wieder fareer cera Vien, wicrHrdl be INDIAN INSTITUTE OF FOREIGN TRADE, KOLKATA CENTRE aes aS QUESTION PAPER, aor EXAMINATION CELL | PROGRAMME MBA(IB) 2018-20 EXAMINATION END TERM, TRIMESTER - IV | COURSE, MERGERS & ACQUISITIONS COURSE COORDINATOR PROF. SHEEBA KAPIL DATE 27.08.2019 TIME 11AMTO1PM DURATION 2 HOURS MAX. MARKS 40 GENERAL INSTRUCTIONS GENERAL INSTRUCTS 1. It is a CLOSED book examination. You are NOT ALLOWED to use Books, Class notes, any reference documents etc. WHEREAS CALCULATOR IS ALLOWED in the examination hall. 2. All questions are compulsory & carry equal marks. 3, Other Instructions are given in the Question Paper. Read the same carefully. NB: LAPTOPS, MOBILES AND SMART WATCHES ARE STRICTLY PROHIBITED IN THE EXAMINATION HALL.MERGER & ACQUISITION CLOSED BOOK CALCULATOR allowed MARKS: 40 TIME: 2 HRS There are 04 (Four) questions. All questions are compulsory & carry equal marks Q1. Larsen and Toubro Ltd (L&T) gained a controlling interest in Mindtree Ltd, raising its stake to 60% in the Bengaluru-based company on Wednesday and successfully concluding India’s first hostile takeover of a software developer. L&T completed buying the 31% additional stake it targeted to acquire in Mindtree for Rs. 4,988.82 crore through an open offer as large investors rushed to sell their holdings. The offer to purchase 50.9 million shares of Mindtree fom public sharcholders was subscribed 1.2 times on Wednesday, two people with direct knowledge said condition of anonymity. The 60% stake in Mindtree gives L&T complete control over the sofiware company’s board and management. The purchase of additional shares through an open offer by L&T after acquiring a 20.4% stake in Mindree from coffee baron V.G. Siddhartha and @ affiliate firms marks the culmination of a year-long effort by the Mumbai-based engineering giant to gain control of Mindtree through a hostile bid. Such takeovers are uncommon in services» businesses as people are their key assets. Despite opposition from Mindtree’s promoters, L&T managed to get enough public shareholders of the software company to tender their shares at Rs. 980 apiece and complete the open offer two days before its closing date of 28 June. “By 3pm on Wednesday, the open offer was 120% subscribed," said the first of the two people cited earlier. “UTI Asset Management Co. Ltd sold its full 2.97% stake in Mindtree to L&T. “Arohi Asset Management Pte Ltd, too, has sold most of its stake it held in Mindtree through two entities." So far, L&T has bought shares worth around Rs.10,000 crore in Mindtree.“Post the takeover, L&T is most likely to change the top management of Mindtree. Some of the top officials, who were hired by the erstwhile promoters, could be replaced," the person said. “Improving the company’s performance will be the key aim, Eventually, L&T will look at a possible merger of L&T Infotech and Mindtree afier two financial years." L&T has the appetite for the acquisition and a balance sheet to support it. Mindtree would add @ scale to its business and escalate its stature in the industry. L&T Infotech, which mainly has a presence in the manufacturing vertical, will get a strong presence in BFSI through Mindtree and benefit from a diversified customer base. L&T has cash and cash equivalents of over Rs 8,000 crore, and has decided to be ‘asset light’, which means low capital expenditure in its traditional infrastructure business, The company has been exploring options to generate value for shareholders after the Securities & Exchange Board of India rejected its plan for Rs 9,000-crore buyback. “The ambition is backed by money; there is not much that can stop L&T. The experience of resisting hostile takeovers in the past will only help strategize better,” an industry executive said, L&T Infotech, which was the brainchild of Naik who has spent over five decades with the company, has not been able to build scale to match the big boys of the IT industry.Twists and Turns in the Mindtree Journey I” Bo iinet si Peek Pes pemeeringc yy 10 Sie - Cee re a 1630% peri penpernmenral Wier tg per os Cr) Geeta) eC eau ios perce coed PEt Pero pars Te ae pees Pett We etd Peete teers psleprtererbbrri | ate cr cetter ake Perret) eer incre tr opens} Foundersreportedl srt Brie Peek Pecan ete Tavem Dormmrns ltncoe rope cos Under its strategic business plan ‘Lakshya 2021’, L&T"s, IT business was identified as key growth businesses and was given the mandate of exploring acquisitions. They've done a great job spinning out L&T Infotech and it’s been complementary to the rest oftheir business. Part of the reason for the M&A is for scale. They need to get to above $2 billion to get more synergies and, more importantly, to expand into new markets and accounts,” said Ray Wang, founder, Constellation Research. Discuss the strategic fit and scope of synergy gain between L&T and mind tree. Q2. 2). An acquirer has share price 25 while target is priced at 15 per share. If total number of shares of an acquirer before M&A is 180 mn while that of acquirer is 118 mn. Calculate the wealth transfer if synergy gain is missing in this all equity merger with exchange ratio 0.75? b), How much is percentage holding of acquirer and target post M&A if exchange ratio reduces to 0.68 or increases to 0.90? ) If exchange ratio of the deal is 0.675, then how much is the aequisition premium (per share, percentage, and total)?Int Mn Acquirer __| Target Revenue 30000 | 20000 Revenue 30000| 20000 CAPEX 250 200 AWC 75 30 Beta 137 1.18 RE 5% 5% Rp 6% % wd 10% 15% We 90% 85% Asset 350 150 Kd(-) 6% 5% Growth Rate 8% 6% Perpetuity growth rate 2% 2% New Co post merger DE 25% Kd(-t) 53% Synergy Gain (EBIT) Ist 2nd__| 3rd ye 120 140 | 160 Growth rate 8% Perpetuity growth rate 2% TAX RATE 30% Target can be improved by increasing operating margin to 8%, growth rate to 7%. Calculate the final offer value that acquirer can pay the target firm? 4. a Determine the acquisition premium that can be offered to the target firm by any acquirer? Offer price/EPS_[ EV/Sales [ EV/EBITDA. Deal 1 22x 12x 20x Deal 2 15x 10x 2Ix Deal 3 18x. 9x 19x Deal 4 12x 75x 14x Deal 5 24x. 1x 23x, Deal 6 20x 16x 25xTarget firm has EPS 12/share Debt 12000 mn Sales 2300 mn EBITDA, 1650 mn. ‘Total number of shares 95 mn Fundamental value per share 150/share »). Determine whether the deal will be eps accretive or dilutive? Acquirer | Target ‘Share price before announcement 30| 65 PIE ratio 6] 10.8 EPS Next year 5 6 ‘Shares outstandi 000 | 1500 Net Income next years |__ 25000 | 9000 Equity Offer value(No. of shares X Offer price) Exchange ratio (Price of TargeUPrice of Acquirer) 247 2 ‘Acquirer | Target Share price before announcement 3o[ 32 PIE ratio e[ 63 EPS Next year 5 6 ‘Shares outstandin, 5000 | 1500 Net Income next years | 25000 | 9000 Equity Offer value(No. of shares X Offer price) Exchange ratio (Price of TargetPrice of Acquirer) 4.07