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Indian business has entered an era where mergers and acquisitions have taken a front seat.

A year after India's largest telco Bharti Airtel called off merger talks with South Africa's MTN, both companies recently announced that they had restarted talks to create a global powerhouse with revenues over
$ 20 billion and a footprint stretching from the Cape of Good Hope across the African continent, West Asia and the Indian subcontinent.

The potential deal, which seeks to tiptoe around the emotional sensitivities that scuppered their merger talks last year, will catapult the combine into the league of the top five telecom operators globally, with over 200 million customers.

By any yardstick, the Bharti - MTN deal, if it goes through, will usher in the next round of the Indian telecom M&A story.

At an estimated ticket size of $ 23 billion, this will be the biggest cross-border deal that India Inc has been involved in, and nearly twice as much as what British telco Vodafone paid to acquire a little over half of Hutchison Telecom International's Indian operations in early 2007.

Before we analyse the case, let us understand the concept of Merger and the strategy behind mergers.

Mergers and Acquisitions in India

In India we find that the mergers have passed to different phases. In India Mergers between the same group companies have been in place for a long time. This used to happen because the capacities for the production were fixed during license permit raj and the group having the licenses used to merge the loss making companies with the profit making companies. This used to help them as taking over the loss making used to lower the tax burden as the losses on the balance sheet can be written out over a period of time and licenses could also be utilised through the better management by the profit making companies managers.

The first wave of the hostile takeovers in India started not very long ago in the early eighties. The best case for this was the bids for the Escorts and DCM by the Swaraj Paul of the Capro group of Industries. He that time tried to acquire these companies with the help of the present day government of Indira Gandhi. The bids were unsuccessful but a number of people following his path made an industrial empire through these ways. The foremost names, which come to mind, are of R. P. Goenka and Manu Chhabria.

What is a Merger?

A merger occurs when two companies combine to form a single company. Both the companies should be of approximately of equal size. One or more companies may merge with an existing company or they may merge to form a new company. Laws in India use the term amalgamation for merger. For e.g. Sec 2 (1A) Of the Income Tax Act 1961 defines amalgamation as - the merger of two or more companies with another company or the merger of two or more companies to form a new company. In a merger existing stockholder of both companies involved retain a shared interest in the new corporation. Each participant has been given full access to the other participant and all material issues have been resolved between the managements.

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* Contributed by: -
Prof. M. Guruprasad is Senior Faculty for Economics, Finance and Research, with AICAR Business School Raigad / Mumbai. He has more than 15 years of experience in research and educating / training management students. He was research scholar with the University of Mumbai. Worked as Executive in the Marketing research industry. Also Conducted Workshops and Training programmes. He has published articles in various industry magazines, newspapers and has initiated many discussions on academics.