Flipkart, Myntra merge in Rs 2,000crore dealTNN | May 23, 2014, 06.31 AM IST

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The deal was influenced by two large common shareholders, Tiger Global and Accel Partners.RELATED

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BANGALORE: Two of India's biggest e-commerce companies, Flipkart and Myntra, have merged to create an entity with annualized sales of $1.5 billion, bringing them closer and in some cases rivalling the much older offline retailers of those like Future Group, AdityaBirla, and Reliance.

Their combined might also places them in a better position to take on the likes of Amazon, which has become increasingly aggressive inIndia's booming e-tailing market.

The deal was influenced by two large common shareholders, Tiger Global and Accel Partners.

Flipkart and Myntra did not disclose the details of the deal, but analysts estimate that Myntra has been valued at about Rs 2,000 crore ($330 million). The impending deal was first reported by TOI in January this year. This is the biggest M&A deal in India's e-commerce story to date, surpassing the $100 million that the Ibibo Group spent to buy RedBus, again a story which first broke on this newspaper in June last year.

"We want to be a leader in every category that we are present in. Fashion is definitely the category of the future and we want to be the biggest players in this space," said Sachin Bansal, who co-founded Flipkart with Binny Bansal. This acquisition of Myntra, involving a complicated share-swap process, also values Flipkart atover $2 billion, possibly the first venture-funded Indian startup to cross that figure.

Two other Bangalore-born peers, Mu Sigma and InMobi, have been eyeing similar valuations as they explore fresh fund raising or listing plans in the near future.

While Flipkart is into a number of categories, Myntra is focused onfashion e-tailing. With Myntra's share of 30% of online fashion sales, Flipkart now has a 50% share in a segment that's clocking nearly 100% annualized growth. With this deal, Flipkart effectivelyhas stolen the thunder from Gurgaon-based Snapdeal, which was looking to be the first e-tailer in India to cross Rs 1,000 crore

in fashion sales by the end of this year.

As part of the acquisition, Myntra co-founder Mukesh Bansal will join Flipkart's board and will also oversee Flipkart's fashion business. Flipkart and Myntra will remain as two separate entities,but people holding stock options in Myntra will now hold the same in Flipkart.

"We will retain the same management team at Myntra. Neither employee roles nor the company's road map will change. The idea is to maintain distance between the two businesses and preserve a unique culture," said Mukesh Bansal. "Both companies are running ata very fast speed and winning on the competitive landscape. So we don't want to change that at all," he added.

Flipkart's acquisition of Myntra is also a great story of two IITians, both Bansals, in their early thirties buying a cross-town rival founded and run by another IITian and another Bansal in his thirties, to create a single entity that accounts for 50% of sales of the e-tailing industry.

However, the deal making wasn't a smooth road as legal due diligence involving a plethora of foreign investors with different domiciles threatened it at various stages. In fact, Myntra went to on raise a $50 million round from PremjiInvest and others even as it had the Flipkart offer on the table. Myntra continued to engage with newer investors for additional funds until the transaction details fell in place in early April. Its CEO Mukesh Bansal first hinted at the possibility of deal with Flipkart in an interview to TOI on April 7.

Sandeep Ladda, India technology leader at consultancy firm PwC India, said the merger represented a process of consolidation in the sector. "Only the niche players or those with good financial muscle would be able to survive, while the rest would look for acquisitions or being taken over," he said.

Sachin Bansal on Mukesh: We have had a lot of respect for each other for a long time and we are excited about working with each other now. We (Flipkart) learnt our first supply chain scaling lessons from Myntra back in 2008. Myntra is a leader in fashion

today and we would love to learn more from Myntra and Mukesh.

Binny Bansal: This acquisition is all about scaling up fast and we really think that the future of e-commerce is fashion and we can jointly build it faster. We saw this as an opportunity to accelerate our roadmap; things that would have taken us five years to achieve, we will now achieve in two to three years.

Mukesh Bansal: Last few months I have spent a lot of time with Sachin and Binny and grown to respect what Flipkart has done. And Igot convinced that if we come together and work as one entity, it will be a game changing equation in the Indian e-commerce space.

Correction

The graphic carried along with the report, 'Flipkart, Myntra merge in a Rs 2k crore deal', published on May 23, 2014, inadvertently mentioned the approximate valuation of Myntra at $350bn instead of $350m. We are sorry for the mistake.Post a comment

Scrip Code Company Name Merged Name

504377 A.T.E. trading & Manufacturing Co. Ltd. Motex Engineering Co. Pvt. Ltd.

516076 Ador Technopack Ltd J.B. Advani & Company Pvt. Ltd.

531561 Akash Housing Ltd. Vijay Shanthi Builders Ltd.

524596 Alcheme Organics Ltd. Aarti Industries Ltd.

524538 Allied Resins & Chemicals Limited

ARCL Organics Limited (an unlisted Company)

500006 Alpha Drug India Ltd. Punjab Chemicals & Crop Protection Ltd.

532201 Ambuja Cement Eastern Ltd. Gujarat Ambuja Cement Ltd.

500122 Ambuja Cement Rajasthan Ltd. Gujarat Ambuja Cement Ltd.

511587 Ambuja Shipyard & Software Ltd. Galaxy Appliances Ltd.

531534 American Remedies Ltd. Dr. Reddys Laboratories Ltd.

521103 Amrapali Developers (India) Limited Amrapali Industries Limited

500061 Andhra Valley Power Supply Co. Ltd. Tata Power Co. Ltd.

519510 Anmol Dairy Ltd. Dairy Den Ltd.

513188 Annapurna Foils Ltd. Indian Aluminium Company Ltd.

503749 APR Ltd. Ballarpur Industries Ltd.

523094 Aristocrat Luggage Limited VIP Industries Limited

507270 Arlem Breweries Ltd. Aurangabad Breweries Ltd.

514193 Arrow Webtex Ltd Creole Holdings Company Private Ltd

500018 Arvind Polycot Limited Arvind Products Ltd.

532489 Arvind Products Limited Arvind Limited

532190 Aryan Pesticides Ltd. Deepak Nitrite Ltd.

532753 Ashim Investment Co. Ltd. Bengal & Assam Company Ltd.

500062 Ashok Leyland Finance Ltd. IndusInd Bank Ltd.

500021 Asian Coffee Ltd. Consolidated Coffee Ltd.

532385 Aztecsoft Limited Mindtree Limited

Scrip Code Company Name Merged Name

507500 Bajaj Hindusthan Sugar & Industries Limited Bajaj Hindusthan Limited

500035 Balaji Distilleries Limited (BDL)

Chennai Breweries Pvt. Ltd. and United Spirits Limited.

531966 Bank of Madura Ltd. ICICI Bank Ltd.

500070 Bank of Punjab Ltd. Centurion Bank Ltd.

500019 Bank of Rajasthan Limited ICICI Bank Limited

502722 Banswara Textiles Mills Ltd. Banswara Syntex Ltd.

530415 Bayer Cropscience Ltd. Bayer (India) Ltd.

515035 Bell Ceramics Limited Orient Ceramics and Industries Limited (newname Orient Bell Limited)

524750 Bharat Starch Industries Ltd. English Indian Clays Ltd.

511479 Birla Century Finance Ltd. Kesoram Industries Ltd.

500064 Birla Global Finance Ltd Aditya Birla Nuvo Ltd

505426 Birla Machining & Tooling Limited. Birla Precision Technologies

505426 Birla Machining & Toolings Birla Machining & Toolings

519226 Bishnauth Tea Ltd. Eveready Industries India Ltd.

500066 Blow Plast Ltd V.I.P Industries Ltd

524512 Bombay Drugs and Pharmas Ltd. Strides Arcolab Ltd.

509475 Bombay Paints Limited Grauer & Weil (India) Limited

500072 Bongaigaon Refinery & Petrochemicals Limited Indian Oil Corporation Limited

500384 Brabourne Enterprises Limited RPG Itochu Finance Limited

531194 Brahmaputra Infraproject Limited Brahmaputra Infrastructure

507782 Brite Automotive and PlasticsLtd. Bright Brothers Ltd.

500076 Burroughs Wellcome (India) Ltd. GlaxoSmithkline Pharmaceuticals Ltd.

San Francisco:Google Inc on Tuesday said it is acquiring satellite company Skybox Imaging for $500 million in cash.

Google, the world's No.1 internet search company, said that Skybox's satellites will provide images for Google's online mapping service.

Google said that Skybox's technology could also eventually be used to provide internet access and help with disaster relief.

The internet giant also said the deal's closing is subject to regulatory approvals in the United States.

Copyright @ Thomson Reuters 2014

New Delhi:Asian Paints Ltd will acquire Ess Ess Bathroom Products Pvt Ltd's entire front-end sales business for an undisclosed sum.

"The company on May 14, 2014 has entered into a binding agreement with EssEss Bathroom Products Pvt. Ltd and its promoters to acquire its entire

front-end sales business including brands, network and sales infrastructure," Asian Paints said in a filing to the BSE on Wednesday.

It said the acquisition is subject to satisfaction of certain conditions precedents and applicable statutory approvals.

Ess Ess is a prominent player in the bath and wash business segment in India and has high quality products in this segment, the company said.

Shares in Asian Paints, on Wednesday, ended at Rs. 556.95 apiece on the BSE, up 3.3 per cent from the previous close.

Story first published on: May 14, 2014 16:06 (IST)

Tags: Ess Ess Bathroom Products Pvt Ltd , Asian Paints Ltd, M&A, Mergers and acquisitions

IBM Overtakes Trend Micro as No. 3 Security Software Maker

Merger and acquisition has become the most prominent process in the corporate world. The key factor contributing to the explosion of this innovative form of restructuring is the massive number of advantages it offers to the business world. 

Following are some of the known advantages of merger and acquisition:

The very first advantage of M&A is synergy that offers a surplus power that enables enhanced performance and cost efficiency. When two or more companies get together and are supported by each other, the resulting business is sure to gain tremendous profit in terms of financial gains and work performance.Cost efficiency is another beneficial aspect of merger and acquisition. This is because any kind of merger actually improves the purchasing power as there is more negotiation with bulk orders. Apart from that staff reduction also helps agreat deal in cutting cost and increasing profit margins of the company. Apart from this increase in volume of production results in reduced cost of production per unit that eventuallyleads to raised economies of scale.With a merger it is easy to maintain the competitive edge because there are many issues and strategies that can e well understood and acquired by combining the resources and talentsof two or more companies.A combination of two companies or two businesses certainly enhances and strengthens the business network by improving

market reach. This offers new sales opportunities and new areas to explore the possibility of their business.With all these benefits, a merger and acquisition deal increases the market power of the company which in turn limitsthe severity of the tough market competition. This enables themerged firm to take advantage of hi-tech technological advancement against obsolescence and price wars.

 Benefits of Mergers and AcquisitionsBenefits of Mergers and Acquisitions are manifold.Mergers and Acquisitions can generate costefficiency througheconomies of scale, can enhancethe revenue through gain in market share and caneven generate tax gains.

The principal benefits from mergers andacquisitions can be listed as increased valuegeneration, increase in cost efficiency and increasein market share.Benefits of Mergers and Acquisitions are the mainreasons for which the companies enter intothese deals. Mergers and Acquisitions may generatetax gains, can increase revenue and can reducethe cost of capital. The main benefits of Mergersand Acquisitions are the following: 

Greater Value Generation

Mergers and acquisitions often lead to an increasedvalue generation for the company. It is expectedthat the shareholder value of a firm after mergers

or acquisitions would be greater than the sum of theshareholder values of the parent companies. Mergersand acquisitions generally succeed in generatingcost efficiency through the implementationof economies of scale. 

Merger & Acquisitionalso leads to tax gains and can even lead to arevenue enhancement through market share gain.Companies go for Mergers and Acquisition from theidea that, the joint company will be able togenerate more value than the separate firms. When acompany buys out another, it expects that the newlygenerated shareholder value will be higher than thevalue of the sum of the shares of the two separatecompanies. 

Mergers and Acquisitionscan prove to be really beneficial to the companieswhen they are weathering through the tough times. Ifthe company which is suffering from various problemsin the market and is not able to overcome thedifficulties, it can go for an acquisition deal. Ifa company, which has a strong market presence, buysout the weak firm, then a more competitive and costefficient company can be generated. Here, the targetcompany benefits as it gets out of the difficultsituation and after being acquired by the large

firm, the joint company accumulates larger marketshare. This is because of these benefits that thesmall and less powerful firms agree to be acquiredby the large firms. 

Gaining Cost Efficiency

When two companies come together by merger oracquisition, the joint company benefits in termsof cost efficiency. A merger or acquisition is ableto create economies of scale which in turn generatescost efficiency. As the two firms form a new andbigger company, the production is done on a muchlarger scale and when the output productionincreases, there are strong chances that the cost ofproduction per unit of output gets reduced. 

An increase in cost efficiency is affected throughthe procedure of mergers and acquisitions. This isbecause mergers and acquisitions lead to economiesof scale. This in turn promotes cost efficiency. Asthe parent firms amalgamate to form a bigger newfirm the scale of operations of the new firmincreases. As output production rises there arechances that the cost per unit of production willcome down 

Mergers and Acquisitions are also beneficial When a firm wants to enter a new market

When a firm wants to introduce new products throughresearch and development

When a forms wants achieve administrative benefits To increased market share To lower cost of operation and/or production To gain higher competitiveness For industry know how and positioning For Financial leveraging To improve profitability and EPS

An increase in market share is one of theplausible benefits of mergers and acquisitions. Incase a financially strong company acquires arelatively distressed one, the resultantorganization can experience a substantial increasein market share. The new firm is usually more cost-efficient and competitive as compared to itsfinancially weak parent organization. 

It can be noted that mergers and acquisitions proveto be useful in the following situations:Firstly, when a business firm wishes to make itspresence felt in a new market. Secondly, when abusiness organization wants to avail someadministrative benefits. Thirdly, when a businessfirm is in the process of introduction of newproducts. New products are developed by the R&D wingof a company. 

Employee Benefits under Mergers and Acquisitions inUS 

The 'Employee Retirement Income Security Act' wasenacted in 1974. It is also known as ERISA. Sincethen programs for employee benefit have been a majorcomponent of the balance and income statements of USbusiness organizations. Current law promulgationshave attached supreme importance to the presence ofpost retirement pension schemes and welfare benefitschemes as a part of corporate obligation. As aresult employee benefit programs are affecting theviability of mergers and acquisitions in the USA. 

Expenses accruing due to employee benefit programsmay not be fully reflected in a company's balancesheet. Some employee benefit obligations may ariseout of a change in the corporate structure of afirm. Retirement income schemes and benefit plansmay vary from company to company. Companies goingfor mergers and acquisitionsstrive to iron out theinternal differences to maintain a specified levelof employee satisfaction. 

Benefits of Mergers and AcquisitionsBenefits of Mergers and Acquisitions are manifold.Mergers and Acquisitions can generate costefficiency througheconomies of scale, can enhancethe revenue through gain in market share and caneven generate tax gains.

The principal benefits from mergers andacquisitions can be listed as increased value

generation, increase in cost efficiency and increasein market share.Benefits of Mergers and Acquisitions are the mainreasons for which the companies enter intothese deals. Mergers and Acquisitions may generatetax gains, can increase revenue and can reducethe cost of capital. The main benefits of Mergersand Acquisitions are the following: 

Greater Value Generation

Mergers and acquisitions often lead to an increasedvalue generation for the company. It is expectedthat the shareholder value of a firm after mergersor acquisitions would be greater than the sum of theshareholder values of the parent companies. Mergersand acquisitions generally succeed in generatingcost efficiency through the implementationof economies of scale. 

Merger & Acquisitionalso leads to tax gains and can even lead to arevenue enhancement through market share gain.Companies go for Mergers and Acquisition from theidea that, the joint company will be able togenerate more value than the separate firms. When acompany buys out another, it expects that the newlygenerated shareholder value will be higher than the

value of the sum of the shares of the two separatecompanies. 

Mergers and Acquisitionscan prove to be really beneficial to the companieswhen they are weathering through the tough times. Ifthe company which is suffering from various problemsin the market and is not able to overcome thedifficulties, it can go for an acquisition deal. Ifa company, which has a strong market presence, buysout the weak firm, then a more competitive and costefficient company can be generated. Here, the targetcompany benefits as it gets out of the difficultsituation and after being acquired by the largefirm, the joint company accumulates larger marketshare. This is because of these benefits that thesmall and less powerful firms agree to be acquiredby the large firms. 

Gaining Cost Efficiency

When two companies come together by merger oracquisition, the joint company benefits in termsof cost efficiency. A merger or acquisition is ableto create economies of scale which in turn generatescost efficiency. As the two firms form a new andbigger company, the production is done on a muchlarger scale and when the output production

increases, there are strong chances that the cost ofproduction per unit of output gets reduced. 

An increase in cost efficiency is affected throughthe procedure of mergers and acquisitions. This isbecause mergers and acquisitions lead to economiesof scale. This in turn promotes cost efficiency. Asthe parent firms amalgamate to form a bigger newfirm the scale of operations of the new firmincreases. As output production rises there arechances that the cost per unit of production willcome down 

Mergers and Acquisitions are also beneficial When a firm wants to enter a new market When a firm wants to introduce new products through

research and development When a forms wants achieve administrative benefits To increased market share To lower cost of operation and/or production To gain higher competitiveness For industry know how and positioning For Financial leveraging To improve profitability and EPS

An increase in market share is one of theplausible benefits of mergers and acquisitions. Incase a financially strong company acquires arelatively distressed one, the resultantorganization can experience a substantial increasein market share. The new firm is usually more cost-

efficient and competitive as compared to itsfinancially weak parent organization. 

It can be noted that mergers and acquisitions proveto be useful in the following situations:Firstly, when a business firm wishes to make itspresence felt in a new market. Secondly, when abusiness organization wants to avail someadministrative benefits. Thirdly, when a businessfirm is in the process of introduction of newproducts. New products are developed by the R&D wingof a company. 

Employee Benefits under Mergers and Acquisitions inUS The 'Employee Retirement Income Security Act' wasenacted in 1974. It is also known as ERISA. Sincethen programs for employee benefit have been a majorcomponent of the balance and income statements of USbusiness organizations. Current law promulgationshave attached supreme importance to the presence ofpost retirement pension schemes and welfare benefitschemes as a part of corporate obligation. As aresult employee benefit programs are affecting theviability of mergers and acquisitions in the USA. 

Expenses accruing due to employee benefit programsmay not be fully reflected in a company's balancesheet. Some employee benefit obligations may ariseout of a change in the corporate structure of afirm. Retirement income schemes and benefit plans

may vary from company to company. Companies goingfor mergers and acquisitionsstrive to iron out theinternal differences to maintain a specified levelof employee satisfaction. 

Reasons Behind MergersAbstract: 

Mergers, acquisitions and takeovers have always keptthe interest of economists alive. Mergers may proveto be beneficial depending on the strategiesadopted, but it would not be right to say that allmergers have been successful. 

There are many reasons behind mergers andtakeovers. For instance, a particular company isvery good at administration while some other companyis good at marketing strategies or in operations. Ifthe expertise of both are amalgamated, it producessynergy. A new company is formed in the process,which has a potential much higher and superior towhat the individual companies previously had. 

By applying the rules of synergy effectively, amerger can be made a success. Several other reasonsfor mergers are as follows: Enhancing company productivity. There is also ageneral tendency that the merged companies wouldmonopolize the market, thereby ousting others.

Political factors.

Cutting down expenses and increasing revenues. When a company is not self sufficient to operate on

its own. Hindrances may be in the form ofinsufficient investment capacity, excessivecompetition due to which the company is not able tokeep pace with other companies. Under suchcircumstances, the subsidiaries may merge with theparent company for better output.

Types of Mergers Mergers may be of the following types: 

(A) Vertical merger 

(B) Horizontal merger 

(C) Market extension merger 

(D) Conglomeration 

(E) Product extension merger 

(F) Reverse merger: 

(F1) Triangular or subsidiary merger 

(Fi) Forward triangular or subsidiary merger 

(Fii) Reverse triangular or subsidiary merger. The Advantages of Company Mergers

by Justin Schamotta, Demand Media

Mergers typically involve two relatively equal companies making the mutually beneficial decision to become a single legal entity. They are different from acquisitions, which usually involve a larger company absorbing a smaller company, sometimes against the will of the smaller company’s management. Mergers are undertaken to improve long-term shareholder value and overall company performance.

Reduced CostsA merged company can reduce many of its expenses. Budgets for things like marketing might be trimmed, while the new, larger company enjoys greater purchasing power, which lowers the costs of raw materials and other necessities. More often than not, a merger results in staff layoffs as positions become redundant in the new single entity. Merged companies can alsoshare office space and eliminate duplicate manufacturing facilities.

Market PenetrationBy merging, the new company is theoretically provided with access to more customers. This is true if the individual companies had been demonstrably successful in separate markets, as opposed to roughly equally competing in thesame one. For example, according to the BBC, the merger of the German automaker Daimler Benz with the American automaker Chrysler Corp. allowed the new company, Daimler Benz, to access markets in both Europe and North America.

Related Reading: What Is the Rationale for Corporate Mergers?DiversificationMerged companies can offer a greater range of products and services. Because these may be complimentary, the merged company may be able to capture more consumers than they would as individual entities. For example, the result of merging two travel companies allows a greater range of options to be presentedto the consumer at the point of sale.

Skills and KnowledgeThe merged company can make use of the very best minds from both companies andmake up for shortfalls in the individual companies' skill-sets. For example, allowing the scientists from two previously separate pharmaceutical research and development departments to work together is more likely to generate more innovative products. The combined skills of the marketing departments will then be able to sell these products more effectively. The net result is that shareholder value is increased.

References (4)About the AuthorJustin Schamotta began writing in 2003. His articles have appeared in "New Internationalist," "Bizarre," "Windsurf Magazine," "Cadogan Travel Guides" and"Juno." He was a deputy editor at Corporate Watch and co-editor of "BULB" magazine. Schamotta has a Bachelor of Science in psychology from Plymouth University and a postgraduate diploma in journalism from Cardiff University.

Photo CreditsIn order to adapt to competitive pressures, advancements in technology, and economic conditions, privately-held companies are often forced to adapt their business by acquiring or partnering/merging with another company in order to remain competitive or simply to grow their business. A private company may also sell itself to a larger public company for the same reasons. Private companies may reconfigure their assets, operations, and relationships with thestockholders in search of higher growth, new technology, business expansion, and greater revenues.Mergers, acquisitions, and corporate restructurings often enable a private company to develop a competitive advantage by increasing flexibility, growth, and shareholder value. Common M&A motives include: strategic growth, talent growth ("acq-hire"), preparation for an IPO or exit, and entering a new geographic or demographic market (buy vs. build).

Types of Private Company M&A and Similar Transformative Transactions

Expansion Transactions

Expansion is an increase in the size of a private company’s business due to a transformative transaction. There are a variety of reasons private companies choose to expand through an expansion transaction rather than naturally ("organically"). First of all, growth happens much faster, virtually overnightin some cases, whereas natural organic growth takes time as its sales grow. A private-held company may want to eliminate a competitor, enter a new geographic market, introduce a new product line, or bring on the talent and management team that results from an expansion transaction.Expansion can be accomplished through mergers, asset acquisitions, tender offers or joint ventures. The following methods can be used to help a private company grow without having to create a whole other business entity. Merger—A private company merger is when two or more private companies

combine to form a single entity under a consolidated management and ownership. A merger can take place through an amalgamation or absorption.

Amalgamation—An amalgamation is when two or more private companies enter into the merger agreement to form a completely new entity. In this type of merger both private companies lose their identity and a new private company is formed to manage the consolidated assets. Amalgamation tends to occur when both private companies are of equal size.

Absorption—Absorption is when the merger occurs between a two entities of dissimilar size. In such a case, the larger private company would absorb the smaller one. The fusion dissolves the smaller private company and places all its assets in control of the larger private company. Absorption may also take a smaller private company and make it a stand alone operating division or subsidiary of a larger private company.

Acquisition—A private-market acquisition is when a company (public or private) buys up the stock of a private company. An acquisition may also take the form of an "asset acquisition", where rather than buying the stock, the buyer simply buys the entirety or a portion of the assets of another private company. The assets may be tangible such as plants and machinery, or intangible assets such as patents and trademarks. The targetprivate company may then continue as a smaller company or dissolve.

"Acq-hire"—An "acq-hire" (or acquisition-by-hire) may occur especially when the target private company is quite small 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.

Tender Offer—A tender offer is an offer by an acquiring company to the general shareholders of a target private company to purchase a majority ofthe equity at a premium to market value. Tender offers are an attempt to gain management control through holding the majority of voting equity. Note that tender offers are less common for private companies than they are for publicly traded companies.

Joint Venture—A joint venture is when two or more private companies enter into an agreement to allot a portion of resources towards the achievement of a particular goal over a designated period of time. Synergies occur when businesses capitalize on joint opportunities or other combined

efforts to obtain an effect greater than working alone, whether it is increased revenue or decreased costs.

Key Differences Between Mergers and Acquisitions

Although often very similar, mergers and acquisitions are two distinctly separate types of transactions. In the purest sense, a "merger" refers to a merger of equals: two companies of the same size come together, surrender their shares, and issue new shares for a new, combined company. In a merger, the merging organizations surrender their shares and issue new shares for a new, combined company.A merger of equals is actually quite rare since most deals that are reported as a merger are actually acquisitions, where one firm actually purchases and assumes ownership of the other. Acquisitions are often publicized as mergers because they’re easier for the target firm and PR teams to swallow and are believed to help promote a more successful integration of the firms’ operations. In some acquisitions, the acquirer will create a Merger Sub for the transaction. A Merger Sub is a non-operating legal entity that acts as an investment vehicle for the acquirer, allowing it to merge the target with the Merger Sub entity, labeling the acquisition as a merger.Many small private firm targets are actually acquired as an asset purchase rather than a formal acquisition. An asset purchase transaction may take placein lieu of an acquisition if the target firm’s accounting practices are not incompliance with Sarbanes-Oxley or if the acquiring firm couldn’t afford to spend the time or resources required for a full due diligence process. After the asset purchase transaction is complete, the target company will often still exist, although without active operations, in order to pay off its remaining bills before dissolution and the distribution of remaining funds to shareholders.

Types of Mergers

Horizontal Merger—A horizontal merger is when two private companies from the same business class or market enter into a merger agreement. In a horizontal merger, the merged private companies benefit from economies of scale and increase total market share by consolidating facilities,

combining operations, increasing working capital, reducing competition, orreducing advertisement costs, etc.

Vertical Merger—A vertical merger occurs when two firms from different stages of the same business class, activity or operation enter into a merger agreement. These types of private companies typically have buyer-seller or supply chain relationships before the merger. Generally, privatecompanies attempt vertical mergers or hostile takeovers of other firms to maximize backward or forward integration along their supply chain. The acquiring private company reaps the benefits of a reduced inventory and more efficient allocation working capital.

Conglomerate Merger—A conglomerate merger is when two private companies that operate in different or unrelated business lines enter into the merger agreement. Firms choose to enter into a conglomerate merger to benefit from the access to greater financial resources. Firms, by expanding into new markets and different businesses, create a diverse portfolio of products that balance business risk.

Key Differences Between Public and Private M&A

Both Public and private companies engage in M&A transactions, but there are several key differences to note between the processes for each. These characteristic differences are expanded upon below:

Public Company M&A Private Company M&A

Due to the high liquidity of publicly traded stock, public firms may more easily use their shares as M&A currency.

Although in some cases, a private company may use its stock as currency for an M&A transaction, an illiquiditydiscount applies. A valuation method that consists primarily of discounted cash flow and asset valuation is most likely to apply and the private firm will most often use cash to acquire a given target.

Can raise money from the public marketto help finance an M&A transaction.

Cannot raise money from the public market and must resort to debt

financing, venture capital, or other private forms of funding.

Not subject to an illiquidity discount.

Private firms suffer an illiquidity discount that may revolve around 20-30%.

Public M&A transactions must be approved by the SEC for anti-trust purposes and also require Sarbanes-Oxley compliance.

Sarbanes-Oxley compliance is only relevant to private companies that have future plans to go public or to be acquired by a public firm.

Strategic Vs. Financial Buyers

Potential private company buyers and investors fall into two primary categories:1. Financial Buyers—Financial buyers include private equity firms (also known

as financial sponsors), venture capital firms, hedge funds, family investment offices and ultra high net worth individuals. These firms and executives are in the business of making investments in private companies and realizing a return on their investments. Financial buyers look to identify private companies with attractive future growth opportunities anddurable competitive advantages, invest capital in their operations, and realize a return on their investment upon exit via a direct sale or an IPO.

2. Strategic Buyers—Strategic buyers search for operating private companies that offer products or services similar to their own. Targets of strategicbuyers are often competitors, suppliers or customers of the original firm.Strategic buyers can also aim to acquire firms that have operations that are unrelated to their core businesses. Such an acquisition would be considered as an attempt of a strategic buyer to diversify their revenue sources. Their goal is to identify private companies whose products or services can synergistically integrate with their existing businesses to create long-term shareholder value.

Contraction Transactions

Contraction is the reduction in the size of the private company or business due to corporate restructuring. For more information on contractual corporate restructuring, please see PrivCo’s Knowledge Bank chapter on Bankruptcy and Restructuring. Spin-Offs—A spin-off transaction is when a parent private company

separates the shares of its subsidiary from the original private company shares and distributes those shares, on a pro-rata basis to its shareholders. In essence, two separate entities are formed in which the stockholders are issued the shares in the legal subsidiary proportional totheir original holdings in the parent private company. Both the entities have their own management and run individually after the spin-off. The distribution of the subsidiary’s stock to shareholders is in the form of adividend. This is typically a tax-free transaction for both the shareholders and the parent.

Split-Offs—A split off is the separation of a subsidiary from the parent by splitting the shareholders of the parent private company’s stock from the shareholders of the subsidiary’s stock. Most split-offs are tax-free transactions and used to downsize a private company or defend against a hostile takeover. In a split-off a new private company is created to take over the operations of an existing unit or division and some of the parentprivate company’s shareholders will receive the stocks in subsidiary or innew private company in exchange for the parent private company’s stocks. As a result, the parent private company will be able downsize its overall business.

Split-Ups—A split up is when an entire firm is broken up in the series of spin-offs. After a split-up the parent private company no longer exists, only the spun-off businesses of the original private company survive. In asplit-up transaction, new classes of stock are created to track the operations of each of the individual subsidiaries. The new classes of shares are distributed as a dividend to current stockholders and then the parent private company is dissolved.

Divestiture—A divestiture is a direct sale of a portion of the parent private company to an outside party in return for cash. Generally a firm sells struggling operations that operate at a loss or require upkeep capital. A parent private company may also divest non-strategic or non-

gaining businesses and invest the proceeds of the sale in potentially higher return opportunities or core business expansion. Divestitures may also be used to realize the true potential of an outperforming asset, whose performance is not properly valued by the market. The tax basis of the asset intended for divestiture will be considered before deciding on the appropriate type of divestiture.

Equity Carve-Out—An Equity carve-out is a sale of a portion of equity in asubsidiary to the public via an IPO. The parent private company retains the majority stake in the subsidiary, usually greater than 80%. With ownership of over 80%, the parent private company still retains the right to undertake spin-offs and split-offs on a tax free basis. In an equity carve-out, a new legal entity is created and issues new shares, which are distributed to outside investors.

Asset Sale—An asset sale involves the sale of tangible or intangible assets of the private company to generate cash. This cash can be used to pay out a dividend, adjust capital structure, or purchase other assets or investments. In an extreme case, an asset sale may be part of a Chapter 7 liquidation plan where a private company ceases all business operations and sells all its assets. (See PrivCo’s Knowledge Bank chapter on Bankruptcy and Restructuring for more information on Chapter 7 liquidations.)

Ownership Change Transactions

An ownership change transaction is exactly what it sounds like: a transaction where the company’s ownership changes so the firm welcomes new owners or a different composition of ownership stakes for its existing shareholders. Minority Share Sale & Venture Capital—A private company can have a change

in its ownership structure if it sells some of its shares to an outside investor, such as an individual ("Angel") or venture capital firm ("VC Firm"). Note that in the case of venture capital deals, this often occurs in conjunction with a Change of Control since the VC Firm will usually demand Board seats, preferred stock and dividend rights in addition to other rights and terms.

Initial Public Offering (IPO)—By going public via an Initial Public Offering (IPO), the company can change control of the company from the

private owners’, founders’, or controlling family’s hands to partially (even a majority) public investors. An IPO often has the added benefit of providing both expansion capital as well as liquidity for the company.

Leveraged Buyout (LBO)—A leveraged buyout is a situation in which a group of investors (usually a private equity firm) acquire a controlling interest in a given private company's equity by borrowing a large portion of the capital necessary to finance the transaction. The acquired private company's assets are often used as collateral against the borrowed capital. In a leveraged buyout situation, a combination of debt instruments from bank and capital markets are deployed.Leveraged buyouts use a highly leveraged capital structure where the majority of the cash flow from the acquired private company, division or subsidiary is used to service and repay the loan. Leveraged buyouts may beused to enhance shareholder value, counter takeover threats or realize thevalue of undervalued assets.

Employee Stock Ownership Plan (ESOP)—An employee stock option plan is a transaction where a private company makes a tax deductible contribution ofcash or company stock into a trust. The trust's assets are then allocated to employees through the use of stock options and are not taxed until the employees exercise their option. Since the creation of an ESOP concentrates a private company's ownership, they can be used as an anti-takeover defense mechanism.

Leveraged ESOP—Although uncommon, leveraged ESOPs are typically used to concentrate the ownership of a private company into the employees’ hands, often to defend against a possible takeover. An ESOP is an employee stock ownership plan where employees own a piece of equity in the private company. Leveraged ESOPs are initiated by borrowing capital to capture a majority of the equity at one time. This equity can then be vested over a period of time to the employees. Leveraged ESOPs drastically alter both the capital structure of a private company (by increasing the liabilities), and the ownership concentration from the original owners/management to the employees.

Share Repurchase—A share repurchase program is a measure implemented by cash-rich corporations to concentrate the ownership of the private companyby purchasing equity shares at a premium to market value. Private

companies can use share repurchase programs to accrete the ownership of upper level management, lever up the balance sheet and thwart the threat of a takeover. Share repurchases lead to decreased equity capital of the private company. While less rare for private companies than for publicly traded ones, many private companies that have the cash to do so can make atender offer in order to reduce the number of shareholders and concentrateownership and control of the company.

Takeover—In recent years there has been a high level of hostile takeovers.Takeovers can be defined as acquiring control of the private company or management by stock purchase or stock exchange. The majority of takeovers have come in the form of leveraged buyouts, proxy battles, or forced internal restructuring by vocal institutional investors who aim to maximize the shareholder value of their clients. Hostile takeovers are relatively rare for private companies, but can and do occur.

Change of Corporate Control Without a Transaction

Changes in control of a private company often occur as a result of a Change ofOwnership Transaction (see above) such as an M&A deal or a Venture Capital or Private Equity investment. However, change in control of a private company canalso occur without an acquisition or divestiture. Corporate control is the control over the management of the firm. Management decisions influence strategy of the organization and directly impact employee tasks.During an internal restructuring or change of control, a private company evaluates its internal process, and management team. A change of control can result from: Board Seat Changes—Since ultimately the company’s Board of Directors

controls the company, voluntary changes made to the private company’s Board of Directors will result in a change of control without a merger, acquisition, or other transformative transaction. Changes in the private company’s Board of Directors may be made for a variety of reasons: the company may need additional expertise in a certain area for example. A Director may also be forcibly removed by the private company due to the Director’s conflict of interest, or the private company’s accountants may force the addition or removal of a Director because the accounting firm feels the Board lacks independence from management, needs an Audit

Committee or a Compensation Committee to make independent decisions regarding the firm’s books and records (Audit Committee) or management’s pay and compensation (Compensation Committee).

Management Changes—Via its Board, a firm may hire a new CEO, CFO or make other changes in its Executive Team, resulting in a change of control without any M&A transaction (Note that PrivCo has a Leadership Change" tagthat enables users to search by this tag in order to target M&A or investment opportunities).

Generational Changes—Change of control of the private company may also take place without an M&A transaction due to the death of the private company’s Founder and passage of the company to the next generation (Note that PrivCo has a “Generational Change” tag on a private company when thisoccurs to allow our users to search by this tag in order to target M&A opportunities or investment opportunities).

In these times of depressed market sentiments FMCG major Hindustan Lever announced a unique financial product to fight back adversity by making things very, very attractive for the investors. The company has considered a proposalto issue 'bonus debentures' to its shareholders. This is for the first time inIndia, that a company has announced bonus debentures to its shareholders. The shareholders will get these debentures free, earn interest on them and get cash on redemption. These debentures will be issued by drawing upon the general reserves which have been created through the retained earnings of previous years. The company will issue one bonus debenture of the face value of Rs 6 each for every equity share of Rs 1 held. Such issue and allotment of debentures would be considered a 'deemed dividend' under the Income-Tax Act and the company would also pay dividend tax at 10.2 per cent on the amount of bonus debentures issued. These debentures would be secured and redeemable at par in two equal installments of Rs 3 each in the second and third years afterthe issue. They would carry an interest rate of 9% per annum, payable annually.

How could this entire exercise help the company?

This exercise will help the company improve its return on equity and economic value added.

As there is no immediate cash outflow, this debenture issue would not impair the company’s ability to execute any acquisitions. It would stillbe able to utilize its excess cash over the next 2-3 years.

This could also help the company get exemption on tax on interest payable on the debentures from the second and the third year.

This may also be one way of offering "bonus'' without increasing the equity capital.

The scheme will also enhance the efficiency of the balance sheet in the context of excess cash carried for several years. The issue is expected to result in a book transfer of Rs 1,320 crore from general reserves to 'secured loans'. 

In effect, instead of giving vague signals that the company may pay some special dividend in future years, it is committing itself today of a fixed 9.00% p.a. interest, by issuing bonus debentures. Such a definitive statement about the utilisation of excess cash balance of the company augurs well for the market perception and consequent valuation of the scrip. The biggest advantage of the proposal is that it achieves two objectives in one stroke. Not only is the company able to enhance shareholder value, but is also able toretain the funds for at least two years to meet any interim investment needs. These include any acquisitions that may crop up.

How will the investors benefit?

For the investors, the present move by the company will definitely send a strong signal about future benefits they are going to derive in terms of tax-free receipt of redemption amounts and also the yearly interest on debentures. Since the debentures would be considered deemed dividend,the investment cost of the

debentures in the hands of the shareholders would be its face value. As

an immediate reaction, the share price of HLL increased by 8 per cent onthe day of announcement, to close at Rs 230 on the BSE.

What an investor holding a single share of Rs 1 actually receives is a total sum of Rs 6.4 (redemption amount plus interest over the tenure),

which amounts to a dividend of more than 600 per cent over a period of three years, and slightly less if the cash flows are discounted for timevalue of money.

Finally, the old Gold HLL has made its shareholders happy by rewarding them with something very special. A company that rewards its investors shows that it believes that it can be happy only if investors are happy!

J Ajitha

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Bonus Debentures IssueNews »  LATEST BY RELEVANCEEssar Steel prepays Rs 205 cr loans taken from Axis BankMar 10, 2014 at 18:53 | Source: PTIThe company had issued secured redeemable non-convertible debentures of Rs10 lakh each aggregating Rs 205 crore to the private sector lender.Zee Entertainment allots preference shares as bonusMar 07, 2014 at 08:57 | Source: Moneycontrol.comZee Entertainment Enterprises has issued and allotted 20,169,423,120 - 6% Cumulative Redeemable Non-Convertible Preference Shares (Bonus Preference Shares) of Re 1 each fully paid as Bonus to its Equity Shareholders as on record date i.e. March 04, 2014, in ratio of 21 Bonus Preference Shares for every 1 equity share held in the Company.Priti Mercantile Company: Fixes record date for bonus issueMar 06, 2014 at 16:31 | Source: Moneycontrol.comPriti Mercantile Company has informed that the Company has fixed March 15,2014 as the Record Date for the purpose of issue of Equity Shares of Rs. 5/- each as fully paid-up Bonus Shares to Equity Shareholders in the proportion of 8 (Eight) Equity Shares for every 10 (Ten) Equity Shares held.Manappuram Finance launches another public issueMar 05, 2014 at 20:05 | Source: PTIThe NCDs will have an effective yield up to 12.61 percent per annum, making it one of the most attractive offerings in the market, he claimed adding the funds raised by this issue will be used to augment capital expenditure and meeting the working capital requirements.

Muthoot Finance to raise Rs 200 cr via bond issueFeb 28, 2014 at 17:55 | Source: Moneycontrol.comMuthoot Finance a gold financing company has planned to raies Rs 200 crorevia its public issue of secured reedemable non-convertible debentures and unsecured reedemable non-convertible debentures of face value of Rs 1,000.00 each.REC's tax free secured redeemable non-convertible bonds issue to open on Feb 28, 2014Feb 27, 2014 at 17:21 | Source: Moneycontrol.comRural Electrification Corporation has informed that, the public issue of Tax Free Secured Redeemable Non-convertible Bonds, in the nature of Debentures of REC will open on February 28, 2014 for subscription and is scheduled to close on March 14, 2014.Ennore Port's Rs 500 cr NCD issue opens for subscriptionFeb 24, 2014 at 13:36 | Source: Moneycontrol.comEnnore Port a Chennai based company has planned to raise Rs 500 crore via its public issue of tax free secured, redeemable, non-convertible bonds ofa face value of Rs 1,000 each, in the nature of debentures having tax benefits, in fiscal 2014.India Infoline Housing to raise Rs 200 cr via bond issueFeb 24, 2014 at 11:19 | Source: Moneycontrol.comIndia Infoline Housing Finance has filed draft prospectus for a public issue of un-secured, redeemable, non-convertible debentures of a face value of Rs 1,000 each, ("NCDs"). aggregating to a total of upto Rs 200 crore.Kilburn Chemicals' board meeting on Feb 22, 2014Feb 21, 2014 at 13:16 | Source: Moneycontrol.comKilburn Chemicals board meeting will be held on Feb 22, 2014, to consider the proposal to raise resources by way of fresh issue of Equity Shares / Convertible Debentures/ Equity Share Warrants etc. or any combination thereof to Promoters, Domestic Investors, Institutional Buyers, FIIs, NRIs& Corporate Bodies etc. on Preferential Allotment basis.IIHFL plans to raise up to Rs 200 crore via NCDsFeb 20, 2014 at 16:50 | Source: PTIThe capital garnered through the issue would be utilised for the company'svarious financing activities including lending and investments. Besides, funds would be useby CS.Rashida Adenwala, Lokesh Agarwal, and B Vinay Dayal   on February 2, 2013IntroductionAs the financial markets have matured over the years, the financial community has come out with various types of innovative financial instruments such as equity shares, preference shares, bonus shares,

promissory notes, bonds, debentures, bonus debentures, warrants, option contracts to name a few.Bonus Debenture is an instrument which has been recently introduced by some of the Corporates but is still not known in the marketplace. It is aninstrument which has some features similar to Debentures, some features similar to bonus shares and it also has some of its very own distinctive features.Bonus Debentures as a term has not been mentioned specifically in either Company’s Act or Income Tax Act. The said article has taken inferences from the various provisions of the Acts to understand the legal impact andnuances of this financial instrument.Bonus DebenturesBonus debentures are the debentures issued free of cost to the shareholders in proportion of their shareholding by capitalizing the amount of ‘Reserves and Surplus’. These Debentures are redeemed after a specific period of time and interest is paid at the approved rate during its validity period. Bonus Debenture has a face value, an interest rate and a maturity period.Bonus SharesA bonus share is a free share of stock issued to the eligible shareholdersof the company in proportion to the shares he / she already owns. While the issue of bonus shares increases the total share capital of the Company, it does not change the net worth value of the Company. Further atthe hands of the shareholder, the total number of shares held increases, but the percentage of shares held remains constant and the net investment value per share reduces.Bonus Shares V/s Bonus Debentures

Bonus Shares Bonus Debentures

Reduces the amount of Reserves and surplus, and Increases the amount of Sharecapital.

Reduces the amount of Reserves and surplus, and Increases the amount of Debt.

No Cash out flow. Cash out flows i.e. Interest and

principal amount to be paid on maturity.

No interest is paidShareholders get interest in all the years till the debentures aremature.

No Income tax Benefits.Company gets advantage of tax as the interest on debenture is allowed as a deductible expense.

Dilution in the share value. No Dilution in the Share value.

Net worth of the Company doesnot change

Net worth of the Company decreases

 Dividend vs. Bonus DebenturesDividend is the distribution of divisible profits by a company to its shareholders as per the provisions of Section 205 of the Companies Act 1956 and the Company is required to pay dividend distribution tax on the amount of dividend declared.Issue of Bonus Debentures is construed as deemed dividend and the Company is also required to pay dividend distribution tax on the value of the bonus debentures issued to the shareholders.However, dividend involves immediate cash payout to the shareholders, while in the case of bonus debentures there is no immediate payment to theshareholders. The debentures are redeemed only after the maturity period which could be three to five years and during the validity period the shareholders receive interest at a fixed rate.Tax Treatment on issue of Bonus Debentures:

According to tax point of view allotment of bonus debentures would be treated as dividend. Since bonus debentures are issued out of the post-taxprofit accumulated by the company, the company does not get any deduction in the income statement for the value of the debentures that have been issued.

Company pays a dividend distribution tax on the amount of bonus debenturesissued.

In subsequent years, when the debentures are either sold or redeemed, the sale price or the redemption amount received by the debenture holder will not be taxable to the extent of the capital value of the debentures already taxed as dividend in the year of the issue of the bonus debentures. Only the additional appreciation will be taxed as capital gainsIssue of Bonus Debentures to be approved by Court.As there are no specific provisions for the issue of Bonus debentures under any of the Statutes in India, the same has been issued by the corporate through a scheme of the arrangement under Section 391 to Section394 of the Companies Act, 1956. The issue involves a cumbersome legal process as it needs the approval of the High Court. In case where corporate have non-resident shareholders then even the requirements of RBIand FEMA need to be adhered too.Advantages to the share holder of Issue of Bonus Debentures:

The reserves that the company distributes belong to the shareholders. By issuing bonus debentures, the shareholders are entitled to interest in allthe years till the debentures are redeemed or matured.

For the investors, the company definitely sends a strong signal about its future growth and benefits they are going to derive in terms of tax-free receipt of redemption amounts and also the yearly interest on debentures. Since the debentures would be considered deemed dividend, the investment cost of the debentures in the hands of the shareholders would be its face value.In the Issue made by Hindustan Unilever Limited, following advantages werenoticed as follows:

A shareholder holding a single share of Rs 1 actually received a total sumof Rs 6.4 (redemption amount plus interest over the tenure), which amountsto a dividend of more than 600 per cent over a period of three years, and slightly less if the cash flows are discounted for time value of money;

As an immediate reaction, the share price of HLL increased by 8 per cent on the day of announcement, to close at Rs 230 on the BSE.Advantages to the Company:

This exercise will help the company improve its return on equity and economic value added;

As there is no immediate cash outflow, this debenture issue would not impair the company’s ability to execute any acquisitions. It would still be able to utilize its excess cash over the next 2-3 years;

One way of offering “bonus” without increasing the equity capital; Company also benefits by getting the advantage of tax as the interest on

debenture is tax deductible; Bonus debentures do not dilute the share value like bonus shares and the

company can take the advantage of leverage. Company defers cash outflow till the time it pays interest or redeems the debentures;Conclusion:One of the ways to make investors happy is to distribute deemed dividends in the form of bonus debentures.