

puted for its quality of work andtimely execution. It has a large

pool of skilled manpower coupled

The promoters of D S Gupta Construction will continue to manage the business even after the acquisition.

By Chinnu and Praveen

DATE July 15 th, 2010 (Proposed) ACQUIRER Blue Star Ltd. ACQUIREE D S Gupta Construction Pvt Ltd DEAL VALUE Undisclosed DEAL NATURE Acquisition PURPOSE To strengthen the company business

commitments for customers looking for integrated suppliers.

Money in an organization always faces a unique paradox: You want to earn more alwayswithout actually spending it - Earl Wilson

Q UO T E - U NQ UO T E

T he pro po sed acq ui-

sition will f orti f y an

im portant pillar in the

com pan y s inte grated

mechanical, electrical,

pl umbin g & f ire f i ghtin g

( M E P ) contractin g o f -

f erin g s , said a senior com pan y o f f icial

TRIVIA

DS Gupta has someleading names as itsclients like The Taj

Group, The OberoiGroup, The HolidayInns, The Marriott &The Le Meridian,The Kamat Group of Hote ls , Pres t igeGroup, Microsoft,Leela Hotel, IndianSchool of Business.


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P A G E 4V O L U M E I I

Sun TV Network buys stake in Spice JetThe deal makes Maran the single largest stakeholder of Spice Jet

By Anjali and Rachna

DATE

June 11 th 2010

ACQUIRER

Sun TV Network

ACQUIREE

Spice Jet

DEAL VALUE

Rs. 750 crore(estimated)

DEAL NATURE

Acquisition

PURPOSE

To commit to plans to enter civil aviation

Recession taught me one thing. Manage your finances like your kids, the more you have, the tougher it is to manage. - Warren Buffet

Media Baron Kalanithi Maran of SunTV network acquired 37.73 per centstake in Spice Jet in his individual ca-

pacity and through his aviation company KAL Airways. Aiming to ac-quire a controlling stake in Spice Jet,Kalanithi Maran on Monday launchedan open offer to acquire an additional20 per cent stake in the no-frill airline.

He has made the open offer of 20 per cent to the minority shareholders of Spice Jet. Under Indian takeover rules,any acquisition of 15% or more trig-gers an open offer and the acquirer needs to make an offer for at least an-other 20% of the target company.

Maran is said to be purchasing thestake in SpiceJet Ltd from its promoter Bhupendra (Bhulo) Kansagra and dis-tressed-assets buyout specialist Wilbur L. Ross. The deal thus makes Maranthe single largest stakeholder of SpiceJet. Marans older brother minister of Union Textiles Dayanidhi Maran, has

been keen to enter the aviation indus-try and had even obtained a no-objection certificate from the ministryof civil aviation to run a non-scheduled air passenger service.

Sun Network's board had given a go-ahead for its future plans to enter civil aviation and import aero planes.Edelweiss Capital Ltd is exclusiveadviser to the deal. On Friday the11 th of June the deal was completedand with it Kalanithi entered into thefield of aviation. In this the deal, theowning of Boeing's 787 Dreamliner

is also included.

There is growing speculation in thestaff and office that the new owner could change the airline's name and

possibly the headquarters too. Other big aviation players expect some major changes in the industry scenarionow. Marans are a very strong forceto reckon with, both financially and

politically. In the south, they domi-nate most lines of business that theyare in and India may see a repeat inthe aviation sector as the financialhealth of some big airlines is poor.

As on March 31, 2010, public share-holding in SpiceJet stood at 87.15 per cent including 34.28 per cent held byinstitutional investors from India andabroad.

DEAL SYNOPSYS

Sun TV promoter Kalanithi Maran isone of the highest paid CEO in thecountry with his annual salary packageover Rs. 35 crores. Also, his wife

Kaveri, another promoter in the SunTV Network draws the same amount of annual salary and together combined take home over Rs. 70 crores.


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P A G E 5

Payback pitches in i-mint

Payback is Germanys leading loyalty programme. Two-thirds of all house-holds in Germany already have a Pay-

back card and enjoy the exclusive benefits. Payback is the third mostcommon card in German wallets after the EC payment card and health insur-ance card. Payback outpaces other

loyalty programmes regarding brandvalues.

The most difficult part in multi -brandloyalty is getting the coalition together and i-mint has done a very good job inIndia. We don't understand the Indianmarket that well, so their (i-mint's)expertise will be of great help to us,said Payback founder Alexander Ritt-weger.

Payback, which had Euro 20-bn salesin Europe last fiscal, caters to a num-

ber of retail clients internationally,including Amazon.com, Ebay.com,Metro Group and Carrefour.

The strong platform created by i-mint,coupled with Paybacks proven track record in delivering significant con-sumer and retail partner value, is awinning combination.

Payback, along with Indian private equity firm Peepul Capital, owns a86% stake in i-Mint.

By Prathibha and Tom

Who is watching anyway? As far as a firm is securing my cash, increasing it and moreimportantly giving it to me. Harry Triguboff

Peepul, instrumental in bringing all partners together, will leverage itswide network in India to support i-mints growth.

i-Mint is an unique rewards pro-gramme that lets one earn points for the things one does daily, like refuel-ing, using a mobile phone, traveling,shopping, eating out or watching

movies. The points can be redeemedagainst an extensive reward cataloguewith a variety of gifts or vouchers.Payback, along with Indian privateequity firm Peepul Capital, owns a86% stake in i-Mint. While Payback has a majority stake of a little over than 50%, the rest of the stake is held

by Peepul Capital, i-Mint and ICICIVentures.

Payback has also bought a substantial portion of the stake that ICICI Ven-tures had in i-Mint. Following the

buyout, ICICI Ventures is left with a10% stake in i-Mint.

Payback has future plans to investsignificantly in technology, back-endsolutions and retail networks.

DATE June 10 th 2010 ACQUIRER Payback ACQUIREE i-Mint DEAL VALUE Rs. 180 Crores DEAL NATURE Acquisition PURPOSE To invest significantly in technology, back-

end solutions and retail networks

QUOTE-UNQUOTE

"The acquisition will help us provide cutting -edge new services to

Indian shoppers and retailers through Pay-back's international expertise with i-Mint's

local know-how and pan-India market presence," said Pay-back's CEO Alexander

Rittweger.

FACT

For its pioneeringwork, i-mint wasawarded the best

"Customer LoyaltyProgram" award by

Asia Retail Congresson 3rd Feb 2009.


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Dabur India Acquires Fem Care PharmaThe latter will be delisted from the stock exchanges

By Nirmoy and Chippy

DATE

June 18 th 2010

ACQUIRER

Dabur IndiaLimited

ACQUIREE

FEM CarePharma Limited

DEAL VALUE

Rs. 203.7 Crore

DEAL NATURE

Acquisition

PURPOSE

To enter intohigh growth skin

care market

Twelve months and 365 days but not one day passes when we can even afford to have a Money Day;the concept will send the stock market shooting down! Earl Wilson

On 18 th June 2010, FMCG major Dabur said it has completed merger of Fem Care Pharma with itself. Follow-ing this, the latter will be delisted fromthe stock exchanges. Dabur India Lim-ited is one of the leading Fast MovingConsumer Goods (FMCG) companiesin India. On November 21, 2008,Dabur had acquired a 72.15 percent

stake in Fem Care Pharma Limited at a price of Rs. 203.7 crore. KPMG Cor- porate Finance was the financial advi-sor to the promoters of Fem CarePharma Ltd and Ambit Corporate Fi-nance was the financial advisor toDabur India Ltd.

The Dabur company's board approvedallotment of shares in the ratio of 5:1(five shares of Dabur for every oneshare held in Fem Care) in order todelist Fem Care from stock exchanges.The board also gave nod for paymentof final dividend of 125 per cent.

In 2009-10, Dabur registered 20.6 per cent growth in sales to Rs 3,416.67crore over the previous fiscal. It had anet profit of Rs 503.23 crore, a 28.6

per cent surge from Rs 391.21 crore in

the previous financial year.Fame Care Pharma was a leading

player in the Indian skin care marketfor women. Besides an entry into thehigh-growth skin care market with anestablished brand name Fem, thistransaction also offers Dabur a strong

platform to enter newer product cate-gories and markets. The company

does not currently have a huge pres-ence in skin care except for brandslike Gulabari range and Vatika face

packs.

With this acquisition, Dabur has con-solidated its position as a leading In-dian consumer goods company with

presence across key categories likeskin care, hair care, oral care, healthcare and foods. The acquisition is

part of Daburs strategy to accelerategrowth in their core FMCG business.

The merger will come into effect ret-rospectively from 1 April 2009. Thecompany has fixed 30 June as therecord date for allotment of Dabur India shares to Fem Care Pharmashareholders.

DEAL SYNOPSYS

The brand architecture of FemCare brands is different from the

Dabur brands and will hence bedeveloped as a separate busi-ness,said Dabur India CEOSunil Duggal.


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P A G E 7 Godrej Consumer Buys ArgentineanHair-care Firm Argencos

Personal care products maker GodrejConsumer Products Ltd has acquiredArgentina-based hair care firm Ar-gencos SA, its second acquisition inLatin America in less than two weeks.On 23 May, Godrej had acquired theIssue Group, a market leader in theLatin American hair colour mar-ket.Latin America is a very largemarket for haircare products. If you

take both the acquisitions together wewill become leaders in the haircaremarket in four countries-Argentina,Uruguay, Paraguay and Peru, saidChairman Adi Godrej.

The firm will complete the acquisi-tion of Argencos by the end of thismonth or early next month. The com-

bined sales of the two acquisitions isestimated to be over $45 million, with

the equity value of both the purchases being an approximate $43 mil-lion.The revenue mix in FY11 after all the buys will be approximately35% from the household care seg-ment, 25-30% from soaps, 10-15%from hair colour and the rest fromother personal care products.

While Issue has a strong presence in

The combined sales of the two acquisitions is estimated to be over $45 million

By Kamnashish and Surya

I feel so delighted at the end of a month when my salary arrives. Today, my wife will let me watch NBC. Other days she asks me to get some money to manage it. - Anonymous

the mass category, Argencos comple-ments the Issue portfolio with a focusin the mid-premium space. Combinedrevenue of the two companies is esti-mated to be over $66 million

Post this acquisition, the Godrej hair colour portfolio will now enjoy a vol-ume market share greater than 25% inhair colours and almost 50% in hair

styling sprays. "The portfolios of thetwo companies are very complemen-tary in the hair colorant space andthey will add to each other's strengths.We also expect significant synergiesacross the value chain and a strongthrust for creating a sizable businessin Brazil. Knowledge and exposure tothese markets will also helpstrengthen our technology and prod-uct development funnel in India," Adi

Godrej, Chairman, GCPL, said.

The acquisitions of Issue and Argen-cos are important steps in establishingtheir footprint in Latin America.These companies have a rich heritageof over a quarter of a century in serv-ing the needs of the Latin Americanconsumer through innovative andcomplementary offerings.

DATE June 3 rd 2010 ACQUIRER Godrej Consumer ACQUIREE Argencos DEAL VALUE Undisclosed DEAL NATURE Acquisition PURPOSE To increase its global footprint especially in

Latin America

QUOTE-UNQUOTE

Adi Godrej, Chairman,G C P L , s a i d :Argencos is a perfect,complementary add-onto our earlier acquisi-tion of Issue Group. I

expect the combinationof the two businesses to

set us on a firm footing in achieving our plans

for Latin America.

FACT

The Godrej hair color portfolio will nowenjoy a volume mar-ket share greater than25%in hair colors andalmost 50% in hair styling sprays.


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C R O S S W O R D

T H E W O R D P O W E R

Across

3. Trend Micro has acquired this online storageand data synchronization company based inLeeds, UK., to enhance its cloud securityOfferings. (5) 6. This company acquires Fem Care Pharma

paying Rs 203 cr to enter into the skincare seg-ment. (5) 7. A term used to describe rising prices and vol-ume throughout a sector due to the psychological

impact of a major takeover within the sector. (10) 8. A strategy used by the management of a tar-get company to delay any action by a given po-tential acquirer, in the hope that a more attractiveacquirer will surface (7) 9. This second largest low cost airline in Indiawas bought by media baron Kalanithi Maran re-cently to enter into the aviation sector Mukesh Ambani recently made his feet into tele-com sector by acquiring this Company for Rs4800 cr (8)

Down

1. The merging of two or more businesses intosingle entity. (12) 2. A bankrupt or insolvent company whichcontinues to operate while it awaits a closure or merger. (6) 4. An arrangement in which sellers of a busi-ness receive additional future payment, usually

based on future earnings . (7)5. Middleware vendor Tibco Software Inc ac-quires this file-transfer software maker for about $19.7 million in cash, to complement itsintegration products portfolio. (8)

By Anish, Shweta and Ashim



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CASE STUDY

The Indian Telecom Industrys tryst withMergers and Acquisitions

Never has an industry been duly acknowledged for its opportunities in saturation levels and has stuck deals which have created robust records as the Indian telecom industry. Despite the overall economicslowdown, telecom giants are not shying from pouring dollars in India, as they see a significant in-vestment opportunity in it.

From Russias Sistema to Bahrains Batelco, to Emirates Etisalat to Norways Telenor and now themuch debated and discussed deal between South Africas MTN and Bharti, the queue outside the In-dian telecom sector has just got longer. For the count, companies of almost 10 countries have alreadyinvested in Indian telecom, at present. Primarily, amongst these are UK, Norway, US, Singapore, Ma-laysia, Russia, Japan, Gulf countries and now the most recent, South Africa. The reason is simple. The

telecom industry is widely known to give 3-4 times return over a five-year period. In 2008 it was Nor-ways Telenor buying a 60% in Unitech Wireless for about $1.07 billion, followed by a whopping$2.7 billion investment by Japans NTT DoCoMo in Tata Teleservices for a 26% stake. On the same

path, Bahrain Telecom invested $225 million investment in Chennais S Tel, a new player yet to startservices. And now it is the $19 billion mega acquisitionof Africas largest mobile operator MTN byIndias largest telecom group Bharti Airtel.

A sneak view into the entire picture reveals the gritty procedures and burgeoning potential. The tele-communication sector has been a significant driver of mergers and acquisitions in India accounting for the highest share of deals at 18.6 per cent and 22 per cent during the last two to three years with val-ues of $5.7 billion and $11 billion in 2008 and 2007, respectively. And adding to it, the Bharti- MTNdeal forUS$9 billion for Bhartis 51% stake in MTN, which is the largest overseas acquisition ever byan Indian firm.

Theindustry and its moves are primarily governed and monitored by three entities:

TRAI: The bodys main task is to ensure that though Mergers and Acquisitions ensure a scalable in-crease in efficiency and reach, there has to be a proper control on the fact that no monopolies arecreated.

DoT:Dot aims to cater to promotion of standardization, research and development in telecom and promotion of private investment in this sunrise sector.

SEBI: SEBI provides laws regarding foreign investment and investment procedures. For Example: Noacquirer who together with persons acting in concert with him, who holds 55% or more but less than75% of the shares or voting rights of the target company shall acquire by himself or through personsacting in concert unless he makes a public announcement as per the regulations.

Indias regulatorsproposed a relaxation of the M&A rules, but a much -needed consolidation amongIndias 14 operators cannot be expected any time soon due to the strict enforcements to avoid cartels.TRAI has proposed that mobile operators can merge in a circle with at least six players, provided theydont end up with more than 30% of total users in a single circle. That is considerably better than theexisting rule, which says a company cant buy more than a 10% stake in another company thatoperates in the same circle.

By Puneet Singh

P A G E 9


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But the new proposition immediately rules out a merger between Indias large operators since thatwould cross the 30% threshold. In short, the big cannot buy the big under this proposal.

Rather, it lends itself to big players merging with small operators, such as fledgling GSM1800operators, Videocon Mobile or Etisalat DB.

For global telecom majors too who are and were willing to enter India, such attractive times might notreturn soon. Reeling with a credit crunch, new telecom licensees are willing to dole out equity inreturn for cash, which might be utilized for rollout of services. Interestingly, though all of the newtelecom license holders like S Tel, Unitech Wireless, Loop Telecom or Swan have just launched their services, they have managed to raise substantial cash by doling out equity.

Currently, India restricts telecoms firms from selling majority stakes within three years of getting li-cense. India's telecoms regulator also suggested telecoms firms pay a one-time fee for holding radio-spectrum beyond 6.2 MHz based on 3G prices, a move that will hit established operators like BhartiAirtel and Vodafone. India currently grants additional radio airwaves to firms when they reach sub-scriber-addition milestones, only charging a usage fee for the resource.

The M&A market in telecom will only get hotter as the 3G spectrums have jsut got allocated and newoperators come into their full being. Consumers can expect a lot of new schemes and merger of brandsin the coming years. But will the foresaid restrictions actually restrict companies to venture into M&Aand the sun set on it? Or should this government regulated industry be the same to develop infrastruc-ture holistically and allocate funds earned for the development of the country?

THE COALESCE

By Deepika, Sudhakar & Rahul Brands have interesting logos. A lot of careful mind work goes into choosing what best de- scribes your organization. Quiz this time gets a little more of a revelation and asks for mind scratching to decipher the companies behind their logos and the new company formed after their merger or acquisition. Time to scratch your grey cells!

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ANSWERSTHE COALESCE

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CROSSWORD

TOP 3 M&A DEALS WORLDWIDE TILL DATE

1. AOL acquires Time Warner ($164747 million)

2. Glaxo Wellcom acquire SmithKline Beecham ($75961 million)

3. Royal Dutch Petroleum acquired Shell transport ($74559 million)


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INSPIRED BY Prof. Anirban Ghatak (Coordinator- Christ University Institute of Management, Kengeri )

Sincere acknowledgment of the efforts of all the contributors for

their knowledge filled articles, crossword and quiz

ABOUT SYMBIONTSymbionts are organisms which come together for mutual benefit,

just like companies go for Mergers & Acquisitions.

SYMBIONT is a monthly newsletter dedicated exclusively to Mergers & Acquisitions.SYMBIONT also has an online forum for related discussions. The newsletter has al-ways aimed to enlighten the readers about the current happenings in the M&A circuit

along with interesting add ons like crosswords, terminologies, brain teasers and many more.

Symbiont -A Newsletter on Mergers & Acquisitions by Christ University- June 2010

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