Merger of Mahindra Satyam

INTRODUCTION Merger The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.

Acquisition An acquisition, also known as a takeover or a buyout, is the buying of one company (the ‘target’) by another. Merger is when two companies combine together to form a new company all together. An acquisition may be private or public, depending on whether the acquiree or merging company is or isn't listed in public markets. An acquisition may be friendly or hostile. Whether a purchase is perceived as a friendly or hostile depends on how it is communicated to and received by the target company's board of directors, employees and shareholders. It is quite normal though for M&A deal communications to take place in a so called 'confidentiality bubble' whereby information flows are restricted due to confidentiality agreements (Harwood, 2005). In the case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Hostile acquisitions can, and often do, turn friendly at the end, as the acquiror secures the endorsement of the transaction from the board of the acquiree company. This usually requires an improvement in the terms of the offer. 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 or longer established company and keep its name for the combined entity. This is known as a reverse takeover. Another type of acquisition is reverse merger a deal that enables a private company to get publicly listed in a short time period.

A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets. Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. The acquisition process is very complex, with many dimensions influencing its outcome. There is also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications: 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, 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.

Distinction between mergers and acquisitions Although often used synonymously, the terms merger and acquisition mean slightly different things. 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. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable. An example of this would be the takeover of Chrysler by DaimlerBenz in 1999 which was widely referred to in the time. A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition.

MERGERS AND ACQUISITIONS IN INDIA: The process of mergers and acquisitions has gained substantial importance in today's corporate world. This process is extensively used for restructuring the business organizations. In India, the concept of mergers and acquisitions was initiated by the government bodies. Some well known financial organizations also took the necessary initiatives to restructure the corporate sector of India by adopting the mergers and acquisitions policies. The Indian economic reform since 1991 has opened up a whole lot of challenges both in the domestic and international spheres. The increased competition in the global market has prompted the Indian companies to go for mergers and acquisitions as an important strategic choice. The trends of mergers and acquisitions in India have changed over the years. The immediate effects of the mergers and acquisitions have also been diverse across the various sectors of the Indian economy. India is now one of the leading nations in the world in terms of mergers and acquisitions.

COMPANY PROFILE Mahindra Satyam (NYSE: SAY), is a leading information, communications and technology (ICT) company providing top-class business consulting, information technology and communication services. Leveraging deep industry and functional expertise, leading technology practices and a global delivery model, they enable companies achieve their business goals and transformation objectives. They are powered by a pool of talented IT and consulting professionals across enterprise solutions, client relationship management, business intelligence, business process quality, operations management, engineering solutions, digital convergence, product lifecycle management, and infrastructure management services, among other capabilities. Their development and delivery centers in the US, Canada, Brazil, the UK, Hungary, Egypt, UAE, India, China, Malaysia, Singapore and Australia serve numerous clients, including several Fortune 500 companies. They are part of the $7.1 billion Mahindra Group, a global industrial conglomerate and one of the top 10 industrial firms based in India. The Group’s interests span financial services, automotive products, trade, retail and logistics, information technology and infrastructure development.

Subsidiaries: • • • • • • • • • • • • • • • •

Satyam BPO Limited Satyam Computer Services (Shanghai) Company Limited Satyam Computer Services (Nanjing) Company Limited Satyam Technologies, Inc. Knowledge Dynamics Pte. Ltd. Knowledge Dynamics Private Limited Citisoft Plc. Citisoft Inc. Satyam Computer Services (Egypt) S. A. E. Nitor Global Solutions Limited Satyam Servicos De Informatica LTDA Bridge Strategy Group LLC Satyam Computer Services De Mexico S.DE R.L.DE C.V Satyam Computer Services Belgium BVBA C&S System Technologies Private Limited S&V Management Consultants NV

About Mahindra Group Genesis 

Incorporated in 1945, M&M started production of vehicles in 1949

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Mahindra Group’s revenues increased fourfold over the past six years to USD 7.1 billion (FY2010)

Businesses 

Automotive: India’s fourth largest Automobile company

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Farm equipment: One of the 3 largest global manufacturers

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Financial services: Leader in rural financing

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IT: Leader in Telecom Software (Tech Mahindra), diversified service offerings through Satyam acquisition

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Forging: One of the 5 largest global manufacturers

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Infrastructure development: Promoter of two largest IT SEZs in India

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Others: Limited presence in – Retail, Logistics, Defense, Engineering & Chemical Products

Employees 

Around 100,000+ professionals across the globe

Awards and recognition 

Ranked amongst India’s 6 most respected companies by Forbes.

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ICSI National Award for Excellence in Corporate Governance – 2008.

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One of the few Indian companies to receive an A+ GRI checked rating for its first Sustainability Report for the year 2007-08.

About Tech Mahindra Genesis 

Incorporated in 1986 as a joint venture of Mahindra Group & BT

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IPO in 2006, rechristened to “Tech Mahindra”

Business 

Comprehensive service offerings for TSPs, TEMs & ISVs

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Consulting, Application Development & Management, Network Services, Solution Integration, Product Engineering, Managed Services, Remote Infrastructure Management and BPO.

Leader in Telecom offshoring 

Ranks 5th among the Top 20 IT Software and Service exporters in India (excluding BPO revenues)

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Stands 11th in the IT-BPO Employers category

Global presence 

Operations in more than 25 countries

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Global presence with 16 sales offices & 13 delivery centers

Customer profile 

Clients include 11 Fortune Global 500 companies (5 US)

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Customers include 12 of Top 20 wireless TSPs & Top 5 TEMs

Major clients 

BT, Cisco, Alcatel Lucent, Microsoft, Motorola, O2, Qwest, StarHub, TNZ, Hutchison, Unisys, Vodafone, BSNL, Airtel, MTN, Etisalat, Zain, TMobile, NSN, Cox, Telus, Huawei.

Employees 

Around 33,000+ professionals across the globe.

Milestones 1987 •

Incorporated as private limited company

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Offshore software project with John Deere & Co.— Satyam’s first Fortune 500 customer—announced Recognized as a public limited company; debuts on the Bombay Stock Exchange (BSE)

1991

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IPO oversubscribed by 17 times

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Satyam signs joint venture with Dun & Bradstreet for IT Services Awarded ISO 9001 Certification

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Satyam Technology Center (STC) inaugurated

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Assessed at SEI CMM® Level 5 Satyam Infoway (Sify) becomes the first Indian Internet company listed on NASDAQ Satyam forms joint venture with TRW Inc.

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Presence established in 30 countries

1993

1999

2000 •

Associate count reaches 10,000

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Satyam receives National HRD Award from Indian government

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Satyam becomes world’s first ISO 9001:2000 company to be certified by BVQI Listed on the NYSE (SAY)

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APAC headquarters established in Singapore

2001

2002 • •

Satyam BPO launched in Hyderabad First Customer Summit conducted

2005 • •

FLC framework launched across the entire organization Largest global development center outside India (in Melbourne) begins operation

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Citisoft and Knowledge Dynamics acquired

2006 •

Sets up the first “Global Innovation Hub” in Singapore

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Sets up operations in Guangzhou, China

2007 • • • • •

Satyam becomes the Official IT Services Provider for the FIFA World Cups, 2010 (South Africa) and 2014 (Brazil) Announces acquisition of UK-based Nitor Global Solutions Limited Opens Global Development Center (GDC) in Malaysia Opens Development Center in Vizag, India Becomes the first Asian company to feature in the Training Magazine’s list of Top 125 companies for learning

2008 • • •

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2009

Adopts new tagline “Business Transformation. Together.” Enters agreement to acquire S&V Management Consultants, a Ghent, Belgium-based supply chain management (SCM) consulting firm Becomes the first company to launch a secondary listing on Euronext Amsterdam under NYSE Euronext’s new “Fast Path” process for cross listings in New York and Europe Becomes the first company to be invited by the National Stock Exchange (NSE) to ring the opening bell Enters into a definitive agreement to acquire Chicago-based Bridge Strategy Group

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Unveils the new brand identity, “Mahindra Satyam” Tech Mahindra announces an open offer to buy an additional 20% in Satyam from existing shareholders Tech Mahindra acquires a 31% stake (Preferential Shares) in Satyam Venturbay Consultants Private Limited, a Tech Mahindra subsidiary, emerges as the highest bidder to acquire a controlling stake in Satyam.

2010 FIFA World CupTM Mahindra Satyam is the first Indian company to join FIFA as the Official IT Services Provider for the 2010 FIFA World Cup™, South Africa. Mahindra Satyam was entrusted with the responsibility of developing the core IT event management system for FIFA and the Local Organizing Committee of South Africa. As part of this partnership, Mahindra Satyam developed the Event Management Solutions system with various software modules focusing on specific areas such as Accreditation, Transportation, Volunteer Management and Space & Material Management. The Mahindra Satyam team developed solutions that enriched the experience of all fans arriving in the stadia to watch the 64 matches and ensured seamless movement of all the delegates, staff and volunteers. Additionally, these solutions were available at the right place and the right time, leaving a lasting impression in the world of sports and a legacy in South Africa. This demonstrated Mahindra Satyam’s technology prowess to enhance the FIFA World Cup™ experience from the end-user perspective. Mahindra Satyam developed Extranets and the Intranet for FIFA. In addition, Mahindra Satyam supported application users and deployed infrastructure and resources at the venue. The company also provided helpdesk services for the event. All these initiatives reiterate Mahindra Satyam’s commitment to bring technological services to the sport. Mahindra Satyam leveraged its deep industry and functional expertise, leading technology practices and an advanced, global delivery model to help FIFA transform their solutions and provide a unique experience to football fans across the globe.

Corporate Social Responsibility Mahindra Satyam Foundation, the CSR arm of Mahindra Satyam, is a support framework aiding the vulnerable and underprivileged sections of the society. Its various initiatives are aimed at transforming the quality of life, deploying technology and harnessing volunteerism. The Foundation believes in engaging with the problem rather than cheque -book charity, and uses all core competencies of Mahindra Satyam—Technology, Innovation and Leadership—as change agents, enabling transformation for the deprived, wherever required. Volunteering, creating enabling platforms, creating alliances, partnerships are our other strengths to focus and create maximum impact for Social Transformation. Core Values and Guiding Principles • • •

Involving People: Volunteers, Community, Civilians, NGOs and Government Applying Knowledge: Leveraging the core competencies of Satyam Technology, Process and Managerial competency Making Things Happen: All initiatives are outcome-oriented, scalability driven and capable of execution

Awards and accolades such as the Business World-FICCI-SEDF 2006 award for ‘Best Corporate Citizen’and the TERI Corporate Award 2006-2007, stand testimony to our commitment to make a positive difference to the society. The Foundation has chapters in Hyderabad (Head Quarters), Bengaluru, Bhubaneswar and Chennai. The Foundation focuses its activities in the core areas of Education, Livelihoods, Health (Blood Donation Camps), Empowering Persons with Disability, and Disaster Management.

Education The Education program works with students of government schools, to improve the quality of education, to bring about a decrease in school dropout rates, increase pass percentage through various interventions such as Notebook and Study Material Distribution, Motivational Tours, Kid Smart Centers, Infrastructure Support, Summer Camps, Awareness Programs on Health and Environment, regular mentoring by Mahindra Satyam volunteers who teach English, Mathematics, Science, and basic Computer skills. Livelihood The Livelihood program of Mahindra Satyam Foundation believes in enabling individual capacities. An individual or an organization is modeled around specific skills and practical knowledge. Their policy recognizes the fact that by providing skills to the underprivileged individual, they add value to the individual as well as job markets. Their initiatives urge the need to maximize the potential of under privileged people and instill confidence so they can compete in emerging job markets. Livelihood Program Initiatives speak for themselves. The initiatives focus on increasing individual skills. They believe that in enabling an individual they can create confident and skilled workers. Livelihood Program is deeply experienced in identifying the needs of underprivileged people and transferring appropriate skills. Empowering Persons with Disability All initiatives under this program endeavor to integrate Persons with Disabilities into the society, to live as dignified and responsible citizens. Empowering Persons with Disability program has been striving to provide livelihoods to Persons with Disability through employment and self employment. This is achieved by identifying, training and providing livelihood opportunities to Persons with Disabilities through employment and self employment both in organized and unorganized sectors. The Program works to sensitize both corporates and communities through workshops, observing important days and fund raising events. Health (Blood Donation Drives) Mahindra Satyam Foundation, in association with The Red Cross Society of India, and other reputed Blood Banks regularly conducts blood donation drives across all Mahindra Satyam locations. Key Achievements:

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The largest corporate blood donor recognized by Red Cross Society (5,000 Units) More than 1,000 Thalassemic children supported with fresh blood H1N1 Swine flu awareness and hand-washing in schools and orphanages 2009-2010 - Conducted 21 blood donation camps across chapters 1,929 units of blood donated to various blood banks

Business Continuity Management 

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Business Continuity and recovery practice capitalizing our world class global infrastructure backed by a resilient network, best-of-breed practices; and our experience in servicing key Fortune 100 companies in the USA and other locations Third company in India in the IT and ITES sector to be certified to BS 25999, the latest standard in Business Continuity Management from the British Standards Institute

BCM operations at Mahindra Satyam is maintained and managed as follows    

BCM processes integrated into the Quality Management System, ensuring consistency and compliance Multi-layered Crisis Management Teams to monitor and manage business disruptive situations Integration of Customer and Location Business Continuity Plans Business Continuity Planning integrated with the Project Management Life cycle.

The Merger (Tech Mahindra & Satyam) Mahindra Group Company has approached Satyam Computer Services, India’s fourth-largest IT services company, for a cashless merger, according to reports. The merger between Tech Mahindra and Satyam, formed the third-largest IT company in the country. Tech Mahindra Ltd. (TechM) formerly known as Mahindra British Telecom (MBT) is a joint venture between Mahindra & Mahindra Limited (M&M) and British Telecommunications plc (BT), UK with M&M holding 44% and BT holding 39% of the equity. Tech Mahindra has its headquarters at Pune, India. Tech Mahindra has grown rapidly to become the 6th largest software exporter in India (Nasscom, 2007) and 2nd largest Telecom Software Provider in India (Voice & Data, 2007). It has more than 24,000 employees.

The company had created a special purpose vehicle to acquire Satyam, which some analysts had felt was done to ring-fence itself from any negative fallout of the acquisition. For instance, J.R. Varma of the Indian Institute of Management, Ahmedabad, had blogged around the time of the acquisition, “If Satyam’s liabilities turn out to be larger than the cash and other assets, Tech Mahindra can walk away and put Satyam into bankruptcy. If the liabilities turn out to be small, then Tech Mahindra can merge Satyam into itself and absorb the surplus assets.” With the company already merged, one is tempted to think that the management’s assessment of the “net worth” of the company has enhanced. This view is supported by another statement by the company that client attrition has practically stopped since the time of the acquisition. Besides, the company’s open offer for 20% of Satyam’s capital is unlikely to get any response. As a result, Tech Mahindra has subscribed to a fresh issue of shares and Satyam will end up with Rs.2,900 crore in cash (including the initial investment for a 31% stake). Currently, there’s cash sitting in Satyam’s books, which has effectively been funded by debt on Tech Mahindra’s books. In the event of a merger, the cash can be used to pay back the debt. It must be noted here that Tech Mahindra is making an attempt to reduce its reliance on debt through a planned QIP (qualified institutional placement) of about Rs.1,000 cr. On April 13th 2009 Tech Mahindra took over major stakes of Satyam and finally on June 21st 2009 a new brand Mahindra Satyam was launched.

CONCLUSION The merger of Tech Mahindra & Satyam definitely proved to be a beneficial deal for both the companies as they saved time and money by just creating a new but reliable brand. Creating a totally new entity would have been much more difficult because it is much more difficult to establish a successful brand name. As both the companies have a good image in the market it was a better option to merge both the companies and create a new

brand. Due to the financial status of Satyam, Mahindra was able to take over the majority stakes of Satyam and take over the company.