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ST. XAVIER’S COLLEGE [AUTONOMOUS], MUMBAI

DEPARTMENT OF MANAGEMENT STUDIES

BANKING INSURANCE & CAPITAL MARKETS

Corporate Restructuring

Understanding M&A’s through the case studies of Tata Steel-Corus,

Vodafone-Idea and Zee-Sony

Submitted by:
Gauri Khutade (204031)
Ira Agrawal (204036)
Abhishek Darade (204052)
Bryan Johnson (204064)

Submitted to:
Mr. Pritesh Arte
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ABSTRACT

Restructuring is an important element for a company to grow and survive. This research paper
studies corporate restructuring through the three case studies namely- Tata Steel and Corus,
Vodafone and Idea, Zee and Sony. The Tata-Corus merger is a particularly fascinating case
because corus was a much larger company acquired by the Tatas. The effects of the deal haven’t
been great so far and researchers argue that this was a failed deal.

Keywords: Corporate restructuring, TATA Steel, Corus, Vodafone, Idea, Zee, Sony,
Acquisition, Merger.
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INTRODUCTION

When a company wants to grow or survive in a competitive environment, it needs to restructure

itself and focus on its competitive advantage.Economies of scale can be achieved by a larger
company. A larger company has a better corporate position. As a result of its status, it is able to
raise cash at a lesser cost. Because the cost of capital is lower, earnings are higher. Corporate
restructuring aims to reduce costs while also increasing efficiency and profitability.

A company that is experiencing financial difficulties may also contemplate corporate

restructuring. The major goal of restructuring is to reorganise the company's structure in order to
achieve optimal results.

Corporate restructuring is the process of reorganising a company's operations in order to improve

its efficiency and profitability. Today, restructuring is not an option but a conscious choice made
by companies. Every corporate restructuring tries to eliminate disadvantages while combining
advantages. It intends to realise synergy benefits by implementing a well-thought-out
restructuring approach.

Inorganic growth strategies include mergers, amalgamations, and acquisitions. The purpose of
such corporate restructuring techniques is to establish synergy. Because of this synergy effect,
the combined companies' worth is larger than the sum of their parts. Synergy can be defined as a
rise in income or a reduction in costs. Corporate restructuring strives to improve a company's
competitive position while also optimising its contribution to corporate goals.

Through mergers and acquisitions, companies hope to benefit from the following:

(1) Increase in Market Share – The merged company's market share increases as a result of the
merger. This increase in market share is accomplished by supplying additional goods and
services as requested by customers. The key to expanding market share is to integrate
horizontally. (For example, Idea and Vodafone)

(2) Reduced Competition – The outcome of a horizontal merger is a reduction in competition.

One of the most common and compelling reasons for mergers and acquisitions is competition.
(Compaq and HP)

(3) Large size – Mergers and acquisitions are used by companies to expand their size and
become a dominant force in comparison to their competitors. Organic growth typically takes
years to acquire massive scale. Mergers and acquisitions (i.e. inorganic expansion) can do this in
a matter of months. (E.g. Sun Pharmaceutical and Ranbaxy Pharmaceutical)
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(4) Economies of scale – Mergers result in increased economies of scale, which lowers the cost
per unit. The fixed cost per unit of a product decreases as the total output of the product
increases.

(5) Tax benefits – Mergers and amalgamations are also used by businesses for tax benefits.
Especially in cases where a profit-making and a loss-making corporation merge. Major income
tax benefit arises from set-off and carry forward provision u/s 72A of the Income-tax Act, 1961.

(6) New Technology – Businesses must concentrate on technical advancements and their
commercial applications. Smaller companies can help enterprises control unique technologies
and gain a competitive advantage by acquiring them. (E.g. Dell and EMC)

(7) Strong brand – Because building a brand takes time, businesses prefer to buy an existing
one and leverage on it to make large profits.(E.g. Tata Motors and Jaguar)

(8) Domination – Mergers and acquisitions are used by businesses to become the dominant
player or market leader in their industry. However, such dominance shall be subject to
regulations of the Competition Act, 2002. (E.g. Oracle and I-Flex Technologies)

(9) Diversification – Diversification is achieved by combining enterprises in disparate business

areas. It allows the company's business cycles to be smoothed out as a result of its diversity of
businesses, lowering risk. (E.g. Reliance Industries & Network TV18)

(10) Revival of Sick Company – Today, the Insolvency and Bankruptcy Code, 2016 has created
additional avenue of acquisition through the Corporate Insolvency Resolution Process. Under
Section 72-A of the Income Tax Act, a voluntary amalgamation of an amalgamating company
(sick unit) with an amalgamated company (sound unit) shall enable the latter to carry forward
and set off the accumulated losses and unabsorbed depreciation by granting deductions to the
sick unit.

What are Mergers & Acquisitions (M&A)?

Mergers and acquisitions (M&A) are deals in which two or more companies merge in some way.
Despite the fact that the terms mergers and acquisitions (M&A) are sometimes used
interchangeably, they have distinct legal meanings. Two companies of similar size merge to
establish a new single company in a merger.
An acquisition, on the other hand, occurs when a larger corporation buys a smaller company and
absorbs the smaller company's business. M&A deals can be friendly or hostile, depending on the
target company's board of directors' consent.
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Mergers and acquisitions are commonplace. According to the Institute of Mergers, Acquisitions,
and Alliances (IMAA), almost 800,000 mergers, acquisitions, and alliances have occurred
globally, valuing an estimated $57 trillion.
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TATA AND CORUS MERGER

Steel, the basic commodity that forms the basis for several products from the construction of
buildings and tankers, to hairpins and clips, has a complex and global supply chain and a shifting
customer base. Tata Steel (TS) had come a long way since its inception on 26 August 1907 as the
Tata Iron and Steel Company. When Ratan Tata became the new chairman, the company
transformed itself from an outdated high-cost operation to a low-cost modern steel producer,
named third in management by World Steel Dynamics.

However, the steel sector was changing rapidly and globalization was the next challenge.
Fragmentation in the steel industry led to lower margins compared to other players in the supply
chain. For example, three iron ore suppliers had over 60% of the total market share, with margins
of 35%. Customers such as the automobile industry were also highly- concentrated with the top
five firms controlling 65% of the market. In contrast, the top 10 steel firms had only about a
quarter of the total global output and a margin close to 10%.5 This had also resulted in
re-structuring of the industry, leading to mergers to increase price stability.

Tata Steel had begun to shop globally, purchasing NatSteel in Singapore and Ferrochrome
Smelter in Richards Bay, KwaZulu-Natal, South Africa. In October 2006, Tata Steel made a bid
for the Anglo-Dutch steel giant, Corus, which specialized in high-end steel products including
aircraft and automobiles

Tata acquired Corus on the 2nd of April 2007 for a price of $12 billion. In 2006, Tata first
offered 455 pence per share of Corus but by the end of the bidding process in 2007, Tata offered
608 pence per share, which is 33.6% higher than the first offer. Tata Steel was competing with a
Brazilian firm in the bidding process of Corus. The competition with the Brazilian bidder meant
that Tata Steel paid a 70% premium for acquiring Corus. (Ghosh, 2016).

The financials of the deal:

During the year, the Company completed the long-term financing program for the Corus
acquisition. Of the total Enterprise Value of USD 14.2 billion, at the close of the Corus
acquisition process on April 2, 2007, the financing included around USD 10.5 billion as bridge
funding, the balance being applied out of Tata Steel’s own cash and borrowings. Despite very
volatile credit markets globally, the company raised around USD 6.2 billion of term debt with
an average life of around 5 years at very competitive terms. This debt being non-recourse in
nature was determined based on the cash flow servicing capability of our European operations
and will be serviced by the Tata Steel UK (Corus) cash flows. The syndication of the above debt
was completed during the year with more than 25 banks and institutions participating in the
process. On the equity side, Tata Steel raised around USD 2.27 billion (Rs. 9,120 crores)
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of equity and convertible preference shares on a rights basis. The Company further raised around
USD 875 million in Convertible Alternate Reference Securities (CARS) which is a 5 years
convertible instrument with a coupon of 1% and a conversion premium of 35% to the prevailing
market price in August 2007. As a result of the above, the Company raised around USD 10
billion during the year and completed the long term financing for the Corus acquisition

Effect of the deal:

Tata Steel included Corus’ financials in its consolidated accounts for the first time. On a
consolidated basis, the Company’s capacity now stands at 28.1 million tonnes, positioning it as
the 6th largest steel company in the world. Consolidated net sales revenues stood at Rs. 131,536
crores (USD 33 billion), up 422% from that of last year of Rs. 25,212 crores (excluding
Corus). The consolidated profit after tax (after minority interest and share of profit of associates)
stands at Rs. 12,350 crores and has grown by 196% compared to the previous year. The
Company has truly taken its place in the global steel industry.

According to the annual report post the merger, the synergies that Tata Steel focussed on were
manufacturing, economies of scale, research and development, restructuring of the organization,
and refinancing. Drawing from Tata Steel’s extensive experience in the use of low-cost coals,
Corus plants have increased the use of low-cost coals without affecting coke quality.

Source: Tata Steel annual report 2007-08

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Source: Tata Steel Annual Report 2007-08

The Net turnover. Operating profit and profit after tax have increased significantly in the year
after the acquisition.

Source: Tata Annual Report 2008-09

The profits decreased significantly in this year as compared to last year. The 2008 financial crisis
and reduced steel demand due to Chinese steel imports were the reasons for that.
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Source: Tata Steel Annual report 2009-10

The profit after tax has reduced further this year
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Source: Tata Steel Annual report 2011-12

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However, the post-recession slump in global steel sales combined with a glut in production has
meant that Tata Steel's UK assets have been under pressure in recent years to the extent that Tata
Steel has had to sell off some of its steel business in the UK due to mounting losses on account
of cheap Chinese imports of steel and pension liabilities related to previous acquisitions.
The sharp decline in steel demand and prices particularly during the second half of the financial
year has adversely affected the cash flow generation of TSE and potentially put a strain on its
ability to meet the currently scheduled debt repayment obligations under the existing Senior
Facility Agreement. (102nd annual report 2008-2009 - Tata Steel)

Was the deal a success or failure:

Many articles and authors argue that this deal was a failure. According to S. Bannerjee in a blog
for ipleaders mentions various reasons for the bad turn of events for Tata steel. Some of them are
bad economy, the shadow of the Chinese market, high cost, overpriced acquisition, etc. Since the
takeover, European Tata Steel operations had been stagnant.

When asked about the overpriced merger, the managing director of Tata Steel said that- “We had
predetermined the value beyond which we do not pay and we stuck to it. Perceptions can vary
about the value of the assets. What analysis is seen is the present; they are not picking the future
perspective. If you recall, even in Tata’s embarked on the car project there were a lot of
apprehensions about. Tata motors venturing into the passenger car segment. The industry is run
by long-term views if the organization also starts taking short-term views we will all be hedge
funds. There will be no assets creation in the economy; the stock market has been harsh. You
have to take a total perspective of the future of the steel industry.” (Tata Steel acquiring Corus
plc)

Dr. Shashank Shah, author of the book ‘Tata Group’ says that “The Tatas paid 50% of what they
would have paid to start a greenfield project in India. So it was much cheaper though it is said
that Corus was an expensive acquisition” (Shah, 2020)

Steel manufacture in the UK collapsed in July 2011 with a flat line in the seven months. Steel
production in the Netherlands was increasing and recovered much faster from the fluctuations of
the market.

Cheaper Chinese steel flooded the European market, causing global market conditions to be
distorted and stress was placed on steel producers in the UK. China's steel industry progressed
immensely contributing to 48% of global consumption for steel. In contrast, the European
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Union's (EU) output fell by 12%. The drive behind this increase was China's economic growth
which led to the increasing domestic demand for steel and its government investing heavily in
the industry during the high growth phase. However, that demand had been sharply hit by the
current slowdown, leaving China with more steel than its requirements. In 2014, it produced
more than 822 million tonnes of steel. Although the estimated demand for its steel in 2016 is
only 672 million tonnes, it is anticipated to produce even more than the demand thereby putting
serious downward pressure on the steel prices. Chinese steel was therefore sold at extremely low
prices, sometimes even at a loss in the European markets which was done to curb overproduction
as there wasn’t enough demand in China. (Jain & Kondeti, 2016)

High energy costs in the UK have adversely impacted energy-intensive businesses like steel mills
in comparison to other neighboring countries. In 2015 these companies had to pay around 9.55
ppm a kilowatt-hour, compared to a low of 6.7 pence an hour per kilowatt-hour in 2010. The
environmental policies of the UK along with the green tax substantially increased energy costs
for heavy manufacturing sectors since 2010.

(Jain & Kondeti, 2016) argue that, When the deal was entered into there were a number of
advantages that occurred for the acquirer company and the global steel industry was highly
bullish on the Chinese consumption story. But things did not work out the way they were
perceived and the world went into a phase of spiraling recession.

Another reason believed by (Jain & Kondeti, 2016) for the failure was inefficient management
after the merger. The constantly changing leadership in the UK business showed poor results.

The Tax engineering of Tata Corus did not ensure that the overall tax rate of the combined
company was lower than the blended tax rates of the two companies before the deal. Tata failed
to avoid one-time tax costs which included capital and transfer duties, change-of ownership
provisions that could trigger capital gains or prevent tax losses from being carried forward. Tata
decided to transfer its intellectual property to the UK, which was a tax disadvantaged location.

In 2021, The company is currently in the process of splitting its Europe business into Tata Steel
Netherlands and Tata Steel UK. Tata Steel Europe (TSE), which includes the U.K. and
Netherlands businesses, has posted positive earnings before interest, tax, depreciation and
amortisation (EBITDA) of ₹3,340 crore in the second quarter ending September 2021. It had
posted an EBITDA of ₹1,533 crore in the first quarter. It recorded an EBITDA per tonne of
₹15,609, compared to a negative EBITDA per tonne of ₹2,036 a year back. (Economic Times)

The business is on the path of recovery, but mounting loans and economic situations have
hindered this recovery in the past. The coming few years will show whether this historically
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significant merger was a success or a failure. As of now, based on the literature review, the
hypothesis has been proved wrong and has been rejected

//
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SONY PICTURES NETWORK INDIA (SPNI) AND ZEE ENTERTAINMENT

ENTERPRISES LTD. (ZEEL) MERGER

Company Description

ZEE Entertainment Enterprises Ltd. (ZEEL)

ZEE is one of India's largest media companies. It owns and operates Zee TV and Zee Cinema,
two of the most popular Hindi GEC and movie networks in the country. Apart from these two,
the corporation offers a diverse range of channels such as &pictures, &TV, ZEE Anmol, Zindagi,
Zing, Zee Classic, Zee Action, Zee Café, and Zee Studios. The firm boasts a remarkable variety
of regional networks, including Zee Marathi, Zee Bangla, Zee Telugu, and Zee Kannada.

Sony Pictures Networks India (SPNI)

Sony Pictures Networks India Pvt Ltd. is a Sony Corporation company that owns and operates
the Sony Entertainment network of television channels through its India division. It oversees and
operates 26 television channels, one over-the-top platform, one film production arm, and one
independent production venture for original content and IPs for television and digital media.

Transaction Summary & Financials involved:

Zee announced its intention to merge with Sony on September 22, and the agreement was
completed three months later. Sony will own 50.86 percent of the combined company, while
Zee's promoters would own 3.99 percent. Zee's other shareholders will own the remaining 45.15
percent.

The linear networks, digital assets, production processes, and programme libraries of ZEEL and
SPNI will be combined. Sony Pictures Entertainment would own a majority interest in the
combined business, which would be listed on the Indian stock exchange. More than 75 television
stations, film assets, and two OTT platforms, SonyLIV and Zee5, will be part of the united
entity.

There will be a fresh stock issued by SPNI to the ZEE shareholders. As per the regulations, there
will be a period when the stock will be delisted and listed again, once the merger is done
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Mr. Punit Goenka of ZEE will continue as the MD for the next five years and continue to focus
on ‘low cost and sustainable content’. Sony will, however, have the right to appoint majority
directors to the board.

Sony Group will pay a non-compete fee in USD equivalent to INR 1,101 crore to the promoters
of ZEEL. Which they in turn would commit to invest in SPNI prior to the closing transaction,
resulting in eventual holding of ZEEL Promoters to be 3.99% in the new combined entity.
According to the deal, Zee Promoter family stake can potentially go up to 20%; however it is
subject to necessary approval of board and shareholders.

To bring additional money into the amalgamated organisation, both companies will issue rights
issues of their respective shares. SPNI will issue INR 79.5 billion in rights-based shares, while
ZEE will raise INR 11 billion, bringing the total investment in the combined firm to INR 90.5
billion. Aside from that, the combined business will have a healthy INR 113.4 billion in cash on
hand to take on competitors such as Disney.

SPNI would have a cash balance of US$1.5bn at closing, to enable the newly formed combined
company to drive sharper content creation across platforms, strengthen its footprint in the rapidly
evolving digital ecosystem, bid for media rights in the fast-growing sports landscape and pursue
other growth opportunities.

It will take 6–8 months for the merger to conclude.

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(Source: Motilal Oswal)

Reasons leading to the merger:

In terms of sports entertainment, Sony has a solid infrastructure and competes directly with Star.
However, in terms of general entertainment, it has only managed to capture a small portion of the
Hindi population. Sony has also struggled to make a significant imprint in the regional languages
market, with only two moderately successful Sony Marathi and Sony Aath channels. According
to the Broadcast Audience Research Council (BARC) India, an industry body that analyses
television viewership, both failed to make the weekly top five most-watched networks.

Zee on the other hand has a very strong footprint in the regional channels. In the categories of
Bangla and Marathi, Zee is the second most-watched channel just after Star. Apart from these
regional languages, Zee has captured Malayalam, Kannada, Telugu, Tamil and Odia audiences
successfully as per the weekly data available on BARC.

The merger fills in the voids in ZEEL's sports, comedy, and criminal portfolios. The resulting
organism will be the finest of both worlds. Sony has the resources and cash to invest in sports
entertainment, while Zee has a regional presence.

The merger will bring together two of India's most well-known media network companies,
benefiting Indian customers across a wide range of content categories, from movies to sports.
Given the considerable synergies between ZEEL and SPNI, the combined firm is likely to benefit
all stakeholders.

The USD1.575 billion infusion would help the combined firm improve its digital platforms
across technology and content, as well as its ability to bid for broadcasting rights in the
fast-growing sports market and seek other development possibilities.

The merger also removes the risk of selling to a predatory player such as Jio..

The deal also enables:

a) A strong dominance in the Broadcasting space

b) The capability to be a force in the Digital Media space.

With capital infusion of INR113b and a steady annual EBITDA generation capability of
~INR50b (from linear biz), the combined entity could certainly leverage the large-scale
opportunity in the Digital Entertainment space.
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ZEE Before/without merger:

(source: Edelweiss)
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Predictions/projections for the merged entity:

The combined entity EV stands at INR524b.

Report by Motilal Oswal states that the combined entity’s linear business should deliver an
EBITDA of INR48.3b/INR55.5b and EPS of INR20.7/INR22.6 in FY23E/FY24E.

Edelweiss has predicted 9% growth in revenue for FY23, and considering synergy benefit
(accruing over two years) for FY24 and FY25, revenue growth is expected to be 11% and 12%,
respectively.

A 6% increase in costs is projected in FY23 and 5% increase in FY24 due to cost savings. For
FY25, a 9% increase in costs. Overall, EBITDA margins move from 26.2% to 32% based on
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these assumptions. Given that ZEE also has a similar EBITDA margin range looking at the past
few years.

The combined entity could see multifold growth in the OTT business – which has estimated
revenue of INR12b and a paid subscriber base of ~9m – by leveraging the large-scale growth
potential in the Digital market, which could provide a significant upside on the Digital business
valuation.

The OTT Business:

OTT is a rapidly increasing media category, and broadcasters must now invest in and develop
their OTT businesses. Due to rising mobile broadband and mobile data consumption, the video
streaming industry is expected to reach USD18 billion by 2026, with about 70% of the
population having access to high-speed internet.

Instead of being a'me too' player, the Zee–Sony combined entity would need to carve out its own
niche through its strengths in regional, mass, or targeted tentpole content. While the Zee and
Sony OTT applications are both functioning well, their total revenue/subscriber market share is
only 14%. Netflix's two-year content investment is equivalent to the total operating cost of
INR30 billion. If the combined entity spends two-thirds (~INR20b) on content, it could match
the top entertainment apps in the Original Content Generation space.
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Risks involved in OTT:

· Economic slowdown likely to reflect in advertisement revenues for the merged entity

· Absence of sporting events and fresh programming likely to temper the subscription growth
momentum in near term

· Competition from digital video streaming platforms

· Highly competitive intensity in the OTT/streaming space

This merger will create a company that’s best in class and will redefine the contours of the media
and entertainment industry.

(SPE was advised on this transaction by Morgan Stanley, KPMG Corporate Finance, and
Shardul Amarchand Mangaldas, while ZEE was advised by KPMG, JP Morgan, Trilegal, and
Boston Consulting Group.)
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VODAFONE - IDEA
MERGER

Industry analysis

Currently, India is the world’s second-largest telecommunications market with a subscriber base
of 1.16 billion and has registered strong growth in the last decade. The Indian mobile economy is
growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP)
according to a report prepared by GSM Association (GSMA) in collaboration with Boston
Consulting Group (BCG). In 2019, India surpassed the US to become the second largest market
in terms of number of app downloads.
The liberal and reformist policies of the Government of India have been instrumental along with
strong consumer demand in the rapid growth in paradatelecom sector. The Government has
enabled easy market access to telecom equipment and a fair and proactive regulatory framework,
that has ensured availability of telecom services to consumer at affordable prices. The
deregulation of Foreign Direct Investment norms have made the sector one of the fastest growing
and the top five employment opportunity generator in the country.
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Market Size
India is the world’s second-largest telecommunications market.
The total subscriber base stood at 1189.15 million in September 2021. Telecom-density of rural
subscribers reached 59.33% in September 2021, from the 58.96% recorded in September 2020.
This increase indicates a potential demand growth from the rural sector.
The total wireless or mobile telephone subscriber base reached 1166.02 million in September
2021, from 1,148.58 million in September 2020. The total number of internet subscribers
reached 794.88 million in September 2021. Of this subscriber base, the number of wired internet
subscribers was 24.29 million and wireless internet subscribers was 787.94 million.
Gross revenue of the telecom sector stood at Rs. 64,801 crores (US$ 8.74 billion) in the first
quarter of FY22.
The total wireless data usage in India grew 16.54% quarterly to reach 32,397 PB in the first
quarter of FY22. The contribution of 3G and 4G data usage to the total volume of wireless data
usage was 1.78% and 97.74%, respectively, in the third quarter of FY21. Share of 2G data usage
stood at 0.48% in the same quarter.
Over the next five years, rise in mobile-phone penetration and decline in data costs will add 500
million new internet users in India, creating opportunities for new businesses.
By 2025, India will need 22 million skilled workers in 5G-centric technologies such as Internet
of Things, Artificial Intelligence (AI), robotics and cloud computing.

Investment/Major Development
With daily increasing subscriber base, there have been a lot of investment and development in
the sector. FDI inflow into the telecom sector during April 2000 – March 2021 totalled US$
37.97 billion according to the data released by Department for Promotion of Industry and
Internal Trade.

Some of the developments in the recent past are:

● In the first quarter of FY21, customer spending on telecom services increased 16.6%
y-o-y, with over three-fourths spent on data services. This spike in consumer spending
came despite of the COVID-19 disruption and lack of access of offline recharges for a
few weeks
● India had over 500 million active internet users (accessed Internet in the last one month)
as of May 2020.

Company Analysis - vodafone india was subsidiary of vodafone group situated in UK. IDEA
cellular was subsidiary of Aditya Birla Group founded in 1995.
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Vodafone and IDEA merged in Aug-2018, vodafone-idea is a partnership between two strong
promoters Aditya Birla Group and Vodafone Group, is a major telecommunications operator in
India, offering voice, data, enterprise services and, including Short Messaging Services, Digital
Services, etc., the subscriber base of VI stands at 255.7 million. The subscriber market share on
VLR stands at 25.7%, as of March 2021. The Wireless Revenue Market Share on Gross
Revenue basis for VI stands at 23.2% for the Financial Year 2021. VI provides Voice and Data
services on 2G, 3G and 4G technologies across all 22 service areas and has strong spectrum
portfolio and network footprint to support the burgeoning demand for both, data and voice. VI
Company has a large spectrum holding comprising 1,768.4 MHz spectrum across 22 circles, of
which 1,738.4 MHz is liberalised spectrum which can be used towards deployment of any
technology.

The India telecom industry is seeing a paradigm shift ever since Reliance Industries Ltd
commercially launched its telecom services Reliancr-Jio in September last year. R-Jio is the
country’s largest 4G network and has provided free services to its users till March this year. It
has disrupted the business model of industry veterans like Airtel, Vodafone, Idea, as well as the
government-run BSNL. All these service providers have slashed their prices many folds to
compete with Reliance Jio.

It has also trigger for consolidation and listing of unlisted players, therefore, more options for
retail investors for participation in growth story. The consolidation which announced post-Jio
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entrance in market are Reliance Communications and Aircel merger, Airtel acquiring Telenor
and broadband service provider tikona, Vodafone acquired You Broadband Service Provider and
now one more consolidation as below.

MERGER ANNALYSIS

Idea-Vodafone merger was the biggest telecom merger post Reliance JIO launch in September
2016.

Idea promoters and Vodafone Group are joint promoters of the combined entity and have Equal
affirmative rights to both promoters on key matters. On merger, Vodafone was allotted 364.50
crores shares comprising 50.3% stake for Equity value of approx. INR 27,600 crores.

However, the Aditya Birla group acquired 4.9% stake of merged entity from Vodafone for
consideration of INR 3900 crores therefore shareholding of Aditya group reaching to 26%.

Aditya Birla also has right to acquire up to 9.5% additional shareholding from Vodafone Group
over a period of three years’ post-closure of deal for agreed price INR 130 per share. But this
rights by Aditya group will be exercise based on growth achieved and market price of combined
entity.

KEY MANAGEMENT DECISONS

● CEO & COO – Vodafone and IDEA

● CFO – Vodafone to appoint

While Idea and Vodafone had joint control over the appointment of CEO and COO, the exclusive
rights to appoint CFO is with Vodafone. So Vodafone is not just major shareholders but also have
more financial rights than IDEA.

BOARD COMPOSITION

● 12-member board with 6 independent directors

● Equal representation from Aditya Birla Group and Vodafone Group
● Chairman: Mr. Kumar Mangalam Birla

Since the board is represented by both the group equally but the chairman has been decided from
Aditya Birla Group.

SHAREHOLDING EQUALISATION
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● As Discussed Aditya Birla Group had the right to acquire up to 9.5% additional
shareholding from Vodafone Group.Vodafone will not just be a major shareholder but
also had more financial rights.
● If Birla does not increase stake in four years’ post completion of the deal. Vodafone also
has the option to equalise the stake over next 5 years.
● If equalization is not achieved, Vodafone Group to sell excess stake till equalisation,
voting on excess stake held by Vodafone to be restricted and exercised jointly as per the
agreement.

CONSOLIDATION POSITION & EXPANSION POST CONSOLIDATION

● Creating India’s largest telecommunications company

● Combined Subscriber base of nearly 400 million
● Combined Revenue Market Share of 40.7% and Customer Market Share of 35.1%.
● Leadership positionin 21 telecom circles
● Largest existing Mobile Voice population coverage of 1.1bn Indians
● Pan India Broadband currently covering 650mn Indians; committed to reach 1.1bn
● Deepest Pan India GSM network infrastructure of 273,000 GSM sites
● Rapidly expanding existing Mobile Broadband network spread of over 189,000 sites
● Release of overlapping equipment for expansion of mobile broadband services to
uncovered geographies

HIGHEST BROADBAND CAPACITY

○ 163 mobile broadband carriers – highest amongst all operators

○ 3G – Pan India 344 carriers with 2 carriers in 11 leadership telecom markets
○ 4G -Pan India 1294 carriers & capability to offer up to 250 Mbps in 12 markets
○ Large fibre network of approximately 2,50,000kms
○ Ability to build large broadband capacity on existing spectrum -

EXTENSIVE DISTRIBUTION CHANNEL

○ Widest pre-paid reach through over 2 mn retailers

○ Post-paid reach to Enterprise & Retail through 30,000 ‘Field Sales Team’
○ Brand strategy will be developed in due course and will leverage customers’
affinity for both existing brands, built up over the past decade
● FIXED LINE OFFERINGS:
○ Expansion of Fixed line offerings – Enterprise Wireline, ILL, MPLS, etc.
○ Introduction of latest broadband solutions such as FTTH, Wi-Fi, etc.
○ Deeper penetration in Enterprise Segment across MNC, Large & SME clients
 25

SIGNIFICANT SYNERGIES

● Rationalization of operating expenses including Network Infrastructure & IT Services.

Channel & Service partner, brand efficiencies, etc.
● Reduced Network capex due to redeployment of overlapping equipment, de-duplication
of fresh equipment & spectrum consolidation

PRE & POST MERGER FINANCIAL STATEMENTS

Cashflow plays an important role in financial management. Post merger it was expected that both
company will plan to male the cashflow postotive as we can see there is huge change in net
casshflow around 1751%.

As we can see there was huge positive change in Net cash flow. Then change was seen in
changes in asset and liabilities cashflow. After merger assets were increased 125%. As company
got all the towers, infrastructure after merger they started developing it and making it more
efficient, as vodafone and idea were in different circles and regions of india. After merger they
got infrastructure across india.
 26

Profit and loss statement gives the idea of net income and effiienncy of it’s capital employment
as we can see net profit of the company was decreased. As reason oof merger was to beart the
competition and survive. But if we compare the profit after tax which was highly increased after
merger. As ww can also see that interest part is increase because both the companies had high
debts before merger, after that the interest rate on debts increased to their previous dues and
debts.
 27

Balance sheet
 28

Loans and advances has increased by 673% in 2019. As we saw in last stats that interest has
increased and the reason was loans and advances. Total liabilities and total assets has increased
approximately by same percentage. We also saw that the cashflow was increasing after merger
and Capital WIP has increased by 262%.

POST MERGER EVENTS REGARDING CAPITAL RESTRUCTURING

VI had prices had rights issue at ₹12.5 a share of 20 billion shares raising 25,000 crore in funds
which helped the company fo repaying debts and dues. As we can see there changed after 2019
and 2020.
 29

VI prices ₹25,000 crore rights issue at ₹12.5 a share

By definition, a rights issue is an invitation to the existing shareholders of the company to buy
additional shares at a discounted price in proportion to their holding of old shares. In this
offering, the companies grant shareholders the right, but not the obligation, to buy new shares at
a discount to the current market price.

This was done to meet their 2020 year financial needs as company had little profit was in big
debt. Interests, taxes, Spectrum charges, AGR.
 30

“Assuming 90 per cent success rate in our base-case, the Rs 25,000 crore raised would help the
company meet its funding requirements till Jun 2020 (1QFY21). Post that, Vodafone Idea would
anyway need to do either a QIP or a preferential equity issuance within 12-months,"
- JM Financial.

Govt set to become largest shareholder of Vi, to own 35.8%

stake

- business standard

In jan 2022 ABG and Vodafone india decided to dilute their ownership with the government. VI
decided to convert their AGR dues by equity. It makes the government the largest shareholder in
Vodafone-idea.

Currently, the Aditya Birla group holds around 27.7 per cent while Vodafone Group holds 44.3
per cent in the telco

The promoters have also decided to amend shareholder agreement and articles of association to
protect their governing rights. This amendment is necessitated following dilution of promoter
shareholding
The government is set to own 35.8 per cent in Vodafone Idea after the financially-stressed telco
decided to convert interest on deferred spectrum and adjusted gross revenue dues into equity.
This makes the Union government the single-largest shareholder in Vi, a joint venture between
the Aditya Birla group and UK-headquartered Vodafone.

Vodafone Idea is not the only telco in which the government is picking up a stake. It would also
own 9.5 per cent in Tata Teleservices Limited on the same route, according to announcements
made on Tuesday. The latest development implies government holding in four telcos in the
country including two state-owned firms — Bharat Sanchar Nigam Ltd and Mahanagar
Telephone Nigam Ltd.

The promoter shareholding in Vodafone Idea, which was till recently struggling to stay afloat in
an extremely disruptive telecom market, will get diluted to 46.3 per cent from existing 72.5 per
cent after the issue of additional equity. The government, which had proposed a rescue plan
 31

through equity buyout as part of a telecom package last year, will not take a board seat. The
existing management of Vodafone Idea will continue to be in charge of the telco. TTML said its
board had decided to convert the entire interest amount related to AGR into equity, subject to a
mutual agreement on terms and conditions, including governance of the firm after conversion of
interest into equity.

Currently, the Aditya Birla group holds around 27.7 per cent while Vodafone Group holds 44.3 per
cent in the telco.

Vi promoters have also decided to amend shareholder agreement and articles of association to protect
their governing rights. This amendment is necessitated following dilution of promoter shareholding.

Currently the rights are subject to threshold of 21 per cent stake for each group and that will be
reduced to 13 per cent.

Vi stock crashed 20 per cent and closed at Rs 11.80 on Monday. A source close to the company said
the price correction was due to an expected dilution in capital at a price lower than current rate. “It
has nothing to do with the sentiment of government owning stake,” he added.

In case of TTML, the company has estimated the NPV of its interest due at around Rs 850 crore. It
said average price on the relevant date works out to Rs 41.50 and conversion of interest into equity
will result in the government holding 9.5 per cent stake in the company.

According to an industry analyst, Vi’s decision to convert interest into equity brings in more clarity to
potential investors. The company management continues to pursue its fund raising talks and hopes to
conclude them in the current fiscal year.
 32

1. After merger, rights issue, dues, pricing competition, and announcing losses in
quarter. reports the prices has changed a lot or market has reacted so fastly that it is
78% down in last 5 years.

2. The share went up by 15% as company had rights issue and raised around 25000
crore for meeting their financial needs for 2020.

3. The share went down feb Aug when merger news was out and market started falling
down after that in aug-2018 post merger he share went 22% down. From nov-2018
to feb-2022 the share is down.
 33

CONCLUSION

As Dale Carnegie said “Flaming enthusiasm, backed by horse sense and persistence, is the
quality that most frequently makes for success”. A quote that holds good for M&A in India, and
a credo to which Indian companies seem to subscribe given their successes to date in completing
acquisitions. There is little to stop Indian companies that desire to be global names for playing
the merger and acquisition game globally. With a plethora of financing options, this aspiration
has emerge as a truth for plenty company houses, who can now boast of having the best in the
industry under their wings. Indian companies have often surpassed their foreign counterparts in
corporate restructuring both within and beyond the national frontiers. Mergers and acquisitions
are powerful indicators of a robust and growing economy.

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