mergers and acquisitions in india

408 Pages·2012·9.25 MB·English

MERGERS AND ACQUISITIONS IN INDIA

A THESIS SUBMITED
TO
THE MAHARAJA SAYAJIRAO UNIVERSITY OF BARODA
FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY
IN
MANAGEMENT STUDIES

BY
RAHUL V. VYAS

Under the supervision of
Prof. (Dr.) G. C. MAHESHWARI
Faculty of Management Studies

SEPTEMBER 2012

M. S. PATEL INSTITUTE
FACULTY OF MANAGEMENT STUDIES
THE MAHARAJA SAYAJIRAO UNIVERSITY OF BARODA
VADODARA - 390002
DECLARATION

It is hereby declared that the thesis entitled “Mergers and Acquisitions in
India” has been prepared by Rahul Vasudevbhai Vyas. The analysis, discussion and
conclusions have been drawn on the basis of the data collected by me. The thesis
presents the results of the original work. This work not been submitted to any other
university for awarding any degree or diploma.

Rahul Vasudevbhai Vyas
(Researcher)

[Prof. G. C. Maheshwari]
(Supervisor, Faculty of Management Studies)
ACKNOWLEDGMENT

The present study has been completed under the supervision of Prof. (Dr.) G.
C. Maheshwari, Professor in Finance and Accounting, Faculty of Management
Studies, the M. S. University of Baroda, Baroda. I am greatly obliged for his valuable
guidance in completing this study. In fact there are no words to express my gratitude
to Prof. (Dr.) G. C. Maheshwari, for the intellectual discussion, valuable suggestions,
encouragement in moulding the work in the present format. Without his personal
involvement, warmth of affection and whole hearted dedication I would not have
completed the present study. I am indeed, greatly indebted to him. I am also grateful
to Ms. Maheshwari who provided moral support like a mother.
I am also obliged to Prof. (Dr.) K. Pushpanadham, Associate Professor,
Faculty of Education and Psychology, M. S. University Baroda, Vadodara for
supportive and kind co-operation throughout the duration of the study by
accommodating my requests even at his inconvenience. I am grateful to Prof. Alla
Subba Rao, Professor, Department of Economics, M. S. University Baroda, Baroda
for clarifying and fine-tuning the statistical issues related to the study.
My sincere thanks to the Bombay Stock Exchange (BSE) and data feed staff
members for providing required data for the study and their kind cooperation
throughout the duration of the study. I also thankful to Librarian, Shrimati Hansa
Mehta Library and Indian Institute of Management, Ahmedabad for permitting use of
the library throughout my work for referring valuable materials and collecting data
from various sources.

I
Last but not the least, the role of my family members has indeed been very
crucial for the successful completion of the work. I am especially thankful to my
parents, my wife, my daughter and my son for the moral support and meaningful co-
operation and every sacrifice which remained crucial for the successful completion of
the work.

Rahul Vasudevbhai Vyas

II
CONTENTS

PARTICULARS PAGE No.

Acknowledgement I
List of Tables IV
List of Figures VII
List of Abbreviation IX

CHAPTER SCHEME
1. Introduction 1
2. Mergers and Acquisitions in India 39
3. Literature Review 94
4. Legal Aspects of Mergers and Acquisitions 151
5. Wealth Effect of Mergers and Acquisitions: 206
An Event Study
6. Case Studies 262
7. Conclusion and Recommendations 351
Bibliography 365

III
LIST OF TABLES

Table No. Particulars Page No.
2.1 Value of cross-border M&A by region/economy of seller, 2003-May
2011 72
2.2 Value of cross-border M&A by region/economy of purchaser, 2003-
May 2011 74
2.3 Number of cross-border M&A by region/economy of seller, 2003-
May 2011 (Number of deals) 76
2.4 Number of cross-border M&A by region/economy of purchaser, 2003-
May 2011 (Number of deals) 78
2.5 Value of Cross-Border M&A, by Sector/Industry of seller, 2003 -May
2011 (Millions of Dollars) 80
2.6 Value of Cross-Border M&A, by Sector/Industry of Purchaser, 2003 -
May 2011 (Millions of Dollars) 81
2.7 M&A By Continent 82
2.8 Years of Mergers and Acquisition 83
2.9 M&A by Number of equity shares: Offer Size 83
2.10 M&A by Percentage of equity capital: Offer Percentage 84
2.11 M&A by Price of equity shares: Offer Price 84
2.12 M&A by objective of the offer 84
2.13 M&A by Targeted post offer stake of acquisition ( Total percentage of
equity capital) 85
2.14 M&A by Continent (Price in Million) 85

IV
2.15 M&A by Industry of Acquirer/ Acquirers 86
2.16 Value of cross-border M&A of Indian economy, 2003-May 2011
(Millions of dollars) 66
3.1 Evidence from short-run event studies 134
3.2 Evidence from long-run event studies 136
3.3 What RIL shareholders will get? 126
3.4 Demerger of RIL holdings 126
4.1 Comparison of Competition Act with MRTP 168
4.2 Threshold for combined size of acquiring and target companies 159
4.3 Filing Fee 162
4.4 Timelines and fast track endevour 163
4.5 Lock-in period for special securities issued to the acquirer company 172
4.6 Sectoral cap on Investment by persons residents outside India 194
5.1 Market reaction to M&A announcements (%) for Acquirer Companies 240
5.2 Market reaction to M&A announcements (%) for Target Companies 240
5.3 Market reaction to M&A announcements (%) for Combined (Target +
Acquirer) 241
5.4 Market reaction to M&A announcements (Median) for Acquirer
Companies 241
5.5 Market reaction to M&A announcements (Median) for Target
Companies 241
5.6 Market reaction to M&A announcements (Median) for Combined
(Target + Acquirer) 242
5.7 Market reaction to M&A announcements for Acquirer companies
segmented by Indian and Foreign Companies 242

V
5.8 Market reaction to M&A announcements for Combined companies
segmented by Indian and Foreign Companies 243
5.9 Cumulative Abnormal Return Event Period (-11 to +11 days) 244
5.10 Average Abnormal Return :Event Period (-11 to +11 days) 244
5.11 Cumulative Abnormal Return: Post Estimation Period (0 to +180
days) 245
5.12 Average Abnormal Return: Post Estimation Period (0 to +180 days) 245
5.13 Cumulative Abnormal Return (%) Pre Estimation Period (0 to -180
days) 246
5.14 Average Abnormal Return (%) Pre Estimation Period (0 to -180 days) 246
5.15 Cumulative Abnormal Return: Total (+180 to -180 days) 247
5.16 Average Abnormal Return: Total (+180 to -180 days) 247
5.17 Cumulative Average Abnormal Return (%) 248
6.1 Cumulative Abnormal Returns (CAR) of RIL 281
6.2 Cumulative Abnormal Returns of L&T 282
6.3 Cumulative Abnormal Returns (CAR) of RIL and L&T 283
6.4 Summary of Major Events in L&T Takeover 284
6.5 Cumulative Abnormal Returns (CAR) of Vodafone 316
6.6 Major Events in Hutch Takeover 317
6.7 Cumulative Abnormal Returns (CAR) of Reliance Industries 342
6.8 Major Events in RIL and Bharti AXA Takeover 342

VI
LIST OF FIGURES

Figure No. Particulars Page No.
1.1 Process of Event selection 12
2.1 Cross-border Sales and Purchases, 2002–May 2011 46
2.2 Cross-border Sales & Purchases by Developed Economies 2002 – May
2011 50
2.3 Cross-border Sales and Purchases by Developing Economies, 2002 -
May 2011 49
2.4 M&A of Indian companies by continent during the period 2002-03 to
2010-11 56
2.5 M&A of Indian companies by continent during the period 2002-03 to
2010-11 (Excluding Indian Companies) 57
2.6 Purchases of Indian Companies by Continent and Year 61
2.7 Average equity price paid by acquiring companies in India 64
5.1 Distribution of M&A events across Industry groups 225
5.2 Illustration of the Event Study Approach 226
6.1 A simplified structure of the acquisition of Hutch by Vodafone 312

VII
LIST OF APPENDICES

Appendices
Particulars Page No.
No.
1.1 List of target and acquirer companies under studied period
15
2.1 Tables of M & A
72
3.1 Tables of Event Studies
134
5.1 Tables of Market Reaction to M & A announcement
240
6.1 Board of Directors of L&T under RIL
285
6.2 Board of Director of L&T under Birla
286
6.3 Changing pattern of Shareholding in L&T during the Takeover
Attempts
287
6.4 RIL Shareholding Pattern in 2001
288
6.5 L&T Shareholding Pattern in 2001
289
6.6 Daily return data of RIL and L&T
290
6.7 Daily return data of Vodafone
318
6.8 Daily return data of RIL
343

VIII