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Merger of Kingfisher & Air Deccan
Air Deccan
• Founders-Capt. Gopinath, Capt. K.J. Samuel & Vishnu Raval .
• Started- 23rd August 2003.• Merger due to-(a) focus on South India(b) lower demand (c) Scarcity of personnel, etc.
• Merger-April 2008• Kingfisher acquired with 26% equity of
Rs.550crores of Air Deccan.• Rs.155 per share (10% premium on CMP) of
Air Deccan.• The new company- KINGFISHER RED.
• Gopinath- Executive Chairman• Mr. Vijay Mallya- Vice-Chairman.• The company now had a fleet of 71 aircrafts• The combined market share was 33%.
• The savings of cost- 4-5% (Rs.300 crores).• Expected turnover of Rs.3k crore for
Kingfisher and Rs.2200crore for Deccan. • Vijay Mallya paid additionally Rs.418 crore
for a further 20% stake in Air Deccan.• The Combined market share was 29%.
Effect on the Share Price due to the Deal
• Kingfisher deal values shares of Air Deccan at Rs.155 each, 6% more than its closing price of Rs.146.20.
• When Kingfisher completed the deal the shares of Air Deccan rose to 12% .
• By the month-end of the deal Deccan shares climbed to a 52-week high of Rs.335 before closing at Rs.295.
• Air Deccan approved the allotment of equity share of 26% to UB Group
• UB group made money through initial investment of Rs.150crore
• UB group made a open offer
• Kingfisher – Air Deccan was the largest domestic airline
• Synergy benefits
• Improved financial prospects
• Exploit significant benefits
Fresh equity capital
Reduction of cost
Increasing profitability
Increase in market share
• Frequent changes on focus
• Acquisition for expansion
• Economic slow down
• Lack of management
• High operational cost
• Increase in prices
Saves in engineering and maintenance cost
Duplication is avoided OPERATI-
ONAL SYNERGIE
S
Ground infrastructure at 65 airports( 28 are common)
New entity has 71 aircrafts INFRASTR
U-CTURESYNERGIE
S
SYNERGIES
Two carriers account for total 155 flights
Connectivity to US, Europe, different Asian regions ROUTE
SYNERGIES
Both airlines have orders for 90 aircrafts
Alliance with Deccan provides opportunity to negotiate its rates
INVEST-MENT
SYNERGIES
MERGER RESULTED IN:
• Largest fleet of aircrafts- 71• 41 Airbus + 30 ATR• Maximum number of flights and connections• Low fare segment + Business segment• Common Fleet• High market share• Engineering costs to come down
COST- BENEFIT ANAlYSIS• Kingfisher : Deccan Airlines shares swap ratio - 7:3• Cash paid = Rs. 550cr + Rs. 418cr= Rs.968cr• Present value of 46% stake = 62316254.28* 67.25= 419 cr• Cost for kingfisher = Cash paid – Present value = 968 – 419 = Rs. 549cr• Value Created/ Destroyed (67.25/ 155) = - 43.38%
CONCLUSION
• It became the largest Indian Airline resulting in increase in market share by 27.5%.
• Domestic travel increased by 30%• In 2007- combined entity incurred loss of Rs.
995cr.• Kingfisher failed to capture market unlike its
competitors.• Kingfisher Red closed down its operations on
sep 2011• On jan 2012 SBI declared kingfisher airlines
as a Non-performing asset.
Advantages Disadvantages
Corporate Restructuring
Valuable corporate reformation
Negative effects of the overall community
Small amount of capital requirements
Benefit to stock holders Corporate bankruptcy
Management buyout
Last resort Substantial conflicts of interest among employees
Economy Greatly improve its chances for success
A weak economy is highly indicative of a problematic LBO
Established in November 4, 1984
American multinational information technology corporation
Sells and supports computers and related products and services
Industry leader in personal computers
American Multinational company
EMC is a global leader
Deliver information technology as a service
EMC sells data storage, information security, virtualization, analytics, cloud computing etc
Established in 1998
American company
Cloud & virtualization software
On August 14, 2007, EMC sold 15% of the company in a New York IPO
Dell announced an agreement to acquire EMC and with it, control of VMware in a deal valued at $67 billion at the time of the announcement.
This is the first, big, over $50 billion transformative deal
ORGANISATION DETAILS OF THE DEAL
• DELL- In 2013, after a tussle with shareholders, they decided to finance a take-private of the company, by delisting it from Nasdaq• EMC- EMC operates as four federated lines of business:1. EMC Information Infrastructure2. Pivotal3. VMware Virtual Infrastructure4. Virtustream unit
REASON BEHIND THE DELL-EMC DEAL
“ Both companies - had fought significant battles with activist shareholders”
DELL• Engaged battle with Carl Icahn• Change in the voting structure
during deal negotiations
EMC• Had battled with Elliott
management• Called for spinoff of VMware &
break-up of EMC’s federations
DELL EMC VMware
Who owns Vmware now?
WHY DELL INVOLVED VMwareMichael Dell stated:
“VMware is a crown jewel of the EMC federation. Our intent is only to continue to help it thrive,
innovate and grow, as an independent company with an independent and open ecosystem”.
Moreover, CEO of DELL & EMC together have the “opportunity to significantly expand VMware’s
revenue in areas such as the software-defined data center, the hybrid cloud, and in end-user computing”.
The Drama Has Just Begun….
• EMC is using the deal to go private and restructure themselves in the market.
• The company should now take approvals from shareholders and regulatory authorities.
• EMC shareholders-the EMC shareholders should approve the deal which is possible only if they get premiums on their shares.
• Vmware shareholders- due to volatility in Vmware share price, the EMC shareholders shares asset which is 81% in Vmware was devalued by 41%.
• Players and potential bidders-The 60-day go shop period has a bilateral breakup fee arrangement between EMC and Dell. The potential bidders are less.
• Competitors- Lenovo Dell & VMware NetApp• VMware Growth
Fluctuation in the VMware share price
• Supply of shares and the role of tracking stock• Tracking stock creates a playground for traders• VMware effect on Q3 earnings and concern
about “,massive secular shifts”.• Uncertainty over the merger and it’s impact on
VMware.• Financial impact of the Virtustream business
unit.
•Ever-changing analyst sentiment.
Impact on storage
• EMC garnered annually 8%-9% of its revenue after the deal.
• Dell accounted 50% of its storage revenue.• Earlier, Dell brought more upscale products to
the market.• EMC downstream its products to create
completion between the companies.
Conclusion
• Good customer base.• Job cuts.• Competition.
