-An article by Lavanya Goinka

Introduction

A merger represents a strategic partnership between two companies, where one entity becomes absorbed by another, or they unite to establish a new organization. Mergers have long played a pivotal role in the corporate landscape of India. Over the years, the Indian business world has witnessed numerous mergers, profoundly influencing the involved companies at a micro level, their respective sectors, and the economy as a whole on a macro scale.

Benefits of Mergers

• Expanded Market Share: Mergers facilitate the growth of a company’s market share and the broadening of its customer base.
• Synergies: Synergies foster collaborative efforts, allowing merging companies to pool resources and expertise, which in turn can lead to cost reductions and enhanced operational efficiency.
• Diversification: Mergers empower companies to diversify their business interests, enabling them to enter new markets and industries that might otherwise be unattainable.
• Financial Gains: Mergers often result in increased revenue, higher profits, and improved access to capital.
• Other advantages encompass tax benefits, economies of scale, and access to skilled personnel, among others.

In their pursuit of these benefits, many companies have engaged in mergers in India over the years, a trend that has seen recent growth. In this article, we will delve into the top five mergers in India, notable not only for their financial value but also for the profound impact they’ve had on their respective industries and the broader economy.

Vodafone – Idea Merger

The Vodafone-Idea merger, valued at $23 billion, stands as the largest consolidation in India’s telecom sector. This merger was a response to the entry of Reliance Jio, which swiftly emerged as a dominant force in the telecom industry, surpassing established players like Airtel, Idea, and Vodafone. To counter this challenge, Vodafone and Idea joined forces to combine their resources and customer bases.

The merger concluded with Vodafone holding a 45.1% stake in the amalgamated company, the Aditya Birla Group owning 26%, and the remainder in the hands of the public. The integration culminated with the introduction of their rebranded identity, ‘Vi,’ on September 7, 2020.

Current Status of Vodafone-Idea Post-Merger

Following the merger, ‘Vi’ initially secured a market leadership position with a 35% customer market share and a 40% revenue market share, serving 400 million subscribers. However, the company’s market share has since dwindled to 15.4%, primarily due to various factors.

‘Vi’ is burdened with over Rs. 44,000 crores in government dues and entangled in legal disputes regarding adjusted gross revenue. Despite efforts to negotiate a two-year moratorium with the government, these issues remain unresolved.

Furthermore, the company has struggled to keep pace with competitors by introducing new technologies and pricing plans. The prolonged legal disputes have led to a drastic 94% decline in share prices, with the company’s National Stock Exchange share price currently standing at a mere Rs. 7.45. Initially aimed at improving the situation, the merger has seemingly worsened it, leaving the company’s future uncertain.

Impact of the Vodafone-Idea Merger on the Telecom Sector in India

The merger of Vodafone and Idea brought about a significant shift in the telecom market dynamics. Heightened competition and unfavorable market conditions compelled many smaller companies to exit the market. This, in turn, reduced options for customers, making them more susceptible to pricing decisions made by dominant players. After the Vodafone-Idea merger, Bharti Airtel acquired other companies like Telenor and Reliance Communication, while Tata Teleservices’ customers migrated to Airtel’s network through Intra Circle Roaming. The merger significantly influenced the quality of service provided by various telecom service providers.

Zee Entertainment – Sony India Merger

Zee Entertainment and Sony India, two of India’s prominent media conglomerates, intend to merge, forming a combined entity valued at $10 billion. Following Disney’s acquisition of Star India Media, it emerged as a leader in the entertainment industry, both in channel and OTT viewing. Zee sought funds for expansion, while Sony aimed to reclaim the market share lost to Disney-Star. The merger made sense as Zee had a substantial viewership presence through regional channels, complementing Sony’s requirements for a wider audience.

Upon completion of the merger, Sony Pictures Limited will hold a 50.86% share, the Essel family (Zee’s promoters) will hold 3.99%, and other Zee shareholders will retain 45.15% ownership in the combined entity.

Benefits of the Zee-Sony Merger

The merger between Sony and Zee is poised to benefit both companies, leveraging their complementary strengths. Sony excels in sports broadcasting, while Zee specializes in regional content. This creates an opportunity to expand their portfolio and channel offerings with minimal overlap in terms of audience, channels, and viewership. Zee’s extensive pan-India footprint, particularly in rural areas, combined with Sony’s urban market stronghold, allows both companies to address gaps in their portfolios. The merged entity will wield significant influence in the film industry, with Zee’s expertise in Bollywood and Sony’s reputation in Hollywood.

Impact of this Merger on the Entertainment Industry in India

The Zee-Sony merger will give rise to India’s largest diversified television network, encompassing news, current affairs, sports, regional, and Hindi entertainment. This landmark consolidation will elevate competition in India’s media and entertainment sectors, potentially resulting in stronger market dynamics. With a combined TV viewership share of 26.7% and an expanded channel portfolio, the network will gain greater leverage in advertising sales and negotiations with distributors and DTH operators. This, in turn, may lead to higher pricing and commissions or the selective engagement of distributors and advertisers. The merger is anticipated to drive growth in content creation and distribution, both nationally and internationally, across TV and cinema platforms.

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 the 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 the 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 fiber 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 catalyze 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 can 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.