The ICFAI BUSINESS SCHOOL

Mid Semester Assignment 1

Q1. Explain the following terms by picking up relevant examples from the Indian industry:
a. Mergers
b. Consolidations
c. Acquisitions
d. Carve-outs
a) Mergers:-
 It is a process by which at least two companies’ combined to establish single firm.

 It is a merger with a direct competitor and hence expands as the firm's operations in
the same industry.

 It involves the combination of one or more corporations &other business entities

into a single business entity.

 Example: Zee Entertainment Enterprises Limited (ZEEL) and Sony Pictures

Networks India (SPNI), two of India’s biggest media conglomerates, have taken the
first steps towards a multibillion-dollar merger.

 Sony Pictures Entertainment would invest $1.575 billion in the newly consolidated
firm as part of the acquisition.

 ZEEL continues to chart a strong growth trajectory and the board firmly believes that
this merger will further benefit ZEEL.

 The value of the merged entity and the immense synergies drawn between both the
conglomerates will not only boost business growth but will also enable shareholders
to benefit from its future successes.

b) Consolidation:

 The term business consolidation refers to the combination of different business units
or companies into a single, larger organization.

 It is a creation of altogether new company owning assets, liabilities, loans and

business (on going concern) of 2 or more company both/all of which ceases to exist.
 It is a legal strategy that is often initiated to improve operational efficiency by
reducing redundant personnel and processes.

 The reasons behind consolidation include operational efficiency, eliminating

competition, and getting access to new markets.

 Example: Consolidation takes place in form of either merger or acquisition, an

example of which is mentioned above.

c) Acquisition:

 It refers to an attempt/process by which a company or industry/group of individuals

acquire control (i.e., acquire right to control it’s management and policy decisions)
over another company called “target company”.

 The acquiring company has the right to appoint/ remove majority of directors of
company.

 In such situation, the target company’s identity remains intact.

 Example: Reliance Retail Ventures acquires sole control of Just Dial

 Reliance Retail Ventures Ltd had in July announced a deal to buy a controlling stake
in Just Dial for Rs 3,497 crore.

 RRVL has acquired 1.31 crore equity shares of Rs 10 each of Just Dial at a price of Rs
1,020 per equity share from VSS Mani, founder and chief executive of Just Dial.

 The acquisition represents 15.63 per cent of the post-preferential issue paid-up
equity share capital of Just Dial.

 RRVL will now make an open offer to buy a 26 per cent stake from other
shareholders of Just Dial. Just Dial's acquisition is one of many Reliance Industries or
its subsidiaries including telecom giant Jio Platforms and Reliance Retail have done
in recent months.

d) Carve Out:

 It is hybrid of divestiture (out and out sale of all or substantial assets of the company
or any of its business undertaking/divisions(altogether but not in piecemeal
 manner), usually for cash(or for combination of cash and debt) and not against
equity shares) and spin off (situation wherein transfer takes places of all or
substantially all the assets, liabilities, loans and business (on a going concern) of one
of the business divisions/ undertaking to another company whose shares are allotted
to the shareholders of transferor company on proportionate basis).

 At time of transfer, shares are issued to the transferor company itself and not to its
shareholders.

 Later on the company sells the shares in parts to outsiders- whether to institutional
investors by private placement or to retail investors by offer for sale.

 In this case, consideration for transfer of business to a new company eventually

comes in the coffers of the transferor company.

 Example: Indiabulls to carve out commercial office business into separate firm

 The new entity—Indiabulls Commercial Assets Ltd (IBCAL)—will hold existing leasing and
commercial assets, as well as future projects.
 IBREL (Indiabulls Real Estate) expects the new vertical to earn a rental income of Rs692
crore in 2017-18.
 The board also decided to explore opportunities for bringing strategic investments into the
new entity, the company informed the stock exchanges.
 It proposes to either get a strategic investor for its rental arm or demerge the rental arm from
the development arm.
 The net debt of IBCAL (post restructuring) will be reduced over medium- to long-term from
the annuity revenues.

 Indiabulls will also be looking at getting a foreign investor or PE fund to participate in the
equity of IBCAL.