ACKNOWLEDGEMENT

What we study in class is of full worth if we add some practical implementation to it. This

dissertation report project is one of the opportunity which I got from the department of

management, PGDM, BBDNITM. I would like to thank my respected Dean Sir, Prof. Atul

Kumar Singh Sir for providing such an opportunity.

I would like to thank respected Porf. R.K. Rastogi Sir, for his kind guidance in the

completion of this report. His motivations and teachings will always be a part of my

corporate life.

I would like to thank my friends, Ishan & Rishi for their kind supports. They are the

integral part of the compiler of this report.

I would like to thank the entire faculty of PGDM department at BBDNITM who taught

me the managemet lessons.

I would like the thank the owner and management staff of the google.com without

which the search of various data couldn’t be possible.

Finally, I want to thank my family members, my parent and my dear friends who

always believed in me and gave a moral support.

Thank u all.

CHANDRESH SUPRIT SHARAN

1

Preface

The importance of any academic schedule would gain advantage and acceptance only

through practical experience; hence it is quite necessary to put theories into practice. This

is made possible by doing the dissertation report exercise.

Through this project I tried to make future findings for telecommunication sector and

for new services which are in the queue.

This project has provided means and opportunity to have a real feel of the

telecommunication industry.

Theory and practice are two aspects of management education. In order to produce

a dynamic and promising executive, the two have to be blended together. In India, the

industrial knowledge in the domain of management course has received pivotal importance.

It exposes the potential managers to the actual work environment and makes them a rich

into what actually goes in the industrial climate. Infact it is the implementation of theory in

practice that is the life force of management.

Table of Content2

Mergers & Acquisitions 4Distinction between M&A 7Business Valuation 8Financing M&A 8Motives behind M&A 10Effects on Management 13History of M&A 17M&A Failures 23Major M&A 25M&A in India 27Company profile: Tech Mahindra 30 Mahindra Satyam 35Shareholding of Mahindra group 37Financial highlights of Mahindra Satyam 38B/S of Mahindra Satyam 40B/S of Tech Mahindra 41P-L statement of Tech Mahindra 43Executive summary of the case study 45Motive of Merger 46Tech Mahindra Journey 47Mahindra Satyam Journey 49Tech Mahindra & Mahindra Satyam : Fuel click offerings 51 Combined strategy 52 Foundation of growth 53 Significance of offerings 55Proforma of combined metric 56Key details of mergers 57Process/Approvals 58Key Advisiors 59Growth Prospects 59Statstics 60Satyam Investors gain 61Conclusion 62Bibliography 65

Mergers and acquisitions

Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance

and management dealing with the buying, selling, dividing and combining of

3

different companies and similar entities that can help an enterprise grow rapidly in its sector

or location of origin, or a new field or new location, without creating a subsidiary, other child

entity or using a joint venture. The distinction between a "merger" and an "acquisition" has

become increasingly blurred in various respects (particularly in terms of the ultimate

economic outcome), although it has not completely disappeared in all situations.

Acquisition

An acquisition is the purchase of one business or company by another company or other

business entity. Consolidation occurs when two companies combine together to form a

new enterprise altogether, and neither of the previous companies survives independently.

Acquisitions are divided into "private" and "public" acquisitions, depending on whether the

acquireee or merging company (also termed a target) is or is not listed on public stock

markets. An additional dimension or categorization consists of whether an acquisition

is friendly or hostile.

Laws in India use the term amalgamation for merger. Section 2(1A0 of the Income Tax

Act, 1961 defines amalgamation as the merger of one or more companies with another

company or the merger of two or more companies to form a new company in such a way

that all the assets and liabilities of the amalgamating companies become assets and

liabilities of the amalgamated company and shareholders holding not less than nine-tenths

in the value of the shares in the amalgamating company or companies become

shareholders of the amalgamated company.

"Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes,

however, a smaller firm will acquire management control of a larger and/or longer-

established company and retain the name of the latter for the post-acquisition combined

4

entity. This is known as a reverse takeover. Another type of acquisition is the reverse

merger, a form of transaction that enables a private company to be publicly listed in a

relatively short time frame. A reverse merger occurs when a privately held company (often

one that has strong prospects and is eager to raise financing) buys a publicly listed shell

company, usually one with no business and limited assets.

There are also a variety of structures used in securing control over the assets of a

company, which have different tax and regulatory implications:

This unreferenced section requires citations to ensure verifiability.

The buyer buys the shares, and therefore control, of the target company being

purchased. Ownership control of the company in turn conveys effective control over

the assets of the company, but since the company is acquired intact as a going

concern, this form of transaction carries with it all of the liabilities accrued by that

business over its past and all of the risks that company faces in its commercial

environment.

The buyer buys the assets of the target company. The cash the target receives from

the sell-off is paid back to its shareholders by dividend or through liquidation. This

type of transaction leaves the target company as an empty shell, if the buyer buys

out the entire assets. A buyer often structures the transaction as an asset purchase

to "cherry-pick" the assets that it wants and leave out the assets and liabilities that it

does not. This can be particularly important where foreseeable liabilities may include

future, unquantified damage awards such as those that could arise from litigation

over defective products, employee benefits or terminations, or environmental

damage. A disadvantage of this structure is the tax that many jurisdictions,

5

particularly outside the United States, impose on transfers of the individual assets,

whereas stock transactions can frequently be structured as like-kind exchanges or

other arrangements that are tax-free or tax-neutral, both to the buyer and to the

seller's shareholders.

The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situation

where one company splits into two, generating a second company separately listed on a

stock exchange.

Based on the content analysis of seven interviews authors concluded five following

components for their grounded model of acquisition:

1. Improper documentation and changing implicit knowledge makes it difficult to share

information during acquisition.

2. For acquired firm symbolic and cultural independence which is the base of

technology and capabilities are more important than administrative independence.

3. Detailed knowledge exchange and integrations are difficult when the acquired firm is

large and high performing.

4. Management of executives from acquired firm is critical in terms of promotions and

pay incentives to utilize their talent and value their expertise.

5. Transfer of technologies and capabilities are most difficult task to manage because

of complications of acquisition implementation. The risk of losing implicit knowledge

is always associated with the fast pace acquisition.

Preservation of tacit knowledge, employees and literature are always delicate during and

after acquisition. Strategic management of all these resources is a very important factor for

a successful acquisition.

6

Increase in acquisitions in our global business environment has pushed us to evaluate the

key stake holders of acquisition very carefully before implementation. It is imperative for the

acquirer to understand this relationship and apply it to its advantage. Retention is only

possible when resources are exchanged and managed without affecting their

independence.

Distinction between mergers and acquisitions

The terms merger and acquisition mean slightly different things. The legal concept of a

merger (with the resulting corporate mechanics, statutory merger or statutory consolidation,

which have nothing to do with the resulting power grab as between the management of the

target and the acquirer) is different from the business point of view of a "merger", which can

be achieved independently of the corporate mechanics through various means such as

"triangular merger", statutory merger, acquisition, etc. When one company takes over

another and clearly establishes itself as the new owner, the purchase is called an

acquisition. From a legal point of view, the target company ceases to exist, the buyer

"swallows" the business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms agree to go forward as a

single new company rather than remain separately owned and operated. This kind of action

is more precisely referred to as a "merger of equals". The firms are often of about the same

size. Both companies' stocks are surrendered and new company stock is issued in its

place. For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both

firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was

created. In practice, however, actual mergers of equals don't happen very often.

Business valuation

7

The five most common ways to valuate a business are

asset valuation,

historical earnings valuation,

future maintainable earnings valuation,

relative valuation (comparable company & comparable transactions),

discounted cash flow (DCF) valuation

Financing M&A

Mergers are generally differentiated from acquisitions partly by the way in which they are

financed and partly by the relative size of the companies. Various methods of financing an

M&A deal exist:

Cash

Payment by cash. Such transactions are usually termed acquisitions rather than mergers

because the shareholders of the target company are removed from the picture and the

target comes under the (indirect) control of the bidder's shareholders.

Stock

Payment in the form of the acquiring company's stock, issued to the shareholders of the

acquired company at a given ratio proportional to the valuation of the latter.

Which method of financing to choose?

8

There are some elements to think about when choosing the form of payment. When

submitting an offer, the acquiring firm should consider other potential bidders and think

strategically. The form of payment might be decisive for the seller. With pure cash deals,

there is no doubt on the real value of the bid (without considering an eventual earnout). The

contingency of the share payment is indeed removed. Thus, a cash offer preempts

competitors better than securities. Taxes are a second element to consider and should be

evaluated with the counsel of competent tax and accounting advisers. Third, with a share

deal the buyer’s capital structure might be affected and the control of the buyer modified. If

the issuance of shares is necessary, shareholders of the acquiring company might prevent

such capital increase at the general meeting of shareholders. The risk is removed with a

cash transaction. Then, the balance sheet of the buyer will be modified and the decision

maker should take into account the effects on the reported financial results. For example, in

a pure cash deal (financed from the company’s current account), liquidity ratios might

decrease. On the other hand, in a pure stock for stock transaction (financed from the

issuance of new shares), the company might show lower profitability ratios (e.g. ROA).

However, economic dilution must prevail towards accounting dilution when making the

choice. The form of payment and financing options are tightly linked. If the buyer pays cash,

there are three main financing options:

Cash on hand: it consumes financial slack (excess cash or unused debt capacity)

and may decrease debt rating. There are no major transaction costs.

It consumes financial slack, may decrease debt rating and increase cost of debt.

Transaction costs include underwriting or closing costs of 1% to 3% of the face

value.

9

Issue of stock: it increases financial slack, may improve debt rating and reduce cost

of debt. Transaction costs include fees for preparation of a proxy statement, an

extraordinary shareholder meeting and registration.

If the buyer pays with stock, the financing possibilities are:

Issue of stock (same effects and transaction costs as described above).

Shares in treasury: it increases financial slack (if they don’t have to be repurchased

on the market), may improve debt rating and reduce cost of debt. Transaction costs

include brokerage fees if shares are repurchased in the market otherwise there are

no major costs.

In general, stock will create financial flexibility. Transaction costs must also be considered

but tend to have a greater impact on the payment decision for larger transactions. Finally,

paying cash or with shares is a way to signal value to the other party, e.g.: buyers tend to

offer stock when they believe their shares are overvalued and cash when undervalued.

Motives behind M&A

The dominant rationale used to explain M&A activity is that acquiring firms seek improved

financial performance. The following motives are considered to improve financial

performance:

Economy of scale: This refers to the fact that the combined company can often

reduce its fixed costs by removing duplicate departments or operations, lowering the

costs of the company relative to the same revenue stream, thus increasing profit

margins.

10

Economy of scope: This refers to the efficiencies primarily associated with demand-

side changes, such as increasing or decreasing the scope of marketing and

distribution, of different types of products.

Increased revenue or market share: This assumes that the buyer will be absorbing

a major competitor and thus increase its market power (by capturing increased

market share) to set prices.

Cross-selling: For example, a bank buying a stock broker could then sell its banking

products to the stock broker's customers, while the broker can sign up the bank's

customers for brokerage accounts. Or, a manufacturer can acquire and sell

complementary products.

Synergy: For example, managerial economies such as the increased opportunity of

managerial specialization. Another example are purchasing economies due to

increased order size and associated bulk-buying discounts.

Taxation: A profitable company can buy a loss maker to use the target's loss as

their advantage by reducing their tax liability. In the United States and many other

countries, rules are in place to limit the ability of profitable companies to "shop" for

loss making companies, limiting the tax motive of an acquiring company.

Geographical or other diversification: This is designed to smooth the earnings

results of a company, which over the long term smoothens the stock price of a

company, giving conservative investors more confidence in investing in the

company. However, this does not always deliver value to shareholders.

Resource transfer: resources are unevenly distributed across firms (Barney, 1991)

and the interaction of target and acquiring firm resources can create value through

either overcoming information asymmetry or by combining scarce resources.

Vertical integration: Vertical integration occurs when an upstream and downstream

firm merge (or one acquires the other). There are several reasons for this to occur. 11

One reason is to internalise an externalityproblem. A common example of such an

externality is double marginalization. Double marginalization occurs when both the

upstream and downstream firms have monopoly power and each firm reduces output

from the competitive level to the monopoly level, creating two deadweight losses.

Following a merger, the vertically integrated firm can collect one deadweight loss by

setting the downstream firm's output to the competitive level. This increases profits

and consumer surplus. A merger that creates a vertically integrated firm can be

profitable.

Hiring: some companies use acquisitions as an alternative to the normal hiring

process. This is especially common when the target is a small private company or is

in the startup phase. In this case, the acquiring company simply hires the staff of the

target private company, thereby acquiring its talent (if that is its main asset and

appeal). The target private company simply dissolves and little legal issues are

involved.

Absorption of similar businesses under single management: similar portfolio

invested by two different mutual funds (Ahsan Raza Khan, 2009) namely united

money market fund and united growth and income fund, caused the management to

absorb united money market fund into united growth and income fund.

However, on average and across the most commonly studied variables, acquiring firms'

financial performance does not positively change as a function of their acquisition activity.

Therefore, additional motives for merger and acquisition that may not add shareholder

value include:

Diversification: While this may hedge a company against a downturn in an

individual industry it fails to deliver value, since it is possible for individual

shareholders to achieve the same hedge by diversifying their portfolios at a much 12

lower cost than those associated with a merger. (In his book One Up on Wall Street,

Peter Lynch memorably termed this "diworseification".)

Manager's hubris: manager's overconfidence about expected synergies from M&A

which results in overpayment for the target company.

Empire-building: Managers have larger companies to manage and hence more

power.

Manager's compensation: In the past, certain executive management teams had

their payout based on the total amount of profit of the company, instead of the profit

per share, which would give the team a perverse incentive to buy companies to

increase the total profit while decreasing the profit per share (which hurts the owners

of the company, the shareholders).

Effects on management

Merger & Acquisitions (M&A) term explains the corporate strategy which determines the

financial and long term effects of combination of two companies to create synergies or

divide the existing company to gain competitive ground for independent units. A study

published in the July/August 2008 issue of the Journal of Business Strategy suggests that

mergers and acquisitions destroy leadership continuity in target companies’ top

management teams for at least a decade following a deal. The study found that target

companies lose 21 percent of their executives each year for at least 10 years following an

acquisition – more than double the turnover experienced in non-merged firms. [10] If the

businesses of the acquired and acquiring companies overlap, then such turnover is to be

expected; in other words, there can only be one CEO, CFO, et cetera at a time.

Different Types of M&A

13

Types of M&A by functional roles in market

The M&A process itself is a multifaceted which depends upon the type of merging

companies.

- A horizontal merger is usually between two companies in the same business sector. The

example of horizontal merger would be if a health cares system buys another health care

system. This means that synergy can obtained through many forms including such as;

increased market share, cost savings and exploring new market opportunities.

- A vertical merger represents the buying of supplier of a business. In the same example

as above if a health care system buys the ambulance services from their service suppliers

is an example of vertical buying. The vertical buying is aimed at reducing overhead cost of

operations and economy of scale.

- Conglomerate M&A is the third form of M&A process which deals the merger between

two irrelevant companies. The example of conglomerate M&A with relevance to above

scenario would be if health care system buys a restaurant chain. The objective may be

diversification of capital investment.

Arm's length mergers

An arm's length merger is a merger:

1. approved by disinterested directors and

2. approved by disinterested stockholders:14

″The two elements are complementary and not substitutes. The first element is important

because the directors have the capability to act as effective and active bargaining agents,

which disaggregated stockholders do not. But, because bargaining agents are not always

effective or faithful, the second element is critical, because it gives the minority stockholders

the opportunity to reject their agents' work. Therefore, when a merger with a controlling

stockholder was: 1) negotiated and approved by a special committee of independent

directors; and 2) conditioned on an affirmative vote of a majority of the minority

stockholders, the business judgment standard of review should presumptively apply, and

any plaintiff ought to have to plead particularized facts that, if true, support an inference

that, despite the facially fair process, the merger was tainted because of fiduciary

wrongdoing.″

Strategic Mergers

A Strategic merger usually refers to long term strategic holding of target (Acquired) firm.

This type of M&A process aims at creating synergies in the long run by increased market

share, broad customer base, and corporate strength of business. A strategic acquirer may

also be willing to pay a premium offer to target firm in the outlook of the synergy value

created after M&A process.

M&A research and statistics for acquired organizations

Given that the cost of replacing an executive can run over 100% of his or her annual salary,

any investment of time and energy in re-recruitment will likely pay for itself many times over

if it helps a business retain just a handful of key players that would have otherwise left.[12]

15

Organizations should move rapidly to re-recruit key managers. It’s much easier to succeed

with a team of quality players that you select deliberately rather than try to win a game with

those who randomly show up to play.

Brand considerations

Mergers and acquisitions often create brand problems, beginning with what to call the

company after the transaction and going down into detail about what to do about

overlapping and competing product brands. Decisions about what brand equity to write off

are not inconsequential. And, given the ability for the right brand choices to drive preference

and earn a price premium, the future success of a merger or acquisition depends on

making wise brand choices. Brand decision-makers essentially can choose from four

different approaches to dealing with naming issues, each with specific pros and cons:[14]

1. Keep one name and discontinue the other. The strongest legacy brand with the best

prospects for the future lives on. In the merger of United Airlines and Continental

Airlines, the United brand will continue forward, while Continental is retired.

2. Keep one name and demote the other. The strongest name becomes the company

name and the weaker one is demoted to a divisional brand or product brand. An

example is Caterpillar Inc. keeping the Bucyrus International name.[15]

3. Keep both names and use them together. Some companies try to please everyone

and keep the value of both brands by using them together. This can create a

unwieldy name, as in the case ofPricewaterhouseCoopers, which has since changed

its brand name to "PwC".

4. Discard both legacy names and adopt a totally new one. The classic example is the

merger of Bell Atlantic with GTE, which became Verizon Communications. Not every

16

merger with a new name is successful. By consolidating into YRC Worldwide, the

company lost the considerable value of both Yellow Freight and Roadway Corp.

The factors influencing brand decisions in a merger or acquisition transaction can range

from political to tactical. Ego can drive choice just as well as rational factors such as brand

value and costs involved with changing brands.[15]

Beyond the bigger issue of what to call the company after the transaction comes the

ongoing detailed choices about what divisional, product and service brands to keep. The

detailed decisions about the brand portfolio are covered under the topic brand architecture.

History of M&A

The Great Merger Movement: 1895-1905

The Great Merger Movement was a predominantly U.S. business phenomenon that

happened from 1895 to 1905. During this time, small firms with little market share

consolidated with similar firms to form large, powerful institutions that dominated their

markets. It is estimated that more than 1,800 of these firms disappeared into

consolidations, many of which acquired substantial shares of the markets in which they

operated. The vehicle used were so-called trusts. In 1900 the value of firms acquired in

mergers was 20% of GDP. In 1990 the value was only 3% and from 1998–2000 it was

around 10–11% of GDP. Companies such as DuPont, US Steel, andGeneral Electric that

merged during the Great Merger Movement were able to keep their dominance in their

respective sectors through 1929, and in some cases today, due to growing technological

advances of their products, patents, and brand recognition by their customers. There were

also other companies that held the greatest market share in 1905 but at the same time did

not have the competitive advantages of the companies likeDuPont and General Electric.

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These companies such as International Paper and American Chicle saw their market share

decrease significantly by 1929 as smaller competitors joined forces with each other and

provided much more competition. The companies that merged were mass producers of

homogeneous goods that could exploit the efficiencies of large volume production. In

addition, many of these mergers were capital-intensive. Due to high fixed costs, when

demand fell, these newly-merged companies had an incentive to maintain output and

reduce prices. However more often than not mergers were "quick mergers". These "quick

mergers" involved mergers of companies with unrelated technology and different

management. As a result, the efficiency gains associated with mergers were not present.

The new and bigger company would actually face higher costs than competitors because of

these technological and managerial differences. Thus, the mergers were not done to see

large efficiency gains, they were in fact done because that was the trend at the time.

Companies which had specific fine products, like fine writing paper, earned their profits on

high margin rather than volume and took no part in Great Merger Movement.

Short-run factors

One of the major short run factors that sparked The Great Merger Movement was the

desire to keep prices high. However, high prices attracted the entry of new firms into the

industry who sought to take a piece of the total product. With many firms in a market,

supply of the product remains high.

A major catalyst behind the Great Merger Movement was the Panic of 1893, which led to a

major decline in demand for many homogeneous goods. For producers of homogeneous

goods, when demand falls, these producers have more of an incentive to maintain output

and cut prices, in order to spread out the high fixed costs these producers faced (i.e.

18

lowering cost per unit) and the desire to exploit efficiencies of maximum volume production.

However, during the Panic of 1893, the fall in demand led to a steep fall in prices.

Another economic model proposed by Naomi R. Lamoreaux for explaining the steep price

falls is to view the involved firms acting as monopolies in their respective markets. As quasi-

monopolists, firms set quantity where marginal cost equals marginal revenue and price

where this quantity intersects demand. When the Panic of 1893 hit, demand fell and along

with demand, the firm’s marginal revenue fell as well. Given high fixed costs, the new price

was below average total cost, resulting in a loss. However, also being in a high fixed costs

industry, these costs can be spread out through greater production (i.e. Higher quantity

produced). To return to the quasi-monopoly model, in order for a firm to earn profit, firms

would steal part of another firm’s market share by dropping their price slightly and

producing to the point where higher quantity and lower price exceeded their average total

cost. As other firms joined this practice, prices began falling everywhere and a price war

ensued.

One strategy to keep prices high and to maintain profitability was for producers of the same

good to collude with each other and form associations, also known as cartels. These cartels

were thus able to raise prices right away, sometimes more than doubling prices. However,

these prices set by cartels only provided a short-term solution because cartel members

would cheat on each other by setting a lower price than the price set by the cartel. Also, the

high price set by the cartel would encourage new firms to enter the industry and offer

competitive pricing, causing prices to fall once again. As a result, these cartels did not

succeed in maintaining high prices for a period of no more than a few years. The most

viable solution to this problem was for firms to merge, through horizontal integration, with

other top firms in the market in order to control a large market share and thus successfully

set a higher price. 19

Long-run factors

In the long run, due to desire to keep costs low, it was advantageous for firms to merge and

reduce their transportation costs thus producing and transporting from one location rather

than various sites of different companies as in the past. Low transport costs, coupled with

economies of scale also increased firm size by two- to fourfold during the second half of the

nineteenth century. In addition, technological changes prior to the merger movement within

companies increased the efficient size of plants with capital intensive assembly lines

allowing for economies of scale. Thus improved technology and transportation were

forerunners to the Great Merger Movement. In part due to competitors as mentioned above,

and in part due to the government, however, many of these initially successful mergers

were eventually dismantled. The U.S. government passed the Sherman Actin 1890, setting

rules against price fixing and monopolies. Starting in the 1890s with such cases

as Addyston Pipe and Steel Company v. United States, the courts attacked large

companies for strategizing with others or within their own companies to maximize profits.

Price fixing with competitors created a greater incentive for companies to unite and merge

under one name so that they were not competitors anymore and technically not price fixing.

Merger waves

The economic history has been divided into Merger Waves based on the merger activities

in the business world as:

20

Period Name Facet

1897–1904 First Wave Horizontal mergers

1916–1929 Second Wave Vertical mergers

1965–1969 Third Wave Diversified conglomerate mergers

1981–1989 Fourth Wave Congeneric mergers; Hostile takeovers; Corporate

Raiding

1992–2000 Fifth Wave Cross-border mergers

2003–2008 Sixth Wave Shareholder Activism, Private Equity, LBO

M&A objectives in more recent merger waves

During the third merger wave (1965–1989), corporate marriages involved more diverse

companies. Acquirers more frequently bought into different industries. Sometimes this was

done to smooth out cyclical bumps, to diversify, the hope being that it would hedge an

investment portfolio.

Starting in the fourth merger wave (1992–1998) and continuing today, companies are more

likely to acquire in the same business, or close to it, firms that complement and strengthen

an acquirer’s capacity to serve customers.

Buyers aren’t necessarily hungry for the target companies’ hard assets. Some are more

interested in acquiring thoughts, methodologies, people and relationships. Paul

Graham recognized this in his 2005 essay "Hiring is Obsolete", in which he theorizes that

the free market is better at identifying talent, and that traditional hiring practices do not

follow the principles of free market because they depend a lot upon credentials and

university degrees. Graham was probably the first to identify the trend in which large

21

companies such as Google, Yahoo! or Microsoft were choosing to acquire startups instead

of hiring new recruits.

Many companies are being bought for their patents, licenses, market share, name brand,

research staffs, methods, customer base, or culture. Soft capital, like this, is very

perishable, fragile, and fluid. Integrating it usually takes more finesse and expertise than

integrating machinery, real estate, inventory and other tangibles.

Cross-border M&A

In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large

M&A deals cause the domestic currency of the target corporation to appreciate by 1%

relative to the acquirer's local currency.

The rise of globalization has exponentially increased the necessity for MAIC Trust accounts

and securities clearing services for Like-Kind Exchanges for cross-border M&A. In 1997

alone, there were over 2333 cross-border transactions, worth a total of approximately $298

billion. Due to the complicated nature of cross-border M&A, the vast majority of cross-

border actions have unsuccessful as companies seek to expand their global footprint and

become more agile at creating high-performing businesses and cultures across national

boundaries.

Even mergers of companies with headquarters in the same country are can often be

considered international in scale and require MAIC custodial services. For example, when

Boeing acquired McDonnell Douglas, the two American companies had to integrate

operations in dozens of countries around the world (1997). This is just as true for other

apparently "single country" mergers, such as the $29 billion dollar merger of Swiss drug

makers Sandoz and Ciba-Geigy (now Novartis).

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M&A failure

Despite the goal of performance improvement, results from mergers and acquisitions (M&A)

are often disappointing compared with results predicted or expected. Numerous empirical

studies show high failure rates of M&A deals. Studies are mostly focused on individual

determinants. A book by Thomas Straub (2007) "Reasons for frequent failure in Mergers

and Acquisitions"[21] develops a comprehensive research framework that bridges different

perspectives and promotes an understanding of factors underlying M&A performance in

business research and scholarship. The study should help managers in the decision

making process. The first important step towards this objective is the development of a

common frame of reference that spans conflicting theoretical assumptions from different

perspectives. On this basis, a comprehensive framework is proposed with which to

understand the origins of M&A performance better and address the problem of

fragmentation by integrating the most important competing perspectives in respect of

studies on M&A Furthermore according to the existing literature relevant determinants of

firm performance are derived from each dimension of the model. For the dimension

strategic management, the six strategic variables: market similarity, market

complementarities, production operation similarity, production operation complementarities,

market power, and purchasing power were identified having an important impact on M&A

performance. For the dimension organizational behavior, the variables acquisition

experience, relative size, and cultural differences were found to be important. Finally,

relevant determinants of M&A performance from the financial field were acquisition

premium, bidding process, and due diligence. Three different ways in order to best measure

post M&A performance are recognized: Synergy realization, absolute performance and

finally relative performance.

23

Employee turnover contributes to M&A failures. The turnover in target companies is double

the turnover experienced in non-merged firms for the ten years following the merger.

Major M&A

1990s

Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999:

24

Rank Year Purchaser PurchasedTransaction value (in mil.

USD)

1 1999Vodafone Airtouch

PLCMannesmann 183,000

2 1999 Pfizer Warner-Lambert 90,000

3 1998 Exxon Mobil 77,200

4 1998 Citicorp Travelers Group 73,000

5 1999 SBC Communications Ameritech Corporation 63,000

6 1999 Vodafone GroupAirTouch

Communications60,000

7 1998 Bell Atlantic GTE 53,360

8 1998 BP Amoco 53,000

9 1999Qwest

CommunicationsUS WEST 48,000

10 1997 Worldcom MCI Communications 42,000

2000s

Top 10 M&A deals worldwide by value (in mil. USD) from 2000 to 2010:

Rank Year Purchaser Purchased Transaction value (in

25

mil. USD)

1 2000Fusion: AOL Inc. (America

Online) Time Warner 164,747

2 2000 Glaxo Wellcome Plc. SmithKline Beecham Plc. 75,961

3 2004Royal Dutch Petroleum

Company

"Shell" Transport & Trading

Co.74,559

4 2006 AT&T Inc. BellSouth Corporation 72,671

5 2001 Comcast Corporation AT&T Broadband 72,041

6 2009 Pfizer Inc. Wyeth 68,000

7 2000Spin-off: Nortel Networks

Corporation59,974

8 2002 Pfizer Inc. Pharmacia Corporation 59,515

9 2004 JPMorgan Chase & Co. Bank One Corporation 58,761

10 2008 InBev Inc.Anheuser-Busch Companie

s, Inc.52,000

Mergers & Acquisition in India :-

Deals

Year Number Amount (Rs crore)26

1998-99 292 16,071

1999-00 765 36,963

2000-01 1,177 32,130

2001-02 1,045 34,322

2002-03 838 23,106

2003-04 834 35,980

2006-07 US$ 33.1 billion

2007-08 US$ 19.8 billion

Economic reforms and deregulation of Indian economy has brought in more domestic as

well as international players in Indian industries. This has caused increased competitive

pressure leading to structural changes of Indian industries. M & A is a part of the

restructuring strategy of Indian industries. The first M&A wave in India took place towards

the end of 1990s. The data presented in a Table above reveal that substantial growth in the

M&A activities in India occurred in 2000-01. The total number of M&A deals in 2000-01 was

estimated at 1,177 which is 54% higher than the total number of deals in the previous year.

Tata Steel-Corus, $12.2 billion :- On 30 January 2007, Tata Steel purchased a 100 percent

stake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at

$12.2 billion. The deal is the largest Indian takeover of a foreign company till date and

made Tata Steel the world’s fifth largest group.

Hindalco-Novelish, $6 billion:- Aluminium and copper major Hindalco Industries, the Kumar

Mangalam Birla- led Aditya Birla Group flagship, acquired Canadian company Novelish Inc

in a $6-billion all-cash deal in February 2007.27

Ranbaxy-Daiichi Sankyo, $4.5 billion:- Marking the largest ever deal in the Indian pharma

industry, Japanese drug firm Daiichi Sankyo in june 2008 acquired the majority stake of

more than 50 per cent in domestic major Ranbaxy for over Rs 15,000 crore ($4.5 billion).

ONGC- Imperial Energy, $ 2.8 billion:- The Oil and Natural Gas Corp took control of

Imperial Energy Plc for $2.8 billion in January 2009, after an overwhelming 96.8 per cent of

London- listed firm’s total shareholders accepted its takeover offer.

28

Mahindra Satyam

&

Tech Mahindra Mergers

Company Profile:- Tech Mahindra

Tech Mahindra Limited is an Indian provider of information technology (IT), networking

technology solutions and business process outsourcing (BPO) services to the global

telecommunications industry. Headquartered at Pune, India. It is a joint venture between

the Mahindra Group and BT Group plc, UK with M&M (Mahindra and Mahindra) holding

44% and BT holding 39% of the equity.

29

Tech Mahindra clocks revenues over USD 1 billion. Its activities spread across a broad

spectrum, including Business Support Systems (BSS), Operations Support Systems (OSS),

Network Design & Engineering, Next Generation Networks, Mobility Solutions, Security

consulting and Testing. The "solutions portfolio" includes Consulting, Application

Development & Management, Network Services, Solution Integration, Product Engineering,

Infrastructure Managed Services, Remote Infrastructure Management and BSG (comprises

BPO, Services and Consulting). Tech Mahindra is ranked #6 in India's software services

firms behind Tata Consultancy Services, Wipro, Infosys, HCL Technologies and Satyam

Computer Services and overall #161 in Fortune India 500 list for 2011.Tech Mahindra has

implemented more than 15 Greenfield Operations globally and has over 128 active

customer engagements mostly in the Telecom sector. The company has been involved in

about 8 transformation programs of incumbent telecom operators. With an array of service

offerings for TSPs, TEMs and ISVs, Tech Mahindra serves.

Its executive management team consists of Vineet Nayyar (Vice Chairman, MD and CEO),

Sujit Baksi (President – Corporate Affairs & Business Services Group), Sonjoy Anand

(Chief Financial Officer), L. Ravichandran (President - IT Services), Amitava Roy (Chief

Operating Officer), Sujitha Karnad (Senior Vice President - HR & QMG for IT Services).

Milestones

1986 - Incorporation in India

1987 - Commencement of Business

1993 - Incorporation of MBT International Inc., the first overseas subsidiary

1994 - Awarded the ISO 9009 certification by BVQ

1995 - Established the UK branch office

30

2001 - Incorporated MBT GmbH, Germany incorporated. Re-certified to ISO

9001:1994 by BVQ

2002 - Assessed at Level 2 of SEI CMM by KPMG. Incorporated MBT Software

Technologies Pte. Limited, Singapore

2005 - Merged MBT with Axes Technologies (India) Private Limited,including its US

and Singapore subsidiaries.Assessed at Level 3 of SEI CMMI by KPMG

2006 - Name changed to Tech Mahindra Limited. Assessed at Level 4 of SEI

People-CMM (P-CMM) by QAI India. Raised Rs46.5 million ($1 million) from a

hugely successful IPO to build a new facility in Pune, to house about 9,000 staff.

Formed a JV with Motorola Inc. under the name CanvasM.

2007 - Acquired iPolicy Networks Private Limited. Launched the Tech M Foundation

to address the needs of the underprivileged in our society.

2009 - Tech M wins bid for fraud-hit Satyam Computer Services at Rs 58.90 per

share outdoing Larsen & Toubro, the other player in the fray, which bid at Rs 45.90.

Rebrands the company to Mahindra Satyam.

2010 - Tech Mahindra expands footprint in Latin America

Tech Mahindra Offices

Tech Mahindra has offices in more than 30 countries.

India:Kolkata, Pune, Noida, Chennai, Bangalore, Mumbai, Gurgaon, Chandigarh,

Hyderabad

UK:London, Milton Keynes31

U.S.A:Dallas

Taiwan:Taipei

Singapore

Thailand:Bangkok

Egypt:Cairo

U.A.E: Dubai

Australia :Sydney

New Zealand:Auckland

Northern Ireland:Belfast, Newcastle, County Down

Philippines

Tech Mahindra has its BPO presence in Kolkata, Chennai, Chandigarh, Pune, and Noida. It

also has overseas office locations in Belfast and Newcastle.

Tech Mahindra has operations in more than 30 countries with 17 sales offices and 13

delivery centers. Assessed at SEI CMMi Level 5, Tech Mahindra employs over 42,000

workers.The total headcount of the company at the end of December 31, 2011 stood at

42,746 out of which software professional headcount stood at 25,218, BPO at 16,419 and

support staff at 1,109.

Acquisition of Satyam Computer Services Ltd.

After the Satyam scandal of 2008-09, Tech Mahindra bid for Satyam Computer Services,

and emerged as a top bidder with an offer of Rs 59 a share for a 31 per cent stake in the

company, beating a strong rival Larsen & Toubro. After evaluating the bids, the

government-appointed board of Satyam Computer announced on 13 April 2009: "its Board

32

of Directors has selected Venturbay Consultants Private Limited, a subsidiary controlled by

Tech Mahindra Limited as the highest bidder to acquire a controlling stake in the Company,

subject to the approval of the Hon'ble Company Law Board." Through a subsidiary, it has

emerged victorious in Satyam sell-off, a company probably two times its size in number of

people.

Source of Fund for thisAcquisition :-

Tech Mahindra had raised Rs550 crore from Tata Capital and IDFC to fund its takeover of

scam-hit Satyam Computer.

Tech Mahindra raised these funds by issuing debentures which are convertible into shares

of Venturbay Consultants, through which it acquired Satyam Computer.

Besides, Tech Mahindra had also borrowed Rs1,450 crore from various banks, mutual

funds, institutions and NBFCs at an interest rate of 10%, part of which had been used for

funding the acquisition of Satyam.

Disclosing Tech Mahindra’s source of funds for the deal, a regulatory filing by the

beleaguered IT firm said the funding was from “internal resources, optionally convertible

domestic debt, equity by Tech Mahindra in Venturbay and debt extended by Tech Mahindra

to Venturbay.”

In the first phase of acquisition, Tech Mahindra had paid about Rs1,756 crore for 31%

equity through preferential allotment of shares in Satyam which was also listed at NYSE

besides Indian bourses.

33

The filing with the US market regulator SEC said that “Tech Mahindra has infused funds in

Venturebay by using cash on hand” in connection with the initial 31% stake purchase and

the subsequent Rs1,129 crore open offer for further 20% equity.

Competitors

Its competitors are

i) Tata Consultancy Services,

ii) Cognizant Technology Solutions,

iii) HCL Technologies,

iv) Infosys,

v) Wipro,

vi) Accenture

Company Profile:- Mahindra Satyam

Mahindra Satyam formerly Satyam Computer Services, is an Indian IT services company

based in Hyderabad, India. It was founded in 1987 by B Ramalinga Raju. Mahindra Satyam

34

is a part of the Mahindra Group which is one of the top 10 industrial firms based in India.

The company offers consulting and information technology (IT) services spanning various

sectors, and is listed on the Pink Sheets, the National Stock Exchange (India) and Bombay

Stock Exchange (India). In June 2009, the company unveiled its new brand identity

“Mahindra Satyam” subsequent to its takeover by the Mahindra Group’s IT arm, Tech

Mahindra on April 13,2009. It is ranked #5 in Indian IT companies and overall ranked #153

by Fortune India 500 in 2011.

Industry Presence

Mahindra Satyam provides services in the following areas:

Aerospace and Defence

Banking, Financial Services & Insurance

Energy and Utilities

Life Sciences & Healthcare

Manufacturing, Chemicals & Automotive

Public Services & Education

Retail

Consumer Packaged Goods

Travel, Transport, Logistics

Telecom, Infrastructure, Media and Entertainment & Semiconductors

Offices of Mahindra Satyam Across The Globe

Mahindra Satyam headquartered in Hyderabad, India has development centres and/or

regional offices in USA, Canada, Brazil, the United Kingdom, Hungary, Egypt, UAE, India,

China, Malaysia, Singapore, and Australia.

35

Competencies

Mahindra Satyam offers the following ‘horizontal’ services.

Extended Enterprise Solutions

Web Commerce Solutions

Business Intelligence Services

Quality Consulting

Strategic Outsourcing Services

Industry Native Solutions

Business Services Group - BSG (BPO)

Engineering Services

Product management

Accounting scandal of 2009

In addition to other controversies involving Satyam, on January 7, 2009, Chairman Raju

resigned after publicly announcing his involvement in a massive accounting fraud.

Ramalinga Raju is currently in a Hyderabad prison along with his brother and former board

member Rama Raju, and the former C.F.O Vadlamani Srinivas.

Shareholding of The Mahindra Group

Share holding pattern as on :

31/03/2012 31/12/2011 30/09/2011

36

Face value 5 5 5

No. Of Shares

% Holding

No. Of Shares

% Holding

No. Of Shares

% Holding

Promoter's holding

Indian Promoters 154374167 25.14 154824006 25.22 153852126 25.06

Foreign Promoters 731772 0.12 731772 0.12 731772 0.12Sub total 155105939 25.26 155555778 25.34 154583898 25.18

Non promoter's holdingInstitutional investors

Banks Fin. Inst. and Insurance 108853061 17.73 104402738 17 104641408 17.04FII's 162573443 26.48 161483160 26.3 162041227 26.39Sub total 289385891 47.13 285693065 46.53 288311392 46.96

Other investorsPrivate Corporate Bodies 58548990 9.54 62570789 10.19 57471273 9.36NRI's/OCB's/Foreign Others 23307820 3.8 23214321 3.78 23039253 3.75GDR/ADR 34293405 5.59 35339610 5.76 40001494 6.52Govt 450124 0.07 451324 0.07 449422 0.07Others 1202671 0.2 1142596 0.19 812678 0.13Sub total 117802038 19.19 122717668 19.99 121773148 19.83General public 51679999 8.42 50007356 8.14 49305429 8.03Grand total 613973867 100 613973867 100 613973867 100

Financial Highlights of Mahindra Satyam

Particulars 2010-11 2009-10

Income from Operations 47,761 51,005

Other Income 2,899 129

37

Total Income 50,660 51,134

Operating Profit / (Loss) (PBIDT) 7,263 5,781

Interest and Financing Charges 92 254

Depreciation / Amortization 1,499 1,908

Exceptional items 6,411 4,169

(Loss) before Tax (739) (550)

Provision for Tax 537 162

(Loss) after Tax (1,276) (712)

Equity share capital 2,353 2,352

Reserves and Surplus 43,881 43,963

Debit balance in Profit and Loss Account 24,622 23,346

Earnings per share

(Rs Per equity share of Rs 2 each)

- Basic (Rs) (1.08) (0.65)

- Diluted EPS (Rs) (1.08) (0.65)

The monthly high and low stock quotations during the financial year 2010-11 and performance in comparison to broad based indices aregiven below.

Month& Year Price-BSE SENSEX Price-NSE NIFTY

High Low High Low High Low High Low

Apr-10 98.20 89.60 18,047.86 17,276.80 98.25 75.85 5,399.65 5,160.90

May-10 96.35 79.75 17,536.86 15,960.15 96.40 72.95 5,278.70 4,786.45

38

Jun-10 94.80 82.75 17,919.62 16,318.39 94.70 82.70 5,366.75 4,961.05

Jul-10 93.65 86.00 18,237.56 17,395.58 93.60 86.00 5,477.50 5,225.60

Aug-10 90.90 78.55 18,475.27 17,819.99 91.00 78.50 5,549.80 5,348.90

Sep-10 113.80 79.00 20,267.98 18,027.12 113.85 78.90 6,073.50 5,403.05

Oct-10 92.05 78.50 20,854.55 19,768.96 92.70 78.40 6,284.10 5,937.10

Nov-10 90.65 59.75 21,108.64 18,954.82 90.70 59.55 6,338.50 5,690.35

Dec-10 70.80 58.90 20,552.03 19,074.57 70.80 59.00 6,147.30 5,721.15

Jan-11 73.90 60.00 20,664.80 18,038.48 73.90 59.90 6,181.05 5,416.65

Feb-11 66.50 54.40 18,690.97 17,295.62 66.85 54.20 5,599.25 5,177.70

Mar-11 69.85 61.60 19,575.16 17,792.17 70.50 61.60 5,872.00 5,348.20

39

Balance sheet of Tech Mahindra

Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Sources of fundsOwner's fund

Equity share capital 126 122.3 121.7 121.4 121.22

40

Share application money - 0.2 - - 0.14

Preference share capital - - - - -

Reserves & surplus3,258.0

0 2,744.20 1,759.20 1,107.00 756.76

Loan funds

Secured loans1,183.7

0 1,517.70 - - 10.01

Unsecured loans 622.7 617.2 - 95 42.64

Total5,190.4

0 5,001.60 1,880.90 1,323.40 930.78

Uses of fundsFixed assets

Gross block1,248.5

0 1,112.80 896.2 550.5 442.75

Less : revaluation reserve - - - - -

Less : accumulated depreciation 648.5 518.8 406.1 259.6 195.72

Net block 600 594 490.1 290.9 247.04

Capital work-in-progress 110.3 320.8 154.1 138.5 54.65

Investments3,114.9

0 3,113.90 453.5 298.6 283.21

Net current assets

Current assets, loans & advances

2,244.70 1,807.80 1,654.10 1,488.00 984

41

Less : current liabilities & provisions 879.5 834.9 870.9 892.6 638.12

Total net current assets

1,365.20 972.9 783.2 595.4 345.88

Miscellaneous expenses not written - - - - -

Total5,190.4

0 5,001.60 1,880.90 1,323.40 930.78

Notes:

Book value of unquoted investments

3,114.90 3,113.90 453.5 298.6 283.21

Market value of quoted investments - - - - -

Contingent liabilities 341.4 335.5 138.7 169.5 136.38

Number of equity sharesoutstanding (Lacs) 1259.55 1223.2 1217.34 1213.63 1212.17

P-L Statement of Tech Mahindra :-

Mar ' 11

Mar ' 10

Mar ' 09

Mar ' 08

Mar ' 07

IncomeOperating income

4,965.50

4,483.80

4,357.80

3,604.70

2,753.22

42

Expenses Material consumed - - - - -Manufacturing expenses

1,435.90

1,176.00 966.1 729.5 574.69

Personnel expenses

1,943.80

1,598.70

1,419.70

1,222.40 840.41

Selling expenses 4.9 9.8 10 20.3 24.96Adminstrative expenses 630.2 605.8 711.7 793.1 592.29Expenses capitalised - - - - -

Cost of sales4,014.

803,390.

303,107.

502,765.

302,032.

34Operating profit 950.7

1,093.50

1,250.30 839.4 720.88

Other recurring income 27.6 35.6 18.8 10 14.93Adjusted PBDIT 978.3

1,129.10

1,269.10 849.4 735.81

Financial expenses 122.7 171.8 2.5 28.3 28.09Depreciation 138.3 129.9 107.4 73.6 46.28Other write offs - - - - -

Adjusted PBT 717.3 827.41,159.

20 747.5 661.43Tax charges 109.3 131.4 103.9 68.9 61.51

Adjusted PAT 608 6961,055.

30 678.6 599.92Non recurring items 80.8 22.9 -80.5 -361.8

-534.69

Other non cash adjustments 7.9 23.9 11.8 25.4 33.95Reported net profit 696.7 742.8 986.6 342.2 99.18Earnigs before appropriation

2,470.60

2,092.50

1,506.80 768.3 553.15

Equity dividend 51 42.8 48.8 66.8 26.62Preference dividend - - - - -Dividend tax 8.3 7.3 8.3 11.3 3.73Retained earnings

2,411.30

2,042.40

1,449.70 690.2 522.8

43

44

Executive Summary for the mergers of Tech Mahindra & Mahindra

Satyam

► The Board of Directors of Mahindra Satyam and Tech Mahindra have approved the

merger of Mahindra Satyam with Tech Mahindra through a Share Swap

► The swap ratio for the merger is 2 shares of Tech Mahindra (face value of Rs. 10

each), for every 17 shares of Mahindra Satyam (face value of Rs. 2 each)

► Rationale for the merger:

Creation of a single ‘go-to-market’ strategy with benefits of scale and enhanced

depth and breadth of capabilities, translating into increased business opportunities

and reduced expenses

Stronger merged entity – financially and in industry positioning

Unified management focus and fungible talent pool

De-risked business profile

Optimized costs and productivity improvement with benefits of scale

► Pro forma combined entity:

LTM Revenue : US$ 2,432 MM

LTM EBITDA : US$ 392 MM

Total Headcount : 75,026

45

Motioves for the Merger :-

The merger will result in the creation of a new offshore services leader with

revenues of approximately US$2.4bn in revenues, approximately 75,000+ strong

work force and 350+ active clients (including Fortune Global 500 companies),

across 54 countries.

The joint entity will have a unified „go-to-market‟ strategy with deep competencies

and a balanced mix of revenues from Telecom, Manufacturing, Technology, Media &

Entertainment, Banking Financial Services and Insurance, Retail and Healthcare.

Revenues will be well balanced with a diversified global footprint that would boast of

contribution from Americas at 42%, Europe at 35% and Emerging Markets at 23%,

The combined entity will leverage Tech Mahindra‟s expertise in Mobility, System

Integration, and delivery of large transformations and to better penetrate the

opportunity presented by Mahindra Satyam‟s diverse set of clients across multiple

verticals.

Likewise Mahindra Satyam‟s expertise in Enterprise Solutions will enable a more

complete value proposition to be delivered to Tech Mahindra‟s clients.

The combination will benefit from operational synergies, economies of scale,

sourcing benefits, and standardization of business processes.

46

Tech Mahindra’s Journey: FY 2006 to FY 2009

985

3.5x

280

FY 2006 FY 2009

EBITDA (1) (US$ MM) Client Contribution to Revenue

282

4.7x

60

FY 2006 FY 2009

Revenue (US$ MM)

1,200935

985 CAGR : 52%

800 648596

415 575 CAGR : 44%

400 280 410 CAGR : 66%

191 339233

890FY 2006 FY 2007 FY 2008 FY 2009

Revenue BT Non-BT

47

► Leadership in the Telecom vertical with industry leading growth

► Strong Non-BT franchise

► Landmark engagements: Barcelona, Andes, US Tier-1 Telecom leader

32% Others42%

68%Top

Client 58%

FY 2006 FY 2009

April 2009: Mahindra Satyam Opportunity

► Rationale for the acquisition

• Diversification into multiple verticals like BFSI, Manufacturing and Retail

• Ability to offer a wide range of service offerings like Enterprise Services and

Engineering Services to current and future customers

• De-risked business model with balanced exposure across geographies

• Utilize Mahindra Satyam’s pool of highly experienced, well trained professional

employees

• Scale benefits due to substantially larger size of the business

► Stated strategy to merge the two companies.

48

Mahindra Satyam’s Journey

April 2009 FY 2010 FY 2011 FY2012

Acquisition Stabilization Investment Growth

49

► Customer attrition

► Key employee attrition

► Mismatch between costs and revenue

► Lawsuits and investigations

► Customer & Associate confidence reinforced

► New deals & extensions

• Embargo lifted

• New logos added

• Existing client extensions

► Progress on regulatory and legal issues

► Cash flow stabilised

► Core rebuilt with investments in

• Core delivery platforms and capabilities

• Vertical expertise & skills

► Core extended by

• Investments in shared services

• Launch of alternative delivery models

► Right leadership put in place

► Focus on profitable growth and top quartile industry operating metrics

► Special initiatives focus on emerging technologies

► Complete integration

• Go-to-market and solution integration

Back office and legal integration

50

51

Tech Mahindra and Mahindra Satyam:Full Suite of Offerings

Industry focused Solutions

Service Lines & Industry Verticals

Enterprise Business Solutions

Application Development andManagement Services

Infrastructure ManagementServices

Integrated Engineering Solutions Consulting & Enterprise Solutions

Business Process Outsourcing

Enterprise Mobility, Cloud andSecurity Solutions

52

Tech Mahindra and Mahindra Satyam: Combined Strategy

Leverage :-

Existing Clients

Existing Offerings

Merger Synergies

M Cube (M3)

Lost Customers

Acquire :-Inorganic

New Logos

Innovate:- Customer Innovation

Delivery Excellence

Platform

Enhance:-Joint Offerings

Solution Sets

53

GrowthStrategy

Leverage

AcquireInnovate

Enhance

Alliance & Partnerships Tech Mahindra and Mahindra Satyam: Foundations for Growth

1. End-to-End Manufacturing

Manufacturing heritage enhances value proposition (Art-to-Part)

100+ Manufacturing Accounts

25 F500 Relationships in Manufacturing

2. Strong Telecom Capabilities

Specialist focus on Telecom; Market Leader

Synergies evident in other verticals through enterprise mobility, CRM & billing

solutions

~130 Active Customers

Globally 15 major Greenfield rollouts and 8 Transformations

3. Enterprise Services Expertise

Strong credentials across SAP & Oracle

CoE Focus

Vertical Solution Templates

IP Based Solutions Deep expertise in BI & Analytics

IP Solution Platform: iDecisions Investments in Cloud offerings

54

Automotive, Aerospace, Chemicals & Consumer Electronics

Wireline, Wireless, Cable, Satellite

4. Vertical BPO that leverages Enterprise Expertise

Telecom

Retail

Manufacturing

Financial Services

Healthcare & Life Sciences

Public Services

Goal: Driving Growth and Profitability

Revenue Growth

Account mining

Wider portfolio of service offerings to Telecom clients

Focus on growth verticals

Focus on emerging markets

Operating Metrics

Benefiting from cost synergies

Multi-lever approach for volume-led margin improvement

Right-sizing the talent pyramid

Leveraging scale for better utilization

55

Co-Innovation

Continue dominance in mature practices

Accelerate new service offerings

GTM with alliances

New offerings / markets along with customers

Tech Mahindra and Mahindra Satyam: Significant Cross-Pollination of Offerings

Telecom Manufacturing

BFSI

Cloud ServicesTechnology and Media

Enterprise MobilityRetail, T&L

Security Solutions Healthcare & Life Science

Managed Services

BPO Enterprise Solutions

Shared Services Shared InfrastructurePro Forma Combined Metrics

56

LTM Revenue LTM EBITDA0

200

400

600

800

1000

1200

1400

Tech Mahindra

Mahindra Satyam

Headcount0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Mahindra SatyamTech Mahindra

Pro Forma Shareholding Structure :-

ParticularsShareholding

Swap Ratio 2:17

%

Promoters shareholding 49.5 Mahindra & Mahindra Ltd 26.3 British Telecommunication Plc 12.8 TML Benefit Trust 10.4Tech M Public Shareholding 16.1MSAT Public Shareholding 34.4Total 100%

Key details of the Mergers:-

57

► Merger ratio of 2 shares of Tech Mahindra (face value of Rs. 10 each), for every 17

shares of Mahindra Satyam (face value of Rs. 2 each) is approved by both the boards

► 204 mn shares of Mahindra Satyam held by Venturbay to be transferred to a trust, to be

held as treasury stock.

► Rest of the shareholding held in Mahindra Satyam to be cancelled

► Tech Mahindra to issue 10.34 crore shares to Mahindra Satyam shareholders

► Increase in equity base to Rs 230.8 crore

Process / Approvals

58

► Board of directors

► Stock exchanges (BSE, NSE)

► Competition Commission of India

► Shareholders and creditors of TechM and Transferor Companies

► Majority in number and 75% in value of the shareholders / creditors – present in

the respective meetings

► Regulatory authorities

► Registrar of Companies (Maharashtra and AP)

► Regional Director (West and South)

► Official Liquidator (Maharashtra and AP)

►Bombay High Court, Andhra Pradesh High Court and other regulatory authorities

Key Advisors

► Joint valuation advisors

• Ernst & Young

• KPMG

► Independent fairness opinion bankers

• Tech Mahindra: Morgan Stanley

• Mahindra Satyam: J.P. Morgan

► Advisors

• Enam

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• Barclays

► Legal Advisors

• AZB & Partners

GROWTH PROSPECTS

The merger will reduce Tech Mahindra's exposure to the telecom sector to 47% by adding

other verticals such as manufacturing, media, entertainment, and retail. In addition, the

share of BT, its biggest client will reduce to 17% of revenue from over 35%.

The company will integrate its solutions with the various offerings of Satyam. For example,

it plans to mine more than 20 of its own accounts by offering services provided by Satyam

such as enterprise applications and shared corporate services.

Employee rationalisation will be another benefit of the merger. The combined entity will

have over 75,000 employees with a focus on appointment of a significant number of

freshers.

Tech Mahindra is also seeing renewed traction in its core telecom service offerings in

regions including Australia, New Zealand, and Asia.

Statstics

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Ultimate Outcome :-

The combined entity will be 5th largest firm in IT Sector

Post-merger, the combined entity will become the country's fifth largest IT company, after

TCS, Infosys, Cognizant and Wipro.

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Satyam investors gain

Notably, by valuing the Satyam stock at about Rs 76, Tech Mahindra is paying 31 per cent

more for the business today, than it did when it bought a controlling stake from the

government in April 2009.

Investors in the Satyam stock who did not tender their shares to the open offer made by

Tech Mahindra way back in June 2009 today have reason to feel good about their decision.

Though the stock is down from its highs of 2009, the merger price of Rs 76 is a good 31 per

cent above the open offer price of Rs 58 that the Mahindra group offered during the initial

open offer. Selling the Satyam stock and investing in the Sensex basket instead, would

have given investors a gain of only 14 per cent.

Revenue Contribution & Shareholding Post Mergers

Revenue contribution post

mergerSharholding:

Telecom: 47%Mahindra & Mahindra: 26.3%

Manufacturing: 17% BT : 12.8%

Technology, media & entertainment: 10%

Trust: 10.4% (treasury share)

BFSI: 11%Mahindra Satyam public Shareholders: 34.4%

Retail: 5%Tech Mahindra public shareholders: 16.1%

Others: 7%

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Conclusion

As the much talked about and closely watched merger between Tech Mahindra and

Mahindra Saytam comes into effect from this fiscal 2012-13, the so-called “marriage made

in heaven” is likely to change the dynamics of Indian IT sector. Satyam Mahindra's strength

and expertise lies in IT services and enterprise solutions, while Tech Mahindra brings a

strong experience and competency in the telecom sector. With both firms complimenting

each other, post merger this joint entity will have a significant mileage in the enterprise

business and telecom domain.

Tech Mahindra and Mahindra Satyam's merger - ''marriage made in heaven''

The merger of the two companies brings in immense strategic advantage to both. The

capabilities and competencies brought together are highly synergetic and will thereby

enhance the value to the customer.

A strong presence in enterprise business solutions along with the domain expertise in

telecom offers a unique positioning to gain traction in the emerging opportunities of cloud

computing and mobility.

For instance, Satyam had started enterprise practice back in 1996, later on added BI and

Dataware Housing practice in 2000. However, following the scam in 2009, Satyam's

business saw some erosion in terms of customers and people but with Mahindra Group

taking in-charge of the beleaguered firm, it managed to protect its created assets and

architects.

Enterprise solution business – a key for Mahindra Satyam's revenue

“We are a challenging player in the market and we continue to see growth in the enterprise

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space. Our enterprise business contributes close to 44 per cent of the revenue which also

include the revenues from extended enterprise offerings such as content management,

shared corporate services,” says Sriram Papani, Mahindra Satyam's senior vice president.

Tech Mahindra has around 120-130 customers, which are largely serviced by core telecom

solutions. However these customers also need enterprise solutions such as ERP, BI and

others that are either provided internally or by some other vendors. “We see a great

opportunity to explore this channel and start providing enterprise offerings also to these

existing customers as we have deep relationships with Tech Mahindra. So that's a big

growth opportunity for non-linear growth.” “In last 12-18 months, we have put in some

specific solutions and already are seeing somegreat success in terms of penetrating into

Tech Mahindra's customer base,” Papani explains. Mahindra Satyam has been servicing

some 40 odd Tech Mahindra's customers since 2009, of which it won 20 during last 15

months' period. Most are global customers spread across geographies – Europe, UK,

Middle East, Africa, Australia, North America and few are Indian.

Going forward, what strategies will Mahindra Satyam adopt in the post merger

scenario?

“Firstly, how can we explore or leverage Tech Mahindra's channel strength and convert into

revenue stream. Our second strategy is to go back to our old existing customers to expand

our valid share, expand our strength and mining those accounts,” Papani points out.

Further, “Given the current economic conditions, it does not give you a great opportunity in

terms of mining; however, we are able to see, at least build traction and prepare the

ground. So eventually when IT spending starts going up, I think we will be ready in terms of

establishing confidence in wining those accounts,” Papani adds.

Mahindra Satyam's map to re-growth with Tech Mahindra under the merger

Mahindra Satyam has around 300 customers, who can be offered telecom solutions such

as enterprise mobility and cloud services. This is where Tech Mahindra's strength and 64

competency in telecom domain can be leveraged by Mahindra Satyam's customers.

However, stressing on the enterprise business solutions' significance, Papani informs that

Mahindra's Satyam added 62 new logos during FY12, large proportion of them are on the

enterprise business. “Of the large number of new logos the company won, if we are able

convert even 20 per cent of logos into accounts, it gives a huge opportunity for us,” Papani

says. For Mahindra Satyam manufacturing, technology infrastructure, media and BFSI are

core business verticals, while telecom remains key vertical for Tech Mahindra. But post the

merger, telecom will become the top focussed sector followed by manufacturing, BFSI,

retail and healthcare.

Mahindra Satyam and Tech Mahindra to be a giant tech firm

The merger will create 75,000 plus workforce, over 350 active clients and approximate

revenues of $2.4 billion via new offshore services. The management expects a balanced

revenue with a diversified global footprint and contributions -- 42 per cent share from

Americas, 35 per cent from Europe and 23 per cent from the Emerging markets. According

to Papani, company was successful in bringing back 20 old customers during the past four

quarters, who had moved out after the scam surfaced. Also employees' confidence is very

positive and good now after the merger.

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Bilbliogragphy:-

www.techmahindra.com

www.mahindrasatyam.com

www.rediff.com/companies

economictimes.indiatimes.com

money.sulekha.com

www.indiainfoline.com

www.wikipedia.com

www.google.com

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