recent trends in corporate restructuring

BY: CA SANDESH MUNDRA

SANDESH MUNDRA & ASSOCIATES

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SANDESH MUNDRA & ASSOCIATES 2

IDEA & VODAFONE INDIACreating the largest telecoms in IndiaKey Highlights:

Highly complementary combination

The country’s widest mobile network

‘Digital India’ vision.

Excellent consumer experience & industry leading coverage on back of complementary footprint.

Merger of equals with joint control of the combined company between Vodafone and the Aditya Birla Group, governed by a shareholders’ agreement.

Chairman: Mr Kumar MangalamBirla

Significant synergies

The transaction is expected to close during calendar year 2018, subject to customary approvals.


SYNERGIES


IMPACT OF MERGER ON TELECOM INDUSTRY

There can be initiatives based on renewal of price discipline.

growing market in terms of subscriber base.

Vodafone and Idea will overcome their debts and huge credit will be infused in the system.

Saved both from selling off their businesses as planned initially which would directly impact the quality of services provided by different players in the industry.


VALUATIONVodafone India and Idea Cellular had agreed to merge their operations to create the country's largest telecom operator worth of more than $ 23 billion with a 35 per cent market share.

They would dislodge Bharti Airtel to counter the fierce price war in the world's second-largest telecom market.

Vodafone will own 45.1% of the combined company after transferring a 4.9% stake to the Aditya Birla Group for US$579 million in cash, concurrent with completion of the merger. The Aditya Birla Group will then own 26.0% of the combined company

Standalone towers and Idea’s 11.15% stake in Indus Towers to be monetised


EQUALISATION MECHANISM

8Sandesh Mundra & Associates

SANDESH MUNDRA & ASSOCIATES

CORPORATE VALUATION


It was a deal that surprised some, shocked many, and left some gaping at the wall in sheer amazement. This is what Mark Zuckerberg did to the analysts of the financial world and to the general public when he announced that Facebook

had decided to buy 5-year old WhatsApp for a whopping 19 billion USD!

But WHY?? Take a look!

• 450 million users• 70% active daily users• 1 million new user registrations/day

Asia Latin America

Europe Africa

WhatsApp has a strong global reach

“I expect WhatsApp to quickly touch 1 billion

users”

Wha

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A Po

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ouse

in th

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ing

How is it possible?

Thanks to WhatsApp’s powerful features:

• Rapid text messaging• Engaging private and group chat options• Quick file sharing• Sleek user interface• Minimum system requirements and data usage• Freemium Model (free usage first year, $0.99 from second

year)


WHATSAPP AND FACEBOOK DEAL

With the desktop market saturating and smartphone clientele exponentially growing, Facebook has been looking to establish a

stronger presence in the mobile market

FB App and Messenger reach limited to FB Users. Only Moderate Successes.

Facebook was desperately looking for a turn-around in the mobile segment

Another concern area of Facebook was its User Attrition

Users frustrated withprivacy settings andmoving onto otherconnecting platforms

Facebook’s Twin Goals

Increasing mobile presence

Gaining a loyal customer base

The 450 million “content” mobile users of WhatsApp perfectly filled the void


FACEBOOK’S CONCERN AND PRESENT NEEDS

Deal Value – User Angle

From the users point of view, $19 billion for 450million users translates to ~$42 per user, which ismuch lesser than the value of a Facebook ($128),Twitter ($80) or a LinkedIn user ($60).

$42 $128 $80 $60

So if the users of WhatsApp can be fairly relied on, the acquisition value can be

counted rational to an extent

Deal Value – Revenue Angle

Presently WhatsApp incurs only marginalexpenses in terms of:

• Marketing costs• Infrastructure costs• Employee costs

In terms of revenue, let us assume:• Zuckerberg streamlines subscription

system• WhatsApp indeed reaches 1 billion users

If these assumptions hold true, WhatsApp can make fairly good profits because of its

low cost business model

But W

hat A

bout

the N

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Deal Value – Payment Mode Angle


VALUATION

GOOGLE AND MOTOROLA DEALKey Highlights:

This is a Vertical Merger (which companies at different places in a chain of products join together).

The main motivation of Google buying Motorola Mobility in the first place was its huge trove of patents. The idea was that the patents would help the company with legal protection for its widely used Android software

Motorola had 17500 patents + 7000 patents in line whereas Google just had 2000 Patents.

Together they will accelerate innovation and choice in mobile computing.

Transform it into a healthy counterweight to Samsung, which sells the overwhelming majority of Android smartphones.


VALUATION AND SYNERGIESGoogle announced an agreement to acquire Motorola Mobility for $40 per share or a total of about $12.5 billion.

Motorola holds a market share of 13.7%. This is down from the previous year's share of 20%. The company later decided to manufacture phones on the Android platform, which saw strong market reception based on its reviews.

Investors are wondering how an internet giant like Google can integrate with and run a hardware company that has been bleeding cash over the last few quarters. A quick answer is that Google can manufacture hardware in large.


SELLING OF MOTOROLA


Why ?Google is selling Motorola, the iconic handset maker it bought for $12.5 billion in May of 2012, to Chinese PC maker Lenovo for $2.91 billion which

they call it as a ‘success’.

Google didn’t take a loss from the divestiture. Motorola never made Google any money, so it was better to remove this financial headache.

At the time of the acquisition, Motorola had no debt and $3 billion of cash on its balance sheet that Google got to keep. Google then sold off Motorola’s cable set top box business to a private equity firm for $2.3 billion. This means that the actual loss for Google would be $4.3 billion after its sale to Lenovo. However, there’s more.

According to the deal with Lenovo, Google will keep the majority of Motorola’s huge patent portfolio.

The company had valued those patents and other developed technology at $5.5 billion, according to a regulatory filing last year. So in terms of valuation, a $2.9 billion sale to Lenovo doesn’t seem bad.

Apple's patent attack on Android licensees was slowing down and worrying Google's customers. Motorola had a massive patent library that can be used defensively.

http://www.theverge.com/2013/10/21/4853808/google-motorola-losses-moto-x

https://investor.google.com/releases/2014/0129.html

Money Launderingwhoever is connected with the proceeds of the crime

◦ projecting it as untainted property

would be committing offence of Money Laundering Act, and further that

the proceeds of crime must have been derived or obtained, directly or indirectly by any person◦ as a result of criminal activity

◦ relating to scheduled offence in terms of sub-section (u) of Section 2 of the Prevention of Money Laundering Act”


Primarily, the money laundering transaction involves three stages which have been held to be quintessential ingredients of money laundering by High Court of Andhra Pradesh in B. Rama Raju v. Union of India,

1. Placement stage

2. Layering stage

3. Integration stage


It is also a tenet of criminal law that an act cannot be an offence before such act is declared as an offence by a legislation in view of Article 20 (1) of the Constitution of India, which states as under:

“No person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.”


Methods normally choosenSmurfing – Depositing small amounts of cash

Shell Companies – receive money for goods / services never provided

Third Party Cheques / Bankers’ Drafts

Offshore Banks


CASE LAW 1: ROHIT TANDON V/S ENFORCEMENT DIRECTORATE

Facts of the Case:

The Supreme Court Friday rejected the bail plea of lawyer Rohit Tandon, who was arrested in connection with an alleged money laundering case post demonetisation.

He was arrested after a raid on his law firm in connection with a black money probe that had led to the alleged seizure of Rs 13.6 crore.

He was allegedly involved in illegal conversion of nearly Rs 60 crore demonetised currency.

The volume of demonetized currency recovered from the office and residential premises of the appellant, including the bank drafts in favour of fictitious persons and also the new currency notes for huge amount, leave no manner of doubt that it was the outcome of some process or activity connected with the proceeds of crime projecting the property as untainted property.

The fact that the appellant has made declaration in the Income Tax Returns and paid tax as per law does not extricate the appellant from disclosing the source of its receipt.


Continued:The property derived or obtained by the appellant was the result of criminal activity relating to a scheduled offence.

The Enforcement Directorate had arrested him after a raid on his law firm in connection with a black money probe that had led to the alleged seizure of Rs 13.6 crore.

Some other accused were also arrested in connection with a separate Prevention of Money Laundering Act case.


CASE LAW 2:S C JAYACHANDRA V/S ENFORCEMENT DIRECTORATE

Facts of the Case:

Jayachandra was a suspended chief project officer of the State Highway Development Project, Karnataka.

His involvement was in acquiring/ possessing/ exchanging/converting the old demonetized currency notes of Rs.500/- and Rs.1,000/- into newly introduced currency notes of Rs.2,000/- in connivance with various middle-men.

He has amassed wealth disproportionate to his known source of income.

A sum of Rs.27 Lakhs were seized from the two premises belonging to the petitioner out of which Rs.5 Lakhs was in new currency of denominations of Rs.2,000/-.

He violated the RBI had placed an embargo from exchanging demonetized notes in excess of Rs.4,500/-


Continued:The investigation has revealed that the accused No.1 (petitioner) has mis-used his official position and used accused No.2, 3 and 4 to launder his ill-gotten money and used it to acquire 17 properties through 'proceeds of crime'.

These properties were mainly bought in the name of his mother in law which was then transferred to her daughter as a ‘gift’ or were purchased and sold off in a small duration say 5 years.

The remaining cash was in the form of demonetized currency of Rs.500/- and Rs.1,000/-possession of disproportionate assets worth Rs.1,72,73,000/- during the said check period.


recent trends in corporate restructuring

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