FINANCIAL MANAGEMENT- 2

PROJECT REPORT

STUDY ON MERGERS & ACUISITIONS IN THE TELECOM SECTOR IN

INDIA

Submitted by:
NAYANA PAULSON
ROLL NO. : 30
T3 MBA (B-BATCH)

Under the Guidance of

PROF. RENJITH K R

ADI SHANKARA BUSINESS SCHOOL

ASIET-KALADY

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INTRODUCTION

Mergers and acquisitions (M&A) is a general term that refers to the consolidation of
companies or assets through various types of financial transactions. M&A can include a
number of different transactions, such as mergers, acquisitions, consolidations, tender offers,
purchase of assets and management acquisitions. In all cases, two companies are involved.
The term M&A also refers to the department at financial institutions that deals with mergers
and acquisitions. The following will review some of the different kinds of financial
transactions that occur when companies engage in mergers and acquisitions activity.

Mergers & Acquisitions Overview

Merger: In a merger, the boards of directors for two companies approve the combination and
seek shareholders' approval. After the merger, the acquired company ceases to exist and
becomes part of the acquiring company. For example, in 2007 a merger deal occurred
between Digital Computers and Compaq whereby Compaq absorbed Digital Computers.

Acquisition: In a simple acquisition, the acquiring company obtains the majority stake in the
acquired firm, which does not change its name or legal structure. An example of this
transaction is Manulife Financial Corporation's 2004 acquisition of John Hancock Financial
Services, where both companies preserved their names and organizational structures.

Difference between a Merger and an Acquisition

A merger occurs when two separate entities - usually of comparable size - combine forces to
create a new, joint organization in which – theoretically – both are equal partners.

An acquisition refers to the purchase of one entity by another entity, usually a smaller firm by
a larger firm. A new company does not emerge from an acquisition; rather, the acquired
company, or target firm, is often consumed and ceases to exist, and its assets become part of
the acquiring company.

Merger and Acquisition are not new to the Indian Telecom industry. The top Mergers &
Acquisitions happened in the Indian Telecom sector are:

 Vodafone – Hutchison Essar Merger in 2007

 Idea buys 80% in Spice telecom

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  Telenor buys Unitech Wireless
 Reliance Industries – Infotel merger
 Reliance Communications – Aircel merger
 Vodafone – Idea merger

FINANCING METHODS IN MERGERS & ACQUISITIONS

1. Cash Offer:

2. Equity Share Financing

3. Debt and Preference Share Financing:

4. Deferred Payment

5. Leveraged Buy – Out:

6. Tender Offer:

VODAFONE – IDEA MERGER & ACQUISITION

This news comes as surprise for the Indian telecom sector. The proposed merger between
both the entities will create with a subscriber base of more than 400 million to emerge as the
largest player in India and will displace Bharti Airtel, which currently has over 260 million
users on its network. Vodafone also confirmed the news and says, "Vodafone confirms that it
is in discussions with the Aditya Birla Group about an all share merger of Vodafone India -
excluding Vodafone's 42 per cent stake in Indus Towers - and Idea.

"Any merger would be effected through the issue of new shares in Idea to Vodafone and
would result in Vodafone deconsolidating Vodafone India," it said.

Country' s three leading mobile operators, Bharti Airtel, Vodafone and Idea, are under
pressure due to the arrival of Mukesh Ambani led Reliance Jio, which has shaken up the
market by offering free voice and data to customers.

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FINANCING METHOD

Vodafone will own 45.1 per cent in the new company after transferring 4.9 per cent to
the Aditya Birla group for Rs 3,874 crore in cash concurrent with completion of the merger.

Idea will hold 26 per cent of the combined entity while the rest will be owned by public
shareholders.

Idea and Vodafone said the merged entity will be jointly controlled by Vodafone and
the Aditya Birla group as per shareholders' agreement.

With 204.68 million customers, Vodafone enjoys market share of 18.16 per cent. Idea has
16.9 per cent with 190.51 million customers as of December 2016, according to TRAI data.

According to CLSA report, the merged entity will have revenue of over Rs 80,000 crore,
translating into a 43 per cent share by revenue and 40 per cent by active subscriber base with
around 400 million customers.

The combined venture will account for over 25 per cent of the allocated spectrum and will
have to sell about 1 per cent (worth Rs 5,400 crore) to comply with spectrum cap norms.

"The merger pegs implied enterprise valuation of Rs 82,800 crore (USD 12.4 billion) for
Vodafone India and Rs 72,200 crore (USD 10.8 billion) for Idea," according to an exchange
filing by Idea.

The companies had a net debt of Rs 1.07 trillion as of December 2016.

DIVIDEND POLICY OF VIL

INTRODUCTION

 As per Regulation 43A of the SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015, as amended, Vodafone Idea Limited (the
“Company”) is required to formulate and disclose a dividend distribution policy.
Accordingly, the Board of Directors of the Company (the “Board”) has approved this
Dividend Distribution Policy (the “Policy”).
 The objective of this Policy is to provide clarity to stakeholders on the circumstances
in which shareholders of the Company may or may not expect dividend, and specify
the factors that will be taken into account while declaring dividend. The Board shall

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 recommend dividend in compliance with this Policy, the provisions of the Companies
Act, 2013 and the rules there under and other applicable law.

TARGET DIVIDEND PAYOUT

 Subject to applicable law, the Board shall declare or recommend dividend as follows:
(a) if the Leverage Ratio falls below 3:1, dividend of such amount as may be
determined by the Board; and
(b) if the Leverage Ratio falls below 2.5:1, an amount equal to one hundred per cent.
(100%) of:
(i) the excess cash of the Company and its Subsidiaries as at the end of the last
completed financial year as determined by the Board by majority resolution; or
(ii) if the Board has not passed a resolution to distribute the excess cash of the
Company and its Subsidiaries in accordance with (i) above, then the Free Cash Flow
of the Company for such financial year, in each case, plus any additional amounts
(such additional amounts to be determined by the Board) in respect of any previous
financial year(s) that would, but for any of the restrictions referred to in this Policy,
have been so distributed but which have not been so distributed and can then be
distributed.
 Subject to the paragraph above, the Company shall declare dividends at least once in
each financial year and shall be entitled to make interim distributions.

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POST MERGER & ACQUISITION CAPITAL STRUCTURE
OF VIL LTD

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CONCLUSION

The merger and acquisition of VIL Ltd. comes as surprise for the Indian telecom sector. The
proposed merger between both the entities will create with a subscriber base of more than
400 million to emerge as the largest player in India and will displace Bharti Airtel, which
currently has over 260 million users on its network.

Country' s three leading mobile operators, Bharti Airtel, Vodafone and Idea, are under
pressure due to the arrival of Mukesh Ambani led Reliance Jio, which has shaken up the
market by offering free voice and data to customers.

The idea of becoming smaller might seem counter-intuitive, but corporate break-ups, or de-
mergers, can be very attractive options for companies and their shareholders.

Advantages

The rationale behind a spinoff, tracking stock or carve-out is that "the parts are greater than
the whole." These corporate restructuring techniques, which involve the separation of a
business unit or subsidiary from the parent, can help a company raise additional equity funds.
A break-up can also boost a company's valuation by providing powerful incentives to the
people who work in the separating unit and help the parent's management to focus on core
operations.

Disadvantages

De-merged firms are likely to be substantially smaller than their parents, possibly making it
harder to tap credit markets and costlier finance that may be affordable only for larger
companies. Additionally, the smaller size of the firm may mean it has less representation on
major indexes, making it more difficult to attract interest from institutional investors.

Meanwhile, there are the extra costs that the parts of the business face if separated. When a
firm divides itself into smaller units, it may be losing the synergy that it had as a larger entity.
For instance, the division of expenses such as marketing, administration and research and
development (R&D) into different business units may cause redundant costs without
increasing overall revenues.

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REFERENCES

WEBSITES

 https://www.moneycontrol.com/financials/vodafoneidealimited/capital-
structure/IC8?classic=true
 https://www.ideacellular.com/investor-relations/corporate-governance
 https://economictimes.indiatimes.com/industry/telecom/telecom-news/idea-vodafone-
say-merger-complete-now-indias-largest-telco-with-408-million-active-
users/articleshow/65619297.cms
 http://www.businessmanagementideas.com/business/merger/top-6-forms-of-
financing-a-merger/4378