Launch of Reliance Jio would raise price war to expedite Mergers and Acquisitions and exits of smaller players

http://www.business-standard.com/article/companies/price-war-to-expedite-m-as-and-exits-of-smaller-players-116090201596_1.html

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The predatory pricing by Reliance Jio would hit smaller players such as Tata Teleservices, Anil Ambani’s RCom and Aircel as they will not be able to match Jio’s lower tariff due to lack of cash. This would, in turn, lead to a surge in mergers and acquisitions (M&As) among the players and even exits, industry sources said.

“The weaker players with constrained financials will not be able to replicate Jio’s offers and hence should cede revenue share to Jio. We expect Jio to have a 10 per cent revenue share of the mobile market in five years,” said an analyst with Deutsche Bank.

Take, for instance, Tata Teleservices, which made a loss of Rs 3,386 crore in FY16, was in talks for a merger with Telenor. But, the talks stalled as Telenor decided to exit the Indian market and did not go ahead with the negotiations. With Tata Tele’s revenues static at Rs 10,994 crore, theTata group will have to do some serious planning on the future of its telecom operations as its main shareholders. Tata Sons will not be able to keep investing money in the loss-making business, analyst said.

As on March 31, 2016, unlisted Tata Teleservices along with its listed subsidiary Tata TeleservicesMaharashtra had a subscriber base of 60 million with a market share of 5.81 per cent. The company has bank loans of Rs 30,000 crore. “Tata will have to immediately come out with new plans to retain its customers and being a marginal player, we will not be surprised if the Tata group exits the sector after its dispute with Docomo ends,” said an analyst in Mumbai.

Another marginal player, Aircel, is in advanced talks with a merger with Anil Ambani ownedReliance Communi-cations. At present, Aircel provides outdated second generation based wireless telecom services in all 22 circles of India and 3G services in 13 circles and has broadband wireless access spectrum for services in eight circles. But, its financial metrics are as bad as Tata Teleservices, making it difficult for the company to take on Jio’s might.

In calendar 2015, Aircel reported net loss of Rs 2,215 crore on total operating income of Rs 11,433 crore and Aircel had a subscriber base of 87.1 million as of March this year. With 4G making inroads and its promoter Maxis of Malaysia not investing more funds into the company, the firm with loans of Rs 17,500 crore has initiated a merger with Reliance Communications. A formal announcement of the merger is expected any time. The merger will help both RelianceCommunications and Aircel take on the big boys of the industry - Bharti, Vodafone, and Idea which hold a sizeable share of the Indian wireless telephony market.

Another strategy of the smaller players is to exit the sector completely. In early August, Bharti Airtelacquired rights to use 4G airwaves of Aircel in seven out of eight circles under their Rs 3,500-crore spectrum trading deal. It also signed a similar deal with another small player, Videocon to acquire spectrum in six circles for Rs 4,428 crore. Videocon finally exited the sector completely.

The only good news for the small players is that due to absence of good packages at below Rs 500 price point by Jio, it could help the small players hold on to their customers for some more time. But, industry analysts said Jio’s tariff would undergo a change by early next year when the company finally launches its commercial operations.

SBI's merger with 5 associates, Bharatiya Mahila Bank : All you need to know about the big deal

The board of State Bank of India (SBI)  cleared the proposed merger of five associate banks and Bharatiya Mahila Bank (BMB) with itself, taking one step closer to creating the first Indian lender to rank among the world’s top 50.

India’s largest lender also approved the share swap ratio for merging three associates—State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM) and State Bank of Travancore (SBT)—and BMB. Swap ratios for State Bank of Hyderabad and State Bank of Patiala were not announced.

According to the plan approved by the board, investors in SBBJ holding 10 shares will get 28 shares of SBI. Investors in SBM and SBT holding 10 shares will get 22 SBI shares each. Shareholders in BMB with 100 crore equity shares will get 44.2 million shares of SBI.

SBI had seven associates, of which it merged two—State Bank of Saurashtra and State Bank of Indore—with itself over the last 10 years.According to Reliance Securities, swap ratio was largely in line with its expectation. "We expect stock price of SBM would correct by 10-12 pecent and envisage marginal rise in stock prices of SBBJ & SBT. Notably, we do not expect any major price action in SBI counter as the swap ratio being largely neutral."

Sebi to Define 'Control', Proposes 25% Voting Right Threshold

Press Trust of India | Last Updated: March 12, 2016 20:37 (IST)

New Delhi: For better clarity on change of control in mergers and acquisitions, the Securities and Exchange Board of India (Sebi) on Saturday decided to launch a public consultation for defining 'control' and proposed fixing 25 per cent voting rights as a threshold.

In this regard, the market regulator will initiate public consultation on bright line tests for acquiring control in a listed entity.

The approval of the proposal by Sebi's board comes against the backdrop of instances of ambiguity and concerns over control in some listed entities.

During the meeting on Saturday, the board approved the proposal for public consultation process regarding "bright line tests for acquisition of control under Sebi (SAST) Regulations, 2011".

The market watchdog will come out with an illustrative list of protective rights that will not amount to acquisition of control and grant of such rights will be subject to obtaining public shareholders' approval.

"Considering the international practices and the current regulatory environment in India, the definition of control may be amended such that control is defined as the right or entitlement to exercise at least 25 per cent of voting rights of a company irrespective of whether such holding gives de facto control and/or the right to appoint a majority of the non-independent directors of a company," the release said.

Other options will also be considered after the public consultation.

Currently, assessment of control requires consideration of facts and circumstances of each case. As a result, there have been multiple shades of opinion.

Besides, multiple regulators apply the test of control from different perspectives resulting in ambiguities.

Under SEBI regulations, control is based on certain defined principles rather than on rules and there have been cases when a multitude of opinion gives rise to different assessments of control over a listed company.

A bright-line rule or a bright-line test generally refers to a simple and basic standard that can be applied to remove ambiguity and resolve contentious issues.

In cases of mergers and acquisitions, an acquirer or any other entity would be considered to be gaining control of the target company if it fulfills the bright line tests with regard to acquisition of voting rights, control over operations and influence in board decisions.

There have been many cases, including in the much talked about Jet-Etihad deal, when the issue of control was debated a lot and it was felt that Sebi needs to put in place specific guidelines defining bright lines to determine the control.

SEBI has received representations from various investor groups and other entities, seeking some kind of guidance with a view to providing more clarity on the definition of control and defining bright lines on the same.

Fair trade regulator CCI (Competition Commission of India) had first pointed out in its order on Jet-Etihad deal that the various pacts between the two companies indicated Etihad Airways' joint control over Jet Airways.

Story first published on: March 12, 2016 20:27 (IST)

http://profit.ndtv.com/news/market/article-sebi-to-define-control-proposes-25-voting-right-threshold-1286531

Tackling bad debt: 27 public sector banks may be merged into six

DNA WEB TEAM | 

Mon, 7 Mar 2016-09:35am , Mumbai , dna web desk

Consolidation of PSBs will take place with the setting up of an expert committee which would work along with the Banks Board Bureau (BBB) to identify the right matches

Consolidation is seen as the way forward for the India's public sector banks (PSBs) that have been reeling under the pressure of mounting bad loans. Participants of the Gyan Sangam event, which is organised for heads of PSBs and financial institution said that this could bring the number of banks to six from the present 27, according to a Hindustan Times report.

According to the report, the time frame for the mergers will ensure that there are no disruptions and that since these banks are short-staffed there would be no need for downsizing.

The consolidation will take place with the setting up of an expert committee which would work along with the Banks Board Bureau (BBB) to identify the right matches. The BBB will be put in place by April 1, 2016 and will independently oversee consolidation and chalk out business plans for PSBs.

Participants from the events said that since it is not feasible to bring down the government's share in state-owned banks below 51%, consolidation to create strong banks is the only option, according to the report.

Some of the things that will be critical in the consolidation process would include issues such as technology, asset base, regional strength and cultural match.

A senior government official in the report said that at present the PSBs are fighting with each other for market share, but with so many payments and small finance banks coming there is a need to consolidate and focus on the balance sheets to create big banks.

The finance ministry is already planning to merge newly-launched Bharatiya Mahila Bank.

The official also added that the government would intervene in case certain banks show unwillingness to merge after the plans are created by the BBB and the expert committee.

The government until now had maintained that it would not involve itself in any merger exercise of public sector banks.

The government in Budget 2016 had reported the infusion of Rs 25,000 crore into ailing PSBs and added that it would unveil its consolidation plans.

Finance Minister Arun Jaitley too had said that the government would set up an expert group on the consolidation of banks.

http://www.dnaindia.com/money/report-govt-may-form-6-stong-banks-from-merger-of-27-psbs-to-tackle-rising-bad-loan-issue-2186336

6 BIG MERGERS THAT WERE KILLED BY CULTURE

By Darcy Jacobsen

Mergers and acquisitions are more common than ever in today’s business climate. Chances are, if you haven’t yet worked at a company going through some sort of integration, you will. Yet studies show that many—if not most—mergers are doomed to fail. The failures result in poor shareholder results, layoffs and in some cases a complete dissolution of the merger.

Why? Sometimes, as with MCI WorldCom and Sprint, they fall apart due to regulatory pressure before they ever take place. Sometimes, as with Quaker and Snapple, it is because one company overestimated the worth of the other—and overpaid. Sometimes, as with Kmart and Sears, it is simply poor product, market or resource synergy.

When mergers come up, these are the causes often discussed. But culture, in part because it is so difficult to measure or manage, is all-too-often overlooked.  Yet according to SHRM, over 30% of mergers fail because of simple culture incompatibility. Let’s consider a few well-known cases of spectacular culture clash:

New York Central and Pennsylvania Railroad

In 1968, two longtime railway rivals, New York Central Railroad and Pennsylvania Railroad merged to become Penn Central, the sixth largest corporation in America. What Penn Central did not expect was that years of fierce competition made it impossible for the two companies to work cooperatively together. The company filed for bankruptcy after only two years.

Daimler and Chrysler

When German Daimler (the makers of Mercedes-Benz) merged with American company Chrysler in the late 1990s, it was called a “merger of equals.” A few years later it was being called a “fiasco.” Discordant company cultures had the two divisions at war as soon as they merged. Differences between the companies included their level of formality, philosophy on issues such as pay and expenses, and operating styles. The German culture became dominant and employee satisfaction levels at Chrysler dropped off the map. One unhappy joke circulating at Chrysler at the time was “How do you pronounce DaimlerChrysler?… ‘Daimler’—the ‘Chrysler’ is silent.” By 2000, major losses were projected and, a year later, layoffs began. In 2007, Daimler sold Chrysler to Cerberus Capital Management for $6 billion.

Novell and WordPerfect

In 1986, WordPerfect was the nation’s best-selling word processing software. For the next few years the private software company grew steadily, despite being locked in a battle with rival Microsoft for market share. In March 1994, WordPerfect signed a merger agreement with Novell, Inc. It should have been a match made in heaven, but the management of the two companies were in conflict from the start. The merger was followed by layoffs at both companies and a steep drop in share value. With the focus on internal discord, WordPerfect lost its market leadership. Two years later, Novell sold WordPerfect to Corell for $1 billion less than they had paid.

AOL/Time Warner

In  January of 2000, Time Warner stock sold for $71.88. By 2008 you could buy a share of Time Warner for less than $15. What happened to the media giant? A failed $350 billion merger with AOL. Culture clash was widely blamed for the failure of the joint venture. Said Richard Parsons, president of Time Warner: “I remember saying at a vital board meeting where we approved this, that life was going to be different going forward because they’re very different cultures, but I have to tell you, I underestimated how different… It was beyond certainly my abilities to figure out how to blend the old media and the new media culture.”

Sprint/Nextel

In 2005, in a bid to keep pace with industry giants like Verizon & AT&T, Sprint acquired rival Nextel for $35 billion. By 2008, the company had written down 80% of the value of the Nextel, confirming the widely held belief that the merger had been a failure. That failure is widely attributed to a culture clash between the entrepreneurial, khaki culture of Nextel and the buttoned-down formality of bureaucratic Sprint. AWashington Post article written two years into the merger stated: “The two sharply different cultures have resulted in clashes in everything from advertising strategy to cellphone technologies.” In early 2012 Sprint announced it would be ridding itself of the Nextel network, marking what CNET calls “a concluding chapter in one of the worst mergers in history.”

HP and Compaq

And finally, a story of hope. In 2001, struggling computing giant Hewlett Packard announced it would acquire similarly struggling competitor Compaq. The merger was ill-fated from the start, as critics pointed out how the HP engineering-driven culture was based on consensus and the sales-driven Compaq culture on rapid decision making. This poor cultural fit resulted in years of bitter infighting in the new company, and resulted in a loss of an estimated 13 billion dollars in market capitalization. Though the merger itself was widely regarded as a failure, the company has hung on, and has been able to make significant cultural and leadership changes that have                                                                resulted in long-term success.

         Not every factor in a merger is within your control. But a great, synergized culture can certainly help protect your              company against many merger bumps and bruises. So how can you create a culture that will help ensure the                        success  of your merger or acquisition? Here are a few pointers:

Emphasize your core values According to experts: “an organization that reinforces its core values is more likely to reach the kind of growth and success that nearly all businesses seek.” (Gallagher, 2003) Values which are simply imposed will not thrive. Values must be practicable and absorbable.

Turn the blame game into the praise game Help turn the negativity that can accompany change into positivity by encouraging employees to catch each other doing something right.

Stop the brain drain One of the leading indicators of a coming failure is the departure of key leaders and managers from the company. This destabilizes the lower ranks and drains confidence—opening the door further for an exodus of your top talent. Make sure you are listening and responding to the concerns of this important bellwether group, and communicating those issues up the chain of command.

Find your biggest influencers and encourage their buy-in Learn to identify those employees who are your most influential workers and managers, (Hint: peer-to-peer recognition data is a great way to do this) and spend extra time educating them, increasing their confidence and earning their enthusiasm. Their attitude will cause a ripple effect.

Facilitate communication across groups and divisions Encourage the forging of relationships across the boundaries of the merger. Make it possible for employees to recognize and appreciate their counterparts in other buildings and countries and watch those bonds begin to strengthen—and with them, your merger.

http://www.globoforce.com/gfblog/2012/6-big-mergers-that-were-killed-by-culture/

LSE, Deutsche Boerse In Merger Talks

The London Stock Exchange has confirmed that it is in merger talks with German market operator Deutsche Boerse.

By Peter de Jesus | Feb 24, 2016 10:17 AM EST

LSE and Deutsche Boerse are confirmed to be in talks about a possible merger between the two financial behemoths. (Photo : Twitter Photo Section)

Soon, the landscape of Europe's stock exchanges might never be the same, as the London Stock Exchange (LSE) has confirmed merger talks with Germany's Deutsche Boerse, reports CNN Money. If the merger is successful, the combined firms would create a financial behemoth capable of meeting its rivals, such as Intercontinental Exchange (ICE), which operates the New York Stock Exchange (NYSE).

Though the LSE's announcement pertained to the merger as that of "equals," the proposed deal nonetheless entails a rather unequal split, with Deutsche Boerse shareholders holding 54.4 percent of the combined group, as opposed to LSE's shareholders, which would hold about 45.6 percent, reports USA Today.

The proposed merger marks the third time the two financial firms have attempted to combine. Its first and second attempts in 2000 and 2004-2005, both ended in failure.

The companies' most recent attempts seem to have been embraced well by investors, however, as LSE's shares rose 17 percent after the merger announcement. Deutsche Boerse shares rose 7 percent as well, reports BBC News.

Markus Huber, an analyst at stockbroker City of London Markets, believes that the merger would be beneficial for both firms. "Although negotiations seem to be at a very early stage, a tie-up would make sense in regard to possibly synergies and overall improvement of competitiveness versus their main rivals," he said.

PublicSector Bank mergers top priority under banking reforms

Feb 23, 2016, 05.54 AM IST 

By Dheeraj Tiwari, ET Bureau 

NEW DELHI: Consolidation of state-run lenders has climbed to the top of the banking reforms agenda as the cleaning up of their account books gets under way. Mergers have been accorded the highest priority at the second Gyan Sangam, the government's annual banking conclave that's scheduled to be held in the first week of March.

Gross non-performing assets (NPAs) of many banks have climbed to nearly 10% after the Reserve Bank of India cracked the whip, forcing them to set aside large sums to cover bad loans. Most have reported a sharp drop in third-quarter profit or posted losses. RBI wants the clean-up to be completed by March 2017.

"After the Reserve Bank of India asset quality review, we know where they stand in terms of bad loans," said a senior government official. Transparent balance sheets allow valuations to be determined fairly amid a growing consensus that this is the right time to get weaker banks absorbed by the stronger ones. 

The idea has found support among some lenders that have evinced interest in consolidation by way of merger or acquisition. "Some banks are open to the idea," said another government official.

The government is also hoping the proposed bank board bureau, which will start functioning from April 1, will help strengthen the developing accord on consolidation. "The bank bureau can also come out with some suggestions and act as a mediator between banks to work out various issues," said one of the officials cited above. The government has said it will follow up public sector bank reforms by setting up a Bank Investment Committee.

Punjab National Bank is open to acquiring other state-run lenders, said managing director Usha Ananthasubramanian.

"Somewhere you have to bite the bullet," she said, adding that the idea was to create large entities of global stature that will also alleviate concerns on capital adequacy.

The government hasn't pushed banks toward mergers, leaving them to come up with proposals. But that's unlikely to happen given the opposition of bank unions in general to mergers.

Last year, after the governmentIndra Dhanush revamp plan for state-run banks, finance minister Arun Jaitley had said that the idea was to first strengthen the lenders.

"After this, if there is a fragile bank, we are looking at consolidation with stronger banks," he had said.

The government is also expected to revive an old report that had suggested merger options based on various criteria such as geography, business mix and information technology systems.

The last transaction in the public sector bank space was the takeover of State Bank of Indore by State Bank of India in 2010. SBI took over State Bank of Saurashtra in 2008. A similar exercise involving Bharatiya Mahila Bank and SBI has been on hold for some time.