Description
the ways to finance International M&As. It captures the M&A scenario in India, Tata Corus, Hindalco Novelis, Suzlon REpower, Bharti Airtel Zain
Mergers & Acquisitions
To create shareholder value over & above that of the sum of the two companies ? Merger: Two firms form a single new company ? Acquisition: One company takes over another, target company ceases to exist
?
International Mergers and Acquisitions:
To obtain strategic benefits in the markets of a particular country ? Advantages like quick market entry, economies of scale and market dominance
?
Financing International M&As
?
?
?
?
? ? ?
Payment by Cash Equity Share Financing or Exchange of Shares Debt and Preference Shares Financing Deferred Payment or Earn out Plan Leverage Buy Out Tender Offer Hybrid Financing
Reasons for Mergers/Acquisitions
? ? ?
To realise economies of scale Business diversification Reduction of earnings volatility and risk
?
?
Increase potential value of company
Acquiring synergies (financial and operational)
Mergers and Acquisition in India
?
Active since 1991
?
Factors:
? Government policies ? Growing economy
? Liquid corporate sector
? Risk-taking attitudes of the Indian leaders
?
2007: $ 100 bn
? $ 40 bn in Jan-Feb
?
40% are cross-country deals
? 70% worth in USD
Mergers and Acquisition in India
Tata Steel – Corus Group Plc : $12.2bn ? Vodafone - Hutchison Essar: $11.1 bn ? Hindalco - Novelis: $6 bn ? Ranbaxy - Daiichi Sankyo: $4.5 bn ? ONGC - Imperial Energy: $2.8 bn ? NTT DoCoMo - Tata Tele: $2.7 bn ? HDFC Bank - Centurion Bank of Punjab: $2.4 bn ? Tata Motors - Jaguar Land Rover: $2.3 bn ? Sterlite - Asarco: $1.8 bn ? Suzlon - RePower: $1.7 bn ? RIL - RPL merger: $1.68 bn
?
Tata – Corus
?
January 30, 2007: Tata Steel purchased 100% stake in the Corus Group for 608 pence per share in an all cash deal valued at $ 12.04 Billion
Tata Steel ($4.1bn) Tata Steel Asia Holdings (wholly owned subsidiary) Tata Steel UK Corus plc UK
?
Total acquisition amount : 12.9bn:
? Equity capital from Tata Steel : $4.10 billion ? Internal generation of Rs3,000 crore ($600 million) ? External commercial borrowings of Rs2,170 crore ($500 million). ? Rights issue of equity shares to shareholders in ratio 1:5 : Rs 3655crore ($862 million) ? Simultaneous rights issue of convertible preference shares in ratio 1:7 : about Rs4,350 crore ($1000 million) ? The $1.8 billion bridge debt was shared between Standard Chartered and ABN AMRO
? Long-term debt from consortium of banks $6.14 billion directly at Tata Steel UK ? Credit Suisse provided 45% and ABN AMRO and Deutsche picked up 27.5% each ? Quasi-equity funding at Tata Steel Asia Singapore
= $1.25 billion ? Long-term capital funding at Tata Steel Asia Singapore = $1.41 billion
?
Credit Suisse (which was the sell side advisor), later became the lead financing bank for Tata, joined by ABN AMRO and Deutsche Bank in the consortium
Hindalco – Novelis
February 11, 2007: Hindalco acquired the Canadian company Novelis for $6 bn, making the combined entity the world's largest rolled-aluminium producer ? AV Metals Inc. transferred the common shares of Novelis to its wholly-owned subsidiary AV Aluminum Inc ($3.4 bn)
?
Hindalco
AV Metals Inc
Novelis (75mn shares, $44.93 per share)
UBS was the financial advisor to Hindalco ? The deal was financed through:
? ? Recourse debt of $2.8 billion
? UBS, ABN Amro and Bank of America gave the required debt ? This included a bridge loan of US$ 1.4 billion at a coupon rate of 7.2 percent
? Hindalco's treasury contributed $450 million ? SL Iron Ore Mining, another group company, contributed $300 million as debt ?
This almost doubled Hindalco's turnover in one fell swoop. It catapulted the Group right to the threshold of the Fortune 500 group of companies
Suzlon – Repower
May 2007 : Suzlon Energy Ltd won the race to acquire REpower for € 1.35-billion (about Rs 7,314 crore), with a cash outflow of € 250 million ? Suzlon had valued REpower at around € 1.2 billion ($1.6 billion) and offered € 150 per REpower share. This price increased to € 1.35 billion after a capital increase
?
Company/Date Suzlon Areva Martifer Others May 2007 33.6% 30% 23% 13.4% May 2008 67% 0% 23% 10% May 2009 90% 0% 0% 10%
?
?
Suzlon locked a borrowing of 1 billion euros from ABN Amro (for a 100% acquisition). If Suzlon were to acquire only 70% share of REpower, it would need to borrow 626 million euros 25 per cent of the required funding came from Martifer and the rest 75 per cent from Suzlon. Out of the $750 million required, funds from internal accruals were just marginal— the balance was through debt
After the merger:
? ? ? ?
?
There was almost an 80% growth after acquisition in the production capacity Repower margins were in the range of 4-6 % and Suzlon’s 12 % Repower’s costs to materials which is 82%, can be reduced to about 65% Repower’s share price is about €230 whereas Suzlon acquired it at €150. So it is a huge benefit for Repower and their shareholders ? Earnings before interest and taxes improved from €27 million to €60 million
Bharti Airtel – Zain Telecom Deal
? ? ? ? ? ? ?
Airtel has operations in India, Sri Lanka, Seychelles and Bangladesh African operations of Zain International acquired by Bharti Acquisition via Netherlands SPV Bharti Airtel started exclusive discussions in February 2010 to acquire 100% Zain Africa Total Deal Value = USD 10.7 bn Deal was concluded on March 31, 2010 Regulatory approvals were received for all 15 countries
Structure of Acquistion
Bharti Airtel - India
Singapore SPV
Bharti Airtel Netherlands BV Zain Africa Internatinal BV African Operations (15 countries)
Financial Considerations
? ? ?
Valued at 10 times the EV/EBITDA multiple Total Deal value at $ 10.7 bn Considered very expensive especially because 7 units are loss making including its highest revenue earner Entails financial and commercial risk Bharti Airtel to assume debt of Zain on its book for USD 1.7 bn $9 billion loan at 5% No immediate returns expected from Zain
? ? ? ?
Bharti’s Strategy
?
Exploring the untapped market
? To reduce tariffs to increase usage and also improve
market share, particularly revenue market share
? Material synergies in the form of cost ? ARPU of $7 versus $5 for Bharti
? ? ? ? ?
Most of the 15 countries have low tele-density Usage is less than 100 minutes per user per month Matchbox strategy Minute’s factory model Negating the misfit between the two giant enterprises
Financing the Deal
?
?
? ? ?
Leveraged buy out Two SPVs created in Singapore and Netherlands which will avail the loan Bharti has extended a corporate guarantee for the same Loan of $9 billion at 5% Of the total amount of $10 billion:
? $ 8.3 billion paid upfront
? $ 700 million one year after closing the deal ? $ 1.7 billion debt assumed on the books of Zain
Debt Financing
?
Dollar loan: USD 7.5 billion by a consortium of banks led by Standard Chartered Bank and Barclays Bank Rupee loan: Upto USD 1 billion equivalent INR by SBI Group As this loan was taken by SPVs, Bharti Airtel’s standalone balance sheet was not affected
?
?
Bharti - MTN Deal
? ?
Proposed strategic merger Bharti was supposed to acquire 49% stake in MTN and MTN would have acquired 36% economic interest in Bharti Deal valued at $24 billion Deal failed on grounds of capital account convertibility and dual listing
? ?
Balance – Sheet Analysis
?
Revenues have increased by 40%
?
? ? ? ? ? ?
Net Income dilution is 14% for current revenues and profits
EBITDA margin has reduced to 38% from 41% Potential for increase in profits exists due to low teledensity Debt / Equity ratio increased from 0.4 to 1.2 This has affected the interest payments of Bharti Airtel $ 450 mn interest payments on loan for Zain deal Interest Coverage Ratio has decreased to 4.7 and may become a deterrent to further expansion
Thank You
doc_353877893.pptx
the ways to finance International M&As. It captures the M&A scenario in India, Tata Corus, Hindalco Novelis, Suzlon REpower, Bharti Airtel Zain
Mergers & Acquisitions
To create shareholder value over & above that of the sum of the two companies ? Merger: Two firms form a single new company ? Acquisition: One company takes over another, target company ceases to exist
?
International Mergers and Acquisitions:
To obtain strategic benefits in the markets of a particular country ? Advantages like quick market entry, economies of scale and market dominance
?
Financing International M&As
?
?
?
?
? ? ?
Payment by Cash Equity Share Financing or Exchange of Shares Debt and Preference Shares Financing Deferred Payment or Earn out Plan Leverage Buy Out Tender Offer Hybrid Financing
Reasons for Mergers/Acquisitions
? ? ?
To realise economies of scale Business diversification Reduction of earnings volatility and risk
?
?
Increase potential value of company
Acquiring synergies (financial and operational)
Mergers and Acquisition in India
?
Active since 1991
?
Factors:
? Government policies ? Growing economy
? Liquid corporate sector
? Risk-taking attitudes of the Indian leaders
?
2007: $ 100 bn
? $ 40 bn in Jan-Feb
?
40% are cross-country deals
? 70% worth in USD
Mergers and Acquisition in India
Tata Steel – Corus Group Plc : $12.2bn ? Vodafone - Hutchison Essar: $11.1 bn ? Hindalco - Novelis: $6 bn ? Ranbaxy - Daiichi Sankyo: $4.5 bn ? ONGC - Imperial Energy: $2.8 bn ? NTT DoCoMo - Tata Tele: $2.7 bn ? HDFC Bank - Centurion Bank of Punjab: $2.4 bn ? Tata Motors - Jaguar Land Rover: $2.3 bn ? Sterlite - Asarco: $1.8 bn ? Suzlon - RePower: $1.7 bn ? RIL - RPL merger: $1.68 bn
?
Tata – Corus
?
January 30, 2007: Tata Steel purchased 100% stake in the Corus Group for 608 pence per share in an all cash deal valued at $ 12.04 Billion
Tata Steel ($4.1bn) Tata Steel Asia Holdings (wholly owned subsidiary) Tata Steel UK Corus plc UK
?
Total acquisition amount : 12.9bn:
? Equity capital from Tata Steel : $4.10 billion ? Internal generation of Rs3,000 crore ($600 million) ? External commercial borrowings of Rs2,170 crore ($500 million). ? Rights issue of equity shares to shareholders in ratio 1:5 : Rs 3655crore ($862 million) ? Simultaneous rights issue of convertible preference shares in ratio 1:7 : about Rs4,350 crore ($1000 million) ? The $1.8 billion bridge debt was shared between Standard Chartered and ABN AMRO
? Long-term debt from consortium of banks $6.14 billion directly at Tata Steel UK ? Credit Suisse provided 45% and ABN AMRO and Deutsche picked up 27.5% each ? Quasi-equity funding at Tata Steel Asia Singapore
= $1.25 billion ? Long-term capital funding at Tata Steel Asia Singapore = $1.41 billion
?
Credit Suisse (which was the sell side advisor), later became the lead financing bank for Tata, joined by ABN AMRO and Deutsche Bank in the consortium
Hindalco – Novelis
February 11, 2007: Hindalco acquired the Canadian company Novelis for $6 bn, making the combined entity the world's largest rolled-aluminium producer ? AV Metals Inc. transferred the common shares of Novelis to its wholly-owned subsidiary AV Aluminum Inc ($3.4 bn)
?
Hindalco
AV Metals Inc
Novelis (75mn shares, $44.93 per share)
UBS was the financial advisor to Hindalco ? The deal was financed through:
? ? Recourse debt of $2.8 billion
? UBS, ABN Amro and Bank of America gave the required debt ? This included a bridge loan of US$ 1.4 billion at a coupon rate of 7.2 percent
? Hindalco's treasury contributed $450 million ? SL Iron Ore Mining, another group company, contributed $300 million as debt ?
This almost doubled Hindalco's turnover in one fell swoop. It catapulted the Group right to the threshold of the Fortune 500 group of companies
Suzlon – Repower
May 2007 : Suzlon Energy Ltd won the race to acquire REpower for € 1.35-billion (about Rs 7,314 crore), with a cash outflow of € 250 million ? Suzlon had valued REpower at around € 1.2 billion ($1.6 billion) and offered € 150 per REpower share. This price increased to € 1.35 billion after a capital increase
?
Company/Date Suzlon Areva Martifer Others May 2007 33.6% 30% 23% 13.4% May 2008 67% 0% 23% 10% May 2009 90% 0% 0% 10%
?
?
Suzlon locked a borrowing of 1 billion euros from ABN Amro (for a 100% acquisition). If Suzlon were to acquire only 70% share of REpower, it would need to borrow 626 million euros 25 per cent of the required funding came from Martifer and the rest 75 per cent from Suzlon. Out of the $750 million required, funds from internal accruals were just marginal— the balance was through debt
After the merger:
? ? ? ?
?
There was almost an 80% growth after acquisition in the production capacity Repower margins were in the range of 4-6 % and Suzlon’s 12 % Repower’s costs to materials which is 82%, can be reduced to about 65% Repower’s share price is about €230 whereas Suzlon acquired it at €150. So it is a huge benefit for Repower and their shareholders ? Earnings before interest and taxes improved from €27 million to €60 million
Bharti Airtel – Zain Telecom Deal
? ? ? ? ? ? ?
Airtel has operations in India, Sri Lanka, Seychelles and Bangladesh African operations of Zain International acquired by Bharti Acquisition via Netherlands SPV Bharti Airtel started exclusive discussions in February 2010 to acquire 100% Zain Africa Total Deal Value = USD 10.7 bn Deal was concluded on March 31, 2010 Regulatory approvals were received for all 15 countries
Structure of Acquistion
Bharti Airtel - India
Singapore SPV
Bharti Airtel Netherlands BV Zain Africa Internatinal BV African Operations (15 countries)
Financial Considerations
? ? ?
Valued at 10 times the EV/EBITDA multiple Total Deal value at $ 10.7 bn Considered very expensive especially because 7 units are loss making including its highest revenue earner Entails financial and commercial risk Bharti Airtel to assume debt of Zain on its book for USD 1.7 bn $9 billion loan at 5% No immediate returns expected from Zain
? ? ? ?
Bharti’s Strategy
?
Exploring the untapped market
? To reduce tariffs to increase usage and also improve
market share, particularly revenue market share
? Material synergies in the form of cost ? ARPU of $7 versus $5 for Bharti
? ? ? ? ?
Most of the 15 countries have low tele-density Usage is less than 100 minutes per user per month Matchbox strategy Minute’s factory model Negating the misfit between the two giant enterprises
Financing the Deal
?
?
? ? ?
Leveraged buy out Two SPVs created in Singapore and Netherlands which will avail the loan Bharti has extended a corporate guarantee for the same Loan of $9 billion at 5% Of the total amount of $10 billion:
? $ 8.3 billion paid upfront
? $ 700 million one year after closing the deal ? $ 1.7 billion debt assumed on the books of Zain
Debt Financing
?
Dollar loan: USD 7.5 billion by a consortium of banks led by Standard Chartered Bank and Barclays Bank Rupee loan: Upto USD 1 billion equivalent INR by SBI Group As this loan was taken by SPVs, Bharti Airtel’s standalone balance sheet was not affected
?
?
Bharti - MTN Deal
? ?
Proposed strategic merger Bharti was supposed to acquire 49% stake in MTN and MTN would have acquired 36% economic interest in Bharti Deal valued at $24 billion Deal failed on grounds of capital account convertibility and dual listing
? ?
Balance – Sheet Analysis
?
Revenues have increased by 40%
?
? ? ? ? ? ?
Net Income dilution is 14% for current revenues and profits
EBITDA margin has reduced to 38% from 41% Potential for increase in profits exists due to low teledensity Debt / Equity ratio increased from 0.4 to 1.2 This has affected the interest payments of Bharti Airtel $ 450 mn interest payments on loan for Zain deal Interest Coverage Ratio has decreased to 4.7 and may become a deterrent to further expansion
Thank You
doc_353877893.pptx