This article has been written by Peddada Sivadattha pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) and edited by Shashwat Kaushik.

This article has been published by Sneha Mahawar.

Introduction

A merger is a strategic alliance between two companies where one of them gets submerged into another or they combine to form a new entity. Mergers have been an integral part of the Indian corporate landscape. The Indian corporate world has seen many mergers over the years that have had a significant impact on the companies merging, at a micro level, on the sector in which the concerned companies operate and also on the economy as a whole, at a macro level.

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Benefits of mergers 

  • Increased market share: Mergers help companies increase their market share and expand their customer base.
  • Synergies: It means teamwork or alliance. Mergers allow companies to combine their resources and expertise and in turn, they can reduce costs and increase efficiency.
  • Diversification: Mergers enable companies to diversify their business and enter new markets and new industries, which otherwise wouldn’t have been possible.
  • Financial benefits: Mergers provide increased revenue, higher profits and better access to capital.

Some other benefits of mergers include tax benefits, economies of scale, access to better personnel, etc.

In order to reap the numerous benefits that mergers provide, many companies have made mergers in India over the years and in recent times, this activity has even increased. In this article, we will look into the top 5 mergers in India. These mergers are big not only in terms of value but also in terms of the impact they have created on the industry and the economy.

Vodafone – Idea merger

It is the largest merger in the Indian telecom industry. Reuters reported that the Vodafone-Idea merger value was $23 billion. The reason behind the merger is the entry of Reliance Jio into the Indian telecom industry and the rise of Jio as a leader in the telecom sector in no time, putting behind veteran players in the industry like Airtel, Idea and Vodafone. To combat this situation, Vodafone and Idea came up with the idea of merging the companies to combine their resources and customer bases.

Idea and Vodafone had a successful deal, with Vodafone gaining a 45.1% stake in the merged company, the Aditya Birla Group holding 26% and the public holding the rest of the share. The integration of the two companies was completed when they unveiled their brand new identity, ‘Vi’, on September 7, 2020.

Situation of Vodafone-Idea post-merger

After the merger, ‘Vi’ became the market leader with a customer market share of 35% and a revenue market share of 40%, serving 400 million subscribers. However, its market share has now dropped to 15.4%, standing in third place due to various reasons.

‘Vi’ owes more than Rs. 44,000 crores to the government. It has been fighting legal battles over the issue of what adjusted gross revenue means and its regulatory-related dues. Despite its efforts to reconcile with the government for a moratorium of 2 years, the company could not resolve the issue. 

Further, the company needed to keep up with its competitors by introducing new technologies and plans. Added to that, the long standing legal challenges have resulted in a more than 94% decrease in share prices. As of now, its share price on the National Stock Exchange (NSE) stands at a mere Rs. 7.45.

So, the companies got into a merger, thinking they could improve the situation but the situation seems to be deteriorating. Only time will tell whether ‘Vi’ can make a comeback.

Impact of the Vodafone-Idea merger on the telecom sector in India

The merger of Vodafone and Idea has caused a shift in the telecom market dynamics. Many smaller companies were forced to exit the market due to increased competition and adverse market conditions. Customers will have fewer options and must adhere to the prices set by the dominant players. Following the Vodafone-Idea merger, other companies such as Telenor and Reliance Communication were acquired by Bharti Airtel, while Tata Teleservices customers moved to Airtel’s network through Intra Circle Roaming. The merger has had a significant impact on the quality of service provided by various service providers in the telecom sector.

Zee Entertainment – Sony India meger

Zee Entertainment and Sony India, two of India’s largest media companies, plan to merge, creating a $10 billion combined entity. After the Walt Disney Group acquired Star India Media, it arose as a leader in the entertainment industry in both channel and OTT viewing. Zee was looking for funds to fuel expansion plans, while Sony was seeking an Indian partner to regain market share lost to Disney-Star. Zee had an extensive network viewership through regional channels where Sony needed more presence; the partnership just made perfect sense.

After the completion of merger formalities, Sony Pictures Limited will hold a 50.86% share, the Essel family (promoters of Zee) will hold a 3.99% share, and the other shareholders of Zee will hold a 45.15% share in the merged entity.

Benefits of the Zee-Sony merger

The merger of Sony and Zee is set to benefit both companies as they have complementary strengths, such as Sony’s substantial presence in sports broadcasting and Zee’s expertise in regional content. This will expand the current portfolio and channel offerings while having minimum overlap in terms of audience, channels and viewership. Zee’s wider pan-India footprint, particularly in rural India, and Sony’s stronghold in the urban market will allow both Zee and Sony to fill the white spaces in their respective portfolios. The combined entity will wield significant power in the film industry, with Zee’s influence in Bollywood and Sony’s reputation in Hollywood.

Impact of this merger on the entertainment industry in India

The merger of Zee Sony will create the largest diversified television network in India, straddling news, current affairs, sports, regional and Hindi entertainment. This benchmark merger will raise the stakes in India’s media and entertainment sectors, resulting in stronger competition. With a combined TV viewership share of 26.7% and an increased number of channels, the network will enjoy higher advertisement sales and better bargaining power with distributors and DTH operators, thereby resulting in higher prices or commissions or a refusal to deal with distributors and advertisers. This merger will be good for the media and entertainment industries as it will provide an impetus for growth in content generation and distribution both nationally and internationally, across TV  and cinemas.

Arcelor – Mittal merger

The Arcelor-Mittal merger is the biggest merger ever for an Indian company, valued at $38.3 billion. The world’s largest steel company, ArcelorMittal, merged in 2006. The steel industry is highly fragmented, with the top 5 companies controlling only 20% of the business. The top players as suppliers of raw materials and buyers to these steel companies often control 70% of their respective industries, thereby causing exploitation for the steel companies. Hence, both companies viewed consolidation as the critical success factor for the global steel market. In the merged entity, Arcelor would hold 50.5% of the shares and Mittal Steel would hold the remaining 49.5%. 

Situation of Arcelor-Mittal post merger

ArcelorMittal has emerged as one giant, standing at No. 1 position both in terms of producing values and revenues as well as in the global steel industry, with a steel making capacity of 120 million metric tonnes and a revenue of $105.2 billion a year. It produces almost 10% of the steel in the world. The company is a leader in the global market in various fields, including automobile construction, household appliances and packaging. 

Impact of this merger on the steel industry

This merger is believed to contain the volatility of prices and is expected to bring price stability to the steel industry. It is also anticipated to alter the steel industry globally, prompting other players to pursue growth through mergers and acquisitions. ArcelorMittal, the resulting powerhouse from the merger, is hinting at growing not only horizontally but also vertically, from mining to distribution. It is therefore possible that there will be numerous hostile takeovers in the global steel market. Though mergers are current trend in the steel industry, in the future it could lead to imperfect market conditions such as oligopoly or skewed monopoly

Indus Tower – Bharti Infratel merger

Indus Towers is a joint venture between Bharti Infratel, UK-based Vodafone Group Plc, and Vodafone Idea, which merged with Bharti Infratel Limited on November 19, 2020, to create the world’s largest telecom tower company outside China. Bharti Infratel also had a 42% stake in Indus Towers before the merger. Post-merger, Bharti Airtel holds a 36.7% stake in Indus Towers, with Vodafone Group holding 28.12% and Providence Equity holding 3.1% and remaining with the public.

Benefits of the Indus Tower-Bharti Airtel merger

The merger will allow Indus Towers to offer a wider range of services to its customers, including 4G, 5G, and fibre optic connectivity. It will also help the company reduce costs and improve its operational efficiency. The combined entity possesses an extensive tower portfolio, estimated to exceed 163,000 towers. A larger asset base promotes economies of scale. The merger helps in collaboration between telecom infrastructure giants and will provide access to advanced technologies, infrastructure and financial support, allowing Indus Towers to stay at the forefront of the rapidly evolving telecommunications industry.

Impact of the Indus Tower-Bharti Airtel merger on the telecom industry

The merger is expected to have a significant impact on the telecom industry in India. It represents a significant step towards industry consolidation. As telecom operators in India continue to focus on profitability and streamlining operations, this consolidation may catalyse future mergers and acquisitions, leading to a more stable and efficient telecom sector. The merger’s impact extends beyond the telecom industry. By fostering better connectivity, the unified entity will contribute to India’s digital transformation, bolstering economic growth and supporting the government’s initiatives such as Smart Cities, Digital India, and Make in India.

HDFC – HDFC bank merger

The merger of HDFC Bank and HDFC Limited will create one of the largest financial institutions in India, combining the largest private bank and the largest housing finance company. This will result in the 63rd most valuable company in the world, valued at $190 billion, surpassing big names like Morgan Stanley with $153 billion and HSBC with $140 billion in terms of valuation. HDFC Bank is currently focused on retail banking, while HDFC is focused on housing finance.  The merger is driven by the desire to achieve economies of scale and create a more diversified institution offering a wider range of products and services. Post-merger, HDFC Limited’s existing shareholders will own 41% of shares in HDFC Bank and the remaining 59% shall vest with the public shareholders.

Situation of HDFC Bank post merger

After the merger, the loan book of the combined HDFC entity will become more diversified, with a larger portion consisting of mortgages. The home loan segment in HDFC Bank’s loan book will increase from 11% to 33%. As a result, the merged entity will not only become the largest bank in India in terms of assets and market capitalization. Still, it will also have a dominating presence in the mortgage and retail banking sectors. Additionally, the merger will significantly strengthen the financial position of HDFC Bank, with a 50% increase in assets and a capital adequacy ratio exceeding 18%. This enhanced financial strength will give the bank greater flexibility to expand and grow its operations.

Impact of the HDFC-HDFC Bank merger on the banking industry

The merger of HDFC Bank is set to create a strong presence in the banking industry, challenging both public and private sector banks. HDFC Bank currently holds a dominant position in private banking and is the second-largest bank overall. This merger poses a significant threat to public sector banks, forcing them to improve efficiency and compete with large private banks. Along with the HDFC merger, the acquisition of Citi Bank’s consumer banking business by Axis Bank has contributed to the growth and share of private players in the banking industry. This trend may lead to more mergers and acquisitions as banks aim to expand and face increased competition. Overall, this merger and acquisition activity within the banking industry is expected to positively impact productivity and competition as players strive to enhance their offerings and stay relevant in the market. 

Conclusion

A substantial merger in any industry changes the dynamics of the whole industry. In particular, the biggest mergers like these have the ability to impact the market to a great extent, either positively or negatively, depending on the nature of the merger and the circumstances prevailing in the market. This article dealt with the top 5 mergers in India while looking into aspects like the reasons for the merger, the benefits of the merger and the impact of the merger on the industry. Most of these mergers had a positive impact, like improvements in efficiency and productivity, consolidation of resources, competition with rival companies, etc. However, sometimes it may result in adverse outcomes like monopolies or abuse of dominant positions.

References

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