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CHAPTER 1

RESEARCH METHODOLOGY
Research problem • • • • To analyze the effect of going global through merger and acquisition on investors and traders long term and short term earnings respectively Impact on companies’ financials after acquisition or after being acquired To find out enterprise value of the company by comparing it with the peer group and analyzing the value of the firm To analyze the difference between prospected and actual returns in terms of % daily cumulative abnormal return of pre acquisition and post acquisition

Objective of the study • • • • • To compare the closing price of 5 companies before and after post acquisition To compare the key financial ratios of 5 companies before and after acquisition To do valuation of one or two companies with the method enterprise value and compare the value with peer group and analyze in detail To analyze detailed case study of 5 companies of Tata Group To analyze percentage cumulative abnormal return of one month both before acquisition and after acquisition

Research Design • Exploratory Research

Scope of the study • • • To do a relative analysis between BSE Sensex and the share price of the TATA Group of companies Limited to 5 companies of TATA Limited to daily prices of stocks both before and after one month of acquisition

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Data Sources • Secondary Data  Prowess software  Internet sources  Business Journals (ICFAI JOURNAL ON M & A)

Method of Analysis  Regression Model  Valuation (Enterprise value) Limitations of the study  The study is limited to five selected companies of TATA Group only  The study is limited to analyze short term performance of the acquisition

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To find the closing price of the company’s script on BSE and NSE and then calculate the percentage script return and to find the daily market return of SENSEX To find regression model between script return and market return by entering the excel formula. Once you enter the regression formula one chart is shown as above feed the data in the model we could find out the summary that we got, there are three things important for our research. They are shown here as, R Square, Alpha and beta. The explanation of the each of the terms and how to read that data is given below:

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R-Square The R-squared value shows how reliable the dependent variable on independent variable is. It varies between 0 and 1. Generally R-square of more than 0.5 is considered to be good. Y-intercept The ‘a’ is called the Y-intercept because its value is the point at which the regression line crosses the Y axis i.e. Vertical Axis. It is also called alpha. Slope of the line (b):Beta The ‘b’ is called the slope of the line. It represents how each unit change of the independent variable X changes the dependent variable Y. It is also known as Beta of script in comparison of market. Steps to find out Abnormal Price Effect The Expected return is calculated as follows: The Expected Return is calculated by the formula (intercept + Slope of line X market return) Y=a+Bx And from this find out cumulative abnormal return

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The Enterprise Valuation is calculated as follows: 1. Total Shareholder’s Equity

We have calculated the Total Shareholder’s Equity by adding the Market Value of Equity, Preference Shares and the Minority Interest. 2. Net Debt

We have calculated the Net Debt by adding the Long Term Borrowing, Short Term Borrowing and Pension Provisions and then deducting the Excess Cash. 5

3.

Enterprise Value

We have calculated the Enterprise Value by adding Net Debt and Total Shareholder’s Equity. The Enterprise Value Multiples is calculated as follows: 1. Sales Multiple

The Sales Multiple is calculated by dividing the EV by Sales of the respective peers.

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2.

EBITDA Multiple

The EBITDA Multiple is calculated by dividing the EV by EBITDA of the respective peers. 3. EBIT Multiple

The EBIT Multiple is calculated by dividing the EV by EBIT of the respective peers.

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4.

PE Multiple

The PE Multiple is calculated by dividing the Current Market Price by the Earning Per Share of the respective peers.

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CHAPTER 2
MERGER AND ACQUISITION: INTRODUCTION
“The decision to invest in a new asset would mean internal expansion for the firm. The new asset would generate returns raising the value of the corporation. Mergers offer an additional means of expansion, which is external, i.e. the productive operation is not within the corporation itself. For firms with limited investment opportunities, mergers can provide new areas for expansion. In addition to this benefit, the combination of two or more firms can offer several other advantages to each of the corporations such as operating economies, risk reduction and tax advantage.”

Today mergers, acquisitions and other types of strategic alliances are on the agenda of most industrial groups intending to have an edge over competitors. Stress is now being made on the larger and bigger conglomerates to avail the economies of scale and diversification. Different companies in India are expanding by merger etc. In fact, there has emerged a phenomenon called merger wave. The terms merger, amalgamations, take-over and acquisitions are often used interchangeably to refer to a situation where two or more firms come together and combine into one to avail the benefits of such combinations and re-structuring in the form of merger etc., have been attempted to face the challenge of increasing competition and to achieve synergy in business operations.

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Mergers and Acquisitions: Definition
One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. Merger vs. Acquisition: In a merger, the surviving company assumes all the assets and liabilities of the merged company, which ceases to exist as a separate entity. In an acquisition, the buyer purchases some or all the assets or the stock of the selling firm legal requirements, tax considerations, and the ability to attain shareholder approval determine the type of transaction chosen.

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CHAPTER 3
CORPORATE RESTRUCTURING
Restructuring of business is an integral part of the new economic paradigm. As controls and restrictions give way to competition and free trade, restructuring and reorganization become essential. Restructuring usually involves major organizational change such as shift in corporate strategies to meet increased competition or changed market conditions. This activity can take place internally in the form of new investments in plant and machinery, research and development at product and process levels. It can also take place externally through mergers and acquisitions (M&A) by which a firm may acquire other firm or by joint venture with other firms. This restructuring process has been mergers, acquisitions, takeovers, collaborations, consolidation, diversification etc. Domestic firms have taken steps to consolidate their position to face increasing competitive pressures and MNC’s have taken this opportunity to enter Indian corporate sector.

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Forms of corporate-restructuring
 Expansion
· Amalgamation: This involves fusion of one or more companies where the companies lose their individual identity and a new company comes into existence to take over the business of companies being liquidated. The merger of Brooke Bond India Ltd. and Lipton India Ltd. resulted in formation of a new company Brooke Bond Lipton India Ltd. · Absorption: This involves fusion of a small company with a large company where the smaller company ceases to exist after the merger.

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The merger of Tata Oil Mills Ltd. (TOMCO) with Hindustan Lever Ltd. (HLL) is an example of absorption. · Tender offer: This involves making a public offer for acquiring the shares of a target company with a view to acquire management control in that company. Takeover by Tata Tea of consolidated coffee Ltd. (CCL) is an example of tender offer where more than 50% of shareholders of CCL sold their holding to Tata Tea at the offered price which was more than the investment price. · Asset acquisition: This involves buying assets of another company. The assets may be tangible assets like manufacturing units or intangible like brands. Hindustan lever limited buying brands of Lakme is an example of asset acquisition. · Joint venture: This involves two companies coming whose ownership is changed. DCM group and DAEWOO MOTORS entered into a joint venture to form DAEWOO Ltd. to manufacturing automobiles in India.

 CONTRACTION
There are generally the following types of contraction: · Spinoff: This type of demerger involves division of company into wholly owned subsidiary of parent company by distribution of all its shares of subsidiary company on Pro-rata basis. By this way, both the companies i.e. holding as well as subsidiary company exist and carry on business. For example Kotak, Mahindra finance Ltd. formed a subsidiary called Kotak Mahindra Capital Corporation, by spinning off its investment banking division. 13

· Split-ups: This type of demerger involves the division of parent company into two or more separate companies where parent company ceases to exist after the demerger. · Equity-carve out: This is similar to spin offs, except that same part of shareholding of this subsidiary company is offered to public through a public issue and the parent company continues to enjoy control over the subsidiary company by holding controlling interest in it. · Divestitures: These are sale of segment of a company for cash or for securities to an outside party. Divestitures, involve some kind of contraction. It is based on the principle if “anergy” which says 5-3=3! · Asset sale: This involves sale of tangible or intangible assets of a company to generate cash. A partial sell off, also called slump sale, involves the sale of a business unit or plant of one firm to another. It is the mirror image of a purchase of a business unit or plant. From the seller’s perspective, it is a form of contraction: From the buyer’s point of view it is a form of expansion. For example, When Coromandal Fertilizers Limited sold its cement division to India Cement limited, the size of Coromandal Fertilizers contracted whereas the size of India Cements Limited expanded.

 CORPORATE CONTROLS
· Going private: This involves converting a listed company into a private company by buying back all the outstanding shares from the markets. Several companies like Castrol India and Phillips India have done this in 14

recent years. A well known example from the U.S. is that of Levi Strauss & company · Equity buyback: This involves the company buying its own shares back from the market. This results in reduction in the equity capital of the company. This strengthens the promoter’s position by increasing his stake in the equity of the company. · Anti takeover defenses: With a high value of hostile takeover activity in recent years, takeover defenses both premature and reactive have been restored to by the companies. · Leveraged buyouts: This involves raising of capital from the market or institutions by the management to acquire a company on the strength of its assets. Merger is a marriage between two companies of roughly same size. It is thus a combination of two or more companies in which one company survives in its own name and the other ceases to exist as a legal entity. The survivor company acquire assets and liabilities of merged companies. Generally the company which survives is the buyers which retiring its identity and seller company is extinguished. · Amalgamation Amalgamation is an arrangement or reconstruction. It is a legal process by which two or more companies are to be absorbed or blended with another. As a result, the amalgamating company loses its existence and its shareholders become shareholders of new company or the amalgamated company. In case of amalgamation a new company may came into existence or an old company may survive while amalgamating company may lose its existence. 15

According to Halsbury’s law of England amalgamation is the blending of two or more existing companies into one undertaking, the shareholder of each blending companies becoming substantially the shareholders of company which will carry on blende undertaking. There may be amalgamation by transfer of one or more undertaking to a new company or transfer of one or more undertaking to an existing company. Amalgamation signifies the transfers of all are some part of assets and liabilities of one or more than one existing company or two or more companies to a new company. The Accounting Standard, AS-14, issued by the Institute of Chartered Accountants of India has defined the term amalgamation by classifying (i) Amalgamation in the nature of merger, and (ii) Amalgamation in the nature of purchase 1. Amalgamation in the nature of merger: As per AS-14, an amalgamation is called in the nature of merger if it satisfies all the following condition: · All the assets and liabilities of the transferor company should become, after amalgamation; the assets and liabilities of the other company. · Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation. · The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity share in the transferee company, except that cash may be paid in respect of any fractional shares. 16

· The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. · No adjustment is intended to be made in the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies. · Amalgamation in the nature of merger is an organic unification of two or more entities or undertaking or fusion of one with another. It is defined as an amalgamation which satisfies the above conditions. 2. Amalgamation in the nature of purchase: Amalgamation in the nature of purchase is where one company’s assets and liabilities are taken over by another and lump sum is paid by the latter to the former. It is defined as the one which does not satisfy any one or more of the conditions satisfied above. As per Income Tax Act 1961, merger is defined as amalgamation under sec.2 (1B) with the following three conditions to be satisfied. 1. All the properties of amalgamating company(s) should vest with the amalgamated company after amalgamation. 2. All the liabilities of the amalgamating company(s) should vest with the amalgamated company after amalgamation 3. Shareholders holding not less than 75% in value or voting power in amalgamating company(s) should become shareholders of amalgamated companies after amalgamation Amalgamation does not mean acquisition of a company by purchasing its property and resulting in its winding up. According to Income tax Act, exchange of shares with 90%of shareholders of amalgamating company is required. 17

ACQUISITION
Acquisition refers to the acquiring of ownership right in the property and asset without any combination of companies. Thus in acquisition two or more companies may remain independent, separate legal entity, but there may be change in control of companies. Acquisition results when one company purchase the controlling interest in the share capital of another existing company in any of the following ways: a) Controlling interest in the other company. By entering into an agreement with a person or persons holding b) By subscribing new shares being issued by the other company. c) By purchasing shares of the other company at a stock exchange, and d) By making an offer to buy the shares of other company, to the existing shareholders of that company.

MERGER
Merger refers to a situation when two or more existing firms combine together and form a new entity. Either a new company may be incorporated for this purpose or one existing company (generally a bigger one) survives and another existing company (which is smaller) is merged into it. Laws in India use the term amalgamation for merger. · Merger through absorption · Merger through consolidation Absorption: Absorption is a combination of two or more companies into an existing company. All companies except one lose their identity in a merger through absorption. An example of this type of merger is the absorption of Tata Fertilisers Ltd.(TFL) TCL, an acquiring company (a buyer), survived after merger while TFL, an acquired company ( a seller), ceased to exist. TFL transferred its assets, liabilities and shares to TCL. 18

Consolidation: A consolidation is a combination of two or more companies into a new company .In this type of merger, all companies are legally dissolved and a new entity is created. In a consolidation, the acquired company transfers its assets, liabilities and shares to the acquiring company for cash or exchange of shares. An example of consolidation is the merger of Hindustan Computers Ltd., Hindustan Instruments Ltd., and Indian Reprographics Ltd., to an entirely new company called HCL Ltd.

TAKEOVER
Acquisition can be undertaken through merger or takeover route. Takeover is a general term used to define acquisitions only and both terms are used interchangeably. A takeover may be defined as series of transacting whereby a person, individual, group of individuals or a company acquires control over the assets of a company, either directly by becoming owner of those assets or indirectly by obtaining control of management of the company. Takeover is acquisition, by one company of controlling interest of the other, usually by buying all or majority of shares. Takeover may be of different types depending upon the purpose of acquiring a company. 1. A takeover may be straight takeover which is accomplished by the management of the taking over company by acquiring shares of another company with the intention of operating taken over as an independent legal entity. 2. The second type of takeover is where ownership of company is captured to merge both companies into one and operate as single legal entity. 3. A third type of takeover is takeover of a sick company for its revival. This is accomplished by an order of Board for Industrial and Financial 19

Reconstruction (BIFR) under the provision of Sick Industrial companies Act, 1985. In India, Board for Industrial and Financial Reconstruction (BIFR) has also been active for arranging mergers of financially sick companies with other companies under the package of rehabilitation. These merger schemes are framed in consultation with the lead bank, the target firm and the acquiring firm. These mergers are motivated and the lead bank takes the initiated and decides terms and conditions of merger. The recent takeover of Modi Cements Ltd., by Gujarat Ambuja Cement Ltd. was an arranged takeover after the financial reconstruction Modi Cement Ltd. The fourth kind is the bail-out takeover, which is substantial acquisition of shares in a financially weak company not being a sick industrial company in pursuance to a scheme of rehabilitation approved by public financial institution which is responsible for ensuring compliance with provision of substantial acquisition of shares and takeover Regulations, 1997 issued by SEBI which regulate the bailout takeover. Takeover Bid This is a technique for affecting either a takeover or an amalgamation. It may be defined as an offer to acquire shares of a company, whose shares are not closely held, addressed to the general body of shareholders with a view to obtaining at least sufficient shares to give the offer or, voting control of the company. Takeover Bid is thus adopted by company for taking over the control and management affairs of listed company by acquiring its controlling interest. While a takeover bid is used for affecting a takeover, it is frequently against the wishes of the management of Offeree Company. It may take the form of an offer to purchase shares for cash or for share for share exchange or a combination of these two firms.

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Where a takeover bid is used for effecting merger or amalgamation it is generally by consent of management of both companies. It always takes place in the form of share for share exchange offer, so that accepting shareholders of Offeree Company become shareholders of Offeror Company.

Types of Takeover Bids
There are three types of takeover bid 1. Negotiated bid 2. Tender offer 3. Hostile takeover bid Negotiated bid: It is also called friendly merger. In this case, the management /owners of both the firms sit together and negotiate for the takeover. The acquiring firm negotiates directly with the management of the target company. So the two firms reach an agreement, the proposal for merger may be placed before the shareholders of the two companies. However, if the parties do not reach at an agreement, the merger proposal stands terminated and dropped out. The merger of ITC Classic Ltd. with ICICI Ltd. and merger of Tata oil mills Ltd. With Hindustan Lever Ltd. were negotiated mergers. However, if the management of the target firm is not agreeable to the merger proposal, then the acquiring firm may go for other procedures i.e. tender offer or hostile takeover. Tender offer: A tender offer is a bid to acquire controlling interest in a target company by the acquiring firm by purchasing shares of the target firm at a fixed price. The acquiring firm approaches the shareholders of the target firm directly firm to sell their shareholding to the acquiring firm 21

at a fixed price. This offered price is generally, kept at a level higher than the current market price in order to induce the shareholders to disinvest their holding in favor of the acquiring firm. The acquiring firm may also stipulate in the tender offer as to how many shares it is willing to buy or may purchase all the shares that are offered for sale. In case of tender offer, the acquiring firm does not need the prior approval of the management of the target firm. The offer is kept open for a specific period within which the shares must be tendered for sale by the shareholders of the target firm. Consolidated Coffee Ltd. was takeover by Tata Tea Ltd.by making a tender offer to the shareholders of the former at a price which was higher than the prevailing market price. In India, in recent times, particularly after the announcement of new takeover code by SEBI, several companies have made tender offers to acquire the target firm. A popular case is the tender offer made by Sterlite Ltd. and then counter offer by Alean to acquire the control of Indian Aluminium Ltd. Hostile Takeover Bid: The acquiring firm, without the knowledge and consent of the management of the target firm, may unilaterally pursue the efforts to gain a controlling interest in the target firm, by purchasing shares of the later firm at the stock exchanges. Such case of merger/acquisition is popularity known as ‘raid’. The caparo group of the U.K. made a hostile takeover bid to takeover DCM Ltd. and Escorts Ltd. Similarly, some other NRI’s have also made hostile bid to takeover some other Indian companies. The new takeover code, as announced by SEBI deals with the hostile bids.

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Takeover and merger “The distinction between a takeover and merger is that in a takeover the direct or indirect control over the assets of the acquired company passes to the acquirer in a merger the shareholding in the combined enterprises will be spread between the shareholders of the two companies”. In both cases of takeover and merger the interests of the shareholders of the company are as follows: 1. Company should takeover or merge with another company only if in doing so, it improves its profit earning potential measured by earning per share and 2. The company should agree to be taken if, and only if, shareholders are likely to be better off with the consideration offered, whether cash or securities of the company than by retaining their shares in the original company.

TYPES OF MERGERS
There are four types of mergers as follows 1. Horizontal merger: It is a merger of two or more companies that compete in the same industry. It is a merger with a direct competitor and hence expands as the firm’s operations in the same industry. Horizontal mergers are designed to produce substantial economies of scale and result in decrease in the number of competitors in the industry. The merger of Tata Oil Mills Ltd. with the Hindustan lever Ltd. was a horizontal merger. In case of horizontal merger, the top management of the company being meted is generally replaced, by the management of the transferee company. One potential repercussion of the horizontal merger is that it 23

may result in monopolies and restrict the trade. Weinberg and Blank7 define horizontal merger as follows: “A takeover or merger is horizontal if it involves the joining together of two companies which are producing essentially the same products or services or products or services which compete directly with each other (for example sugar and artificial sweetness). In recent years, the great majority of takeover and mergers have been horizontal. As horizontal takeovers and mergers involve a reduction in the number of competing firms in an industry, they tend to create the greatest concern from an anti-monopoly point of view, on the other hand horizontal mergers and takeovers are likely to give the greatest scope for economies of scale and elimination of duplicate facilities.” 2. Vertical merger: It is a merger which takes place upon the combination of two companies which are operating in the same industry but at different stages of production or distribution system. If a company takes over its supplier/producers of raw material, then it may result in backward integration of its activities. On the other hand, Forward integration may result if a company decides to take over the retailer or Customer Company. Vertical merger may result in many operating and financial economies. The transferee firm will get a stronger position in the market as its production/distribution chain will be more integrated than that of the competitors. Vertical merger provides a way for total integration to those firms which are striving for owning of all phases of the production schedule together with the marketing network (i.e., from the acquisition

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of raw material to the relating of final products). “A takeover of merger is vertical where one of two companies is an actual or potential supplier of goods or services to the other, so that the two companies are both engaged in the manufacture or provision of the same goods or services but at the different stages in the supply route (for example where a motor car manufacturer takes over a manufacturer of sheet metal or a car distributing firm). Here the object is usually to ensure a source of supply or an outlet for products or services, but the effect of the merger may be to improve efficiency through improving the flow of production and reducing stock holding and handling costs, where, however there is a degree of concentration in the markets of either of the companies, anti-monopoly problems may arise.” 3. Co-generic Merger: In these, mergers the acquirer and target companies are related through basic technologies, production processes or markets. The acquired company represents an extension of product line, market participants or technologies of the acquiring companies. These mergers represent an outward movement by the acquiring company from its current set of business to adjoining business. The acquiring company derive benefits by exploitation of strategic resources and from entry into a related market having higher return than it enjoyed earlier. The potential benefit from these mergers is high because these transactions offer opportunities to diversify around a common case of strategic resources. Western and Mansinghka9 classified cogeneric mergers into product extension and market extension types. When a new product line allied to or complimentary to an existing product line is added to existing product line through merger, it defined as product extension merger, Similarly market extension merger help to add a new market either through same line of business or adding an allied field . Both these types bear some 25

common elements of horizontal, vertical and conglomerate merger. For example, merger between Hindustan Sanitary ware industries Ltd. and associated Glass Ltd. is a Product extension merger and merger between GMM Company Ltd. and Xpro Ltd. contains elements of both product extension and market extension merger. 4. Conglomerate merger: These mergers involve firms engaged in unrelated type of business activities i.e. the business of two companies are not related to each other horizontally (in the sense of producing the same or competing products), nor vertically (in the sense of standing towards each other n the relationship of buyer and supplier or potential buyer and supplier). In a pure conglomerate, there are no important common factors between the companies in production, marketing, research and development and technology. In practice, however, there is some degree of overlap in one or more of this common factor. Conglomerate mergers are unification of different kinds of businesses under one flagship company. The purpose of merger remains utilization of financial resources enlarged debt capacity and also synergy of managerial functions. However these transactions are not explicitly aimed at sharing these resources, technologies, synergies or product market strategies. Rather, the focus of such conglomerate mergers is on how the acquiring firm can improve its overall stability and use resources in a better way to generate additional revenue. It does not have direct impact on acquisition of monopoly power and is thus favored throughout the world as a means of diversification.

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CHAPTER 4
MERGER PROCEDURE
A merger is a complicated transaction, involving fairly complex legal considerations. While evaluating a merger proposal, one should bear in mind the following legal provisions. Sections 391 to 394 of the companies act, 1956 contain the provisions for amalgamations. The procedure for amalgamation normally involves the following steps: 1. Examination of object Clauses: The memorandum of association of both the companies should be examined to check if the power to amalgamate is available. Further, the object clause of the amalgamated company (transferee Company) should permit it to carry on the business of the amalgamating company (transferor company) .If such clauses do not exists, necessary approvals of the shareholders, boards of directors and Company Law Board are required. 2. Intimation to stock Exchanges: The stock exchanges where the amalgamated and amalgamating companies are listed should be informed about the amalgamation proposal. From time to time, copies of all notices, resolutions, and orders should be mailed to the concerned stock exchanges. 3. Approval of the draft amalgamation proposal by the Respective Boards: The draft amalgamation proposal should be approved by the respective boards of directors. The board of each company should pass a 27

resolution authorizing its directors/executives to pursue the matter further. 4. Application to the National Company Law Tribunal (NCLT): Once the draft of amalgamation proposal is approved by the respective boards, each company should make an application to the NCLT so that it can convene the meetings of shareholders and creditors for passing the amalgamation proposal. 5. Dispatch of notice to shareholders and creditors: In order to convene the meeting of shareholders and creditors, a notice and an explanatory statement of the meeting, as approved by the NCLT, should be dispatched by each company to its shareholders and creditors so that they get 21 days advance intimation. The notice of the meetings should also be published in two newspapers. An affidavit confirming that the notice has been dispatched to the shareholders/creditors and that the same has been published in newspapers should be filed with the NCLT. 6. Holding of Meetings of shareholders and creditors: A meeting of shareholders should be held by each company for passing the scheme of amalgamation. At least 75 percent (in value) of shareholders in each class, who vote either in person or by proxy, must approve the scheme of amalgamation. Likewise, in a separate meeting, the creditors of the company must approve of the amalgamation scheme. 7. Petition to the NCLT for confirmation and passing of NCLT orders: Once the amalgamation scheme is passed by the shareholders and creditors, the companies involved in the amalgamation should present a petition to the NCLT for confirming the scheme of amalgamation. The NCLT will fix a date of hearing. A notice about the 28

same has to be published in two newspapers. After hearing the parties the parties concerned ascertaining that the amalgamation scheme is fair and reasonable, the NCLT will pass an order sanctioning the same. However, the NCLT is empowered to modify the scheme and pass orders accordingly. 8. Filing the order with the Registrar: Certified true copies of the NCLT order must be filed with the Registrar of Companies within the time limit specified by the NCLT. 9. Transfer of Assets and Liabilities: After the final orders have been passed by the NCLT, all the assets and liabilities of the amalgamating company will, with effect from the appointed date, have to be transferred to the amalgamated company. 10. Issue of shares and debentures: The amalgamated company, after fulfilling the provisions of the law, should issue shares and debentures of the amalgamated company. The new shares and debentures so issued will then be listed on the stock exchange. Important elements of merger procedure are: Scheme of merger The scheme of any arrangement or proposal for a merger is the heart of the process and has to be drafted with care. There is no specific form prescribed for the scheme. It is designed to suit the terms and conditions relevant to the proposal but it should generally contain the following information as per the requirements of sec. 394 of the companies Act, 1956: 1. Particulars about transferor and transferee companies 2. Appointed date of merger 29

3. Terms of transfer of assets and liabilities from transferor to transferee 4. Effective date when scheme will came into effect 5. Treatment of specified properties or rights of Transferor Company 6. Terms and conditions of carrying business by Transferor Company between appointed date and effective date 7. Share capital of Transferor Company and Transferee Company specifying authorized, issued, subscribed and paid up capital. 8. Proposed share exchange ratio, any condition attached thereto and the fractional share certificate to be issued. 9. Issue of shares by Transferee Company 10. Transferor company’s staff, workmen, employees and status of provident fund, Gratuity fund, superannuation fund or any other special funds created for the purpose of employees. 11. Miscellaneous provisions covering Income Tax dues, contingent and other accounting entries requiring special treatment. 12. Commitment of transferor and Transferee Company towards making an application U/S 394 and other applicable provisions of companies Act, 1956 to their respective High court. 13. Enhancement of borrowing limits of transferee company when scheme coming into effect. 14. Transferor and transferee companies consent to make changes in the scheme as ordered by the court or other authorities under law and exercising the powers on behalf of the companies by their respective boards. 15. Description of power of delegates of Transferee Company to give effect to the scheme. Qualifications attached to the scheme which requires approval of different agencies. 16. Effect of non receipt of approvals/sanctions etc. 17. Treatment of expenses connected with the scheme. 30

CHAPTER 5
PROCESS OF MERGER AND ACQUISITION
Step I: Finding the Right Candidate
• • • • • • • • • • • • • • • Few items to consider as initial filtering criteria: The maximum and minimum revenue range Geographic location Years in business Market share Reputation (either good or poor) Distribution channels Technology provided Corporate culture Specific business strengths, such as R&D, sales/marketing, or production Low-cost as opposed to high-price provider Services or products provider Industry Publicly traded or privately held Reputation of the management team

Services of an investment banker at this initial qualification stage: These companies take a percentage of the transaction total (usually five to fifteen percent) for assisting with the initial search and with the consummation of the final deal. Using a broker usually speeds up the filtering stage of the acquisition process, but it is not cost-free.

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Their fees must be paid at some point and are embedded into the purchase price. Additional considerations to be noted: The M&A process can become quite complicated unless the transaction value is small and the number of parties involved are few: The Buyer has a team of experts, as does the seller. Should either party be involved in publicly traded company, the complexity increases again? Should either party be involved in litigation of any kind, the complexity increases yet again?

Step II: Initiate Discussions
The seller and buyer will have a number of internal meetings early in their respective processes that help define the various objectives of the purchase/sale. Notice that none of these meetings involve anyone outside of the immediate company since this is the planning stage for both buyer and seller respectively. The next meetings often involve a business broker who will assist in either marketing the firm if you are the seller or finding viable acquisition targets for the buyer. Once the target companies are determined, initial meetings will be set up to investigate the willingness of the parties to either buy or sell. After these initial meetings, a letter of intent (or letter of understanding or expression of interest) is often prepared stating both parties’ desires to proceed to the next step. • This letter is critically important because it represents a written understanding between the parties involved.

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• A letter of intent can be effectively used as a communication tool that ensures that both parties are working in the same direction and with the same overall intentions. The seller and buyer both have a vested interest in finding deal stoppers at an early stage.

Step III: The Due Diligence Stage
Due diligence is usually the most time-consuming, nerve wracking, and expensive stage of the M&A process. The intent of this stage is to help the buyer understand the inner workings of the seller’s company. The better the understanding, the more realistic are the expectations and price. It requires that the buyer be given a high degree of access to the selling company’s customers, financial records, legal records, and operations, sales, and marketing functions. The due diligence teams are typically looking for items that either validate the offered price or items that diminish the company’s value and its purchase price. What happens when both parties are direct competitors in the same industry space and there is a possibility of the deal falling through? What happens when both parties operate in the same industry space? The seller does not want to reveal unnecessary information to the buyer, should the deal not consummate in a final purchase. This fear of disclosure is particularly acute when the buyer is the seller’s direct competitor, and for very good reason. Every company would love to know the detailed financial, marketing, and sales aspects of its competitor, and due diligence requires that this information be disclosed.

33

Should the transaction fall apart, the seller is placed at a decided disadvantage compared to the buyer, who disclosed little or no confidential information about its own internal processes during due diligence. Once again, the letter of intent comes into play. Sellers should make their secrecy boundaries clearly known in the letter of intent.The buyer can either accept or reject those boundaries at this earlier stage instead of being caught by surprise later. Non disclosure agreements (NDA’s) are also executed early in the process specifically with the intent of protecting the secrecy needs of the parties involved. Alternate approach As an alternative approach to immediate full disclosure to the buyer by the seller, an interim stage can be defined. Here, the buyer gains access to certain information with the intention of deciding on a purchase price and set of acceptance conditions. This approach provides both the seller and buyer with some level of protection. Due diligence, by its very nature, pushes the threshold of confidential information disclosure and should be treated with the respect it deserves.

Step III – (A): A sample due diligence checklist
A legal structure review, including tax liabilities, employee disagreements, any other pending litigation A review of ownership and capitalization structure A general breakdown of the customer base, with a more detailed analysis required to make an effective assessment

34

A review of intellectual property rights, including trademarks, patents, and other areas of unique and intrinsic value. This is particularly true for technology companies. Outstanding loans that are guaranteed by the company and/or its owners Technology evaluation that includes development tools, cycles, processes and personnel. Key value areas should be highlighted and evaluated in light of acquisition goals. Financial statement review for the prior three to five years, including the minutes of board meetings and so on Annual reports and required stock exchange filings for any publicly traded company. This action can also be taken during the prequalification screening stages. Due diligence process – in conclusion Due diligence is a complicated process which should be given major emphasis. It is that stage where the buyer determines whether the target company is worth pursuing. Sellers also get a chance to learn more about the internal workings at the buyer’s company, which also enables them to determine for themselves if a cultural fit between the two exists. A willing seller is critical during due diligence. The integrity of all parties must be intact or the seller could fight the buyer’s information requests at every step, making it a tough and stressful process for all concerned. Further, due diligence works both ways, especially if the buyer expects the seller to take stock. Due diligence is an integral and critical part of the M&A process. The way it is handled tells a lot about the buyer and seller while providing the foundation upon which a final purchase price is based. 35

The more the buyer and seller know about each other, the more accurately they can assess the likelihood of a successful future business relationship. Plan for this process takes time. Spend the required time in the due diligence stage and thoroughly understand what you are committing to with the sale or purchase.

Arranging finance: Financing depends on the financial condition of the acquired company as well as the acquiring company. The buying and/or selling company must be creditworthy or the deal will simply not go through. Buyers have usually lined up financing when the letter of intent is signed – sellers can ask about the buyer’s ability to fund the purchase before signing the LOI. Sellers may seriously consider stalling the M&A stage until the buyer has shown itself to be creditworthy. Negotiating & signing agreements: The lawyers begin negotiating the specific terms and condition of the deal. The role of the business manager is to make sure the overall business intentions are met. The end result should be a legally binding agreement that also makes business sense.

36

CHAPTER 6
VALUATION METHODOLOGIES FOR AN M&A TRANSACTION
 Valuation is not an exact science; more an art. Valuation is essentially bringing together the economic concept of value.  Decision to accept the valuation lies with the management of both the acquirer and the target. Courts do not disturb the Exchange Ratio unless it is objected and found grossly unfair.

37

Structure of value

Selection of Method:
Discounted Cash Flow Approach: 38

• • •

This methodology is used to determine present value of a business on a ‘going concern’ assumption. A DCF technique primarily depends on the projection of future cash flows and selection of an appropriate discounting factor. Enterprise Value is derived based on summation of:  Projected cash flows over a specified projected period

(‘Primary period’); and  Cash flows to perpetuity that a company will generate after the primary period. • Equity value is equal to Enterprise value less Net Debt. Computation of Cost of Capital

Cost of Capital:
Cost of capital is  A function of the investment and the investor  Forward looking and represents investors’ expectations • The principal factors which influence the risk-free rate, equity risk premium and level of the beta

Forecasting performance

39

Forecast period has the following characteristics: • • • • • • The forecasting process should be able to give insightful information about the overall business risk. The length of the forecast period is very critical and should include the period of accelerated growth or risk. The steady state period has the following characteristics: Constant or steady rate of growth in line with mature industry Capital expenditure and in depreciation are substantially balance Rate of return remains substantially constant

Terminal value growth rate: • Assumed perpetuity growth rate for the Company being valued i.e. the growth rate at which the Company would continue to grow to perpetuity. • The perpetuity/terminal growth rate is assumed based on the status of industry and evolution of business.

40

DCF valuation – A sample:

Market Multiples
Comparable companies • In arriving at the selected range of multiples applied to the company‘s earnings we consider the overall dynamics of the sector. 41

We also include an analysis of the level of sales multiples against absolute sales and also EBITDA multiples against EBIT margins. • • In arriving at the level of multiple to apply, we have to consider companies that are broadly in the same size. Based on the specific characteristics of the company we consider multiples in the range that are appropriate in the circumstances. • In assessing the level of multiple applied to the company, we also consider takeover premia paid in the market and the level of transactions in the sector. • Based on the specific characteristics of the company we calculate multiples in the range to be appropriated in the circumstances.

Other Methods
Net Assets Method: Assets • • • • • • at historical cost or replacement cost on valuation date considered: Intangible assets Revaluation of fixed assets Deferred tax asset/ liabilities Contingent liabilities Investments and Surplus assets Inventory and Debtors

Some adjustments that may be called for:

Closing the deal
Financial model of the merger A detailed analysis of the effect of the merger on shareholder value requires building financial models of the acquirer, the target, and the merged firm. 42

The financial models should produce income statements, balance sheets, and cash flow statements for the forecast period for a given set of operating and financing assumptions. The financial model permits performing the following analyses: Free cash flow valuation: Valuation of the stand-alone acquirer, the target and the merged firm The Target is valued under the operating assumptions assumed by the acquirer decision. Break-even synergies: A first calculation of the value of the synergies net of transaction expenses necessary to maintain the share price of the acquirer at its premerger level

Accretion – dilution analysis
Calculation of EPS for the Acquirer with and without the acquisition An estimate of the synergies required to breakeven

Stress testing and scenario analysis
Accretion-dilution and valuation computations should be tested for robustness, via sensitivity and scenario analysis.

Finalizing the terms of the merger
Form of payment whether in cash, stock of or a combination both. The type of transaction adopted for the tax purposes (whether a merger, a purchase of assets or a purchase of stock): • The tax consequences of the transaction for buyer and seller, and whether there are transferable net operating losses. 43

The fees and expenses to be paid by the parties

Financing the merger
How the cash component of the price and the transaction expenses will be financed, whether from available cash in the target and/ or the acquirer or with additional borrowing? What pre-merger debt and other claims such as preferred stock and warrants are assumed or exchanged and what claims are to be retired, at what cast and how will retirements be financed. This is summarized in a statement of sources and uses of funds. Synergy Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following: Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package. Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers. Acquiring new technology - To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge. 44

Improved

market

reach

and

industry

visibility

-

Companies

buy

companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones. That said, achieving synergy is easier said than done - it is not automatically realized once two companies merge. Sure, there ought to be economies of scale when two businesses are combined, but sometimes a merger does just the opposite. In many cases, one and one add up to less than two. Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. Where there is no value to be created, the CEO and investment bankers - who have much to gain from a successful M&A deal - will try to create an image of enhanced value. The market, however, eventually sees through this and penalizes the company by assigning it a discounted share price. We'll talk more about why M&A may fail in a later section of this tutorial.

Conclusion
The financial analysis of the merger is an iterative process that assists the buyer in carrying out due diligence, testing the consistency of the merger assumptions, formulating the terms of the offer, and reaching a decision. Negotiating an acquisition is a process of give and take as the parties get comfortable with each other and learn about their intentions. A flexible financial model will assist the acquirer during the negotiation process by showing the financial and value implications of alternative deal terms. 45

Reaching a final agreement may require the addition of earn outs, collars, escrows, and other contingencies to the terms of the merger in order to close the valuation gap separating buyer and seller.

CHAPTER 7
WHY DO COMPANIES THINK OF GOING GLOBAL?
 Indian corporations are going global. The recent acquisition of Corus by Tata has signalled that some of them are looking beyond the national market and seeing their future as multi-nationals, competing for space in the global economy with the present occupants. International power relations are influenced by the global reach of national capital. Hence the global ambitions of Indian corporations make geo-political sense and also economic sense. The Tata-Corus deal is the biggest one so far. But a lot has been happening since the finance minister loosened controls on overseas investments by Indian companies in 2003. The volume of overseas acquisitions by Indian companies has grown from around $2 billion in 2004 to $4.5 billion in 2005 and it reached over $10 billion in 2006. Videocon, Bharat Forge, Ranbaxy and other pharma companies, the IT majors and, of course, ONGC are some of the others who have been active.

46

 This push by Indian companies is part of a broader outward expansion by companies from the rapidly developing economies (RDEs). A study by the Boston Consulting Group (BCG) has identified 100 globalising companies in 12 RDEs, of which 44 are in China, 21 in India, 12 in Brazil, 7 in Russia, 6 in Mexico, 5 in ASEAN, 4 in Turkey and 1 in Egypt. There are of course several older global players operating out of South Korea, Taiwan, Singapore and Hong Kong, which are now considered part of the developed world.

 Going global involves more than just acquiring foreign companies. The BCG study looks at it more broadly in terms of a company’s presence abroad in the form of subsidiaries, manufacturing and servicing facilities, its interest in M&A activity, access to international capital markets, the breadth and depth of its technical competence and the value proposition it presents.  After all, the greatest comparative advantage of the RDEs is their cost advantage in labour and even in fixed costs at home. Twothirds of the BCG 100 come from China and India, where the size of the domestic market reinforces this cost advantage.  What then is the advantage which accrues to these companies if they invest abroad, often in high-cost mature economies?  One reason, perhaps the most important one, is ambition. When Mr Dhoot of Videocon was asked this question after the preliminary moves to acquire Daewoo Electronics, he replied that he wanted to 47

grow five-fold in size in five years and he could not do that even if his company expanded at twice the GDP growth rate within India.  The Tata-Corus deal has some of this raw ambition. But it is more than that. It reflects a rather special value proposition the Tata management can provide. The Tatas have operated a steel plant under difficult conditions, coped with competition and developed plant management, supply management, maintenance and marketing skills, which constitute a viable business-model for developed country commodity producers teetering on the edge of commercial decline. In some ways Mittal’s empire rests on the same strength as he has brought in management talent from India even though he himself is based in Europe.  Other companies have used acquisitions to reach new markets and get the technical and marketing muscle required for this. Thus Bharat Forge, which now is the second-largest forging company in the world, points out that each acquisition brought in something new to its capabilities—access to the US pick-up truck market, the European engine assembly market or the aluminum castings market. The same is true for several pharma acquisitions. These are commercial beachheads allowing these companies to conquer new markets.  A different way of going global is organic growth of a company, by setting up sales and service facilities, manufacturing plants, and R&D centres abroad. This becomes necessary at a certain scale because of the long supply chains, particularly from Asia to Europe and the US. Indian IT majors and many of the consumer product companies on the BCG 100 list have followed this route. Some 48

Chinese companies have built deep relationships with retailers like Home Depot and Wal-Mart, which give them access to the priceconscious consumer segment, where they can compete effectively with present players.  In the long run, survival in a global market depends on building a strong brand equity or a cost or technical advantage that allows a company to capture, say, 25 per cent or more of a global market. There are some Chinese and Brazilian companies that can claim this but none as yet from India.  ONGC, China’s national oil company and its main steel company are different. Their overseas forays are an effort at securing supply sources. Both China and India are late-comers to this game and both have large and growing demands for imports of oil and other minerals. This part of the globalisation process is more a geopolitical than an economic game. Overseas expansion necessarily involves some financial packaging. Most of these financial services are today provided by investment bankers abroad. Why not make it easier for Indian investment bankers to provide these services? They have the talent but are hemmed in by controls on what they can do abroad.  One question that arises is whether a capital-scarce country should be a capital exporter. First, any large country that engages in foreign trade has to invest abroad for securing markets and raw material supplies. Second, acquisitions like the Tata-Corus deal do not involve much export of capital since they are often financed by foreign borrowing. They are, in effect, an export of management capacity. 49

 India’s greatest comparative strength is in project and plant management under difficult conditions, in intermediate engineering and IT services and in skill-intensive manufacture. Leveraging this to our advantage requires a liberal view of overseas expansion by Indian companies.

CHAPTER 8
TATA GROUP OF COMPANIES
• • • • • • • One of the India’s largest business groups in the country It has about 96 operating companies Diverse business in 7 sectors Revenues equivalent to 5.3% of India’s GDP Group revenue FY 2008: Rs 251,543 Cr. / $ 62.5 b Group profit FY 2008: Rs 21,578 Cr. / $ 5.4 b Its 27 publicly listed companies have a combined market capitalization which is the 2nd highest among all business houses in India • • • • Largest employer in private sector over 300,000 employees A shareholder base of over 2.9 million Operations in over 80 countries Products and services exported to 85 countries  Tata is a rapidly growing business group based in India with significant international operations. Revenues in 2007-08 are 50

estimated at $62.5 billion (around Rs251, 543 crore), of which 61 per cent is from business outside India. The group employs around 350,000 people worldwide. The Tata name has been respected in India for 140 years for its adherence to strong values and business ethics.  The business operations of the Tata group currently encompass seven business sectors: communications and information technology, engineering, materials, services, energy, consumer products and chemicals.  The group's 27 publicly listed enterprises have a combined market capitalization of some $60 billion, among the highest among Indian business houses, and a shareholder base of 3.2 million. The major companies in the group include Tata Steel, Tata Motors, Tata Consultancy Services (TCS), Tata Power, Tata Chemicals, Tata Tea, Indian Hotels and Tata Communications.  The group’s major companies are beginning to be counted globally. Tata Steel became the sixth largest steel maker in the world after it acquired Corus. Tata Motors is among the top five commercial vehicle manufacturers in the world and has recently acquired Jaguar and Land Rover. TCS is a leading global software company, with delivery centres in the US, UK, Hungary, Brazil, Uruguay and China, besides India. Tata Tea is the second largest branded tea company in the world, through its UK-based subsidiary Tetley. Tata Chemicals is the world’s second largest manufacturer of soda ash. Tata Communications is one of the world’s largest wholesale voice carriers.

51

 In

tandem

with

the increasing

international

footprint of its

companies, the group is also gaining international recognition. Brand Finance, a UK-based consultancy firm, recently valued the Tata brand at $11.4 billion and ranked it 57th amongst the Top 100 brands in the world.  Business-week ranked the group sixth amongst the ‘World’s Most Innovative Companies’ and the Reputation Institute, USA, recently rated it as the ‘World’s Sixth Most Reputed Firm.’  Founded by Jamsetji Tata in 1868, the Tata group’s early years were inspired by the spirit of nationalism. The group pioneered several industries of national importance in India: steel, power, hospitality and airlines. In more recent times, the Tata group’s pioneering spirit has been showcased by companies like Tata Consultancy Services, India’s first software company, which pioneered the international delivery model, and Tata Motors, which made India’s first indigenously developed car, the Indica, in 1998 and recently unveiled the world’s lowest-cost car, the Tata Nano, for commercial launch by end of the financial year 2008-09.  The Tata group has always believed in returning wealth to the society it serves. Two-thirds of the equity of Tata Sons, the Tata group’s promoter company, is held by philanthropic trusts which have created national institutions in science and technology, medical research, social studies and the performing arts. The trusts also provide aid and assistance to NGOs in the areas of education, healthcare and livelihoods. Tata companies also extend social welfare activities to communities around their industrial units. The 52

combined development-related expenditure of the Trusts and the companies amounts to around 4 per cent of the group’s net profits.  Going forward, the group is focusing on new technologies and innovation to drive its business in India and internationally. The Nano car is one example, as is the Eka supercomputer (developed by another Tata company), which in 2008 is ranked the world’s fourth fastest. The group aims to build a series of world class, world scale businesses in select sectors. Anchored in India and wedded to its traditional values and strong ethics, the group is building a multinational business which will achieve growth through excellence and innovation, while balancing the interests of its shareholders, its employees and wider society.

Tata Group’s Top M&A Deals Acquirer Tata Chemicals Limited Target General Chemicals Industrial Products Inc. Jaguar Land Rover Corus steel PT-Kaltim Prima Coal TataTeleservic es ltd. Sector Stake (%)
Price (US$ million)

Date
27-03-2008

Plastic and 100 Chemicals

1005

TATA Motors TATA Steel ltd TATA Power NTTDocomo

Automobile

100%

2,300.00

27-03-08

Steel

100%

12201 1100 2700

30-03-07 30-03-07 13-11-08

Coal & 30% mines Tele26% Communicat ions

53

CASE-STUDIES
54

CHAPTER 9
9.1 TATA COMMUNICATION-NTT DOCOMO
About the acquisition
Date: - 13th November 2008 Acquirer: - Ntt-Docomo Target company: - Tata Teleservices Ltd. Stake: - 26 % Deal amount: - US$ 2700 m Sector: - Tele-communication

TATA COMMUNICATIONS Tata Communications is a leading global provider of a new world of communications. With a leadership position in emerging markets, Tata Communications leverages its advanced solutions capabilities and domain expertise across its global and pan-India network to deliver managed solutions to multi-national enterprises, service providers and Indian consumers. The Tata Global Network includes one of the most advanced and largest submarine cable networks, a Tier-1 IP network, with connectivity to more 55

than 200 countries across 400 Pops, and nearly 1 million square feet of data centre and collocation space worldwide. Tata Communications' depth and breadth of reach in emerging markets includes leadership in Indian enterprise data services, leadership in global international voice, and strategic investments in operators in South Africa (Neo-tel), Sri Lanka (Tata Communications Lanka Limited), Nepal (United Telecom Limited), and subject to approval by the Chinese government, China (China Enterprise Communications) Tata Communications Limited is listed on the Bombay Stock Exchange and the National Stock Exchange of India and its ADRs are listed on the New York Stock Exchange. (NYSE: TCL)

NTT-DOCOMO NTT DOCOMO is Japan's premier provider of leading-edge mobile voice, data and multimedia services. With more than 55 million customers in Japan, the company is one of the world's largest mobile communications operators. DOCOMO also is an influential force in the continuing advancement of mobile technologies and standards. In 1999, Docomo launched i-mode the world's most popular platform for mobile Internet services including e-mail, browsing, downloading and more. In 2001, DOCOMO introduced FOMA, the world's first 3G commercial mobile service based on W-CDMA, which has transformed the mobile landscape in Japan while bringing the DOCOMO brand global recognition. The role of mobile phones as "lifestyle tools" was cemented when 56

DOCOMO launched Osaifu-Keitai™, a mobile wallet platform enabling quick, contact-less transactions for cash, credit, ID, and more. More than 36 million phones equipped for Osaifu-Keitai services are now in use. Building on a solid foundation of research and development, and guided by its customer-first philosophy, the company leverages the power of mobile communications to enable customers to enrich their lives. DOCOMO is expanding its global reach through offices and subsidiaries in Asia, Europe and North America, as well as strategic alliances with mobile and multimedia service providers in markets worldwide.

Detailed case study
Tata Sons Limited, the promoter of Tata Teleservices Limited, announced today that its transaction with NTT DOCOMO, under which the Japanese telecom company was to acquire 26 per cent of the common shares of Tata Teleservices Limited—in accordance with the capital-alliance agreement announced by the parties in November 2008—has been completed. Tata Sons further stated that DOCOMO has also completed its payment obligations under the Tender Offer and is preparing to acquire approximately 12 per cent of the common shares of Tata Teleservices (Maharashtra) Limited (TTML) through an open offer*, with the Tender Offer having closed on 12 March 2009. With this development, DOCOMO has become a 26-per cent shareholder in Tata Teleservices Limited and three DOCOMO Directors will be named to join the TTSL Board. The partners will now work to increase the enterprise value of both TTSL and TTML, while creating synergies through

57

their

joint

activities

including

Business

&

Technology

Cooperation

Committee. Tokyo-based DOCOMO, the world’s leading mobile operator, has played a major role in the evolution of mobile telecommunications through its development of cutting-edge mobile technologies and services. The company is a strong market leader used by more than 50 per cent of Japan’s mobile phone users. DOCOMO, the world’s leading mobile operator, will work closely with TTSL’s management and provide knowhow to help the company develop its mobile business. TTSL expects to leverage DOCOMO’s expertise in the development and delivery of valueadded services, where DOCOMO is a firmly established market leader. The Japanese telecom giant which, with 53 million customers and 51.5% of the Japanese market, is one of the world's largest players in the telecommunications industry, bought a 26% stake in Tata Teleservices Ltd (TTSL) for $2.7 billion. NTT DoCoMo followed up this deal with an open offer for 20% in Tata Teleservices (Maharashtra) Ltd -- TTML -- the listed subsidiary of TTSL. At Rs24.70 (50 cents) a share, this means another $191 million. The offer will open in January. The Road ahead Great deal it may be, but it has its risks. One reason is that telecom deals have been controversial in recent times. This goes back to late last year when the government sold pan-India licenses for $333 million apiece, amid a welter of controversy. New players, with no experience in the business, got these licenses on a first-come-first-served basis. In India also, many of our companies already are or will soon face major problems in their access to credit due to the lack of liquidity in the domestic market and also their inability to effectively raise equity due to the depression in the stock market and the erosion of investor confidence. 58

Open offer Besides, DoCoMo, in accordance with regulations of the Securities and Exchange Board of India, expects to make an open offer to acquire up to 20 per cent of outstanding equity shares of Tata Teleservices Maharashtra (TTML), a Tata telecommunication company, through a joint tender offer along with Tata Sons. TTSL and TTML through the Tata Indicom brand, have increased their combined share of the fast-growing Indian mobile market and their combined subscriber base now stands at over 30 million. Market leader NTT DoCoMo is a market leader in Japan and is used by over 50 per cent of Japan’s mobile phone users. It serves over 53 million customers, including 46 million people subscribing to FOMATM (in Japan), launched as the world’s first 3G mobile service based on W-CDMA in 2001. It offers a variety of leading-edge mobile multimedia services, including imode™, the world’s most popular mobile e-mail/Internet service, used by 48 million people. With the addition of credit-card and other e-wallet functions, DoCoMo mobile phones have become versatile tools for daily life. It is listed on the Tokyo, London and New York stock exchanges. TTSL expects to leverage DoCoMo’s expertise in the development and delivery of value-added services, where DoCoMo is a firmly established market leader.

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IMPACT ON SHAREHOLDER’S WEALTH
P re Acquisition Date 1 4-Oct-08 1 5-Oct-08 1 6-Oct-08 1 7-Oct-08 20-Oct-08 21 -Oct-08 22-Oct-08 23-Oct-08 24-Oct-08 27-Oct-08 28-Oct-08 29-Oct-08 31 -Oct-08 3-Nov-08 4-Nov-08 5-Nov-08 6-Nov-08 7-Nov-08 1 0-Nov-08 1-Nov-08 1 1 2-Nov-08 Open P rice 1 8.40 1 7.60 1 5.90 1 7.30 1 6.70 1 6.90 1 6.70 1 0 6.1 1 0 5.1 1 3.50 1 3.60 1 4.30 1 5 3.1 1 3.80 1 6 4.1 1 5.35 1 4.00 1 3.85 1 6.35 1 7.50 1 7.85 P ost Acquisition Date 1 2-Nov-08 1 4-Nov-08 1 7-Nov-08 1 8-Nov-08 1 9-Nov-08 20-Nov-08 21 -Nov-08 24-Nov-08 25-Nov-08 26-Nov-08 28-Nov-08 1 -Dec-08 2-Dec-08 3-Dec-08 4-Dec-08 5-Dec-08 8-Dec-08 1 0-Dec-08 1-Dec-08 1 1 2-Dec-08 1 5-Dec-08 Open P rice 1 7.85 20.00 20.1 9 20.35 20.25 20.44 1 9.60 20.00 20.20 1 9.75 1 9.21 1 9.70 1 9.50 1 9.90 1 9.60 1 9.90 20.60 20.45 20.35 1 9.55 20.20

1 8 7.1 1 6.88 1 6.70 1 6.74 1 6.30 1 5.66 1 5.00 1 4.52 1 3.93 1 3.67 1 3.80 1 5 4.1 1 4.09 1 4.23 1 4.74 1 5.41 1 5.91

1 6.76 1 6.46 1 6.08 1 5.64 1 5.08 1 4.56 1 8 4.1 1 4.01 1 3.93 1 3.99 1 4.20 1 4.53 1 4.88

1 6.00 1 5.56 1 1 5.1 1 4.70 1 4.35 1 3 4.1 1 4.06 1 3 4.1 1 4.31

1 5 5.1 1 4.77 1 4.47 1 4.28 1 4.20

1 4.57

1 9.73 20.25 20.1 7 20.1 3 20.1 0 20.00 1 9.75 1 9.77 1 9.67 1 9.61 1 9.58 1 9.72 1 9.90 20.09 20.1 8 20.1 7 20.23

20.07 20.1 3 20.03 1 9.95 1 9.86 1 9.76 1 9.68 1 9.67 1 9.70 1 9.78 1 9.89 20.01 20.1 1

20.01 1 9.94 1 9.86 1 9.78 1 9.73 1 9.72 1 9.74 1 9.81 1 9.90

1 9.86 1 9.81 1 9.77 1 9.76 1 9.78

1 9.80

P re Acquisition Date 1 4-Oct-08 1 5-Oct-08 1 6-Oct-08 1 7-Oct-08 20-Oct-08 21 -Oct-08 22-Oct-08 23-Oct-08 24-Oct-08 27-Oct-08 28-Oct-08 29-Oct-08 31 -Oct-08 3-Nov-08 4-Nov-08 5-Nov-08 6-Nov-08 7-Nov-08 1 0-Nov-08 1-Nov-08 1 1 2-Nov-08 Close P rice 1 7.90 1 6.80 1 7.05 1 6.45 1 6.55 1 6.75 1 6.65 1 5.70 1 3.90 1 5 3.1 1 3.95 1 2.75 1 3.50 1 6 4.1 1 6 5.1 1 4.40 1 3.88 1 6.00 1 7.73 1 6.72 1 7.99

P ost Acquisition Date 1 2-Nov-08 1 4-Nov-08 1 7-Nov-08 1 8-Nov-08 1 9-Nov-08 20-Nov-08 21 -Nov-08 24-Nov-08 25-Nov-08 26-Nov-08 28-Nov-08 1 -Dec-08 2-Dec-08 3-Dec-08 4-Dec-08 5-Dec-08 8-Dec-08 1 0-Dec-08 1-Dec-08 1 1 2-Dec-08 1 5-Dec-08 Close P rice 1 7.99 20.1 9 20.52 20.42 20.46 1 9.70 1 9.83 1 9.80 1 9.61 1 9.74 1 9.61 1 9.65 1 9.55 1 9.50 1 9.75 20.1 5 20.25 20.35 1 9.75 20.1 5 20.40

1 6.95 1 6.72 1 6.69 1 6.42 1 5.91 1 5.23 1 4.67 1 3.89 1 3.45 1 3.50 1 3.90 1 3.99 1 4.22 1 4.72 1 5.43 1 5.75 1 6.46

1 6.54 1 9 6.1 1 5.78 1 5.22 1 4.63 1 5 4.1 1 3.88 1 3.75 1 3.81 1 4.07 1 4.45 1 4.82 1 5.32

1 5.67 1 5.20 1 4.73 1 4.33 1 4.04 1 3.93 1 3.99 1 8 4.1 1 4.50

1 4.80 1 4.45 1 4.21 1 0 4.1 1 3 4.1

1 4.33

1 9.92 20.26 20.1 9 20.04 1 9.88 1 9.74 1 9.72 1 9.68 1 9.63 1 9.61 1 9.61 1 9.72 1 9.84 20.00 20.05 20.1 3 20.1 8

20.06 20.02 1 9.91 1 9.81 1 9.73 1 9.68 1 9.65 1 9.65 1 9.68 1 9.76 1 9.84 1 9.95 20.04

1 9.91 1 9.83 1 9.76 1 9.70 1 9.68 1 9.68 1 9.72 1 9.78 1 9.85

1 9.77 1 9.73 1 9.71 1 9.71 1 9.74

1 9.73

60

Tata Doc om o
25.00 20.00 15.00 10.00 5.00 O p en P ric e 14.57 19.80

Ta ta Doc om o
25.00 2 0.00 15.00 10.00 5.00 C lo s ing P ric e 14.33 19.73

61

Pre Acquisition Date 1 4-Oct-08 1 5-Oct-08 1 6-Oct-08 1 7-Oct-08 20-Oct-08 21 -Oct-08 22-Oct-08 23-Oct-08 24-Oct-08 27-Oct-08 28-Oct-08 29-Oct-08 31 -Oct-08 3-Nov-08 4-Nov-08 5-Nov-08 6-Nov-08 7-Nov-08 1 0-Nov-08 1-Nov-08 1 1 2-Nov-08 Total Turnover(Rs.) Mn 41 .4 21 .0 34.5 30.3 1 8.8 1 2.7 1 2.4 22.8 35.6 34.0 1 0.5 26.2 23.2 21 .7 32.0 37.5 1 3.5 1 24.3 1 36.2 14.9 1 31 7.9

Post Acquisition Date 1 2-Nov-08 1 4-Nov-08 1 7-Nov-08 1 8-Nov-08 1 9-Nov-08 20-Nov-08 21 -Nov-08 24-Nov-08 25-Nov-08 26-Nov-08 28-Nov-08 1 -Dec-08 2-Dec-08 3-Dec-08 4-Dec-08 5-Dec-08 8-Dec-08 1 0-Dec-08 1-Dec-08 1 1 2-Dec-08 1 5-Dec-08 Total Turnover(Rs.) Mn 31 7.9 336.0 1 32.2 88.8 35.1 70.0 38.5 25.3 1 9.4 1 5.0 1 6.9 1 9.0 1 8.0 25.6 1 4.1 36.2 21 .6 1 4.6 49.4 1 6.8 28.4

29.2 23.5 21 .7 1 9.4 20.5 23.5 23.1 25.8 25.9 23.1 22.7 28.1 25.6 45.8 68.7 85.3 1 .3 41

22.9 21 .7 21 .6 22.5 23.7 24.3 24.1 25.1 25.1 29.1 38.2 50.7 73.3

22.5 22.8 23.2 23.9 24.5 25.5 28.3 33.6 43.3

23.4 24.0 25.1 27.2 31 .1

26.1

1 82.0 1 32.4 72.9 51 .6 37.7 33.6 23.0 1 9.1 1 7.7 1 8.9 1 8.7 22.6 23.1 22.4 27.2 27.7 26.2

95.3 65.7 43.8 33.0 26.2 22.5 1 9.5 1 9.4 20.2 21 .2 22.8 24.6 25.3

52.8 38.2 29.0 24.1 21 .6 20.5 20.6 21 .6 22.8

33.1 26.7 23.2 21 .7 21 .4

25.2

Tata Docom o
26.50 26.00 25.50 25.00 24.50 T urno ver 25.23 26.15

62

Pre Acquisition Date 1 4-Oct-0 8 1 5-Oct-0 8 1 6-Oct-0 8 1 7-Oct-0 8 2 -Oct-0 0 8 2 -Oct-0 1 8 2 -Oct-0 2 8 2 -Oct-0 3 8 2 -Oct-0 4 8 2 -Oct-0 7 8 2 -Oct-0 8 8 2 -Oct-0 9 8 3 -Oct-0 1 8 3 -Nov-0 8 4 -Nov-0 8 5 -Nov-0 8 6 -Nov-0 8 7 -Nov-0 8 1 -Nov-0 0 8 1-Nov-0 1 8 1 -Nov-0 2 8 Hig Price h 1 .0 9 1 .9 7 1 .4 7 1 .5 7 1 .0 7 1 .3 7 1 .8 6 1 .4 6 1 .5 5 1 .8 3 1 .5 4 1 .5 4 1 .8 3 1 .3 4 1 .3 5 1 .5 7 1 .3 4 1 .6 6 1 .0 8 1 .8 7 1 .1 9

Post Acquisition Date 1 -Nov-0 2 8 1 -Nov-0 4 8 1 -Nov-0 7 8 1 -Nov-0 8 8 1 -Nov-0 9 8 2 0-Nov-0 8 2 -Nov-0 1 8 2 4-Nov-0 8 2 5-Nov-0 8 2 6-Nov-0 8 2 8-Nov-0 8 1 -Dec-0 8 2 -Dec-0 8 3 -Dec-0 8 4 -Dec-0 8 5 -Dec-0 8 8 -Dec-0 8 1 -Dec-0 0 8 1-Dec-0 1 8 1 -Dec-0 2 8 1 -Dec-0 5 8 Hig Price h 1 .1 9 2 .9 0 2 .6 0 2 .6 0 2 .5 0 2 .4 0 2 .1 0 2 .1 0 2 .3 0 1 .9 9 1 .8 9 2 .0 0 1 .7 9 1 .9 9 1 .8 9 2 .4 0 2 .6 0 2 .5 0 2 .5 0 2 .3 0 2 .6 0

1 .7 7 1 .4 7 1 .2 7 1 .0 7 1 .6 6 1 .9 5 1 .4 5 1 .9 4 1 .4 4 1 .2 4 1 .5 4 1 .1 5 1 .0 5 1 .6 5 1 .3 6 1 .8 6 1 .1 7

1 .2 7 1 .8 6 1 .4 6 1 .0 6 1 .4 5 1 .0 5 1 .7 4 1 .6 4 1 .6 4 1 .9 4 1 .3 5 1 .8 5 1 .2 6

1 .4 6 1 .9 5 1 .5 5 1 .1 5 1 .9 4 1 .8 4 1 .8 4 1 .0 5 1 .4 5

1 .5 5 1 .2 5 1 .0 5 1 .9 4 1 .0 5

1 .1 5

2 .3 0 2 .6 0 2 .4 0 2 .3 0 2 .3 0 2 .2 0 2 .0 0 2 .0 0 1 .9 9 1 .8 9 1 .8 9 1 .9 9 2 .1 0 2 .2 0 2 .4 0 2 .5 0 2 .5 0

2 .4 0 2 .4 0 2 .3 0 2 .2 0 2 .1 0 2 .0 0 1 .9 9 1 .9 9 1 .9 9 2 .0 0 2 .1 0 2 .2 0 2 .3 0

2 .3 0 2 .2 0 2 0.1 2 .0 0 2 .0 0 1 .9 9 2 .0 0 2 .0 0 2 0.1

2 .1 0 2 .0 0 2 .0 0 2 .0 0 2 .0 0

2 0.0

Pre Acquisition Date 1 4-Oct-0 8 1 5-Oct-0 8 1 6-Oct-0 8 1 7-Oct-0 8 2 -Oct-0 0 8 2 -Oct-0 1 8 2 -Oct-0 2 8 2 -Oct-0 3 8 2 -Oct-0 4 8 2 -Oct-0 7 8 2 -Oct-0 8 8 2 -Oct-0 9 8 3 -Oct-0 1 8 3 -Nov-0 8 4 -Nov-0 8 5 -Nov-0 8 6 -Nov-0 8 7 -Nov-0 8 1 -Nov-0 0 8 1-Nov-0 1 8 1 -Nov-0 2 8 LowPrice 1 .6 7 1 .6 6 1 .5 5 1 .3 6 1 .1 6 1 .5 6 1 .3 6 1 .6 5 1 .5 3 1 .5 2 1 .5 3 1 .6 2 1 .1 3 1 .8 3 1 .8 3 1 .3 4 1 .7 3 1 .8 3 1 .3 6 1 .4 6 1 .2 7

Post Acquisition Date 1 -Nov-0 2 8 1 -Nov-0 4 8 1 -Nov-0 7 8 1 -Nov-0 8 8 1 -Nov-0 9 8 2 0-Nov-0 8 2 -Nov-0 1 8 2 4-Nov-0 8 2 5-Nov-0 8 2 6-Nov-0 8 2 8-Nov-0 8 1 -Dec-0 8 2 -Dec-0 8 3 -Dec-0 8 4 -Dec-0 8 5 -Dec-0 8 8 -Dec-0 8 1 -Dec-0 0 8 1-Dec-0 1 8 1 -Dec-0 2 8 1 -Dec-0 5 8 LowPrice 1 .2 7 1 .8 9 2 .2 0 2 .3 0 2 .3 0 1 .2 9 1 .3 9 1 .6 9 1 .6 9 1 .5 9 1 .2 9 1 .4 9 1 .3 9 1 .5 9 1 .5 9 1 .7 9 2 .0 0 2 .2 0 1 .7 9 1 .5 9 2 .0 0

1 .4 6 1 .2 6 1 .1 6 1 .2 6 1 .6 5 1 .9 4 1 .3 4 1 .5 3 1 .0 3 1 .1 3 1 .3 3 1 .5 3 1 .7 3 1 .9 3 1 .4 4 1 .9 4 1 .5 5

1 .1 6 1 .8 5 1 .4 5 1 .9 4 1 .3 4 1 .8 3 1 .4 3 1 .3 3 1 .3 3 1 .5 3 1 .7 3 1 .1 4 1 .5 4

1 .3 5 1 .8 4 1 .4 4 1 .9 3 1 .6 3 1 .5 3 1 .5 3 1 .6 3 1 .8 3

1 .4 4 1 .0 4 1 .8 3 1 .6 3 1 .6 3

1 .9 3

1 .5 9 1 .9 9 1 .8 9 1 .7 9 1 .6 9 1 .4 9 1 .4 9 1 .4 9 1 .4 9 1 .4 9 1 .4 9 1 .5 9 1 .6 9 1 .8 9 1 .8 9 1 .8 9 1 .9 9

1 .7 9 1 .7 9 1 .6 9 1 .5 9 1 .4 9 1 .4 9 1 .4 9 1 .4 9 1 .4 9 1 .5 9 1 .6 9 1 .7 9 1 .8 9

1 .6 9 1 .5 9 1 .5 9 1 .4 9 1 .4 9 1 .4 9 1 .5 9 1 .5 9 1 .6 9

1 .5 9 1 .5 9 1 .4 9 1 .5 9 1 .5 9

1 9.5

Tata Docomo
25.00 20.00 1 5.00 1 0.00 5.00 High Price 1 4 5.1 20.02

Tata Docomo
25.00 20.00 1 5.00 1 0.00 5.00 Lo w Price 1 3.88 1 9.46

INTERPRETATION The calculation of five days moving average for the previous as well as later month from the date of merger is shown. It takes into account the open, high, low, close, daily turnover as well as calculation of abnormal return. This takes into account the daily volatilities of the share prices. 63

 Here, the daily average prices have risen due to positive feedback of the merger but the turnover has decreased at the same time. This shows that there are certain shareholders who expect the share prices to rise much more as compared to actual rise that has taken place and so they have reduced trading activities and turned themselves into investors. Such investors value the deal much more and so they expect the share prices to rise sharply within a period of year or so.

64

COMPANY’S RETURN BEFORE AND AFTER ACQUISITION
Pr A u io e cq isit n Dt ae E .R t r x eun Ab or a R t r n m l eun C m .Ab R t r u m . eun

1/1/2 0 0 5 08 1/1/2 0 0 6 08 1/1/2 0 0 7 08 1/2 /2 0 0 0 08 1/2/2 0 0 1 08 1/2 /2 0 0 2 08 1/2 /2 0 0 3 08 1/2 /2 0 0 4 08 1/2 /2 0 0 7 08 1/2 /2 0 0 8 08 1/2 /2 0 0 9 08 1/3/2 0 0 1 08 1 /2 0 1 08 /3 1 /2 0 1 08 /4 1 /2 0 1 08 /5 1 /2 0 1 08 /6 1 /2 0 1 08 /7 1 0 08 1 /2 0 /1 1 1 08 1 /2 0 /1 1 2 08 1 /2 0 /1 Po A u io st cq isit n Dt ae

-57 % .7 -20 % .6 -56 % .3 24 % .5 44 % .4 -47 % .2 -38 % .4 -1. 7 07 % -21% .6 57 % .7 04% .1 80 % .9 55 % .3 28 % .0 -47 % .2 -37 % .4 23 % .3 56 % .5 -64 % .9 -30 % .3

-01% .0 -00 % .4 -01% .0 00 % .3 00 % .7 -00 % .9 -00 % .7 -01% .9 -00 % .4 00 % .9 00 % .0 01% .3 00 % .8 00 % .4 -00 % .9 -00 % .7 00 % .3 00 % .9 -01% .2 -00 % .6

-01% .0 -01% .5 -02 % .5 -02% .1 -01% .5 -02 % .3 -03 % .0 -04 % .9 -05 % .4 -04 % .5 -04 % .5 -03 % .2 -02 % .4 -02 % .0 -02 % .8 -03 % .5 -03 % .2 -02 % .3 -03 % .5 -04% .1

E .R t r x eun

Ab or a R t r n m l eun

C m .Ab R t r u m . eun

1 4 08 1 /2 0 /1 1 7 08 1 /2 0 /1 1 8 08 1 /2 0 /1 1 9 08 1 /2 0 /1 1 0 08 1 /2 0 /2 1 1 08 1 /2 0 /2 1 4 08 1 /2 0 /2 1 5 08 1 /2 0 /2 1 6 08 1 /2 0 /2 1 8 08 1 /2 0 /2 1/1 0 8 2 /2 0 1/2 0 8 2 /2 0 1/3 0 8 2 /2 0 1/4 0 8 2 /2 0 1/5 0 8 2 /2 0 1/8 0 8 2 /2 0 1/1/2 0 2 0 08 1/1 0 8 21 0 /2 1/1/2 0 2 2 08 1/1/2 0 2 5 08

-1 9 . % 5 -1 1 . % 0 -38 % .2 -1 3 . % 8 -36 % .9 55% .1 -01% .3 -23 % .4 38 % .2 07 % .3 -27 % .9 -14 . % 1 01% .0 55 % .3 -28 % .7 22% .1 53 % .9 -01% .0 04 % .7 17 . % 4

00 % .0 00 % .0 00% .1 00 % .0 00% .1 -00 % .2 00 % .0 00% .1 -00% .1 00 % .0 00% .1 00 % .0 00 % .0 -00 % .2 00% .1 -00% .1 -00 % .2 00 % .0 00 % .0 -00% .1

00 % .0 00% .1 00 % .2 00 % .2 00 % .3 00% .1 00% .1 00 % .2 00% .1 00 % .0 00% .1 00% .1 00% .1 -00% .1 00 % .0 -00% .1 -00 % .3 -00 % .3 -00 % .3 -00 % .4

65

0.00%
11 /8 /0 8 11 /1 0/ 08 11 /1 2/ 08 10 /1 5/ 08 10 /1 7/ 08 10 /1 9/ 08 10 /2 1/ 08 10 /2 3/ 08 10 /2 5/ 08 10 /2 7/ 08 10 /2 9/ 08 10 /3 1/ 08 11 /2 /0 8 11 /4 /0 8 11 /6 /0 8

-0.10%

-0.20%

-0.30%

-0.40%

-0.50%

-0.60%

Cumm. Ab. Return 0.04% 0.03% 0.02% 0.01% 0.00%
11 /1 4/ 08 11 /1 6/ 08 11 /1 8/ 08 11 /2 0/ 08 11 /2 2/ 08 11 /2 4/ 08 11 /2 6/ 08 11 /2 8/ 08 11 /3 0/ 08 12 /2 /0 8 12 /4 /0 8 12 /6 /0 8 12 /8 /0 8 12 /1 0/ 08 12 /1 2/ 08 12 /1 4/ 08

-0.01% -0.02% -0.03% -0.04%

INTERPRETATION The return of the target company Tata Communication has been very poor since the past 15 to 20 days before the acquisition but it almost got to break-even soon after the acquisition date. This sustained for the next 8 to 10 days but again got back into negative returns zone due to poor customer support to the newly entered Docomo brand in highly competitive communications market in India.

66

RATIO ANALYSIS
TATA DOCOMO (13-1108) Debt-Equity Ratio ROCE (%) net profit margin P/E ROE(%) EPS OPM(%) Pre- acquisition 0.11 7.33 9.55 0 11.14 0.89 16.2 Postacquisition 0.14 7.44 10.61 12 10.97 1.11 18.7 Change (%) 27.27% 1.50% 11.10% 0 -1.53% 24.72% 15.43%

INTERPRETATION Debt equity ratio on post acquisition debt is increasing which shows company debt is increasing after merger.ROCE is constant it has not change much.Net profit margin increases by 11.10 as it income increases in post acquisition as compared to pre acquisition. P/E highly increases in post acquisition from 0 to 12%. ROE is decreasing by 1.53% which shows that it slightly more debt than equity. EPS is increasing drastically by 24.27% which is very profitable for investors. Operating profit margin is

67

increased by 15.43% which shows that company profit margin is very fairly profitable.

68

9.2 TATA MOTOR - JLR
About the acquisition
Date: - 27th March 2008 Acquirer: - Tata Motors Ltd Target company: - Jaguar Land Rover Stake: - 100 % Deal amount: - US$ 2300m Sector: - Automotive TATA MOTORS • Tata Motors Limited is India's largest automobile company, with consolidated revenues of Rs.70,938.85 crores (USD 14 billion) in 2008-09 • • • It is the leader in commercial vehicles segment, and among the top three in passenger vehicles It is the world's fourth largest truck manufacturer, and the world's second largest bus manufacturer The company's 24,000 employees are guided by the vision to be "best in the manner in which we operate, best in the products we deliver, and best in our value system and ethics" • • Over 4 million Tata vehicles ply on Indian roads, since the first rolled out in 1954 It has manufacturing base in India spread across Jamshedpur (Jharkhand), • • Pune (Maharashtra), Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand) and Dharwad (Karnataka) The company's dealership, sales, services and spare parts network comprises over 3500 touch points Tata Motors also distributes and markets Fiat branded cars in India 69

Tata Motors, the first company from India's engineering sector to be listed in the New York Stock Exchange (September 2004), has also emerged as an international automobile company

• • •

It has operations in the UK, South Korea, Thailand and Spain In 2004, it acquired the Daewoo Commercial Vehicles Company, South Korea's second largest truck maker In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish bus and coach manufacturer, and subsequently the remaining stake in 2009. Hispano's presence is being expanded in other markets

In 2006, Tata Motors formed a joint venture with the Brazil-based Marcopolo, a global leader in body-building for buses and coaches to manufacture fully-built buses and coaches for India and select international markets

• •

Tata Motors is also expanding its international footprint, established through exports since 1961 The company's commercial and passenger vehicles are already being marketed in several countries in Europe, Africa, the Middle East, South East Asia, South Asia and South America

In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, which India and the world have been looking forward to

JAGUAR LAND ROVER • • • Jaguar Cars Ltd, founded in 1922, is one of the world’s premier manufacturers of luxury saloons and sports cars Since 1948 Land Rover has been manufacturing authentic 4*4s that defines ‘breadth of capability’ in their segments The Jaguar Land Rover business employs some 16000 people, predominately in the UK, including some 3500 engineers at two 70

product development centres in Whitley, Coventry and Gaydon, Warwickshire • The business is a major wealth generator for the UK Jaguars exported to 63 countries, with sales to customers conducted principally through franchised dealers and importers • That Jaguar and Land Rover are two of the most well-known automotive names in the world, and that Ford had acquired them for a collective cost of about $5 billion almost a decade earlier, Tata Motors seems to have got them at a steal at $2 billion Terms Under the terms of the deal Ford will contribute about $600 m to JLR pension plan. Ford will continue to supply JLR for differing periods with engines, stamping and other car components, in addition to a variety of technologies. In addition Ford Motor Credit Company will provide financing for JLR and customers during a transitional period upto 12 months.

Detailed Case Study
Acquisition of British Icons On June 02, 2008, India-based Tata Motors completed the acquisition of the Jaguar and Land Rover (JLR) units from the US-based auto manufacturer Ford Motor Company (Ford) for US$ 2.3 billion, on a cash free-debt free basis. JLR was a part of Ford's Premier Automotive Group (PAG) and were considered to be British icons. Jaguar was involved in the manufacture of high-end luxury cars, while Land Rover manufactured high-end SUVs.

71

Tata Motors had several major international acquisitions to its credit. It had acquired Tetley, South Korea-based Daewoo's commercial vehicle unit, and Anglo-Dutch Steel maker Corus. Tata Motors long-term strategy included consolidating its position in the domestic Indian market and expanding its international footprint by leveraging on in-house capabilities and products and also through acquisitions and strategic collaborations. Analysts were of the view that the acquisition of JLR, which had a global presence and a repertoire of well established brands, would help Tata Motors become one of the major players in the global automobile industry. Ford Motors Company (Ford) is a leading automaker and the third largest multinational corporation in the automobile industry. The company acquired Jaguar from British Leyland Limited in 1989 for US$ 2.5b. After Ford acquired Jaguar, adverse economic conditions worldwide in the 1990s led to tough market conditions and a decrease in the demand for luxury cars. The sales of Jaguar in many markets declined, but in some markets like Japan, Germany, and Italy, it still recorded high sales. In March 1999, Ford established the PAG with Aston Martin, Jaguar, and Lincoln. During the year, Volvo was acquired for US$ 6.45 billion, and it also became a part of the PAG In September 2006, after Allan Mulally (Mulally) assumed charge as the President and CEO of Ford, he decided to dismantle the PAG. In March 2007, Ford sold the Aston Martin sports car unit for US$ 931 million. In June 2007, Ford announced that it was considering selling JLR.

72

Tata Motors also entered into long term agreements with FMC for supply of engines, stampings and other components to JLR. Other areas of transition support from Ford include IT, accounting and access to test facilities. The two companies will continue to cooperate in areas such as design and development through sharing of platforms and joint development of hybrid technologies and power train engineering. The Ford Motor Credit Company, the credit providing arm of FMC, will continue to provide financing for Jaguar Land Rover dealers and customers for a transition period lasting for a period of 12 months. Tata Motors is in an advanced stage of negotiations with leading auto finance providers to support the Jaguar Land Rover business in the UK, Europe and the US, and is expected to select financial services partners shortly. Financing the deal On March 26 2008, Tata Motors entered into an agreement with Ford for the purchase of JLR. Tata Motors agreed to pay US$ 2.3 billion in cash for a 100% acquisition of the business of JLR. As part of the acquisition, Tata Motors did not inherit any of the debt liabilties of JLR the acquisition was totally debt free. Tata Motors raised $3 billion (about Rs. 12000 crore) through bridge loans for 15 months from a clutch of banks, including JP Morgan, Citigroup, and SBI The Company chartered out plans to raised Rs,7200 crore through three simultaneous but unlinked rights issue, the proceeds of which will be used to part-finance the JLR deal of Rs.9228.75 crore. The precise terms of the issue (the ratio at which these securities will be offered, offer price and the conversion price) will be decided when the issue are ready to be made 73

The rights issue will raise the equity capital of Tata Motors by 30-35 percent by March 2009. The company also plans to raise $500-600 million through an issue of securities in the foreign markets. The company will share the date of listing at a later date. The acquisition of JLR was done through the company’s wholly owned subsidiary TML Holdings (UK). The Challenges Morgan Stanley reported that JLR's acquisition appeared negative for Tata Motors, as it had increased the earnings volatility, given the difficult economic conditions in the key markets of JLR including the US and Europe. Moreover, Tata Motors had to incur a huge capital expenditure as it planned to invest another US$ 1 billion in JLR. This was in addition to the US$ 2.3 billion it had spent on the acquisition. Tata Motors had also incurred huge capital expenditure on the development and launch of the small car Nano and on a joint venture with Fiat to manufacture some of the company's vehicles in India and Thailand. This, coupled with the downturn in the global automobile industry, was expected to impact the profitability of the company in the near future The Road Ahead Tata Motors had formed an integration committee with senior executives from the JLR and Tata Motors, to set milestones and long-term goals for the acquired entities. One of the major problems for Tata Motors could be the slowing down of the European and US automobile markets. It was expected that the company would address this issue by concentrating on countries like Russia, China, India, and the Middle East.

74

IMPACT ON SHAREHOLDER’S WEALTH
P re Acquisition Date 22-Feb-08 25-Feb-08 26-Feb-08 27-Feb-08 28-Feb-08 29-Feb-08 3-Mar-08 4-Mar-08 5-Mar-08 7-Mar-08 1 0-Mar-08 1-Mar-08 1 1 2-Mar-08 1 3-Mar-08 1 4-Mar-08 1 7-Mar-08 1 8-Mar-08 1 9-Mar-08 24-Mar-08 25-Mar-08 28-Mar-08 Open P rice 71 0.00 700.05 71 3.80 71 0.00 707.00 71 7.35 696.00 699.95 705.00 696.00 665.00 670.00 672.00 637.00 621 .00 625.00 600.00 632.00 651 0 .1 670.00 658.00 P ost Acquisition Date 28-Mar-08 31 ar-08 -M 1 -Apr-08 2-Apr-08 3-Apr-08 4-Apr-08 7-Apr-08 8-Apr-08 9-Apr-08 1 0-Apr-08 1-Apr-08 1 1 5-Apr-08 1 6-Apr-08 1 7-Apr-08 21 -Apr-08 22-Apr-08 23-Apr-08 24-Apr-08 25-Apr-08 28-Apr-08 29-Apr-08 Open P rice 658.00 642.00 626.00 641 .00 647.00 600.00 61 5.00 635.00 621 .00 631 .00 629.00 620.00 626.90 620.00 621 .00 623.00 634.80 639.00 642.00 643.00 644.00

708.1 7 709.64 708.83 706.06 705.06 702.86 692.39 687.1 9 681 .60 668.00 653.00 645.00 631 .00 623.00 625.82 635.62 642.22

707.55 706.49 703.04 698.71 693.82 686.41 676.44 666.96 655.72 644.00 635.56 632.09 631 .53

701 .92 697.69 691 .68 684.47 675.87 665.90 655.74 646.87 639.78

690.33 683.1 2 674.73 665.77 656.83

674.1 6

642.80 631 .20 625.80 627.60 623.60 620.40 626.20 627.20 625.58 625.38 623.38 622.1 8 625.1 4 627.56 631 .96 636.36 640.56

630.20 625.72 624.72 625.00 624.60 624.95 625.55 624.74 624.33 624.73 626.04 628.64 632.32

626.05 625.00 624.96 624.97 624.83 624.86 625.08 625.70 627.21

625.1 6 624.92 624.94 625.09 625.54

625.1 3

P re Acquisition Date 22-Feb-08 25-Feb-08 26-Feb-08 27-Feb-08 28-Feb-08 29-Feb-08 3-Mar-08 4-Mar-08 5-Mar-08 7-Mar-08 1 0-Mar-08 1-Mar-08 1 1 2-Mar-08 1 3-Mar-08 1 4-Mar-08 1 7-Mar-08 1 8-Mar-08 1 9-Mar-08 24-Mar-08 25-Mar-08 28-Mar-08 Close P rice 694.70 705.35 702.1 0 707.45 71 0.25 700.25 693.1 5 701 .80 702.65 671 .70 673.90 658.55 644.90 620.35 635.95 606.35 61 9.00 650.45 662.35 679.95 645.95

P ost Acquisition Date 28-Mar-08 31 ar-08 -M 1 -Apr-08 2-Apr-08 3-Apr-08 4-Apr-08 7-Apr-08 8-Apr-08 9-Apr-08 1 0-Apr-08 1-Apr-08 1 1 5-Apr-08 1 6-Apr-08 1 7-Apr-08 21 -Apr-08 22-Apr-08 23-Apr-08 24-Apr-08 25-Apr-08 28-Apr-08 29-Apr-08 Close P rice 645.95 623.45 627.45 637.80 628.70 61 3.65 632.65 627.1 5 631 .45 623.55 622.00 625.50 61 3.25 61 0 8.1 622.70 631 .45 635.30 638.70 639.1 0 633.60 639.95

703.97 705.08 702.64 702.58 701 .62 693.91 688.64 681 .72 670.34 653.88 646.73 633.22 625.31 626.42 634.82 643.62 651 .54

703.1 8 701 7 .1 697.88 693.69 687.25 677.70 668.26 657.1 8 645.90 637.1 1 633.30 632.68 636.34

696.63 691 .54 684.96 676.82 667.26 657.23 648.35 641 .23 637.07

683.44 675.56 666.92 658.1 8 650.23

666.86

632.67 626.21 628.05 627.99 626.72 625.69 627.36 625.93 623.1 5 620.48 620.31 622.20 624.1 6 629.25 633.45 635.63 637.33

628.33 626.93 627.1 6 626.74 625.77 624.52 623.45 622.41 622.06 623.28 625.87 628.94 631 .96

626.99 626.22 625.53 624.58 623.64 623.1 4 623.41 624.51 626.42

625.39 624.62 624.06 623.86 624.23

624.43

75

Tata Jaguar
680.00 660.00 640.00 620.00 600.00 Open Price 625.1 3 674.1 6

Tata Jaguar
680.00 660.00 640.00 620.00 600.00 C lo sing Price 624.43 666.86

76

P re A c quis itio n D ate T o tal T urno ver(R s .) M n

P o s t A c quis itio n D ate T o tal T urno ver(R s .) M n

22-F eb-08 58.6 25-F eb-08 71 .2 26-F eb-08 37.5 27-F eb-08 54.0 28-F eb-08 66.7 29-F eb-08 287.9 3-M ar-08 106.9 4-M ar-08 109.5 5-M ar-08 108.9 7-M ar-08 11 2.0 10-M ar-08 77.3 11-M ar-08 87.0 12-M ar-08 179.7 13-M ar-08 84.0 14-M ar-08 72.1 17-M ar-08 99.5 18-M ar-08 11 6.3 19-M ar-08 161 .5 24-M ar-08 11 2.0 25-M ar-08 70.4 28-M ar-08 888.7

57.6 103.5 11 0.6 125.0 136.0 145.0 102.9 98.9 11 3.0 108.0 100.0 104.5 11 0.3 106.7 11 2.3 1 11.9 269.8

1 06.5 1 24.0 1 23.9 1 21.6 1 19.2 1 13.6 1 04.6 1 04.9 1 07.2 1 05.9 1 06.7 1 09.1 1 42.2

11 9.0 1 20.4 11 6.5 11 2.7 1 09.9 1 07.2 1 05.8 1 06.8 11 4.2

1 15.7 1 13.4 1 10.4 108.5 108.8

11 1.4

28-M ar-08 888.7 31 ar-08 123.6 -M 1 pr-08 138.9 -A 2-A pr-08 373.7 3-A pr-08 108.5 4-A pr-08 71.6 7-A pr-08 76.6 8-A pr-08 20.9 9-A pr-08 204.0 1 pr-08 40.2 0-A 1 -A pr-08 27.0 1 1 pr-08 37.0 5-A 1 pr-08 69.9 6-A 1 pr-08 34.5 7-A 21-A pr-08 54.4 22-A pr-08 62.3 23-A pr-08 40.4 24-A pr-08 74.2 25-A pr-08 86.9 28-A pr-08 78.2 29-A pr-08 99.5

326.7 1 63.3 1 53.9 1 30.3 96.3 82.7 73.7 65.8 75.6 41.7 44.6 51.6 52.3 53.1 63.6 68.4 75.8

174.1 1 25.3 1 07.4 89.8 78.8 67.9 60.3 55.9 53.2 48.7 53.0 57.8 62.7

1 15.1 93.8 80.8 70.5 63.2 57.2 54.2 53.7 55.1

84.7 73.1 65.2 59.8 56.7

67.9

Ta ta Ja gua r
150.00 100.00 50.00 T urno ver 111.36 67.89

77

Pre Acquisition Date 22-Feb-08 25-Feb-08 26-Feb-08 27-Feb-08 28-Feb-08 29-Feb-08 3-Mar-08 4-Mar-08 5-Mar-08 7-Mar-08 1 0-Mar-08 1-Mar-08 1 1 2-Mar-08 1 3-Mar-08 1 4-Mar-08 1 7-Mar-08 1 8-Mar-08 1 9-Mar-08 24-Mar-08 25-Mar-08 28-Mar-08 High Price 71 0.0 709.0 71 4.0 71 5.9 71 4.5 71 7.4 709.8 71 0.8 71.7 1 696.0 677.8 681 .0 675.0 645.5 644.3 630.0 623.0 654.9 667.5 684.0 660.0

Post Acquisition Date 28-Mar-08 31 -Mar-08 1 -Apr-08 2-Apr-08 3-Apr-08 4-Apr-08 7-Apr-08 8-Apr-08 9-Apr-08 1 0-Apr-08 1-Apr-08 1 1 5-Apr-08 1 6-Apr-08 1 7-Apr-08 21 -Apr-08 22-Apr-08 23-Apr-08 24-Apr-08 25-Apr-08 28-Apr-08 29-Apr-08 High Price 660.0 645.0 633.0 645.0 652.0 644.8 635.0 636.0 634.5 640.0 633.8 634.5 633.0 624.0 631 .5 634.7 638.0 644.9 648.0 643.0 648.4

71 2.7 71 4.1 71 4.3 71 3.7 71 2.8 709.1 701 .2 695.5 688.3 675.1 664.7 655.2 643.6 639.5 643.9 651 .9 657.9

71 3.5 71 2.8 71 0.2 706.5 701 .4 693.8 685.0 675.7 665.4 655.6 649.4 646.8 647.4

708.9 704.9 699.4 692.5 684.3 675.1 666.2 658.6 652.9

698.0 691 .2 683.5 675.3 667.4

683.1

647.0 644.0 642.0 642.5 640.4 638.0 635.8 635.7 635.2 633.1 631 .3 631 .5 632.2 634.6 639.4 641 .7 644.5

643.2 641 .4 639.8 638.5 637.0 635.6 634.2 633.4 632.7 632.6 633.8 635.9 638.5

640.0 638.5 637.0 635.7 634.6 633.7 633.3 633.7 634.7

637.2 635.9 634.9 634.2 634.0

635.2

Pre Acquisition Date 22-Feb-08 25-Feb-08 26-Feb-08 27-Feb-08 28-Feb-08 29-Feb-08 3-Mar-08 4-Mar-08 5-Mar-08 7-Mar-08 1 0-Mar-08 1-Mar-08 1 1 2-Mar-08 1 3-Mar-08 1 4-Mar-08 1 7-Mar-08 1 8-Mar-08 1 9-Mar-08 24-Mar-08 25-Mar-08 28-Mar-08 LowPrice 690.3 695.0 700.0 705.0 701 .0 688.3 686.0 691 .3 700.0 658.0 640.0 655.1 642.0 61 5.0 620.4 596.2 598.0 625.0 651 .1 670.0 634.6

Post Acquisition Date 28-Mar-08 31 -Mar-08 1 -Apr-08 2-Apr-08 3-Apr-08 4-Apr-08 7-Apr-08 8-Apr-08 9-Apr-08 1 0-Apr-08 1-Apr-08 1 1 5-Apr-08 1 6-Apr-08 1 7-Apr-08 21 -Apr-08 22-Apr-08 23-Apr-08 24-Apr-08 25-Apr-08 28-Apr-08 29-Apr-08 LowPrice 634.6 620.0 61 5.5 632.2 621 .1 600.0 609.0 623.0 620.1 621 .0 620.0 606.0 61.0 1 61 5.0 620.0 61 5.0 632.1 625.5 635.1 628.9 630.0

698.3 697.9 696.1 694.3 693.3 684.7 675.1 668.9 659.0 642.0 634.5 625.7 61 4.3 61 0.9 61 8.1 628.1 635.7

696.0 693.2 688.7 683.2 676.2 665.9 655.9 646.0 635.1 625.5 620.7 61 9.4 621 .4

687.5 681 .5 674.0 665.5 655.8 645.7 636.7 629.4 624.4

672.8 664.5 655.5 646.6 638.4

655.6

624.7 61 7.7 61 5.5 61 7.0 61 4.6 61 4.6 61 8.6 61 8.0 61 5.6 61 4.6 61 4.4 61 3.4 61 8.6 621 .5 625.5 627.3 630.3

61 7.9 61 5.9 61 6.1 61 6.6 61 6.3 61 6.3 61 6.2 61 5.2 61 5.3 61 6.5 61 8.7 621 .3 624.7

61 6.6 61 6.2 61 6.3 61 6.1 61 5.9 61 5.9 61 6.4 61 7.4 61 9.3

61 6.2 61 6.1 61 6.1 61 6.3 61 7.0

61 6.3

78

Tata Jaguar
700.00 680.00 660.00 640.00 620.00 600.00 Hig h Price 635.22 683.08

Tata Jaguar
660.00 640.00 620.00 600.00 580.00 Low Price 61 6.35 655.57

INTERPRETATION The calculation of five days moving average for the previous as well as later month from the date of merger is shown. It takes into account the open, high, low, close, daily turnover as well as calculation of abnormal return. This takes into account the daily volatilities of the share prices.  Here, the daily average prices have fallen in terms of all prices and even the turnover has decreased. This shows that the investors are not happy with the valuation of merger and so the overall sentiment among the investors is very poor. There are certain shareholders who expect the share prices to fall even much more as compared to actual fall that has taken place and so they have

79

reduced trading activities and tried to sell and come out of the situation as soon as possible.

80

COMPANY’S RETURN BEFORE AND AFTER ACQUISITION
Pr A q isit n e c u io Dt ae E .R t r x eun A n r aR t r b o ml eun C m .A .R t r u m b eun

2 5 08 /2 /2 0 2 6 08 /2 /2 0 2 7 08 /2 /2 0 2 8 08 /2 /2 0 2 9 08 /2 /2 0 3 /2 0 /3 0 8 3 /2 0 /4 0 8 3 /2 0 /5 0 8 3 /2 0 /7 0 8 3 0 08 /1/2 0 3 1 08 /1 0 /2 3 2 08 /1/2 0 3 3 08 /1/2 0 3 4 08 /1/2 0 3 7 08 /1/2 0 3 8 08 /1/2 0 3 9 08 /1/2 0 3 4 08 /2 /2 0 3 5 08 /2 /2 0 3 8 08 /2 /2 0

15 . % 7 08 % .9 01% .2 00 % .0 -1 7 . % 3 -51% .2 -20 % .2 15 . % 2 -34 % .2 -03% .1 16 . % 2 00 % .4 -47 % .7 26 % .4 -60 % .3 01% .7 10 . % 1 18 . % 9 60 % .9 09 % .6

-00% .1 -00% .1 -00% .1 -00% .1 -00% .1 00 % .0 -00% .1 -00% .1 -00% .1 -00% .1 -00% .1 -00% .1 00 % .0 -00% .1 00 % .0 -00% .1 -00% .1 -00% .1 -00 % .2 -00% .1

-00% .1 -00 % .2 -00 % .3 -00 % .4 -00 % .5 -00 % .5 -00 % .6 -00 % .7 -00 % .8 -00 % .9 -01% .0 -01 .1 % -01 .1 % -01% .3 -01% .3 -01% .4 -01% .5 -01% .6 -01% .8 -01% .9

Post Acq isit u ion Dt ae Ex Reun . tr Ab or a Reun n ml t r C m .Ab R t r u m . eun

3 1 08 /3/2 0 4 /2 0 /1 0 8 4 /2 0 /2 0 8 4 /2 0 /3 0 8 4 /2 0 /4 0 8 4 /2 0 /7 0 8 4 /2 0 /8 0 8 4 /2 0 /9 0 8 4 0 08 /1/2 0 4 1 08 /1 0 /2 4 5 08 /1/2 0 4 6 08 /1/2 0 4 7 08 /1/2 0 4 1 08 /2/2 0 4 2 08 /2 /2 0 4 3 08 /2 /2 0 4 4 08 /2 /2 0 4 5 08 /2 /2 0 4 8 08 /2 /2 0 4 9 08 /2 /2 0

-44 % .0 -01 .1 % 07 % .9 05 % .2 -30 % .6 26 % .8 -1 7 . % 0 19 . % 2 -06 % .0 07% .1 21% .7 05 % .6 15 . % 4 15 . % 5 02 % .7 -05% .1 01% .4 24 % .0 -06 % .4 21 .1 %

-00 % .4 00 % .0 00 % .0 00 % .0 -00 % .3 00 % .2 -00% .1 00% .1 -00% .1 00 % .0 00 % .2 00 % .0 00% .1 00% .1 00 % .0 -00% .1 00 % .0 00 % .2 -00% .1 00 % .2

-00 % .4 -00 % .4 -00 % .3 -00 % .3 -00 % .6 -00 % .4 -00 % .5 -00 % .4 -00 % .5 -00 % .4 -00 % .3 -00 % .2 -00% .1 00 % .0 00 % .0 -00% .1 -00% .1 00% .1 00% .1 00 % .2

81

0.00%
3/ 4/ 08 3/ 6/ 08 3/ 8/ 08 3/ 10 /0 8 3/ 12 /0 8 3/ 14 /0 8 2/ 25 /0 8 2/ 27 /0 8 2/ 29 /0 8 3/ 2/ 08 3/ 16 /0 8 3/ 18 /0 8 3/ 20 /0 8 3/ 22 /0 8 3/ 24 /0 8 3/ 26 /0 8 0/ 08 2/ 08 4/ 08 6/ 08 4/ 2 4/ 2 4/ 2 4/ 2 4/ 2 3/ 28 /0 8

-0.05%

-0.10%

-0.15%

-0.20%

-0.25%

Cumm. Ab. Return 0.03% 0.02% 0.01% 0.00%
3/ 31 /0 8 4/ 2/ 08 4/ 4/ 08 4/ 6/ 08 4/ 8/ 08 4/ 10 /0 8 4/ 12 /0 8 4/ 14 /0 8 4/ 16 /0 8 4/ 18 /0 8

-0.02% -0.03% -0.04% -0.05% -0.06% -0.07%

INTERPRETATION As we can see from the line chart that the cumulative return before merger was negative and the entire trend is moving in the negative direction due to poor returns of tata motors. A soon as the acquisition took place, the highly profit generating Jaguar as well as Land Rover added to the profit and earnings of the tata motors. The brand value of JLR added to the highly reputable Tata Group and the company’s balance sheet. This can be clearly seen in the line chart above.

82

8/ 08

-0.01%

RATIO ANALYSIS
TATA MOTORS (27- 03 2008) Debt-Equity Ratio ROCE (%) net profit margin P/E ROE(%) EPS OPM(%) Preacquisition 0.56 30.52 6.88 15.45 30.98 47.1 11.16 Postacquisition 0.97 6.88 11.47 9.59 5.34 18.81 7.89 Change (%) 42.27 -343.60 40.02 -61.11 -480.15 -150.40 -41.44

INTERPRETATION Debt equity ratio is increasing by 42.27% as Tata took loan of banks to acquire JLR.ROCE increases vey high by 343.60% as compared to pre acquisition as it gauges that company that generate its earnings from the total pool of capital which indicates profitability.Net profit margin increases as it income increases in post acquisition as compared to pre acquisition. P/E highly decreases in post acquisition by 60.1% which in investor point of view they will be profitable to invest to get high earning. ROE is highly increasing by 480.15% which shows that it has more equity 83

than debt. EPS is increasing drastically by 480.15% which is very profitable for investors. Operating profit margin is reduced by 41.44% which shows that company profit margin is very less.

84

9.3 TATA POWER–PT KALTIM PRIMA COAL
About the acquisition
Date: - 30th March 2007 Acquirer: - Tata Power Target company: - PT kaltim prima coal Stake: - 30 % Deal amount: - US$ 1100m Sector: - Power sector TATA POWER As India’s largest private power utility, we at Tata Power have set the momentum of growth. In our quest to deliver sustainable energy, we are spreading paradigms. Our strength lies in fulfilling our commitments and our ability to manage well in the changing environment. We take pride in building lasting and trustful relationship with our customers along with a legacy of caring for our communities in and around our areas of operations. As we strive to lead the reform process for sustainable power, we are excited to redefine the contours of Indian ‘Power’ Sector. our footprint nationwide, creating new benchmarks in operational efficiencies, investing in global resources and redefining

PT KALTIM PRIMA COAL (KPC) GM External Affairs and Sustainable Development (ESD), Harry ‘Sony’ Miarsono said that the award has become real evidence that KPC consistently and transparently reports social, economic, and environment 85

activities. Moreover, KPC has followed standard determined by Global Report Initiative (GRI). KPC Received SGS CSR Award The success of PT Kaltim Prima Coal in developing CSR programs regains much attention from society. At this moment, SGS Indonesia, an international company for audit and certification services, specifically awarded the SGS Corporate Social Responsibility (CSR) Award. KPC Received ISRA Award Endang Ruchijat, KPC Chief Executive Officer, proudly announced that KPC had received the Second Best “Indonesia Sustainability Reporting Award” (ISRA) 2008. This was awarded to KPC Sustainable Development Report 2007 and presented in person by Mr Ahmadi Hadibroto the Chairman of Indonesian Accountant Association (IAI) in Niko Hotel Jakarta. Indonesia's world class producer of high coal thermal from one of the world's largest open pit mining operations Kaltim Prima Coal receives awards for it's achievements in helath, safety, environment, and community development

Detailed case study
Tata Power Company kicked off the implementation of its ultra mega power projects by exploring coal mines buyouts overseas for Mundra. Confirming the move, the Tata Power Managing Director, Mr. Prasad R. Menon, said on Thursday that Tata Power plans to import around 12 million tonnes of coal annually starting 2012 for its upcoming coal-fired 86

project in Gujarat and the company is also scouting for coal mines abroad. The Centre has awarded Tata Power a contract to build a 4,000-MW project at Mundra. Mr. Menon said Tata Power was looking at mine acquisitions and coal supplies from Australia, Indonesia and South Africa. The company is also considering overseas suppliers for boilers and turbines for the Gujarat power project. "We are looking at (equipment supply) possibilities in South-East Asia, East Asia and possibly in West Europe...We need both (competitive) price and (timely) delivery," he said. Tata Power is yet to finalize the funding pattern for the project, which is estimated to cost around Rs 18,000 Cr. "We are yet to decide whether it will be 70:30 (debt-to-equity ratio) or 75:25," Mr Menon said. The company will finalize the funding pattern for the project in the next six months, he said. India has a total hydro power potential of 1,50,000 MW, with most of it in Jammu and Kashmir, Himachal Pradesh, Uttaranchal, Sikkim and Arunachal Pradesh. Tata Power Company said it has signed a $1.1-billion (Rs 4,950 crore) deal to buy 30 per cent stakes in two Indonesian coal companies, and in a related coal trading company, all promoted by PT Bumi Resources Tbk (Bumi), Indonesia. PL Kaltim Prima Coal and PT Arutmin Indonesia are two of Indonesia's largest coal mines which together produced 53.5 million tonnes in 2006, of which 95 per cent was exported. 87

Tata Power has also signed an offtake agreement with Kaltim Prima, which entitles it to purchase 10 million tonnes of coal per annum. The Indian power company is sewing up long-term contracts for coal for its ambitious five-year, 7000 MW expansion plan. "The acquisition specifically addresses fuel requirements of the Mundra Ultra Mega Power Project, the Trombay project and the coastal power project in Maharashtra. It is complementary and supports the assumptions made in the bid for Mundra UMPP," said Mr Prasad Menon, Managing Director, Tata Power. "This move not only secures our fuel requirements in the light of the aggressive growth plans charted out by the company, but also opens up opportunities for Tata Power to own and operate a range of world-class, competitive and profitable electricity and energy businesses in India and overseas," he said. The transaction cost of $1.1 billion is prior to working capital and other adjustments. The seller PT Bumi Resources could get as much as $200 million more from these adjustments, getting $1.3 billion from the deal. Financing the deal Tata Power will make this acquisition through an offshore special purpose vehicle, said a statement from the company. Funding will be done through a combination of debt in the SPV, internal accruals and borrowings from Tata Power. The funding details cannot currently be specifically described since the company is finalizing a funding package that would include other projects,

88

including the Mundra UMPP, said Mr S. Ramakrishnan, Executive Director, Tata Power. The company will require 21 mt of imported coal for all these planned projects. The Indonesian deal will take care of 50 per cent of Tata Power's requirements, which would be capped there. "From a risk point of view, we don't want to get more than 50 per cent of our requirements from one country," said Mr Ramakrishnan. The rest is to be secured through a combination of purchasing equity stakes in coal mines and entering offtake contracts. "We are looking at opportunities in Australia and South Africa too," he said. The transaction is expected to be completed by June 30 2007. Benefits The financial impact of the acquisition on Tata Power will be positive over a five-year time frame; however it would be under marginal pressure for one or two years, said Mr Ramakrishnan. But, on a consolidated basis, the deal will be positive from day one, the acquiree companies being profit-making ones, he said. Currently, Bumi has 100 per cent stake in PT Arutmin and 95 per cent stake in Kaltim Prima, he said. Regulations require that Indonesian promoters own at least 51 per cent stake in these companies. Bumi had been looking for a buyer for one-third interest in these mines ever since its attempts to sell the stakes to an investment bank proved unsuccessful.

89

But Tata Power believed that it was a good deal, whose valuation was done on the basis of discounted cash flows and entitlement to earnings. Tata Power also produces hydro-electric power but is betting on coalbased thermal power as its mainstay for expansion. It runs current capacities of close to 2,400 MW. The company had reported revenues of Rs 4,562 crore and net profit of Rs 610 crore for the year ended March 31, 2006. Its revenues for the quarter ended December 31, 2006 had been Rs 1,200 crore and net profit, Rs 280 crore.

90

IMPACT ON SHAREHOLDER’S WEALTH
P re A c quisitio n Date 1 ar-07 -M 2-M ar-07 5-M ar-07 6-M ar-07 7-M ar-07 8-M ar-07 9-M ar-07 1 2-M ar-07 1 3-M ar-07 1 4-M ar-07 1 5-M ar-07 1 6-M ar-07 1 9-M ar-07 20-M ar-07 21 ar-07 -M 22-M ar-07 23-M ar-07 26-M ar-07 28-M ar-07 29-M ar-07 30-M ar-07 Open P rice 551 .00 540.00 520.00 507.25 496.00 500.50 520.00 51 5 2.1 51 9.60 500.25 520.00 505.75 509.00 51 0.25 507.00 51 6.00 51 8.60 505.00 500.00 506.00 51 .00 1 P o s t A cquisitio n Date 30-M ar-07 2-A pr-07 3-A pr-07 4-A pr-07 5-A pr-07 9-A pr-07 1 pr-07 0-A 1 -A pr-07 1 1 pr-07 2-A 1 pr-07 3-A 1 pr-07 6-A 1 pr-07 7-A 1 pr-07 8-A 1 pr-07 9-A 20-A pr-07 23-A pr-07 24-A pr-07 25-A pr-07 26-A pr-07 27-A pr-07 30-A pr-07 Open P rice 51 .00 1 509.40 498.00 502.00 508.00 509.90 51 0.00 51 5.00 531 .00 530.00 536.45 555.00 557.00 525.00 534.00 551 .40 570.00 589.00 604.00 574.00 582.00

522.85 51 2.75 508.75 507.1 8 509.65 51 0.50 51 4.40 51 .55 1 51 0.92 509.05 51 0.40 509.60 51 7 2.1 51 .37 1 509.32 509.1 2 508.1 2

51 2.24 509.77 51 0 0.1 51 0.66 51 .40 1 51 .28 1 51 .26 1 51 0.30 51 0.43 51 0.52 51 0.57 51 0.32 51 0.02

51 0.83 51 0.64 51 0.94 51 0.98 51 0.94 51 0.76 51 0.62 51 0.43 51 0.37

51 0.87 51 0.85 51 0.85 51 0.74 51 0.62

51 0.79

505.68 505.46 505.58 508.98 51 4.78 51 8 9.1 524.49 533.49 541 .89 540.69 541 .49 544.48 547.48 553.88 569.68 577.68 583.80

508.1 0 51 0.80 51 4.60 520.1 8 526.77 531 .95 536.41 540.41 543.21 545.60 551 .40 558.64 566.50

51 6.09 520.86 525.98 531 4 .1 535.75 539.52 543.41 547.85 553.07

525.96 530.65 535.1 6 539.53 543.92

535.04

P re A c quisitio n Date 1 ar-07 -M 2-M ar-07 5-M ar-07 6-M ar-07 7-M ar-07 8-M ar-07 9-M ar-07 1 2-M ar-07 1 3-M ar-07 1 4-M ar-07 1 5-M ar-07 1 6-M ar-07 1 9-M ar-07 20-M ar-07 21 ar-07 -M 22-M ar-07 23-M ar-07 26-M ar-07 28-M ar-07 29-M ar-07 30-M ar-07 C lose P rice 540.75 525.70 507.25 491 .45 496.25 522.60 505.25 51 2.55 51 9.00 51 2.65 51 2.80 509.95 505.60 504.95 506.95 51 5.90 508.55 504.35 506.30 51 0.35 509.45

P o s t A cquisitio n Date 30-M ar-07 2-A pr-07 3-A pr-07 4-A pr-07 5-A pr-07 9-A pr-07 1 pr-07 0-A 1 -A pr-07 1 1 pr-07 2-A 1 pr-07 3-A 1 pr-07 6-A 1 pr-07 7-A 1 pr-07 8-A 1 pr-07 9-A 20-A pr-07 23-A pr-07 24-A pr-07 25-A pr-07 26-A pr-07 27-A pr-07 30-A pr-07 C lose P rice 509.45 496.1 0 497.80 504.95 502.40 508.20 51 .55 1 533.00 526.05 533.1 0 552.65 555.60 537.05 531 .85 546.30 567.85 582.1 5 598.55 593.80 584.1 0 591 .65

51 2.28 508.65 504.56 505.62 51 .1 13 51 4.41 51 2.45 51 3.39 51 2.00 509.1 9 508.05 508.67 508.39 508.1 4 508.41 509.09 507.80

508.45 508.87 509.63 51 .40 1 51 2.68 51 2.29 51 .02 1 51 0.26 509.26 508.49 508.33 508.54 508.37

51 0.21 51 0.97 51 .40 1 51 .53 1 51 .1 10 51 0.26 509.47 508.98 508.60

51 .04 1 51 .05 1 51 0.75 51 0.27 509.68

51 0.56

502.1 4 501 .89 504.98 51 2.02 51 6.24 522.38 531 .27 540.08 540.89 542.05 544.69 547.73 553.04 565.34 577.73 585.29 590.05

507.45 51 .50 1 51 7.38 524.40 530.1 7 535.33 539.80 543.09 545.68 550.57 557.71 565.83 574.29

51 8 8.1 523.76 529.42 534.56 538.81 542.89 547.37 552.57 558.81

528.94 533.89 538.61 543.24 548.09

538.56

91

Tata Pow er
550.00 540.00 530.00 520.00 51 0.00 500.00 490.00 51 0.79

538.56

Op en Price

Tata Pow er
550.00 540.00 530.00 520.00 51 0.00 500.00 490.00

538.56

51 0.56

C lo sing Price

92

P re A c q u is itio n D a te T o t a l T u rn o v e r(R s .) M n

P o s t A c q u is it io n D a te T o t a l T u rn o v e r(R s .) M n

1- M a r- 0 7 4 7 .1 2 - M a r- 0 75 3 1.8 5 - M a r- 0 7 3 6 .6 13 3 .9 6 - M a r- 0 7 2 2 .8 13 0 .0 7 - M a r- 0 7 3 1.1 2 7 .8 8 - M a r- 0 7 2 7 .8 2 7 .3 9 - M a r- 0 7 2 0 .7 2 5 .5 12 - M a r- 0 73 3 .9 3 2 .3 13 - M a r- 0 7 14 .0 3 0 .7 14 - M a r- 0 7 6 5 .1 4 0 .8 15 - M a r- 0 7 19 .7 3 5 .4 16 - M a r- 0 7 7 1.1 3 9 .1 19 - M a r- 0 7 7 .1 2 7 .6 2 0 - M a r- 0 73 2 .7 2 6 .1 2 1- M a r- 0 7 7 .3 4 5 .4 2 2 - M a r- 0 712 .3 4 5 .1 2 3 - M a r- 0 7 7 .6 4 1.5 16 2 6 - M a r- 0 7 5 .7 4 1.2 2 8 - M a r- 0 714 .6 4 4 .3 2 9 - M a r- 0 7 5 .9 3 0 - M a r- 0 72 8 .0

6 8 .9 4 8 .6 2 8 .7 3 1.3 3 2 .9 3 5 .7 3 4 .7 3 3 .8 3 4 .7 3 6 .7 3 7 .1 3 9 .9 4 3 .5

4 2 .1 3 5 .4 3 2 .7 3 3 .7 3 4 .4 3 5 .1 3 5 .4 3 6 .4 3 8 .4

3 5 .6 3 4 .3 3 4 .3 3 5 .0 3 5 .9

3 5 .0

3 0 - M a r- 0 72 8 .0 2 - A p r- 0 7 5 1.6 3 - A p r- 0 7 3 3 .6 4 - A p r- 0 7 2 6 .6 5 - A p r- 0 7 3 0 .9 9 - A p r- 0 7 2 1.7 10 - A p r- 0 715 7 .5 11- A p r- 0 710 8 .6 12 - A p r- 0 74 2 .5 13 - A p r- 0 7 12 .2 16 - A p r- 0 72 8 .4 17 - A p r- 0 73 8 .9 18 - A p r- 0 75 3 .2 19 - A p r- 0 76 8 .6 2 0 - A p r- 0 7 3 2 .1 2 3 - A p r- 0 79 4 .3 2 4 - A p r- 0 75 0 .0 2 5 - A p r- 0 7 8 1.2 2 6 - A p r- 0 76 5 .4 2 7 - A p r- 0 74 4 .0 3 0 - A p r- 0 7 2 1.1

3 4 .1 3 2 .9 5 4 .1 6 9 .1 7 2 .2 6 8 .5 6 9 .9 4 6 .1 3 5 .1 4 0 .3 4 4 .3 5 7 .4 5 9 .6 6 5 .2 6 4 .6 6 7 .0 5 2 .3

5 2 .5 5 9 .3 6 6 .7 6 5 .2 5 8 .4 5 2 .0 4 7 .1 4 4 .6 4 7 .3 5 3 .4 5 8 .2 6 2 .8 6 1.8

6 0 .4 6 0 .3 5 7 .9 5 3 .4 4 9 .9 4 8 .9 5 0 .1 5 3 .3 5 6 .7

5 6 .4 5 4 .1 5 2 .0 5 1.1 5 1.8

5 3 .1

Tata Power
60.00 40.00 20.00 Turnover 53.08 35.02

93

P re A c quis itio n Date 1 ar-07 -M 2-M ar-07 5-M ar-07 6-M ar-07 7-M ar-07 8-M ar-07 9-M ar-07 1 2-M ar-07 1 3-M ar-07 1 4-M ar-07 1 5-M ar-07 1 6-M ar-07 1 9-M ar-07 20-M ar-07 21 ar-07 -M 22-M ar-07 23-M ar-07 26-M ar-07 28-M ar-07 29-M ar-07 30-M ar-07 H igh P rice 554.4 540.0 520.0 530.0 502.0 528.5 530.0 527.0 522.9 51 5.0 521 .0 51 5.0 51 3.5 51 3.0 51 0.7 51 8.5 523.7 51 4.0 509.8 51 3.0 524.4

P o s t A c quis itio n Date 30-M ar-07 2-A pr-07 3-A pr-07 4-A pr-07 5-A pr-07 9-A pr-07 1 pr-07 0-A 1 -A pr-07 1 1 pr-07 2-A 1 pr-07 3-A 1 pr-07 6-A 1 pr-07 7-A 1 pr-07 8-A 1 pr-07 9-A 20-A pr-07 23-A pr-07 24-A pr-07 25-A pr-07 26-A pr-07 27-A pr-07 30-A pr-07 H igh P rice 524.4 51 8.0 505.0 51 0.1 51 .4 1 51 2.0 51 4.9 537.9 540.0 534.5 555.0 557.4 561 .0 537.0 550.0 578.8 584.0 602.0 609.0 588.0 594.8

529.3 524.1 522.1 523.5 522.1 524.7 523.2 520.2 51 7.5 51 5.5 51 4.6 51 4.1 51 5.9 51 6.0 51 5.3 51 5.8 51 7.0

524.2 523.3 523.1 522.7 521 .5 520.2 51 8.2 51 6.4 51 5.5 51 5.2 51 5.2 51 5.4 51 6.0

523.0 522.2 521 .1 51 9.8 51 8.4 51 7.1 51 6.1 51 5.5 51 5.5

520.9 51 9.7 51 8.5 51 7.4 51 6.5

51 8.6

51 3.8 51 .3 1 51 0.7 51 7.3 523.2 527.9 536.5 545.0 549.6 549.0 552.1 556.8 562.2 570.4 584.8 592.4 595.6

51 5.3 51 8.1 523.1 530.0 536.4 541 .6 546.4 550.5 553.9 558.1 565.2 573.3 581 .0

524.6 529.8 535.5 541 .0 545.8 550.1 554.8 560.2 566.3

535.3 540.4 545.4 550.4 555.4

545.4

P re A c quis itio n Date 1 ar-07 -M 2-M ar-07 5-M ar-07 6-M ar-07 7-M ar-07 8-M ar-07 9-M ar-07 1 2-M ar-07 1 3-M ar-07 1 4-M ar-07 1 5-M ar-07 1 6-M ar-07 1 9-M ar-07 20-M ar-07 21 ar-07 -M 22-M ar-07 23-M ar-07 26-M ar-07 28-M ar-07 29-M ar-07 30-M ar-07 Lo w P rice 527.1 522.1 498.0 483.0 491 .0 498.0 502.1 51 0.3 508.5 500.0 51 0.0 501 .0 502.2 497.0 505.2 51 2.1 505.0 501 .3 492.0 503.5 508.0

P o s t A c quis itio n Date 30-M ar-07 2-A pr-07 3-A pr-07 4-A pr-07 5-A pr-07 9-A pr-07 1 pr-07 0-A 1 -A pr-07 1 1 pr-07 2-A 1 pr-07 3-A 1 pr-07 6-A 1 pr-07 7-A 1 pr-07 8-A 1 pr-07 9-A 20-A pr-07 23-A pr-07 24-A pr-07 25-A pr-07 26-A pr-07 27-A pr-07 30-A pr-07 Lo w P rice 508.0 491 .0 494.1 500.0 500.0 505.0 507.0 51 5.0 51 7.1 526.2 534.1 545.8 526.2 51 3.1 533.0 535.0 563.4 580.3 590.0 574.0 577.0

504.2 498.4 494.4 496.9 502.0 503.8 506.2 506.0 504.3 502.0 503.1 503.5 504.3 504.1 503.1 502.8 502.0

499.2 499.1 500.6 502.9 504.4 504.5 504.3 503.8 503.5 503.4 503.6 503.6 503.2

501 .3 502.3 503.4 504.0 504.1 503.9 503.7 503.6 503.5

503.0 503.5 503.8 503.8 503.7

503.6

498.6 498.0 501 .2 505.4 508.8 51 4.1 51 9.9 527.6 529.9 529.1 530.4 530.6 534.1 544.9 560.3 568.5 576.9

502.4 505.5 509.9 51 5.2 520.1 524.1 527.4 529.5 530.8 533.8 540.1 547.7 557.0

51 0.6 51 4.9 51 9.3 523.2 526.4 529.1 532.3 536.4 541 .9

51 8.9 522.6 526.1 529.5 533.2

526.1

94

Tata Pow er
550.00 540.00 530.00 520.00 510.00 500.00 Hig h Price 518.60 545.39

Tata Power
530.00 520.00 51 0.00 500.00 490.00 Low Price 503.58 526.06

INTERPRETATION
The calculation of five days moving average for the previous as well as later month from the date of merger is shown. It takes into account the open, high, low, close, daily turnover as well as calculation of abnormal return. This takes into account the daily volatilities of the share prices.  Here, the daily average prices have risen in terms of all prices and even the turnover has increased by more than 50 % from Rs. 35m to Rs. 53m. This shows that the investors are quite happy with the merger and they value the deal highly. 95

 The daily traders are taking the benefit of increased turnover to book their intraday profit. The daily High-Low difference has remained almost constant but the individual highs and lows have increased by around 4-6%. This shows that investors are quite supportive to the decision of merger and hence its company’s management.

COMPANY’S RETURN BEFORE AND AFTER ACQUISITION

96

Pre Acquisition Date Ex Return . Abnorm Return al Cum . Ab. Return m

3/2/2007 3/5/2007 3/6/2007 3/7/2007 3/8/2007 3/9/2007 3/1 2/2007 3/1 3/2007 3/1 4/2007 3/1 5/2007 3/1 6/2007 3/1 9/2007 3/20/2007 3/21 /2007 3/22/2007 3/23/2007 3/26/2007 3/28/2007 3/29/2007 3/30/2007

-2.07% -3.67% 2.33% -0.90% 3.80% -1 .24% 0.1 7% 0.66% -3.50% 0.1 4% -0.88% 1 .77% 0.52% 1 .94% 2.86% -0.1 4% -1 .20% -1 .82% 0.78% 0.75%

-0.01 % 0.01 % -0.05% -0.02% -0.07% -0.02% -0.03% -0.04% 0.01 % -0.03% -0.02% -0.05% -0.03% -0.05% -0.06% -0.03% -0.02% -0.01 % -0.04% -0.04%

-0.01 % 0.00% -0.05% -0.07% -0.1 4% -0.1 5% -0.1 9% -0.22% -0.21 % -0.24% -0.26% -0.31 % -0.34% -0.39% -0.45% -0.48% -0.50% -0.51 % -0.54% -0.58%

Post Acquisition Date Ex. Return Abnormal Return Cumm. Ab. Return

4/2/2007 4/3/2007 4/4/2007 4/5/2007 4/9/2007 4/1 0/2007 4/1/2007 1 4/1 2/2007 4/1 3/2007 4/1 6/2007 4/1 7/2007 4/1 8/2007 4/1 9/2007 4/20/2007 4/23/2007 4/24/2007 4/25/2007 4/26/2007 4/27/2007 4/30/2007

-4.51 % 1 .29% 1 .22% 0.51 % 2.38% 0.08% -0.05% -0.51 % 1 .96% 2.22% -0.62% 0.45% -0.37% 1 .94% 0.21 % 1 .42% 0.54% 0.07% -2.1 6% -0.25%

-0.21 % 0.07% 0.06% 0.03% 0.1 2% 0.01 % 0.00% -0.02% 0.1 0% 0.1% 1 -0.02% 0.03% -0.01 % 0.1 0% 0.02% 0.07% 0.03% 0.01 % -0.1 0% -0.01 %

-0.21 % -0.1 4% -0.08% -0.05% 0.07% 0.08% 0.08% 0.06% 0.1 6% 0.27% 0.25% 0.27% 0.26% 0.36% 0.37% 0.45% 0.48% 0.49% 0.39% 0.38%

97

0.10% 0.00% -0.10% -0.20% -0.30% -0.40% -0.50% -0.60% -0.70%
3/ 8/ 07 3/ 10 /0 7 3/ 12 /0 7 3/ 14 /0 7 3/ 16 /0 7 3/ 18 /0 7 3/ 20 /0 7 3/ 22 /0 7 3/ 24 /0 7 3/ 26 /0 7 3/ 28 /0 7 3/ 30 /0 7 3/ 2/ 07 3/ 4/ 07 3/ 6/ 07

Cumm. Ab. Return 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% -0.10% -0.20% -0.30%

INTERPRETATION
As we can see from the line chart that the cumulative return before acquisition was negative and the entire trend is moving in the negative direction due to poor returns of Tata Power. As soon as the acquisition took place, the highly profit generating state owned Indonesian firm Kaltim Prima Coal Ltd., it added to the profit and earnings of the Tata Power. The Co. took the benefit by capitalizing on the high demand and its simultaneously high capacity in power generation. The target company also being profit making, the effect got translated in improved earnings.

7 4/ 10 /0 7 4/ 12 /0 7 4/ 14 /0 7 4/ 16 /0 7 4/ 18 /0 7 4/ 20 /0 7 4/ 22 /0 7 4/ 24 /0 7 4/ 26 /0 7 4/ 28 /0 7 4/ 30 /0 7

4/ 2/ 07

4/ 4/ 07

4/ 6/ 07

4/ 8/ 0

RATIO ANALYSIS
98

TATA Power (30- 03 2007) Debt-Equity Ratio ROCE (%) net profit margin P/E ROE(%) EPS OPM(%)

Pre- acquisition Post- acquisition Change(%) 0.53 0.47 -11.32 8.99 10.99 22.25 10.18 14.65 43.91 19.54 30.69 57.06 8.7 12.31 41.49 29.66 38.19 28.76 22.1 24.15 9.28

INTERPRETATION Debt equity ratio is decreasing by 11.32 which show that company has more liabilit.ROCE increases by 22.25% as compared to pre acquisition as it gauges that company that generate its earnings from the total pool of capital which indicates profitability.Net profit margin increases as it income increases in post acquisition as compared to pre acquisition. P/E highly decreases in post acquisition by 57.06% which in investor point of view will be profitable to invest to get high earning. ROE is highly increasing by 41.49% which shows that it has more equity than debt. EPS is increasing by 28.76% which is very fair for investors. Operating profit margin increasing by 9.28% which shows that company profit margin is very has increase.

99

9.4 TATA STEEL-CORUS
100

About the acquisition
Date: - 30th March 2007 Acquirer: - Tata Steel Limited Target company: - Corus Plc. Stake: - 100 % Deal amount: - US$ 12201 m Sector: - Steel sector

TATA-STEEL
• • • • • • • Founded in 1907,by Jamsetji Nusserwanji Tata Tata Steel is lited on BSE and NSE and employs about 82700 (2007) people It started with a production capacity of 1,00,000 tones has transformed into a global giant Its revenue in 2005-2006 was US$ 5.0 b It has a main steel plant located at Jamshedpur The Company also has three greenfield steel projects in the states of Jharkhand, Chattisgarh and Orissa

CORUS STEEL
• • • • Corus is Europe's second largest steel producer formed on 6th October 1999 Company has four divisions: Strip product, Long product, Aluminum and Distribution and Building system Total debt of Corus was GBP 1.6 billion It has revenues of $ 18.06 billion and profit of $ 626 million

101

Detailed case study
On January 31, 2007, India based Tata Steel Limited (Tata Steel) acquired the Anglo Dutch steel company, Corus Group Plc (Corus) for US$ 12.20 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, making it the fifth largest steel producer in the world as of early 2007. 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 59 percent of the merged entity's total production. Commenting on the acquisition, Ratan Tata, Chairman, Tata & Sons, said, "Together, we are a well balanced company, strategically well placed to compete at the leading edge of a rapidly changing global steel industry" Financing the deal Tata Steel outbid the Brazilian steelmaker Companhia 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, 2006. CSN then offered 475 pence per share of Corus on November 17, 2006.

102

Finally, an auction was initiated on January 31, 2007, and after nine rounds of bidding, TATA Steel could finally clinch the deal with its final bid 608 pence per share, almost 34% higher than the first bid of 455 pence per share of Corus. Expert’s opinion Many analysts and industry experts felt that the acquisition deal was rather expensive for Tata Steel and this move would overvalue the steel industry world over. Commenting on the deal, Sajjan Jindal, Managing Director, Jindal South West Steel said, "The price paid is expensive...all steel companies may get re-rated now but it's a good deal for the industry." Despite the worries of the deal being expensive for Tata Steel, industry experts were optimistic that the deal would enhance India's position in the global steel industry with the world's largest and fifth largest steel producers having roots in the country. Stressing on the synergies that could arise from this acquisition, Phanish Puram, Professor of Strategic and International Management, London Business School said, "The Tata-Corus deal is different because it links low-cost Indian production and raw materials and growth markets to high-margin markets and high technology in the West. The cost advantage of operating from India can be leveraged in Western markets, and differentiation based on better technology from Corus can work in the Asian markets." Tata Steel Vs CSN: The Bidding War There was a heavy speculation surrounding Tata Steel's proposed takeover of Corus ever since Ratan Tata had met Leng in Dubai, in July 2006. On October 17, 2006, Tata Steel made an offer of 455 pence a 103

share in cash valuing the acquisition deal at US$ 7.6 billion. Corus responded positively to the offer on October 20, 2006. Agreeing to the takeover, Leng said, "This combination with Tata, for Corus shareholders and employees alike, represents the right partner at the right time at the right price and on the right terms." In the first week of November 2006, there were reports in media that Tata was joining hands with Corus to acquire the Brazilian steel giant CSN which itself was keen on acquiring Corus. On November 17, 2006, CSN formally entered the foray for acquiring Corus with a bid of 475 pence per share. In the light of CSN's offer, Corus announced that it would defer its extraordinary meeting of shareholders to December 20, 2006 from December 04, 2006, in order to allow counter offers from Tata Steel and CSN... Synergies There were many likely synergies between Tata Steel, the lowest-cost producer of steel in the world, and Corus, a large player with a significant presence in value-added steel segment and a strong distribution network in Europe. Among the benefits to Tata Steel was the fact that it would be able to supply semi-finished steel to Corus for finishing at its plants, which were located closer to the high-value markets... The Pitfalls 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 percent was much lower than that of Tata Steel which was at 30 percent in the financial year 2006-07

104

IMPACT ON SHAREHOLDER’S WEALTH

105

P re A c quis itio n Date 29-Dec-06 2-J an-07 3-J an-07 4-J an-07 5-J an-07 8-J an-07 9-J an-07 1 an-07 0-J 1 -J an-07 1 1 an-07 2-J 1 an-07 5-J 1 an-07 6-J 1 an-07 7-J 1 an-07 8-J 1 an-07 9-J 22-J an-07 23-J an-07 24-J an-07 25-J an-07 29-J an-07 31 an-07 -J Open P rice 478.50 484.00 480.20 472.50 465.60 470.1 5 465.00 458.00 455.00 465.00 471 .35 490.00 486.00 487.90 470.00 469.60 474.00 467.50 482.00 51 2.00 51 0.00

P o s t A c quis itio n Date 31 an-07 -J 1 eb-07 -F 2-F eb-07 5-F eb-07 6-F eb-07 7-F eb-07 8-F eb-07 9-F eb-07 1 eb-07 2-F 1 eb-07 3-F 1 eb-07 4-F 1 eb-07 5-F 1 eb-07 9-F 20-F eb-07 21 eb-07 -F 22-F eb-07 23-F eb-07 26-F eb-07 27-F eb-07 28-F eb-07 1 ar-07 -M Open P rice 51 0.00 465.00 460.00 465.00 474.90 467.00 465.90 468.50 455.80 447.00 434.90 445.00 445.70 446.00 446.80 459.00 457.1 0 461 0 .1 470.00 452.00 449.70

476.1 6 474.49 470.69 466.25 462.75 462.63 462.87 467.87 473.47 480.05 481 .05 480.70 477.50 473.80 472.62 481 .02 489.1 0

470.07 467.36 465.04 464.47 465.92 469.38 473.06 476.63 478.55 478.62 477.1 3 477.1 3 478.81

466.57 466.43 467.57 469.89 472.71 475.25 476.80 477.61 478.05

468.64 470.37 472.44 474.45 476.08

472.40

474.98 466.38 466.56 468.26 466.42 460.84 454.42 450.24 445.68 443.72 443.68 448.50 450.92 454.00 458.80 459.84 457.98

468.52 465.69 463.30 460.04 455.52 450.98 447.55 446.36 446.50 448.1 6 451 8 .1 454.41 456.31

462.61 459.1 1 455.48 452.09 449.38 447.91 447.95 449.32 451 .31

455.73 452.79 450.56 449.33 449.1 8

451 .52

P re A c quis itio n Date 29-Dec-06 2-J an-07 3-J an-07 4-J an-07 5-J an-07 8-J an-07 9-J an-07 1 an-07 0-J 1 -J an-07 1 1 an-07 2-J 1 an-07 5-J 1 an-07 6-J 1 an-07 7-J 1 an-07 8-J 1 an-07 9-J 22-J an-07 23-J an-07 24-J an-07 25-J an-07 29-J an-07 31 an-07 -J C lo se P rice 482.30 478.40 471 .60 465.60 468.65 463.75 455.90 452.35 461 .60 467.40 485.70 482.25 483.80 475.55 467.60 471 .20 464.60 481 .45 509.25 51 9.30 463.95

P o s t A c quis itio n Date 31 an-07 -J 1 eb-07 -F 2-F eb-07 5-F eb-07 6-F eb-07 7-F eb-07 8-F eb-07 9-F eb-07 1 eb-07 2-F 1 eb-07 3-F 1 eb-07 4-F 1 eb-07 5-F 1 eb-07 9-F 20-F eb-07 21 eb-07 -F 22-F eb-07 23-F eb-07 26-F eb-07 27-F eb-07 28-F eb-07 1 ar-07 -M C lo se P rice 463.95 457.75 462.95 469.90 465.20 464.30 461 .60 453.25 443.75 432.25 438.90 442.1 0 443.85 444.1 5 455.20 456.1 0 459.20 469.70 469.35 442.50 451 .90

473.31 469.60 465.1 0 461 .25 460.45 460.20 464.59 469.86 476.1 5 478.94 478.98 476.08 472.55 472.08 478.82 489.1 6 487.71

465.94 463.32 462.32 463.27 466.25 469.95 473.70 476.00 476.54 475.73 475.70 477.74 480.06

464.22 465.02 467.1 0 469.83 472.49 474.38 475.53 476.34 477.1 5

467.73 469.77 471 .87 473.72 475.1 8

471 .65

463.95 464.02 464.79 462.85 457.62 451 .03 445.95 442.05 440.1 7 440.25 444.84 448.28 451 .70 456.87 461 .91 459.37 458.53

462.65 460.06 456.45 451 .90 447.36 443.89 442.65 443.1 2 445.05 448.39 452.72 455.63 457.68

455.68 451 .93 448.45 445.78 444.41 444.62 446.39 448.98 451 .89

449.25 447.04 445.93 446.04 447.26

447.1 0

106

Tata Corus
480.00 470.00 460.00 450.00 440.00 Open Price 451 .52 472.40

Tata Corus
480.00 470.00 460.00 450.00 440.00 430.00 C lo sing P rice 447.10 471.65

107

P re A c q u is itio n D a te T o ta l T u rn o v e r(R s .) M n

P o s t A c q u is it io n D a te T o ta l T u rn o v e r(R s .) M n

2 9 - D e c -0 6 4 9 .3 2 2 - J a n - 0 7 2 0 3 .1 3 - J a n - 0 72 8 9 .4 3 2 9 .6 4 - J a n - 0 73 7 9 .9 3 2 9 .3 5 - J a n - 0 75 2 6 .3 3 4 4 .3 8 - J a n - 0 72 4 7 .6 3 2 6 .9 9 - J a n - 0 7 2 7 8 .1 2 8 9 .7 10 - J a n - 0 72 0 2 .6 2 3 5 .1 11- J a n -0 7 19 4 .1 2 6 6 .3 12 - J a n - 0 72 5 2 .9 2 9 1.1 15 - J a n - 0 74 0 3 .8 2 9 6 .9 16 - J a n - 0 74 0 1.9 3 2 6 .6 17 - J a n - 0 72 3 1.8 3 6 4 .4 18 - J a n - 0 73 4 2 .5 3 4 5 .2 19 - J a n - 0 74 4 1.8 3 0 5 .6 2 2 -J a n - 0 73 0 7 .7 5 4 6 .0 2 3 -J a n - 0 72 0 3 .9 6 9 8 .7 2 4 -J a n - 01,4 3 3 .8 7 7 3 .9 7 2 5 -J a n - 0 7,10 6 .2 1,2 7 0 .9 1 2 9 -J a n - 0 78 18 .0 3 1- J a n - 02 ,7 9 2 .4 7

3 2 3 .9 3 0 5 .0 2 9 2 .4 2 8 1.8 2 7 5 .8 2 8 3 .2 3 0 9 .0 3 2 4 .8 3 2 7 .7 3 7 7 .5 4 5 1.9 5 3 3 .9 7 19 .0

2 9 5 .8 2 8 7 .7 2 8 8 .5 2 9 4 .9 3 0 4 .1 3 2 4 .5 3 5 8 .2 4 0 3 .2 4 8 2 .0

2 9 4 .2 2 9 9 .9 3 14 .0 3 2 3 .9 3 3 7 .0 3 7 4 .4

3 1-J a n - 02 ,7 9 2 .4 7 1- F e b -0 2 ,0 3 8 .2 7 2 - F e b - 0 7,6 6 2 .7 1,5 18 .3 1 5 - F e b - 0 76 0 9 .2 1,0 4 0 .7 6 - F e b - 0 74 8 8 .9 7 18 .7 7 - F e b - 0 74 0 4 .7 4 5 8 .1 8 - F e b - 0 74 2 8 .0 4 9 6 .8 9 - F e b - 0 73 5 9 .8 5 14 .4 12 -F e b -0 78 0 2 .3 6 3 7 .5 13 -F e b -0 75 7 7 .4 6 2 5 .0 14 -F e b -0 1,0 2 0 .0 6 18 .8 7 15 -F e b -0 73 6 5 .6 5 2 6 .0 19 -F e b -0 73 2 8 .4 5 10 .7 2 0 -F e b - 0 7 3 8 .7 4 6 7 .7 3 2 1-F e b -0 75 0 0 .8 6 2 3 .1 2 2 -F e b - 0 7 0 4 .8 7 5 5 .1 8 2 3 -F e b - 0 1,14 2 .9 8 6 1.5 7 2 6 -F e b - 0 7 8 8 .3 9 6 1.6 9 2 7 -F e b - 0 7 7 0 .8 9 11.2 8 2 8 -F e b - 0 1,0 0 1.5 7 1-M a r-0 75 5 2 .4

8 4 6 .5 6 4 5 .8 5 6 5 .1 5 4 6 .4 5 7 8 .5 5 8 4 .4 5 8 3 .6 5 4 9 .6 5 4 9 .3 5 7 6 .5 6 4 3 .6 7 3 3 .8 8 2 2 .5

6 3 6 .4 5 8 4 .0 5 7 1.6 5 6 8 .5 5 6 9 .1 5 6 8 .7 5 8 0 .5 6 10 .6 6 6 5 .1

5 8 5 .9 5 7 2 .4 5 7 1.7 5 8 1.6 5 7 9 .5 5 9 8 .8

Tata Corus
800.00 600.00 400.00 200.00 Turnover 323.90 581 .65

108

P re A c quis itio n Date 29-D ec-06 2-J an-07 3-J an-07 4-J an-07 5-J an-07 8-J an-07 9-J an-07 1 an-07 0-J 1 -J an-07 1 1 an-07 2-J 1 an-07 5-J 1 an-07 6-J 1 an-07 7-J 1 an-07 8-J 1 an-07 9-J 22-J an-07 23-J an-07 24-J an-07 25-J an-07 29-J an-07 31 an-07 -J H igh P rice 485.0 486.0 481 .7 474.4 472.0 471 .5 466.9 460.5 463.0 469.8 488.0 493.4 492.0 487.9 479.4 475.1 475.0 485.0 51 2.4 520.9 51 0.0

P o s t A c quis itio n D ate 31 an-07 -J 1 eb-07 -F 2-F eb-07 5-F eb-07 6-F eb-07 7-F eb-07 8-F eb-07 9-F eb-07 1 eb-07 2-F 1 eb-07 3-F 1 eb-07 4-F 1 eb-07 5-F 1 eb-07 9-F 20-F eb-07 21 eb-07 -F 22-F eb-07 23-F eb-07 26-F eb-07 27-F eb-07 28-F eb-07 1 ar-07 -M H igh P rice 51 0.0 471 .6 472.4 472.1 475.5 469.4 465.9 470.0 458.2 448.0 442.9 446.9 447.0 452.0 458.4 463.3 466.9 475.3 479.6 464.9 454.9

479.8 477.1 473.3 469.0 466.8 466.3 469.6 474.9 481 .2 486.2 488.1 485.6 481 .9 480.5 485.4 493.7 500.7

473.2 470.5 469.0 469.3 471 .8 475.7 480.0 483.2 484.6 484.5 484.3 485.4 488.4

470.8 471 .3 473.2 476.0 479.1 481 .6 483.3 484.4 485.4

474.1 476.2 478.6 480.9 482.8

478.5

480.3 472.2 471 .1 470.6 467.8 462.3 457.0 453.2 448.6 447.4 449.4 453.5 457.5 463.2 468.7 470.0 468.3

472.4 468.8 465.7 462.2 457.8 453.7 451 .1 450.4 451 .3 454.2 458.5 462.6 465.5

465.4 461 .6 458.1 455.0 452.9 452.1 453.1 455.4 458.4

458.6 456.0 454.2 453.7 454.4

455.4

P re A c quis itio n Date 29-D ec-06 2-J an-07 3-J an-07 4-J an-07 5-J an-07 8-J an-07 9-J an-07 1 an-07 0-J 1 -J an-07 1 1 an-07 2-J 1 an-07 5-J 1 an-07 6-J 1 an-07 7-J 1 an-07 8-J 1 an-07 9-J 22-J an-07 23-J an-07 24-J an-07 25-J an-07 29-J an-07 31 an-07 -J Lo w P rice 477.0 475.3 470.3 461 .6 457.3 462.1 454.6 451 .5 452.0 464.5 468.5 481 .1 481 .5 473.3 463.3 466.0 463.1 465.0 482.0 505.0 461 .1

P o s t A c quis itio n D ate 31 an-07 -J 1 eb-07 -F 2-F eb-07 5-F eb-07 6-F eb-07 7-F eb-07 8-F eb-07 9-F eb-07 1 eb-07 2-F 1 eb-07 3-F 1 eb-07 4-F 1 eb-07 5-F 1 eb-07 9-F 20-F eb-07 21 eb-07 -F 22-F eb-07 23-F eb-07 26-F eb-07 27-F eb-07 28-F eb-07 1 ar-07 -M Lo w P rice 461 .1 451 .1 459.6 455.1 463.6 461 .2 458.2 451 .5 442.6 430.0 427.6 440.7 437.6 443.3 441 .5 451 .2 453.0 460.0 467.3 437.2 442.0

468.3 465.3 461 .1 457.4 455.5 456.9 458.2 463.5 469.5 473.8 473.5 473.0 469.4 466.1 467.9 476.2 475.2

461 .5 459.2 457.8 458.3 460.7 464.4 467.7 470.7 471 .8 471 .2 470.0 470.5 471 .0

459.5 460.1 461 .8 464.4 467.1 469.1 470.3 470.8 470.9

462.6 464.5 466.5 468.3 469.6

466.3

458.1 458.1 459.5 457.9 455.4 448.7 442.0 438.5 435.7 435.8 438.1 442.8 445.3 449.8 454.6 453.7 451 .9

457.8 455.9 452.7 448.5 444.0 440.1 438.0 438.2 439.6 442.4 446.1 449.2 451 .1

451 .8 448.2 444.7 441 .8 440.0 439.6 440.8 443.1 445.7

445.3 442.9 441 .4 441 .1 441 .8

442.5

109

Tata Corus
470.00 460.00 450.00 440.00 430.00 Lo w Price 442.49 466.31

INTERPRETATION The calculation of five days moving average for the previous as well as later month from the date of merger is shown. It takes into account the open, high, low, close, daily turnover as well as calculation of abnormal return. This takes into account the daily volatilities of the share prices.  Here, all the daily average prices have fallen except the turnover which has increased by approximately 80% from Rs. 323.9m to Rs. 581.65m. This is somewhat shocking as the trading activity has risen inspite of severe fall in stock prices.  This is indicative of two completely different types of investor groups involved in the market. One with the positive view about the acquisition and the others who think the acquisition is overvalued.  Investors with positive sentiments, view this deal to be lucrative in the long run. So they grab the opportunity to buy the shares at a low price and those investors on the other hand readily sell their accumulated shares to save themselves from further fall in prices.

110

COMPANY’S RETURN BEFORE AND AFTER ACQUISITION

111

Pr Acq isition e u D te a Ex Re rn . tu Ab orm l Re rn n a tu Cu m Ab Re rn m . . tu

1 /2 0 /2 0 7 1 /2 0 /3 0 7 1 /2 0 /4 0 7 1 /2 0 /5 0 7 1 /2 0 /8 0 7 1 /2 0 /9 0 7 10 0 7 /1 /2 0 11 0 7 /1/2 0 12 0 7 /1 /2 0 15 0 7 /1 /2 0 16 0 7 /1 /2 0 17 0 7 /1 /2 0 18 0 7 /1 /2 0 19 0 7 /1 /2 0 1 2 07 /2 /2 0 1 3 07 /2 /2 0 1 4 07 /2 /2 0 1 5 07 /2 /2 0 1 9 07 /2 /2 0 1 1 07 /3 /2 0
Post Acq isit u ion Dt ae

14 .1 % 0 4 .5 % -0 9 .9 % -0 5 .0 % -1 6 .4 % -0 0 .6 % -1 7 .4 % 2 2 .0 % 33 .1 % 0 4 .5 % -0 8 .0 % 04 .1 % 0 3 .6 % -0 2 .2 % 0 1 .2 % -1 5 .1 % 0 2 .5 % 14 .2 % -0 6 .4 % -0 2 .8 %

-0 2 .0 % -0 2 .0 % -0 4 .0 % -0 3 .0 % -0 4 .0 % -0 3 .0 % -0 4 .0 % -0 1 .0 % 0 0 .0 % -0 2 .0 % -0 3 .0 % -0 3 .0 % -0 2 .0 % -0 3 .0 % -0 3 .0 % -0 4 .0 % -0 2 .0 % -0 2 .0 % -0 3 .0 % -0 3 .0 %

-0 2 .0 % -0 4 .0 % -0 8 .0 % -0 0 .1 % -0 4 .1 % -0 8 .1 % -0 2 .2 % -0 3 .2 % -0 3 .2 % -0 5 .2 % -0 8 .2 % -0 1 .3 % -0 3 .3 % -0 6 .3 % -0 8 .3 % -0 2 .4 % -0 4 .4 % -0 6 .4 % -0 9 .4 % -0 3 .5 %

E .Reun x tr

Ab or a Reun n ml t r

Cu mAb Reun m . . tr

2 /2 0 /1 0 7 2 /2 0 /2 0 7 2 /2 0 /5 0 7 2 /2 0 /6 0 7 2 /2 0 /7 0 7 2 /2 0 /8 0 7 2 /2 0 /9 0 7 2 2 07 /1/2 0 2 3 07 /1/2 0 2 4 07 /1/2 0 2 5 07 /1/2 0 2 9 07 /1/2 0 2 0 07 /2 /2 0 2 1 07 /2/2 0 2 2 07 /2 /2 0 2 3 07 /2 /2 0 2 6 07 /2 /2 0 2 7 07 /2 /2 0 2 8 07 /2 /2 0 3 /2 0 /1 0 7

15 . % 2 09 % .6 07 % .9 -02 % .4 14 . % 1 00 % .8 -07 % .4 -23 % .4 -06 % .7 -05 % .5 24 % .5 03 % .4 -1 0 . % 0 -04 % .3 -14 . % 1 -27% .1 01% .4 -1 1 . % 2 -39 % .3 11 . % 7

00 % .0 -00% .1 -00% .1 -00 % .2 00 % .0 -00 % .2 -00 % .3 -00 % .6 -00 % .3 -00 % .3 00 % .2 -00% .1 -00 % .4 -00 % .3 -00 % .4 -00 % .6 -00 % .2 -00 % .4 -00 % .8 00% .1

00 % .0 -00% .1 -00% .1 -00 % .4 -00 % .4 -00 % .6 -00 % .9 -01% .5 -01% .8 -02% .1 -01% .9 -02 % .0 -02 % .4 -02 % .6 -03 % .0 -03 % .6 -03 % .8 -04 % .2 -05 % .0 -05 % .0

112

0.00% -0.10% -0.20% -0.30% -0.40% -0.50% -0.60%
1/ 8/ 07 1/ 10 /0 7 1/ 12 /0 7 1/ 14 /0 7 1/ 16 /0 7 1/ 18 /0 7 1/ 20 /0 7 1/ 22 /0 7 1/ 24 /0 7 1/ 26 /0 7 1/ 28 /0 7 1/ 30 /0 7 1/ 2/ 07 1/ 4/ 07 1/ 6/ 07

Cumm. Ab. Return 0.00%
2/ 7/ 0 2/ 9/ 0

-0.10% -0.20% -0.30% -0.40% -0.50% -0.60%

INTERPRETATION As we can see from the line chart that the %cumulative abnormal return before acquisition was sharply decreasing since past month with not even a single glimpse of positive return on any single day.  But as soon as the acquisition took place, the earnings showed a marginal rise and again got back to the level where it was just before the acquisition. This happened due to very large debt generated due to overpaying by acquiring the Corus at a very high price of 608 pence per share as compared to previously valued 455 pence per share.

7 2/ 11 /0 7 2/ 13 /0 7 2/ 15 /0 7 2/ 17 /0 7 2/ 19 /0 7 2/ 21 /0 7 2/ 23 /0 7 2/ 25 /0 7 2/ 27 /0 7 3/ 1/ 07

2/ 1/ 07

2/ 3/ 07

2/ 5/ 07

7

113

RATIO ANALYSIS
TATA Steel (31st jan 2007) Debt-Equity Ratio ROCE (%) net profit margin P/E ROE(%) EPS OPM(%) Pre-acquisition 0.31 50.13 20.46 8.72 41.7 61.51 39.79 Post- acquisition 0.67 23.27 21.36 11.35 25.97 61.06 36.11 Change ( %) 116. -53.6 4.4 30.2 -37.7 -0.7 -9.2

INTERPRETATION Debt equity ratio on post acquisition increase because Corus debt was high it was GBP1.6b to buy Corus and so its debt is almost 116% more than in pre acquisition. ROCE shows that post acquisition is very less as compared to pre acquisition it has negative percentage because company has short term returns after one year it will improve in the long run. Net profit margin has very less change as profit is not much affected. P/E increases in post acquisition by 30.2% which show high future cash flow. ROE is decreasing by 37.7 which show that it has more debt than equity.

114

EPS has a very minor change. Operating profit margin is reduced by 9.1% which shows that it has low profit.

115

9.5 TATA CHEMICALS – GENERAL CHEMICALS
About the acquisition
Date: - 27th March 2008 Acquirer: - Tata Chemicals Limited Target company: - General Chemicals Industrial Products Inc. Stake: - 100 % Deal amount: - US$ 1005 m Sector: - Plastic and Chemicals

TATA CHEMICALS Tata Chemical Ltd (TCL) Group is world’s third largest soda ash producer with a combined capacity of 2.9 million tonne and a market leader in soda ash and salt in India. TCL is rapidly adding capacity by organic and inorganic means. It is showing robust growth with strong volume growth in soda ash, cement, salt, and phosphatic fertiliser. GENERAL CHEMICALS INDUSTRIAL PRODUCTS INC. General Chemical is one of the world's leading and most experienced producers of soda ash. They supply an essential raw material used to make a range of familiar everyday products, such as glass, soap, powdered detergent, paper, textiles, and even food. They have produced soda ash for more than 100 years and are currently one of the Top 5 global producers. The breadth of practical experience and ever increasing production efficiency in mining and processing ensures high-quality soda ash. Their expertise in shipping and storage enables them to get soda ash when and where customers need it.

116

Detailed case study
After global acquisitions that made it the fifth largest steelmaker and the second largest branded tea bag owner worldwide, the Tata group was poised to become the second largest soda ash manufacturer in the world. Tata Chemicals had signed an agreement to acquire 100 per cent stake in US-based General Chemical Industrial Products Inc. for $ 1.005 billion (approx. Rs 4,000 crore). GCIL is a privately held debt-free company with revenues of $ 400 million and a healthy bottomline. Tata Chemicals was also looking to buy Harbinger Capital Partners, a private equity firm that owns a majority stake in GCIL. GCIL had a capacity of 2.5 million tonnes of soda ash, while Tata Chemicals was already at number three position globally (at 3 million tonnes) after its acquisition of the UK-based Brunner Mond in 2005. GCIL has access to the world’s largest and most economically recoverable trona ore deposits (which is converted into soda ash) in Wyoming in the US, said Mr Khusrokhan. After the buy, over 50 percent of Tata Chemicals’ capacity would be through the natural route, providing both sustainability as well as a natural hedge against the commodity cycle, he said. As a thumb rule, natural soda ash is more economical and delivers higher margins, said Mr R Mukundan, Executive Vice-President, Chemicals. On picking up a US asset in the backdrop of a slowdown in that country, Mr Mukundan said that soda ash is in the growth phase with worldwide demand for various applications and that margins are picking up. Forty per cent of TCL’s revenues are from international sales. The acquisition would be funded through a mixture of equity and debt. The company’s stock lost over 7 per cent on the BSE, to close at Rs 305 from previous close of Rs 328. 117

Tata Chemicals now has manufacturing locations in four continents and access to consumers around the world, including new markets it was not earlier in, viz. North America, Latin America and certain markets in the Far East. Benefits The acquisition was timely from an Indian viewpoint as the company was picking up US assets at a time when the rupee was strong. According to analysts, this would clearly pitch Tata Chemicals into the number two position worldwide. More than 50 per cent of Tata Chemicals’ capacity would be through the natural route which would lead to sustainability in terms of margins. A 100 per cent equity stake in General Chemical Industrial Products (GCIP), a US-based soda ash maker, will endow Tata Chemicals with substantial global scale and manufacturing cost advantages in its soda ash business. The acquisition is timely; As demand and price trends for soda ash were at a new high globally, the acquisition helped the company to quickly capitalize on those trends, without the gestation period that would have been involved in putting up Greenfield capacities. The scaling up of capacities came at a time when the global soda ash cycle was displaying considerable strength, with construction activity in Asia spurring strong demand, production failing to keep pace and China curtailing exports of the chemical in order to meet domestic requirements. Financing the deal Lazard and Standard Chartered Bank were financial advisers to TCL on the transaction.

118

The acquisition has been funded through a mixture of term financing (ECB) of $500 million and bridge financing (in the US) of $350 million, raising a total of $850 million at competitive rates. The loan was arranged by seven banks. They include ABN AMRO, Nova Scotia, Calyon, HSBC, Mizuho Financial Group, Rabobank and Standard Chartered.

IMPACT ON SHAREHOLDER’S WEALTH

119

P re Acquisition Date 29-Dec-06 2-J an-07 3-J an-07 4-J an-07 5-J an-07 8-J an-07 9-J an-07 1 an-07 0-J 1-J an-07 1 1 an-07 2-J 1 an-07 5-J 1 an-07 6-J 1 an-07 7-J 1 an-07 8-J 1 an-07 9-J 22-J an-07 23-J an-07 24-J an-07 25-J an-07 29-J an-07 31 an-07 -J Open P rice 478.50 484.00 480.20 472.50 465.60 470.1 5 465.00 458.00 455.00 465.00 471 .35 490.00 486.00 487.90 470.00 469.60 474.00 467.50 482.00 51 2.00 51 0.00

P ost Acquisition Date 31 an-07 -J 1 -Feb-07 2-Feb-07 5-Feb-07 6-Feb-07 7-Feb-07 8-Feb-07 9-Feb-07 1 2-Feb-07 1 3-Feb-07 1 4-Feb-07 1 5-Feb-07 1 9-Feb-07 20-Feb-07 21 -Feb-07 22-Feb-07 23-Feb-07 26-Feb-07 27-Feb-07 28-Feb-07 1 ar-07 -M Open P rice 51 0.00 465.00 460.00 465.00 474.90 467.00 465.90 468.50 455.80 447.00 434.90 445.00 445.70 446.00 446.80 459.00 457.1 0 461 0 .1 470.00 452.00 449.70

476.1 6 474.49 470.69 466.25 462.75 462.63 462.87 467.87 473.47 480.05 481 .05 480.70 477.50 473.80 472.62 481 .02 489.1 0

470.07 467.36 465.04 464.47 465.92 469.38 473.06 476.63 478.55 478.62 477.1 3 477.1 3 478.81

466.57 466.43 467.57 469.89 472.71 475.25 476.80 477.61 478.05

468.64 470.37 472.44 474.45 476.08

472.40

474.98 466.38 466.56 468.26 466.42 460.84 454.42 450.24 445.68 443.72 443.68 448.50 450.92 454.00 458.80 459.84 457.98

468.52 465.69 463.30 460.04 455.52 450.98 447.55 446.36 446.50 448.1 6 451 8 .1 454.41 456.31

462.61 459.1 1 455.48 452.09 449.38 447.91 447.95 449.32 451 .31

455.73 452.79 450.56 449.33 449.1 8

451 .52

P re Acquisition Date 29-Dec-06 2-J an-07 3-J an-07 4-J an-07 5-J an-07 8-J an-07 9-J an-07 1 an-07 0-J 1-J an-07 1 1 an-07 2-J 1 an-07 5-J 1 an-07 6-J 1 an-07 7-J 1 an-07 8-J 1 an-07 9-J 22-J an-07 23-J an-07 24-J an-07 25-J an-07 29-J an-07 31 an-07 -J Close P rice 482.30 478.40 471 .60 465.60 468.65 463.75 455.90 452.35 461 .60 467.40 485.70 482.25 483.80 475.55 467.60 471 .20 464.60 481 .45 509.25 51 9.30 463.95

P ost Acquisition Date 31 an-07 -J 1 -Feb-07 2-Feb-07 5-Feb-07 6-Feb-07 7-Feb-07 8-Feb-07 9-Feb-07 1 2-Feb-07 1 3-Feb-07 1 4-Feb-07 1 5-Feb-07 1 9-Feb-07 20-Feb-07 21 -Feb-07 22-Feb-07 23-Feb-07 26-Feb-07 27-Feb-07 28-Feb-07 1 ar-07 -M Close P rice 463.95 457.75 462.95 469.90 465.20 464.30 461 .60 453.25 443.75 432.25 438.90 442.1 0 443.85 444.1 5 455.20 456.1 0 459.20 469.70 469.35 442.50 451 .90

473.31 469.60 465.1 0 461 .25 460.45 460.20 464.59 469.86 476.1 5 478.94 478.98 476.08 472.55 472.08 478.82 489.1 6 487.71

465.94 463.32 462.32 463.27 466.25 469.95 473.70 476.00 476.54 475.73 475.70 477.74 480.06

464.22 465.02 467.1 0 469.83 472.49 474.38 475.53 476.34 477.1 5

467.73 469.77 471 .87 473.72 475.1 8

471 .65

463.95 464.02 464.79 462.85 457.62 451 .03 445.95 442.05 440.1 7 440.25 444.84 448.28 451 .70 456.87 461 .91 459.37 458.53

462.65 460.06 456.45 451 .90 447.36 443.89 442.65 443.1 2 445.05 448.39 452.72 455.63 457.68

455.68 451 .93 448.45 445.78 444.41 444.62 446.39 448.98 451 .89

449.25 447.04 445.93 446.04 447.26

447.1 0

120

Tata Che m
31 9.00 31 8.00 31 7.00 31 6.00 31 5.00 Open Price 31 6.71

31 8.62

Tata Che m
325.00 320.00 315.00 310.00 305.00 C lo s ing P rice 313.01

322.46

121

P r e A c q u i s it i o n D a te T o ta l T u rn o v e r(R s .) M n

P o s t A c q u i s it io n D a te T o ta l T u rn o v e r(R s .) M n

2 9 -D e c -0 62 4 9 .3 2 -J a n -0 7 2 0 3 .1 3 -J a n -0 7 2 8 9 .4 4 -J a n -0 7 3 7 9 .9 5 -J a n -0 7 5 2 6 .3 8 -J a n -0 7 2 4 7 .6 9 -J a n -0 7 2 7 8 .1 10 -J a n -0 7 2 0 2 .6 11-J a n -0 7 19 4 .1 12 -J a n -0 7 2 5 2 .9 15 -J a n -0 7 4 0 3 .8 16 -J a n -0 7 4 0 1.9 17 -J a n -0 7 2 3 1.8 18 -J a n -0 7 3 4 2 .5 19 -J a n -0 7 4 4 1.8 2 2 -J a n -0 73 0 7 .7 2 3 -J a n -0 72 0 3 .9 2 4 -J a n -0 7,4 3 3 .8 1 2 5 -J a n -0 71,10 6 .2 2 9 -J a n -0 7 8 18 .0 3 1-J a n -0 7 ,7 9 2 .4 2

3 2 9 .6 3 2 9 .3 3 4 4 .3 3 2 6 .9 2 8 9 .7 2 3 5 .1 2 6 6 .3 2 9 1.1 2 9 6 .9 3 2 6 .6 3 6 4 .4 3 4 5 .2 3 0 5 .6 5 4 6 .0 6 9 8 .7 7 7 3 .9 1,2 7 0 .9

3 2 3 .9 3 0 5 .0 2 9 2 .4 2 8 1.8 2 7 5 .8 2 8 3 .2 3 0 9 .0 3 2 4 .8 3 2 7 .7 3 7 7 .5 4 5 1.9 5 3 3 .9 7 19 .0

2 9 5 .8 2 8 7 .7 2 8 8 .5 2 9 4 .9 3 0 4 .1 3 2 4 .5 3 5 8 .2 4 0 3 .2 4 8 2 .0

2 9 4 .2 2 9 9 .9 3 14 .0 3 2 3 .9 3 3 7 .0 3 7 4 .4

3 1-J a n -0 7 ,7 9 2 .4 2 1-F e b -0 7 ,0 3 8 .2 2 2 -F e b -0 71,6 6 2 .7 5 -F e b -0 7 6 0 9 .2 6 -F e b -0 7 4 8 8 .9 7 -F e b -0 7 4 0 4 .7 8 -F e b -0 7 4 2 8 .0 9 -F e b -0 7 3 5 9 .8 12 -F e b -0 78 0 2 .3 13 -F e b -0 75 7 7 .4 14 -F e b -0 7 2 0 .0 1,0 15 -F e b -0 73 6 5 .6 19 -F e b -0 73 2 8 .4 2 0 -F e b -0 73 3 8 .7 2 1-F e b -0 75 0 0 .8 2 2 -F e b -0 78 0 4 .8 2 3 -F e b -0 7 2 .9 1,14 2 6 -F e b -0 79 8 8 .3 2 7 -F e b -0 78 7 0 .8 2 8 -F e b -0 7 0 1.5 1,0 1-M a r-0 7 5 5 2 .4

1,5 18 .3 1,0 4 0 .7 7 18 .7 4 5 8 .1 4 9 6 .8 5 14 .4 6 3 7 .5 6 2 5 .0 6 18 .8 5 2 6 .0 5 10 .7 4 6 7 .7 6 2 3 .1 7 5 5 .1 8 6 1.5 9 6 1.6 9 11.2

8 4 6 .5 6 4 5 .8 5 6 5 .1 5 4 6 .4 5 7 8 .5 5 8 4 .4 5 8 3 .6 5 4 9 .6 5 4 9 .3 5 7 6 .5 6 4 3 .6 7 3 3 .8 8 2 2 .5

6 3 6 .4 5 8 4 .0 5 7 1.6 5 6 8 .5 5 6 9 .1 5 6 8 .7 5 8 0 .5 6 10 .6 6 6 5 .1

5 8 5 .9 5 7 2 .4 5 7 1.7 5 7 9 .5 5 9 8 .8

5 8 1.6

Tata Chem
1 00.00 80.00 60.00 40.00 20.00 Turnover 83.94 48.93

122

P re A c quis itio n D ate H igh P ric e 485.0 486.0 481.7 474.4 472.0 471.5 466.9 460.5 463.0 469.8 488.0 493.4 492.0 487.9 479.4 475.1 475.0 485.0 512.4 520.9 510.0

P o s t A c quis itio n D ate H igh P ric e 510.0 471.6 472.4 472.1 475.5 469.4 465.9 470.0 458.2 448.0 442.9 446.9 447.0 452.0 458.4 463.3 466.9 475.3 479.6 464.9 454.9

29-D ec -06 2-J an-07 3-J an-07 4-J an-07 5-J an-07 8-J an-07 9-J an-07 10-J an-07 11-J an-07 12-J an-07 15-J an-07 16-J an-07 17-J an-07 18-J an-07 19-J an-07 22-J an-07 23-J an-07 24-J an-07 25-J an-07 29-J an-07 31-J an-07

479.8 477.1 473.3 469.0 466.8 466.3 469.6 474.9 481.2 486.2 488.1 485.6 481.9 480.5 485.4 493.7 500.7

473.2 470.5 469.0 469.3 471.8 475.7 480.0 483.2 484.6 484.5 484.3 485.4 488.4

470.8 471.3 473.2 476.0 479.1 481.6 483.3 484.4 485.4

474.1 476.2 478.6 480.9 482.8

478.5

31-J an-07 1-F eb-07 2-F eb-07 5-F eb-07 6-F eb-07 7-F eb-07 8-F eb-07 9-F eb-07 12-F eb-07 13-F eb-07 14-F eb-07 15-F eb-07 19-F eb-07 20-F eb-07 21-F eb-07 22-F eb-07 23-F eb-07 26-F eb-07 27-F eb-07 28-F eb-07 1-M ar-07

480.3 472.2 471.1 470.6 467.8 462.3 457.0 453.2 448.6 447.4 449.4 453.5 457.5 463.2 468.7 470.0 468.3

472.4 468.8 465.7 462.2 457.8 453.7 451.1 450.4 451.3 454.2 458.5 462.6 465.5

465.4 461.6 458.1 455.0 452.9 452.1 453.1 455.4 458.4

458.6 456.0 454.2 453.7 454.4

455.4

P re A c quis itio n D ate Lo w P ric e 477.0 475.3 470.3 461.6 457.3 462.1 454.6 451.5 452.0 464.5 468.5 481.1 481.5 473.3 463.3 466.0 463.1 465.0 482.0 505.0 461.1

P o s t A c quis itio n D ate Lo w P ric e 461.1 451.1 459.6 455.1 463.6 461.2 458.2 451.5 442.6 430.0 427.6 440.7 437.6 443.3 441.5 451.2 453.0 460.0 467.3 437.2 442.0

29-D ec -06 2-J an-07 3-J an-07 4-J an-07 5-J an-07 8-J an-07 9-J an-07 10-J an-07 11-J an-07 12-J an-07 15-J an-07 16-J an-07 17-J an-07 18-J an-07 19-J an-07 22-J an-07 23-J an-07 24-J an-07 25-J an-07 29-J an-07 31-J an-07

468.3 465.3 461.1 457.4 455.5 456.9 458.2 463.5 469.5 473.8 473.5 473.0 469.4 466.1 467.9 476.2 475.2

461.5 459.2 457.8 458.3 460.7 464.4 467.7 470.7 471.8 471.2 470.0 470.5 471.0

459.5 460.1 461.8 464.4 467.1 469.1 470.3 470.8 470.9

462.6 464.5 466.5 468.3 469.6

466.3

31-J an-07 1-F eb-07 2-F eb-07 5-F eb-07 6-F eb-07 7-F eb-07 8-F eb-07 9-F eb-07 12-F eb-07 13-F eb-07 14-F eb-07 15-F eb-07 19-F eb-07 20-F eb-07 21-F eb-07 22-F eb-07 23-F eb-07 26-F eb-07 27-F eb-07 28-F eb-07 1-M ar-07

458.1 458.1 459.5 457.9 455.4 448.7 442.0 438.5 435.7 435.8 438.1 442.8 445.3 449.8 454.6 453.7 451.9

457.8 455.9 452.7 448.5 444.0 440.1 438.0 438.2 439.6 442.4 446.1 449.2 451.1

451.8 448.2 444.7 441.8 440.0 439.6 440.8 443.1 445.7

445.3 442.9 441.4 441.1 441.8

442.5

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Tata Chem
31 5.00 31 0.00 305.00 300.00 Low Price 304.58

31 3.60

INTERPRETATION The calculation of five days moving average for the previous as well as later month from the date of merger is shown. It takes into account the open, high, low, close, daily turnover as well as calculation of abnormal return. This takes into account the daily volatilities of the share prices. Here, the daily average prices have risen due to positive feedback of the merger but the turnover has decreased at the same time. This shows that there are certain shareholders who expect the share prices to rise much more as compared to actual rise that has taken place and so they have reduced trading activities and turned themselves into investors. Such investors value the deal much more and so they expect the share prices to rise sharply within a period of year or so. COMPANY’S RETURN BEFORE AND AFTER ACQUISITION

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Pr Acq isition e u D te a Ex Re r . tu n Ab or a Re r n m l tu n Cu m Ab Re r m . . tu n

1 /2 0 /2 0 7 1 /2 0 /3 0 7 1 /2 0 /4 0 7 1 /2 0 /5 0 7 1 /2 0 /8 0 7 1 /2 0 /9 0 7 10 0 7 /1 /2 0 11 0 7 /1/2 0 12 0 7 /1 /2 0 15 0 7 /1 /2 0 16 0 7 /1 /2 0 17 0 7 /1 /2 0 18 0 7 /1 /2 0 19 0 7 /1 /2 0 1 2 07 /2 /2 0 1 3 07 /2 /2 0 1 4 07 /2 /2 0 1 5 07 /2 /2 0 1 9 07 /2 /2 0 1 1 07 /3 /2 0

14 . % 1 05 % .4 -09 % .9 -00 % .5 -1 6 . % 4 -06 % .0 -1 7 . % 4 20 % .2 31 % .3 05 % .4 -00 % .8 01 % .4 06 % .3 -02 % .2 02 % .1 -1 5 . % 1 05 % .2 14 . % 2 -04 % .6 -08 % .2

-00 % .2 -00 % .2 -00 % .4 -00 % .3 -00 % .4 -00 % .3 -00 % .4 -00 % .1 00 % .0 -00 % .2 -00 % .3 -00 % .3 -00 % .2 -00 % .3 -00 % .3 -00 % .4 -00 % .2 -00 % .2 -00 % .3 -00 % .3

-00 % .2 -00 % .4 -00 % .8 -01 % .0 -01 % .4 -01 % .8 -02 % .2 -02 % .3 -02 % .3 -02 % .5 -02 % .8 -03 % .1 -03 % .3 -03 % .6 -03 % .8 -04 % .2 -04 % .4 -04 % .6 -04 % .9 -05 % .3

P s A q is io o t c u it n Dt ae E .R t r x eun A n r aR t r b o ml eun C m .A .R t r u m b eun

2 /2 0 /1 0 7 2 /2 0 /2 0 7 2 /2 0 /5 0 7 2 /2 0 /6 0 7 2 /2 0 /7 0 7 2 /2 0 /8 0 7 2 /2 0 /9 0 7 2 2 07 /1/2 0 2 3 07 /1/2 0 2 4 07 /1/2 0 2 5 07 /1/2 0 2 9 07 /1/2 0 2 0 07 /2 /2 0 2 1 07 /2/2 0 2 2 07 /2 /2 0 2 3 07 /2 /2 0 2 6 07 /2 /2 0 2 7 07 /2 /2 0 2 8 07 /2 /2 0 3 /2 0 /1 0 7

15 . % 2 09 % .6 07 % .9 -.4 02 % 14 . % 1 00 % .8 -.4 07 % -.4 23 % -.7 06 % -.5 05 % 24 % .5 03 % .4 -. 0 1 % 0 -.3 04 % - .4 1 % 1 -.1 27% 01% .4 -. 1 1 % 2 -.3 39 % 11 . % 7

00 % .0 -.1 00% -.1 00% -.2 00 % 00 % .0 -.2 00 % -.3 00 % -.6 00 % -.3 00 % -.3 00 % 00 % .2 -.1 00% -.4 00 % -.3 00 % -.4 00 % -.6 00 % -.2 00 % -.4 00 % -.8 00 % 00% .1

00 % .0 -.1 00% -.1 00% -.4 00 % -.4 00 % -.6 00 % -.9 00 % - .5 01% - .8 01% -.1 02% - .9 01% -.0 02 % -.4 02 % -.6 02 % -.0 03 % -.6 03 % -.8 03 % -.2 04 % -.0 05 % -.0 05 %

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0.00%
2/ 26 /0 8 2/ 28 /0 8 3/ 1/ 08 3/ 3/ 08 3/ 5/ 08 3/ 7/ 08

-0.05% -0.10% -0.15% -0.20% -0.25% -0.30% -0.35%

0.05% 0.00%
3/ 28 /0 8 3/ 30 /0 8 4/ 1/ 08 4/ 3/ 08 4/ 5/ 08 4/ 7/ 08 /0 8 4/ 9

-0.05% -0.10% -0.15% -0.20% -0.25%

INTERPRETATION As we can see from the line chart the earnings of Tata Chemicals has fallen sharply since one month by about 0.30% to 0.35%. The effect of poor result continued even after the acquisition of General Chemicals and went down by 0.2% more in next 30 days. As a result of poor earnings, even the share prices of Tata Chemicals fell from Rs. 328 per share to Rs. 305 per share.

4/ 11 /0 8 4/ 13 /0 8 4/ 15 /0 8 4/ 17 /0 8 4/ 19 /0 8 4/ 21 /0 8 4/ 23 /0 8 4/ 25 /0 8 4/ 27 /0 8

3/ 9/ 08 3/ 11 /0 8 3/ 13 /0 8 3/ 15 /0 8 3/ 17 /0 8 3/ 19 /0 8 3/ 21 /0 8 3/ 23 /0 8 3/ 25 /0 8 3/ 27 /0 8

Cumm. Ab. Return

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RATIO ANALYSIS
TATA chemicals (27- 03 2008) Debt-Equity Ratio ROCE (%) net profit margin P/E ROE(%) EPS OPM(%) Preacquisition 0.55 19.26 30.52 10.73 19.48 19.29 20.18 Postacquisition 0.81 5.58 6.88 7.98 14.15 17.69 6.31 Change(%) 47.27 -71.03 -77.46 -25.63 -27.36 -8.29 -68.73

INTERPRETATION Debt equity ratio is increasing by 47.27% as Tata Chemicals debt is low as compare to equity.ROCE decreases vey high by 71.03% as compared to pre acquisition as it gauges that company cannot generate its earnings from the total pool of capital which indicates less profitability.Net profit margin decreases highly by 77.46% which shows decrease in income in post acquisition as compared to pre acquisition. P/E highly decreases in post acquisition by 25.63% which in investor point of view is not profitable to invest. ROE is highly decreasing by 71.03% which shows that the company has incurred a huge loss and should improve its OPM to 127

improve performance. EPS is decreasing by 8.29% there would be a selling spree in point of view investors. Operating profit margin is drastically reduced by 68.73% which shows that company profit margin is very less.

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CHAPTER 10
VALUATION AND INTERPRETATION
In our project we have done Enterprise Value Model What is Enterprise Value? Enterprise value is a figure that, in theory, represents the entire cost of a company if someone were to acquire it. Enterprise value is a more accurate estimate of takeover cost than market capitalization because it takes includes a number of important factors such as preferred stock, debt, and cash reserves that are excluded from the latter metric. How is Enterprise Value Calculated? Enterprise value is calculated by adding a corporation’s market capitalization, preferred stock, and outstanding debt together and then subtracting out the cash and cash equivalents found on the balance sheet. (In other words, enterprise value is what it would cost you to buy every single share of a company’s common stock, preferred stock, and outstanding debt. The reason the cash is subtracted is simple: once you have acquired complete ownership of the company, the cash becomes yours). Let’s examine each of these components individually, as well as the reasons they are included in the calculation of enterprise value: Market Capitalization: Frequently called “market cap”, market capitalization is calculated by taking the number of outstanding shares of common stock multiplied by the current price-per-share. If, for example, Billy Bob’s Tire Company had 1 million shares of stock outstanding and the current stock price was $50 per share, the company’s market

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capitalization would be $50 million (1 million shares x $50 per share = $50 million market cap). Preferred Stock: Although it is technically equity, preferred stock can actually act as either equity or debt, depending upon the nature of the individual issue. A preferred issue that must be redeemed at a certain date at a certain price is, for all intents and purposes, debt. In other cases, preferred stock may have the right to receive a fixed dividend plus share in a portion of the profits (this type is known as “participating”). Regardless, the existence represents a claim on the business that must be factored into enterprise value. Debt: Once you’ve acquired a business, you’ve also acquired its debt. If you purchased all of the outstanding shares of a chain of ice cream stores for $10 million (the market capitalization), yet the business had $5 million in debt, you would actually have expended $15 million; $10 million may have come out of your pocket today, but you are now responsible for repaying the $5 million debt out of the cash flow of the business – cash flow that otherwise could have gone to other things. Cash and Cash Equivalents: Once you’ve purchased a business, you own the cash that is sitting in the bank. After acquiring complete ownership, you can simply take this cash and put it in your pocket, replacing some of the money you expended to buy the business. In effect, it serves to reduce your acquisition price; for that reason, it is subtracted from the other components when calculating enterprise value. Why Is Enterprise Value Important? Some investors, particularly those that follow a value philosophy, will look for companies that are generating a lot of cash flow in relation to 130

enterprise value. Businesses that tend to fall into this category are more likely to require little additional reinvestment; instead, the owners can take the profit out of the business and spend it or put it into other investments.

EV Multiples of Tata Corus
EV MULTIPLES FOR CORUS GROUP INC
Source: Prowess Currency: INR in Crores Deal Value Enterprise USD(m) Value USD(m) 100% 11939.0 11939.2696 11939 Means equity value and EV are 11939

TCPeer as on 31st March 2007
Company Name Tata Steel Ltd. Bhushan Steel Ltd. J S W Steel Ltd. Jindal Steel & Power Ltd. Steel Authority Of India Ltd. J S L Ltd. Average Maximum Minimum Multiple at which the deal has been done

EV/Sales 1.52 1.04 1.01 2.33 0.73 0.75 1.17 2.33 0.73 0.68x

EV/EBITDA 4.21 4.98 3.17 6.64 2.72 4.41 4.38 6.64 2.72 7.02x

EV/EBIT 4.74 6.50 3.98 8.39 3.06 5.77 5.54 8.39 3.06 10.19x

PE 6.75 8.15 5.83 11.24 8.78 5.76 7.95 11.24 5.76 68.23x

Tata Steel and Corus Group deal happened at high multiples compared to its peers. We can observe that the average multiples of the peer group company stands half compared to the deal multiples. Sales Multiple: The average sales multiple of its peers is 1.17x compared to the deal of 0.68x of Corus Group’s sales. This can be possible due to high sales value, reducing the multiple to 0.68x. The lowest multiple (Steel Authority of India) is at 0.73x. EBITDA Multiple: EBITDA multiple of its peers averages at 4.38x compared to the deal multiple of 7.02x of Corus Group’s sales. Even the highest multiple (Jindal 131

Steel & Power) is at 4.38x. This is almost half of the deal multiple. It can be observed that Tata played very aggressively. EBIT Multiple: EBIT multiple of its peers averaged at 5.54x compared to the deal of 10.19x of Corus Group’s sales. Even the highest multiple (Jindal Steel & Power) is at 8.39x. PE Multiple: The PE multiple of the deal is very high on the account that the margins of Corus are very low compared to Tata Steel and other peers. The average PE multiples is 7.95x compared to 68.23x at which the deal haapened.

EV Multiples of Tata NTT Docomo
EV MULTIPLES FOR Tata Teleservices (Maharashtra) Ltd.
Source: Prowess Currency: INR in Crores Deal Value Enterprise USD(m) Value USD(m) 26% 2653.0 10204.6476 10203.84615 Means equity value and EV are approx 10204

DTPeer as on 31st March 2008
Company Name Tata Teleservices (Maharashtra) Ltd. Bharti Airtel Ltd. Idea Cellular Ltd. Mahanagar Telephone Nigam Ltd. Reliance Communications Ltd. Tata Communications Ltd. Average Maximum Minimum Multiple at which the deal has been done

EV/Sales 4.96 6.64 5.50 1.14 9.24 4.34 5.37 9.24 1.14 26.98

EV/EBITDA 18.33 16.43 15.37 4.20 26.74 19.02 16.35 26.74 4.20 99.81

EV/EBIT 175.05 24.36 23.73 7.83 41.02 30.73 25.53 41.02 7.83 952.96

PE (38.49) 25.11 25.95 14.95 40.57 46.33 30.58 46.33 14.95 N/A

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The deal of Tata Teleservices and NTT Docomo happened at very high multiples. We can observe that the average multiples of the peer group company stands very low compared to the deal multiples. Sales Multiple: The average sales multiple of its peers is 5.37x compared to the deal of 26.98x (as on 31st March, 2008) of Tata Teleservices’s sales. Even the highest multiple (Reliance Communication) is at 9.24x. Thus we can conclude that Tata Teleservices got very good price for its stake dilution for NTT Docmo. EBITDA Multiple: Again the average EBITDA multiple of its peers is very less, 16.35x compared to the deal of 99.81x (as on 31st March, 2008) of Tata Teleservices’s sales. Even the highest multiple (Reliance Communication) is at 26.74x. This is a huge difference. NTT Docomo paid 6 times more what it should have paid to Tata. EBIT Multiple: EBIT multiple of its peers is 25.5x compared to the deal of 952.96x (as on 31st March, 2008) of Tata Teleservices’s sales. Even the highest multiple (Reliance Communication) is at 41.02x. PE Multiple: The PE multiple for Tata Teleservices is negative as its net income is negative Note: The multiples are high on account that Sales and the profitability of Tata Teleservices is low, inturn giving very high multiples. Its sales stands at Rs. 1,815.5 Cr. compared to the average sales of Rs. 11,490.6 Cr. of its peers.

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FINDINGS
FINDINGS FROM IMPACT ON SHAREHOLDERS’ WEALTH • The impact on shareholder’s wealth differs from company to company. But the overall impact on shareholder’s wealth has increased and thereby created a positive image of the Tata Group as a whole. • The average daily share prices of Tata Communications increased whereas that of Tata Motors decreased but the average daily turnover decreased in 3 out of 5 group companies.

Except Tata Motors and Tata Steel, the average daily share prices of all the three remaining companies have risen. In-spite of decreased average daily share prices in Tata Corus, the volume of trading increased substantially thereby indicating the trust on the TATA group as a whole.

Tata Motors 100% acquisition of JLR and Tata Steel’s 100% acquisition of Corus led to very high cash outflow which was interpreted by shareholders to be overvalued and they felt that the payback period for such a large investment would be atleast 4 to 5 years. So they preferred to sell the stock in the short run and invest their money in other less risky or risk free portfolios (like 5 year govt T-bills, 5-year bonds with fixed return,etc. or even less risky scripts.)

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The one month pre and post acquisition percentage cumulative abnormal return of Tata Communications, Tata Corus reduce to a very high extent because the actual market return was much low as compared to expected return.

The one month pre and post acquisition percentage cumulative abnormal return of Tata Motors, Tata Power and Tata Chemicals increases soon after the acquisition. This was due to more expected returns than its market return.

FINDINGS FROM RATIO ANALYSIS • TATA Power’s ratios increases with a moderate value which shows good sign for the company after the acquisition but price earning and debt equity decreases which is not a good sign for the company. • Tata steel’s profitability ratios have decreased in postacquisition as compared to pre-acquisition due to overvalue of the deal and so company liabilities increased. • Tata motors’ ratios are very profitable from investors’ point of view as they will be more profitable to get high earning. Its net profit margin also increased which is good for the company • Tata chemicals’ operating profit margin reduced by 70% which shows poor operating performance of the company after acquisition and debt-equity increased by 47% which is not a welcome move for the company. Profitability ratio has decreased which shows poor performance of the company after acquisition • Tata power overall ratio increased which shows a very good performance of the company.

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FINDINGS FROM VALUATION OF ENTERPRISE VALUE MULTIPLE  • Tata Corus Tata Steel and Corus Group deal happened at high multiples

compared to its peers. We can observe that the average multiples of the peer group company stands half compared to the deal multiples. Even the highest multiple (Jindal Steel & Power) is at 4.38x. This is almost half of the deal multiple It can be observed that Tata played very aggressively as it paid high enterprise value as compared to our analysis. A reason for Corus to be sold is chance to Bail out of Debt and Financial stress. TATA Steel Paid 7.02 Times EBITDA of Corus Enterprise Value. The PE multiple of the deal is very high on the account that the margins of Corus are very low compared to Tata Steel and other peers the only company who has high P/E is Jindal steel. Tata NTT Docomo The deal of Tata Teleservices and NTT Docomo happened at

 •

very high multiples. We can observe that the average multiples of the peer group company stands very low compared to the deal multiples. The average sales multiple of its peers is 5.37x compared to the deal of 26.98x (as on 31st March, 2008) of Tata Teleservices’s sales. • Even the highest multiple (Reliance Communication) is at 9.24x. Thus we can conclude that Tata Teleservices got very good price for its stake dilution for NTT Docomo. The PE multiple for Tata Teleservices is negative as its net income is negative. EBITDA multiple of its peers is very less, 16.35x compared to the deal of 99.81x (as on 31st March, 2008) of Tata Teleservices’s sales. Even the highest multiple (Reliance Communication) is at 26.74x. This is a huge difference. NTT Docomo paid 6 times more what it should have paid to Tata. The multiples are high on account that Sales and the profitability 136

of Tata Teleservices is low, in turn giving very high multiples. Its sales stands at Rs. 1,815.5 Cr. compared to the average sales of Rs. 11,490.6 Cr. of its peers.

CONCLUSION
• Except Tata Steel- Corus deal, all the other 4 acquisitions are well accepted by not only well accepted by the owners of the company (the shareholders) but even made the entire Tata group come into the eyes of fortune 500 list. In-fact it ranked at 56th position at a global level in 2009 • Expansion through mergers and acquisition is one of the best ways for any domestic company to step outside the shores of India in an international market place and acquit itself as a global player • Company can turn into conglomerate in reasonably less time by capitalizing on its strengths of efficiency and effectiveness by acquiring relatively poor performing companies as TATA did in almost all its group of companies • Recent examples of companies which adopted similar pattern of expansion are Renuka Sugars, Arcelor Mittal, Reliance, Essar Group, Aditya Birla Group, etc.

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One can study any of the above mentioned company and conclude that the key underlying decision of these companies expanding quickly and efficiently is their timely decision of merging and acquiring appropriate companies

BIBLIOGRAPHY
ELECTRONIC • http://www.expressindia.com/latest-news/The-10-largest-MAdeals-so-far-in-2009/465486 • http://business.mapsofindia.com/finance/mergersacquisitions/process.html • • • • • • http://www.bseindia.com http://www.nseindia.com http://www.anagram.co.in/anagram/content/ana_home.jsp http://www.mergermarket.com http://www.economictimes.indiatimes.com http://www.hindustantimes.com/business-news

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BOOKS • • Mergers and Acquisition, ICFAI UNIVERSITY J. Fred Weston, Mulherin & Mitchell Takeovers, Restructuring, and Corporate Governance, Ed. Fourth , Pearson Education • Mergers and Acquisitions Broc Romanek and Cynthia M. Krus

JOURNALS & MAGAZINES: • • • Journal on Mergers and Acquisition, ICFAI UNIVERSITY Business Standard Business India

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