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By Abhishek Bhuwania (Tata Consultancy Services, BSCC)


By Abhishek Bhuwania (07BS0178)

A report submitted in partial fulfillment of the requirements of MBA Program of
ICFAI Business School

Distribution List:
Dr. S. Subramanian (Faculty Guide) Dr. Raman Agrawalla ( (Senior
Economist/Scientist, Tata Consultancy Services)

Acknowledgement... List of Illustration
Abstract.................. 1.
Introduction. 1.1 1.2 1.3 1.4 Purpose, Scope,
Limitations. Sources and Methods... Report
Organization. Outline..

5 6 7 8 8 8 9 9 11 12 16 19 19 20 21

2. Types of merger.. 3. Current scenario of Mergers and

Acquisitions in India.. 4. Rationale behind Mergers and
Acquisitions................... 5. Some major issues and challenges found in
M&A deals 4.1 4.2 4.3 6. Valuation issue Cultural
issue... Communication issue..

Is it always necessary for merging firms to be profitable before entering into M&A
deal ?............................................................. 22


Tata Consultancy Services Tata Infotech Merger: An example of how to make mergers
a success 24


Tata Consultancy Services Computer Maintenance Corporation Ltd: An example of two

separate entities sharing excellent work synergy. 29 34

9. Viability of Business Introduction...


Business viability in Mergers and Acquisitions...... 10.1 10.2 Operational

Viability... Management viability.

35 36 38 39 50 55

11. Testing Business Viability For M&A. 12. Testing Viability of CMC Ltd
As Potential Target For TCS Ltd... 13. Viable System Model
Introduction.. 14. Applying VSM In Building Organizational Structure
Post Merger. 14.1 14.2 14.3 14.4 14.5 System One - The
Operation.. System Two - Stability And Conflict Resolution.. System
Three Optimization System 4 Intelligence.. System 5 -

57 58 59 60 62 64 66 67 68

16. Conclusion.. 17. Annexure 15.



I am grateful to Prof. K V Nori, Executive Vice-President for providing me the

opportunity to conduct this project and enlightening me by his knowledge. I express
my sincerest gratitude to my company guide, Dr. Raman K Agrawalla, Senior Scientist
/ Economist, Research & Development Lab for his encouragement, support and valuable
guidance throughout the project duration. The project area was entirely unknown to
me and it required lot of knowledge and guidance. In spite of being fraught with
unending engagements in office, he kept me motivating to try best at all times I am
extremely thankful to my faculty guide Dr. S Subramanian for providing me with his
constant support and guidance in preparing this report. Lastly, I would like to
thank ICFAI Business School & Tata Consultancy Services Ltd. for providing me an
opportunity to gain hands-on experience by working in a corporate environment.


Top deals Overseas targets.. 12 Top deals - Indian targets

13 Cross-Border M&A by Indian companies...13 Metals dominate cross-border
deals14 Operating profit of CMC Ltd..33 Viable System
Model..57 System 1...58 System
2...60 System 3...62 System
4...63 System 5 ..64


Mergers and acquisitions, an inorganic form of growth have been the flavor of last
decade and will continue to be so for many years down the line. One plus one makes
the three is the special alchemy of any merger or an acquisition deal. The idea
behind entering into any such deal is to increase the shareholders wealth. But from
last decade it has been studied from many surveys that more than 50% of the deals
fail to achieve the desired synergy. They either do not increase the shareholders
wealth or result in actually decreasing their wealth. Keeping in mind the said
problem this project includes study of various aspects of mergers and acquisitions.
Various rationale, issues and challenges have been found out after analyzing merger
or acquisition of few companies both in India and abroad. Companies enter into such
deal keeping different objectives in mind. Some merge in order to achieve
operational efficiency whereas some do so in order to achieve financial efficiency.
Major issue in maximum merger deal is found to be payment of huge premium amount
whereas cultural issue is the most critical challenge faced by the merging
companies. The project includes case study on merger of Tata Consultancy Services
Ltd with Tata Infotech Ltd. At the same time it has been discussed that it is not
always necessary for companies to merge in order to work together. For this classic
example of work synergy between Tata Consultancy Services Ltd has been studied.

Last part of the project includes study of business viability in context of mergers
and acquisition in pre and post phase the deal1. For pre-phase certain criteria
have been developed for assessing operational and management viability of the
target firm and a scale has been prepared on the basis of which it can be assessed
how much viable the target firm is. Based on this scale CMC Ltd. has been tested as
potential target for acquisition for Tata Consultancy Services Ltd. For post phase
Viable System Model of Stafford Beer has been used in planning organizational
structure post merger.

This idea is the brain-child of Prof K. V. Nori, Executive Director, Business

Systems & Cybernetics Centre (BSCC),

Tata Consultancy Services and work in this area is in progress at BSCC, TCS by Dr.
Raman K Agrawalla and his team.


Purpose A study of business viability in the context of Mergers & Acquisitions.

Scope To find out different forms of mergers and acquisitions and
rationale behind them To find key issues and challenges in merger and acquisition
Building case study on merger between Tata consultancy service and Tata Infotech
Studying work synergy between Tata Consultancy Services and CMC Ltd. To study the
idea of business viability in context of mergers and acquisitions.

Limitations of study The project is subject to following limitations: The

project will be prepared from secondary data. The project includes only few aspects
from the vast topic of Mergers and Acquisitions. The findings are exploratory and
more extensive studies may be necessary

Sources and Methods 1. Print data sources Books on mergers and acquisition Books
on business viability

2. Electronic Data Sources-8-

Magazines and journals Annual reports Various research papers Various other

Method Methodology adopted for the project is exploratory and analytical. This
project will be entirely based on secondary data. It will include study of various
literature, magazine articles, books and case studies on mergers and acquisitions.
Report Organization Tata Consultancy Services Ltd, (Business Systems & Cybernetics
Centre), Hyderabad Outline The aim of this project is to study various aspects of
Mergers and Acquisitions and finding out how to make a business viable for it.
Mergers and Acquisitions, an inorganic form of growth has been the flavor of the
last decade and will continue to be so for many years down the line. One plus one
makes three: this equation is the special alchemy of a merger or an acquisition.
The objective of any merger or an acquisition is to increase the share holders
value over and above the sum of the two separate companies. Symbolically,

V (AB) > V (A) + V (B), Where, V (A) = Value of firm A V (B) = Value of n firm B V
(AB) = Value of merged firm

Since the project is on the study of business viability in context of Mergers and
Acquisitions, so it is very important to understand what actually merger and

mean. A myth exist in the minds of many people that both merger and acquisition are
synonymous. But the fact is that though both form an important way of inorganic
growth but still differ from each other completely.

What is a merger? A merger happens when two firms, agree to go forward as a single
new company rather than remain separately owned and operated. So both the firms
cease to exist separately. This kind of action is referred to as a "merger". The
stocks of both the companies are surrendered and new company stock is issued in its
place. The firms merge when joining together is in the best interest of both the
companies. Example: Daimler-Benz and Chrysler merged to form DaimlerChrysler, which
was a new firm altogether.

What is an acquisition? When one firm completely absorbs another firm and in this
scenario the acquiring firm retains its identity and acquires all the assets and
liabilities of the acquired firm that ceases to exist legally, an acquisition is
said to take place. When the management of the firm being acquired cooperates in
the process then it is considered to be a friendly acquisition. But when the deal
is unfriendly, that is, when the target company does not want to be purchased, it
is regarded as hostile takeover. Example: Tata Consultancy Services Ltd. taking
over Tata Infotech Ltd is an example of friendly acquisition. The recent bid by
Microsoft for Yahoo is an excellent example of hostile takeover.

- 10 -
Mergers and acquisitions are generally considered as a part of expansion strategy.
Mergers can mainly be of three types:

Horizontal merger When two or more firms dealing in similar lines of activity
combine together then horizontal merger is said to take place. Such deals involve
merger between the competitors. The main purpose of Horizontal merger is to reduce
or eliminate competition, which further helps in economies of scale and puts an end
to price cutting. The merger of Exxon with Mobil in 1998 is an example of
horizontal merger.

Vertical merger When a firm acquires upstream of it, that is, the suppliers, or
downstream of it, that is, the distributors who sell eventually to the customers,
then it is said to be a vertical merger. The former is called backward integration
and the latter is called forward integration. Here the merging firms have actual or
potential buyer-seller relationship. The purpose of such merger is to lower the
buying cost of materials, lower distribution cost, assured supplies or market and
also to fight competition. The merger of Merck, a pharmaceutical manufacturer, and
Medco a pharmaceutical distributor in 1993 is an example of vertical merger.

Conglomerate merger Conglomerate merger is a type of combination in which a firm

from one industry merges with another firm which belongs to an unrelated industry.
The merging companies do not have any common business areas or common relationship
of any kind between them. The rationale behind such merger is diversification of
risk by obtaining greater stability of earnings, cross selling etc. but such merger
is not seen very often. The merger of Kelso & Co. (a private equity firm) and
Nortek Incorporated (engaged in manufacturing of fans and other electronic items)
is an example of this type of merger.

- 11 -
India has come a long way since the liberalization of India economy in 1991. The
Indian Inc. has moved steadily towards building globally competitive enterprise. A
steep and encouraging increase in both domestic and overseas M&A activity is
indicative of this trend. In order to serve global markets Indian companies are
spreading their wings beyond borders and acquiring foreign assets. The total value
of M&A deals in India grew at a compounded annual growth rate of around 28% between
2002 and 2006 according to Dr. Sarita Nagpal, Head Manufacturing Services Division,
and Confederation of Indian Industry. Most of this growth has in the year 2006,
with the value of M&A deals increasing from US$ 7.5 billion in 2004 to US$ 21.4 in
2006. Year 2007 turned out to be remarkable for Indian M&A activity both at home
and abroad. A growing economy, robust financial performance and a buoyant stock
market supported a remarkable expansion of M&A activity. The year saw the amount
invested in overseas M&A exceeded the investment by foreign companies into India.
Having a sectoral outlook this time the M&A activity was more broadly based, unlike
in the past when it was found in few sectors. Telecom sector dominated the M&A
scene with 33% share in total deal value, followed by finance with 15%. Largest
deal of the year was Indias steel giant Tata Steel, acquiring Corus, an Anglo-
Dutch company for $12.1 billion. Some of the major deals that took place in 2007
were as follows:

Source: Hindu Business Line, 7th March, 2008

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Source: Hindu Business Line, 7th March, 2008

Number of cross border deals and deal value almost doubled in the financial year
2007. The bar graph below shows the number of deals and deal value in 2007.

Source: Hindu Business Line, 7th March, 2008

- 13 -
The pie-chart below shows the overseas M&A activity which was dominated by the
metal sector taking 56 per cent of the total investments. Its two large deals were
the TataCorus deal and Hindalco - Novelis.

Source: Hindu Business Line, 7th March, 2008.

Looking at the figures of merger and acquisition deal, in 2007 we can understand
that M&A activity is being considered as very important by India Inc. growth. But
analyzing the trends of the past the companies are not able to achieve their target
after entering into such inorganic mode of expansion in maximum percentage of the
case. This is not the case only with Indian companies but almost all the companies
irrespective of their geographic location are facing such problem. Earlier
according to some surveys conducted on merger and acquisition success rate, it was
found that only one-third of the deals are able to increase wealth of share holders
and the rest are not able to achieve the desired result. They have either not
increased the shareholders value or have resulted in decreasing their wealth.
According to Mr. Clay Deutsch, the head of the global merger management practice at
McKinsey & Company, It's a very difficult undertaking, making M&A work is one of
the really challenging life events that many management teams faced in the

- 14 -
In 2007 a study was conducted by McKinsey where nearly 1,000 global mergers and
acquisitions from 1997 to 2006 were reviewed. They compared share prices two days
before and two days after each deal was announced. The analysis showed that value
created in deals between 2003 and 2006 averaged 6% of the transaction values,
whereas those between 1997 and 2000 averaged less than 2%. About 58% of all
acquiring companies are still overpaying for acquisitions - but this was better
than the 70% that were doing so in 2000. The analysis showed that the main reason
of not achieving success is not due to failing in doing the deal or structuring the
deal or negotiating. The dominant reason is failure to manage the combined entity
in a superior way in postclosing phase. It's very clear to us that the
overwhelming reason that an M&A fails is due to something loosely called 'culture.'
And culture means failure of leadership, failure of integration, communication
failures, failure to populate the new organization with sufficient talent, Mr.
Deutsch said. Though some more surveys on merger or acquisition deal shows that
there has some improvement in the figure, but still it is not impressive as yet. It
is very important for the companies to plan the deal carefully, because in the
competitive world of today where survival of the fittest is only possible, no
second chance is given to any one.

- 15 -
Any mergers and acquisition deal has an ultimate objective is to increase the
wealth of the share holders. However, it may sound very simple but it is the most
difficult task to achieve. In order to keep shareholders happy, other stakeholders
like customers, employees and government cannot be ignored. Two merging companies
have take along all the stake holders together to reach their final destination.
Various motives and rationale of mergers and acquisitions have been found out after
analyzing few case studies. The following table shows the analysis: Merging
Companies Oracle - PeopleSoft Rationale Increased market share Reduce
competition Issues High price paid No prior experience of M & A
Challenges Poison pill strategy by PeopleSoft Conflict of interest between stake
holders Downsizing the strength of employees. Repositioning of brand would be

Adidas - Reebok

E-Bay - Skype

Reduce competition Cost saving Increased distribution network, market share

Economies of scale Increased revenue Fight competition in a better way Fit into
overall value proposition

High price paid

High price paid

Financing through internal cash flows

- 16 -

HP - Compaq

Increased savings from product rationalization. Improvement in distribution network

Increase in volume sales Better position to fight IBM

Ignored customer preference Poor communi-cation of the deal to stakehold-ers

Cultural clash Heavy decrease in share price

Decreased revenue Decreased customer satisfaction

Sify - IndiaWorld Tata Tea - Tetley

Increased customer base Increased market share Strong distribution network of

Tetley New market segment

Very high price paid Problem due to difference in accountin g rule

Performance was not good post deal Post deal integration


Tap emerging opportunities in petroleum sector Financial sustainability for both

the companies Tax savings Cost advantages and high growth prospects

Under valuation of RPL

Stiff competition Decrease in share price of RIL

After studying the above mergers we can say that companies have different motives
behind the merger or an acquisition deal. Also each merger or acquisition deal

- 17 -
different set of issues and challenges. If we generalize, then following points can
be taken as rationale for any Merger or Acquisition deal: Increased market share
either by increasing customer base in the same market segment or from a new market
segment. Increased revenue due to increase in sale. Savings in cost by
achieving economies of scale. Reduces competition or provides better platform to
cope with it. The bigger size of the merged entity enables it to negotiate prices
with suppliers. Marketing and distribution network improves. Helps in financial
sustainability of merging companies, the merged company can make use of each other
reserves in order to increase its operation. Helps in saving tax. New
technology or expertise can be exchanged between the merged companies. Various
other industry specific benefits can be enjoyed by such deal.

- 18 -

Valuation Issue One of the major issues found in merger deals is that of payment of
high price to the target company. Maximum merger or an acquisition deal will have
this issue. While analyzing the cases of the merger shown in the table above it is
seen that the issue is present in almost all of them. So it is very important to
understand that despite experts been employed by company to help in merger deal,
still the company ends up making overpayment according to analysts. Some analysts
look from financial buyer point of view while the company may act as a strategic
buyer. Unlike financial buyer, who looks mainly at the financials of the target
company, a strategic buyer considers many things while valuing the target companys
business. So he may pay more for acquiring the target company as compared to
financial buyer. It may also happen that the acquiring company might commit certain
mistakes in making assumptions relating to the company they wish to acquire. The
reason for overpayment can be as follows: Some of the organizations capital,
like employees, customer relationship, industry standing and network capital is
difficult to put in numbers. Overpayment can be due to combination of factors like
over optimistic appraisal of market potential, over estimated synergy, inadequate
due diligence, excessive bidding etc. or may be any intangible asset is not
captured in balance sheet.

The valuation basically depends on the following factors: Management

team Historical performance Future projections Industry scenario Currency scenario
Business opportunity, expected growth rate, level of competition. - 19 -

Stage of the company like early stage, pre IPO stage, post IPO stage. Strategic
requirement of the acquiring company. Other factors

We know that valuation is the perception in the eye of beholder. Some will feel
that price paid is high while some will support the price paid by the acquiring
company. But still to minimize the risk of over valuation a proper due diligence
review exercise is to be done keeping in mind the value drivers and business

Cultural Issue Apart from valuation issue another important issue which cannot be
ignored is the cultural issue. In fact majority of the merger and acquisition deals
fail because of improper study of the target companys culture. Culture can be
defined as the norms, values, beliefs, and attitudes that influence individual and
group behavior within an organization. For any M&A deal, apart from checking the
financial viability it also very important to give equals or rather more importance
to the testing of cultural viability. Managing cultural integration is very
important for the success of a merger or an acquisition deal. Merging financial
statements is far easier than merging cultures. If it is ignored, the chances are
great that post merger or acquisition misunderstanding, confusion, and conflict
within the organization will arise. An organizational culture is "the way things
are done" and includes factors such as: How employees, customers,
suppliers, are treated The type and level of participation of other stake holders
in decision-making The speed and process of decision-making The level of formality
and controls Performance rewards Risk tolerance

- 20 -

Quality and cost orientation

As we know the amount of money spent in any merger or an acquisition deal, cultural
due diligence cannot be ignored at any cost otherwise it will hamper the overall
objective of such deal.

Communication Issue Another important challenge a company generally faces during

pre and post phase of merger or an acquisition is that of communication. According
to an IABC Research Foundation study sponsored by Johnston Smith International on
"How Communication Drives Merger Success," a communication strategy is an important
deciding factor of the fate of the deal. Communication before, during and after the
event should be given equal importance. Managers involved in merger or an
acquisition activity should take utmost care of the communication pattern specially
the mode and also words to be communicated. Clarity about motives and intent of
entering into the deal should be communicated not only to the employees but also to
the customers and suppliers. Company having open communication system can ask the
stake holders about their opinion. Rumors and scuttlebutt can have enormous
negative impact on the merger integration process. Healthy communication can bridge
the differences within the organization as well as between the organizations.

- 21 -

One important issue which can be studied in context to mergers and Acquisition is
that it is not always necessary that the two merging firms need to profitable in
pre merger phase. It may happen that a firm is merging or acquiring a loss making
firm. This may be done to boost competitive advantage and core competency. It may
so happen that the company making loss is not properly managed and its resources
and opportunities are either not utilized or under utilized. So another company
looking for business opportunities or willing to expand can take the advantage and
may try and convince the former for merger or an acquisition. By this it may become
win-win situation for both the companies and may result in increasing the wealth of
shareholders of both the companies. Similar is case which can be found in case of
public sector companies in India. The government divested their stake making way
for the private players for running the business in a much better way and tapping
market opportunities as and when they come. An example for this can be sighted that
of Sun Pharmaceutical Industries of India, which agreed to buy Israeli Taro Pharma,
a loss making firm for $ 454 million. The management of Sun Pharmaceutical
Industries was of the opinion that Taro has a good portfolio of skin care products.
The buyout may offer a strategic benefit to Sun. Besides Israel, Taro has a strong
presence in Europe, Canada and US. Its customer contacts and market knowledge will
help Sun Pharma to tap new opportunities in these regions. Economic slump creates
opportunities for companies rich in cash to get hold of unutilized capacities of
loss making competitors at attractive valuations. Another example which can be
sighted is that of the famous acquisition by Hindalco of Novelis. Novelis was a
loss making company and at the same time Hindalco bought it for a price which was
considered to high by the analyst. But the management of Hindalco was of the view
that it was a strategic deal keeping long term perspective in mind. There was a
general consensus that the deal will hurt in the short term. Even Mr. Debu
Bhattacharya, Managing Director, Hindalco agrees that: Hindalcos consolidated
earning will get depressed in FY08. There is no question about it. But it will
bounce back in FY10 and the deal will be value accretive beyond FY11.

- 22 -
Another reason for acquiring a loss making firm can be, when a very profitable
company combines itself with a loss making one in order to use the losses as a tax
writeoff to offset the profits, while expanding the corporation as a whole. For
example Global Trust Bank merged with Oriental Bank of Commerce, and losses of GTB
was setoff against profit of OBC. But in many countries there are strict
regulations to limit the profitable companies from acquiring loss making companies
for the tax motive. But one thing that the firm should keep in mind before entering
into any such deal is, to analyze various risk involved and also the amount of loss
that may occur in case the deal does not works out as per the plans.

- 23 -
- A Success
On July 15, 2005, the boards of Tata Consultancy Services (TCS), Indias leading IT
giant and Tata InfoTech Ltd (TIL) approved the merger of two companies. The Tata
group wanted to consolidated its information technology-enabled services business
by merging TCS with TIL. According to the deal the swap ratio was decided as 1:2,
i.e. share holders of TIL would get 1 share of TCS of face value Re. 1 for every 2
shares held of TIL having the face value of Rs.10. The paid-up share capital of TCS
was then Rs. 400 million, and post merger it would increase to Rs. 489 million.
Tata Sons Ltd, the holding company of the Tata group, holds 80.64 per cent stake in
TCS and 74.18 per cent stake in TIL. Post-merger, Tata Sons' holding will be 80.52
per cent in TCS. TCS Chief Executive Officer Mr. S Ramadorai said the merger
formula was based on the recommendation of independent valuers. He said the merger
would bring together two leading IT organizations and lead to efficiency in
operations, particularly in the marketing of services. Commenting on the merger,
F.K. Kavarana, chairman of TIL said that it is in the best long-term interests of
all its stakeholders, given the trend of consolidations in the IT industry. The
move will enable large clients to have a single window for a wide array of services
and skills, he added Tata Consultancy Services - Background Tata consultancy
services is known to be the one of the worlds largest IT company, engaged in
providing IT solutions, consulting, services and business-process outsourcing. The
company commenced its operations in 1968. It started of as division of Tata group
under the name Tata Computer Centre, whose main activity was to provide computer
services to other group companies. Soon after the era of computerization and
computer services, in early 70s the company was named Tata Consultancy Services.
In 1974 TCS took its first software project where it converted the hospital
information system from Burroughs Medium system COBOL to Burroughs Small System
COBOL. By the year 1980 TCS and a sister TATA firm accounted for nearly 65% of the
total Indian software industry exports. Post liberalization of the Indian economy,
the company re-invented

- 24 -
itself to become software products firm. In order to tap the market potential, in
the late 1990s, TCS adopted three-pronged strategy developing new products with

revenue earning potential, tapping domestic and other fast growing markets and
focusing on inorganic growth through mergers & acquisitions. The Tata group as a
whole has been on an acquisition binge since 2001 including some gigantic ones like
Tata Steels acquisition of Corus. TCS came up with its IPO in 2004. Now it has a
vision of becoming a global top 10 company by 2010. TCS - An Experienced Player
Tata Consultancy Services has been one of the most systematic players of the merger
or an acquisition game. The objective behind acquisitions is to strengthen domain
presence. In December 2001, a specialist M&A team was formed to function as a
think-tank on strategic acquisitions both in India and overseas. The team was led
by Mahesh Bhandari and Debasis Pottdar, both former M&A specialists with Arthur D.
Little2 and Arthur Anderson3 respectively. Over the last 6 years, the M&A team have
guided the companys spree of acquisitions. It had merged with the Tata group's
holdings in Airline Financial Services, WTI and Phoenix Global Solutions to create
TCS BPO. The team has played an important role in deals like Computer Maintenance
Corporation (CMC) in 2001 and Tata Infotech in April this year. TCS, through its
subsidiary, Diligenta, acquired a part of UKs Pearl Group in March 2006. It also
acquired 75% stake in its Switzerland-based partner, TKS-Teknosoft, which was
working as marketing agent for TCS in Europe. Over the next few years, the M&A team
will get busier with TCS actively going after overseas acquisitions and, at the
same time, consolidating the Tata group's IT holdings. Merger and the Rationale
Behind Experience in any field increases the probability of success. Same is true
for M & A deals. TCS with some merger or an acquisition deal under its belt has
become an experienced player in this field. Merger with Tata Infotech sent the
signals of TATA group taking first steps to consolidate its IT companies under TCS
umbrella. The motive
2 3

Arthur D. Little, Worlds first management consultancy firm.

One of the biggest accounting firm.

- 25 -
behind the merger was very easy to guess. Tata Infotech was strong in systems
integration, manufacturing, education and training, and engineering. The merger was
expected to bring two leading IT organizations in India together. TIL was a leading
player in the IT area employing over 3,600 consultancy professionals and having
strong operations in the U.S., the U.K. and Australia besides other countries. The
merger would give the TCS an expanded customer base and deeper penetration in key
geographies and these customers will have access to the wider range of services
offered by TCS. It would also result in an improved efficiency of the various
departments, as now they would get the support from each other. The merger would
also prevent situations where both companies were bidding against each other in
bagging the same project. Tata Infotech would get advantage of the experience of
TCS in the fields they are already involved in. It would create an overall win-win
situation for both the companies and the share holders. The merger also means that
the combined entity would be the first IT company in India with sales of over
Rs.10,000crore. They would overtake other IT giants like Wipro and Infosys.
Exploiting synergies is imperative in a merger. A merger makes immense sense if
one plus one can equal three. That should be the aim. We should be able to go to a
customer with a wider array of services, which can provide more value," explained
Mr. S. Mahalingam, Chief Financial Officer, TCS. He added that Tata Infotech, fits
in nicely with four of TCS' primary businesses: IT solutions, where Tata Infotech
brings 15 Fortune 500 clients to the table; infrastructure services, where Tata
Infotech has a highlyskilled team of 325; products, like the Tax Mantra; and a
manufacturing plant for electronic assemblies, which can enable TCS to become an
end-to-end solutions provider in the engineering space, right from design to
manufacture of prototypes. Also, TCS gets access to 3,500 of Tata Infotech's IT
professionals. In accordance of the scheme of amalgamation Tata Infotechs assets
and liabilities were transferred to and vested in Tata Consultancy Services
retrospectively with effect from 1st April, 2005. The scheme was effective from 1st
February 2006. The independent valuation for the deal was done using a number of
methods including projections, capabilities, synergies, and market value. The
merger decision, which has been under

- 26 -
deliberation for several months, has been designed keeping in mind value creation
for customers, shareholders, and employees, said Mr. Ramadorai. Integration
Ensuring smooth integration process is critical for the success of a merger or an
acquisition deal. Employees of the merging companies play a very important role in
the integration process. According to Mr. Ramadorai a smooth framework was first
created for the integration process for TCS and TIL merger. Two cross-functional
teams, one each from Tata Infotech and TCS, were set up. Their main aim was to
ensure that they understood the processes existing in the two organizations and
then map each person's competency to a function that he or she is going to perform.
One thing that could have gone wrong in such process is that people can develop
incorrect impressions if communication was not proper. Also, if mapping was not
done correctly, people could say that their competency has not been considered. The
mapping criteria adopted by TCS included the person's competency, role, background
experience, potential, and where he or she can enable organizational growth and
take responsibility. This was done through interviews, collective dialogues,
discussions and one-on-one sessions. Mapping helped employees clearly understand
the role they were going to play post merger. As we know communication process is
an important part of the integration process, same could be seen in this case. The
whole process was communicated in a very transparent manner across TCS and Tata
Infotech by the integration team. While it was impossible for HR personnel to
clarify doubts and reassure staff individually, the same was done using the
intranet. A website was created that allowed people to pose questions or air their
opinions. It became a virtual bridge between the employees of both the companies
and brought them on a single platform. The website hosted joint discussion forums
where employees of both companies participated on topics such as `achieving
synergies', `steps for a smooth transition' and `ten best practices'. Common goals
and business interests were also shared. While this may not have impacted business
costs directly, it may have prevented attrition to an extent. By this people were
made to believe in the process because they were part of it throughout. According
to experts the mechanism adopted for

- 27 -
integration was one of the best, because the engagement, the transparency and the
communication were of a very high order. Management was thinking to use the same
framework, if required, for other Tata companies and also for outside companies.
The Impact and the Road Ahead Primary reason that could be sighted in implementing
the integration framework mentioned above was that both the companies belonged to
the Tata group. Work culture throughout Tata group is almost similar. So the
chances of cultural clash were minimum though its probability of occurring was not
totally zero. Despite of so many acquisitions taking place TCS has the lowest
attrition rate compared to other IT companies according to Mr. Surya Kant, Vice
President and Head, TCS America (11.3%, well below the industry average). This
shows that integration process was successful in case of TCS TIL merger too. The
merger with Tata Infotech added 15 new Fortune 500 clients for TCS and enhanced the
companys system integration and infrastructure service capabilities. It enabled
TCS to add an Education Services practice to offer technical education as a new
offering. But the merger aided the financials marginally and according to Mr.
Mahalingam the net impact was negligible with revenues of Rs. 700 crore for the
financial year 2005-06. Operating margins for the fiscal were impacted to the
extent of 1.3% due to rupee appreciation and 1% because of the Tata Infotech
merger. Market analysts are of the opinion that the merger could impact TCS'
margins, both at the operating and net levels. "The merger will add Rs 79.8 crore
to TCS' bottom line, but its margins will suffer. TCS can offset the impact of the
lower margins by improving operational efficiencies, getting higher billing rates
through better execution of fixed price projects (FPPs) and improving its business
mix in favor of high-end services like consulting and enterprise business
solutions," says Shah, adding: "TIL's strength in high-end systems integration will
help TCS move up the value chain; and the acquisition will help TCS become an end-
to-end service provider. At analysts conference call held for the 4th quarter of
financial year 2007, Mr. Mahalingam said that the merger with TIL is paying out
exactly what they had expected from it.

- 28 -
Separate Entities Sharing Excellent Work Synergy

Background In September 2001 Government of India announced it willingness of

divestment from Computer Maintenance Corporation Ltd (CMC). CMC along with HTL
(Hindustan Teleprinters Ltd) was the first public sector unit to be privatized.
Initially many companies including multinational giants such as HP and Compaq were
interested in buying stake in CMC, but later most of them backed out. This was due
to SEBI clause that an open offer should be made by the company acquiring stakes in
CMC Ltd. for a minimum of 20 per cent within seven days. On the last day of the bid
date, there were only two bidders left. One bid was invalid, leaving- Tata Sons as
the sole suitor. They had quoted Rs 197/share. The quoted price was much lower as
compared to the market price of RS. 240. The deal was in trouble initially but was
cleared later. Prior to disinvestment, the share price of CMC was riding high and
reached a pick of Rs. 315. But against this, Tata Sons offer of Rs.152 crore for
51% stake worked out to be Rs.196 per share. This led to suspicions that the share
price was being rigged just to scupper the privatization. The Department of
Disinvestment was of the view that CMC has a low floating stock of around 17 per
cent with public and it was easy to manipulate prices. According to them the
valuation was done under various methods and committee had fixed the actual price
at Rs.108.8 crore for 51 per cent stake. The Tata Sons bid was significantly above
this. In October, 2001, Tata Sons finally acquired 51% stake in CMC. Then as per
SEBI regulations they made an open offer to investors at Rs 280 per share, which
was the average price of the scrip during the last six months and acquired 0.12%
from public. CMC Ltd which now became subsidiary of Tata Sons was to work under the
management of Tata Consultancy Services Ltd. Though the 51 per cent holding means
that its accounts can be consolidated with parent Tata Sons, it was decided that
CMC would continue to - 29 -
operate as an independent company. There are no plans of merging between them.
According to Mr. S. Ramadorai, CEO, TCS, everything went smoothly because of three
reasons. First, the ministry of information technology, under which CMC falls, and
the ministry of disinvestment saw eye to eye on the matter. In other words, there
were no ministers or bureaucrats putting up roadblocks. Secondly, it was a growth
industry and different yardsticks apply there (there is no legacy of redundant
labor). Thirdly, the employees were in favor of disinvestment. All the
stakeholders were for it said Mr. Ramadorai. Rationale There were a number of
reasons which lead Tata Sons buy stake in CMC Ltd. TCS was getting about 83% of its
revenue from international market, notably from US. This acquisition provided TCS
an opportunity to consolidate its operations in India. Explains an analyst: CMC
has domestic sales of Rs.442 crore, which is about 85 per cent of its total
revenues. (For TCS, the figure is a low 10 per cent.) What CMC brings with it is
that a third of its total revenues come from the government. In the maintenance and
services segment of the Indian market, which is about Rs.450 crore, CMC has a
lions share of 70 per cent. As part of the deal, for the next two years TCS is
guaranteed government business. This means that revenues are assured during that
period while TCS uses its expertise to build on this base. According to Mr. S.
Ramadorai, the main reasons for acquiring stake in CMC Ltd were as follows:
Domestic presence of TCS was not much but now it would increase considerably with
the help of CMC. CMC has government contracts and would help to ensure business
from Government. CMCs R&D capabilities plus R&D capabilities of TCS both can be
leveraged for the domestic and international markets.

- 30 -

CMCs core areas of expertise was hardware maintenance, data centre management and
so on, which were becoming very necessary for TCS as they were engaged in large
systems integration and the outsourcing type of work.

Last but not least were CMCs education and training centre. They were generating
good amount of revenue from this, so TCS wanted to scale them up by giving some

Mr. Rajeev Gupta, executive vice-president of DSP Merrill Lynch, which brokered the
deal from the Tata side said, There are two types of takeovers. One could be for
business synergies, which enable one to enhance values. The other could be for
strategic reasons. From TCS standpoint, the takeover of CMC has been for strategic
reasons. CMC has a significant market share in India in software development.
Besides, TCS has little exposure in domain knowledge areas in railways, ports,
power utilities, oil and gas. CMC has a large and comprehensive high quality
exposure in these areas. Besides this, according to analysts CMC had lot of
potential. The company was growing at 22% compounded over 5 year period, which was
much below compared to the growth figure of Indian IT service industry, growing at
45% compounded. With CMC getting the managerial input from TCS, it was bound to
grow more rapidly. A Report from Kotak Securities stated "Going forward, we see
this to be a winning combination. In our opinion CMC is likely to be a major
beneficiary, as we expect significant volume and margin expansion for the company,"

Synergy- How Successful They Have Been Some of the important areas where TCS and
CMC could work together, included, egovernance, insurance, stock market, ports and
education. Though initially the profit margin of CMC did not improve much, but the
direction in which CMC started to move by working under TCS was encouraging. By the
end of the financial year 2002-2003 the performance of the company was as follows:

- 31 -

Due to TCS CMC synergy, income from international business was Rs. 121 crore,
registering a growth of 55.7% year-on-year basis. Total revenue stood at Rs. 615
crore, up 8.7% year-on-year basis. Quality of revenue improved, with other income
contributed only 1.1% to total revenue as compared to 3.3% last in the previous

Operating margins improved to 9.8% from 7.8%.

According to Mr. R Ramanan, Managing Director of CMC Ltd, the company embarked on
the process of transformation and has grown the business potential overseas. The
company grew to about 27% in the first quarter of fiscal year 2004 as compared to
18% of the first quarter of the previous year. This was possible because of the
group synergies," he said and also added that CMC would collaborate with TCS
wherever possible to bring in best practices. In June 2005, after years of synergy
in operation, processes and culture, the management of both the companies decided
to adopt joint to go market approach' in domestic as well as international
markets, in order to make their combination a formidable one. TCS wanted to
capitalize on CMC's strengths combined with the breadth and depth of its own global
reach and capabilities. This strategy helped both the companies specially CMC to
gain leverage in the international market especially from US and UK geographies.
According to a report from Kotak Securities, "CMC and TCS have complementary skills
and products portfolio, which they want to exploit jointly in the international
market. While CMC has diversified products portfolio, TCS has strong client
relationships and marketing network." The synergy revenue between TCS and CMC
amounted to Rs. 255 crore, which meant a growth of 122%. Operating profit of CMC
was also doubled for the year 2006-2007.

- 32 -
Operating Profit CMC Ltd. 100 Operating Profit (Rs. Crore) 90 80 70 60 50 40 30 20
10 0 Mar' 03 Mar' 04 Mar' 05 Years Mar' 06 Mar' 07 41.63 60.82 62.85 44.19 93.48

By January 2008, CMC Ltd had 35% of its revenue from international market. They
were planning to enhance their overseas revenue and scale up its IT education
business within the next two to four years. But the management was very clear that
they are not going to cannibalize into TCS revenue as most of CMC's offerings were
marketed to overseas customers via the parent company. Thus we can conclude that
the acquisition of majority stake in CMC by Tata group is an excellent example of
two companies working together without merging and sharing very high synergy
between themselves. Both the organizations are clear about their activities and
both know where to draw the line. Such understanding helped TCS to benefit from
operation as well as financial point by joining hands with CMC Ltd.

- 33 -
Viability can be defined as ability to survive. Any business is undertaken with
some predetermined objective which may be to earn profit (commercial organization)
or to do some social work (non-profit undertakings). To start any business it is
very important first to study the extent to which a business is viable. Until and
unless a study of business viability or feasibility is done, the clear picture can
never be developed which ultimately hampers the planning process. This study will
not only reveal many facts which could not be known otherwise about the business,
but it also gives a sense of direction. Business viability does not only mean to
study whether the business would be able generate some profit though it is the most
important factor. In fact viability can be studied from various dimensions. They
are as follows: 1. Economic or financial viability 2. Operational viability 3.
Market viability 4. Technical viability 5. Management viability 6. Exit strategy
viability Business viability not only reflects the likelihood of business venture
succeeding, but also its ability to deliver the entrepreneurial objectives such as
creating wealth. Determining business viability is a subjective process and will
vary for each business venture under consideration.

- 34 -
Viability of business can be studied in context of mergers and acquisitions. It is
very important to study the viability of business of a target firm which is being
considered for merger or an acquisition. We know that an M&A deal is not an
activity; its a strategy for growth. Whenever a company decides to merge or
acquire another firm, it believes that acquisition is a more effective way to
expand than the slow process of organic growth. Because of this, the impetus for a
merger should emerge naturally from overall corporate strategy. But this is not
found in most of the cases. In this era where mergers and acquisitions is being
taking place everywhere, companies end up acquiring something, they actually did
not want or need. It is being done like an impulse shopping and does not form part
of the corporate strategy. As a result those acquisitions do not make any sense and
almost always go sour. Thats why it is very important to have well-defined
corporate strategy. It allows companies to cast aside any deal that may look
incredibly attractive but does not move the strategy forward. Its not about
growing for growths sake; its about building a viable company, said Mr. Edward
Weiss, general counsel for Group 1 Software. Any M&A deal must consider three
factors which forms the core of every analysis. They are Customer needs
Strategic fit Shareholder value

Although earlier it has been said that the main aim of any merger or acquisition is
to create wealth for the shareholders of the combining firms it is to be kept in
mind this objective can only be achieved if interest of other stakeholders has been
taken care of. Keeping in mind the above point it is very important for a company
to understand whether the company which it intends to take is actually worth taking
or not. In simple terms they should study whether the business is viable for them,
i.e., fit in their strategic motive. This viability study will help in
understanding different situations, success outcomes identifying opportunities and
problems and assessing the cost and benefits associated with the business being
considered for merger.

- 35 -
An old saying it is better to be safe than sorry holds very much true in the
corporate world. They are many people associated with a business who have different
interests. But all of them will be satisfied if the business runs smoothly and
successfully. So a study of business viability can give a clear picture to the
management and assist them in identifying the true viability of the business that
is being considered for merger or acquisition. Very few business decisions are made
with absolute certainty. However greater the ground work done by the management
greater is the probability that the decision made are correct. Keeping in mind the
above points a management can study the business of the target firm from two main

1. OPERATIONAL VIABILITY Thorough understanding of the target's business and

knowledge of its operations are essential for evaluating potential M&A deals. This
is because business organizations undertake financial risks by for mergers and
acquisitions are prone to financial failure if things do not work out. So the firm
that wants to merge with another should try to find how the target firm works and
what operational synergies can be leveraged between them. This can be done by
investigating the targets major sources of revenue, key customers and suppliers,
production capabilities, expected savings in cost and other benefits which can be
enjoyed. Operational viability of the firm can be assessed from following
dimensions: Economic or Financial Viability Technical Viability Market

Economic or Financial Viability Since any business is primarily run to earn

profits, so it is very important to analyze whether, the business of the target
firm is financially or economically viable or not. Economic viability is ultimately
linked to profit. In most simple terms it can be said any

- 36 -
firm which is able to generate profit or some revenue benefits post merger is
financially viable. But this profit should not be for a year or two. It must
continue to come for at least some years. Even if the business is not currently
profitable- perhaps it is in the early stages of development, under going a growth
spurt, or just going through a bad patch, there must be an expectation that it will
add to the revenue streams of the acquiring firm one day. This expectation of
financial synergy will justify the investment. Technical Viability Technical
viability checks the core operations of business in which the target firm is
engaged. Any business works smoothly if it is capable of satisfying the needs of
the customer according to their demand. This depends upon how a firm carries its
operation. In M&A it is necessary for the acquiring firm to study about the
operations of the targets business, their offerings, suppliers, intellectual
property rights etc. By doing this, the core competencies of the target can be
found out it can gives an idea about the best possible way in which it can be
utilized by the acquiring company to obtain desired synergies. Market viability
Testing market viability is equally important. Keeping in the mind the objective
which the acquiring company wants to achieve they need to assess the market
environment to which the target firm belongs. Until and unless a company does not
find any opportunities in the market there is no point entering into expansion
mode. So testing of market viability is equally important. The management should
examine the outlook of industry, growth rate, demand - supply factors etc. Apart
from this analysis of competition is also very important in testing the market
viability. Horizontal mergers help in reducing competition whereas vertical merger
help in fighting with competition. So keep in mind the type of merger, the company
is looking for, the direct and indirect competition which they will face post
merger should also be assessed.

- 37 -
2. MANAGEMENT VIABILITY Apart from operational viability it is also important for
the acquiring firm to screen how capable is the management of the target firm. It
can give some idea of difficulty the former might face in the integration process
if they go ahead with the deal. Study of management viability is important because
a company may look attractive for investment financially but due to poor management
capabilities the integration process might hamper which can defeat the overall
purpose. So it includes studying the skill set of the management personnel,
employees of the target company and assessing how efficient they are. A merger does
not only involves combining the financials of two organization, rather it means two
organization willing to work together so that they can achieve what they could not,
working separately. For this reason it becomes important for the acquiring company
to find out the culture of the target firm and assess if anything is common between
them. If the target firm has competent management then the acquiring firm may not
find it much difficult to plan the integration process if they decide to merge.
Thus based on this they can analyze whether the target is viable from this point of

Note: Study of business viability M&A should not be confused with the process of
due diligence. It is part of initial screening process of the target firm. Once a
target firm is identified then its business viability can be checked. As we know
due diligence process is time consuming and involves some investment, by analyzing
the business viability of the target firm can give the management of the acquiring
firm a broad overview about the target. Based on this the due diligence process can
be carried more efficiently and effectively.

- 38 -
To assess the viability of a firm being considered for merger or an acquisition,
some criteria has been developed and are then scaled. Scaling is done with the
objective of knowing how much viable the firm can be for M&A. 1. SCREEINING

Financial Viability What is the investment amount required? It is very important

initially to find out the amount of investment required to acquire or merge with
the target firm. The amount depends upon the size of the target on the basis of
which the major decision of going ahead with the deal will depend. If the target
firm is too big then the acquiring firm may not be capable of acquiring it and if
the former is to too small then it might not make any significant increase in the
revenue of the latter. But if it is somewhat similar to the acquiring firm then it
can be said to be the best fit. The amount required can be scaled keeping the
market value of the acquiring firm as base. On a scale of 5 we rate the target as
follows:5 If the target firm is 0-20 % bigger or smaller than the acquiring firm.
4 If the target firm is 20 - 40 % bigger or smaller than the acquiring firm. 3
If the target firm is 40 60 % bigger or smaller than the acquiring firm. 2 If
the target firm is 60 80 % bigger or smaller than the acquiring firm. 1 If the
target firm is 80% and above bigger or smaller than the acquiring firm.

How much is margin percentage of the target firm? Margin percentage gives some
knowledge about the profitability of a company. It is necessary for the acquiring
firm to compare the margin percentage of the of the target firm with its own
figure. If it is found more in case of the target then it becomes more attractive
for the acquirer but in case it is too low, then the acquirer may not find it
attractive to go ahead with the deal.

- 39 -
The margin percentage (MP) of the target company can be scaled keeping the same
percentage of the acquirer as the base. On a scale of 5 it can be rated as
follows:3 If the MP of the target firm is equal to that of the acquiring firm 4
If the MP of the target firm is 0 3 % more than that of the acquiring firm. 5
If the MP of the target firm is 3 % and above more than that of the acquiring firm.
2 If the MP of the target firm is 0 - 3 % less than that of the acquiring firm. 1
If the MP of the target firm is 3 % and above less than that of the acquiring

How is the short term debt paying capacity of the firm? Short term debt paying
capacity of the firm gives an idea about the working capital of a business. It
shows how efficiently a firm is operating. The acquiring firm needs to examine the
short term debt paying capacity of the target firm and assess how efficient the
latter is in managing its short term financial obligation. It can be done by
studying the current and quick ratio and comparing them with the industry figures.
If the ratio of the target is found better than the industry numbers then it can be
said to be better for the acquiring firm because the amount of risk involved in
form of short term obligations will be less and vice versa. The current and quick
ratios can be scaled keeping industry figures as base. On a scale of 5 it can be
rated as follows:3 If the above ratios are equal to industry figures. 4 If the
above ratios are 0 20 % above the industry figures. 5 If the above ratios 20 %
or above more than the industry figures. 2 If the above ratios 0 20 % below the
industry figures 1 If the above ratios are 20 % or above less than the industry

How is the ability of the firm to meet its long term financial obligations? Long
term financial obligations are the fixed interest charge which the business is
required to pay compulsorily to its long term debt providers. It may not be
necessary for a firm to pay dividends but they have to pay interest on the loan
taken. It is very important for the acquiring firm to assess the interest coverage
ratio of the target firm which shows

- 40 -
the number of times a company can make its fixed financial payments from the
earnings before charging such financial obligations. The higher the number is the
better it is considered. The long term financial obligation can be scaled keeping
industry as base. On a scale of 5 it can be rated as follows:3 If the above
ratios are equal to industry figures. 4 If the above ratios are 0 20 % above
the industry figures. 5 If the above ratios 20 % or above more than the industry
figures. 2 If the above ratios 0 20 % below the industry figures 1 If the
above ratios are 20 % or above less than the industry figures.

Technical Viability Will the target firm increase the current array of products or
service of the acquirer firm? A business always aims at providing its customers
with variety of products or services. The wider the array of products and service
it provides the more will be the number of customers for it and hence more will be
the revenue generating unit. Many business organizations enter into M&A deal in
order to increase their current array of goods and services or it come as
complimentary to the main objective of the acquiring firm which the target firm
fulfills. The additional new products or service that the acquiring firm might get
access to, by merging with the target firm, can be scaled keeping the offerings of
the former as base. On a scale of 5 it can be rated as follows:1- If the total no.
of offering by the acquiring firm increases by 0 10% 2- If the total no. of
offering by the acquiring firm increases by 10 20% 3- If the total no. of
offering by the acquiring firm increases by 20 30% 4- If the total no. of
offering by the acquiring firm increases by 30 40% 5- If the total no. of
offering by the acquiring firm increases by 40 % and above.

- 41 -
Will the current capacity of the acquiring firm increase in serving the customer?
Every business has a fixed potential to serve number of customers during a
particular period of time. This potential is called its capacity. Any business
would aim to increase its existing capacity in order to serve more customers at a
time. This can add to the sources of revenue for the firm. In M&A deal it is
important for the firm to find out if the target helps in increasing its existing
capacity. This is generally seen in case of horizontal merger. Increase in capacity
can be scaled keeping the current capacity of the acquiring firm as base. On a
scale of 5 it can be rated as follows:1 - If the capacity of the acquiring firm
increases by 0 10% 2 - If the capacity of the acquiring firm increases by 10
20% 3 - If the capacity of the acquiring firm increases by 20 30% 4 - If the
capacity of the acquiring firm increases by 30 40% 5 - If the capacity of the
acquiring firm increases by 40 % and above.

Is any savings in cost expected? Competition is increasing day by day in the

business world and only the fittest will be able to survive. So it is very
important for the organizations to improve upon inefficiencies so that it can help
in reducing the cost of products or services it provides. So business enterprises
also enter into M&A deals in order to achieve operational synergy in terms of cost
reduction. It can help the merged firm to fight competition in a better way. Cost
can be reduced due to any of the following reason: Achieving economies of scale
Removing redundancy occurred due to merger. Savings in cost as a result of merger
can be scaled keeping current cost structure of the acquiring firm as base. On
scale of 5 it can be scaled as follows:-

- 42 -
1 If the savings in cost is of 0 2 % of the existing cost incurred by the
acquiring firm. 2 If the savings in cost is of 2 5 % of the existing cost
incurred by the acquiring firm. 3 If the savings in cost is of 5 10 % of the
existing cost incurred by the acquiring firm. 4 If the savings in cost is of 10
15 % of the existing cost incurred by the acquiring. firm. 5 If the savings in
cost is of 15% or above of the existing cost incurred by the acquiring firm.

What are the supply sources of the target firm? Any business organization selects
its supplier of resources after considering three important points. They are
Quality of resource Cheaper cost Better service quality This not only adds to
quality of products or service provided by the business enterprise to its customer
but also helps it deal with competition. So in M&A deals also the acquiring firms
needs to assess the suppliers of the target firm and see if they can add to their
existing supplier resources. The supply sources of the target firm can be scaled
based on the percentage of the supplier useful for the acquiring firm (from cost,
quality and service point of view) out of the total number of suppliers the former
have. On a scale of 5 it can be rated as follows:1 If 0 10 % of the suppliers
of the target firm are useful. 2 If 10 20 % of the suppliers of the target firm
are useful. 3 If 20 30 % of the suppliers of the target firm are useful. 4 If
30 50 % of the suppliers of the target firm are useful. 5 If 50 % or more of
the suppliers of the target firm are useful.

- 43 -
Does the target firm have any intellectual property right which is beneficial for
the acquiring firm? Intellectual Property Rights (IPR) is of huge importance for
any business organization. It gives exclusive rights to the business to use the
creations related to invention, designs etc which is made by them. The more IPR a
business has, the more edge it has over its competitors. In M&A, acquiring firm
should look up to the IPRs of the target firm which can be beneficial for them. IPR
of the target firm can be scaled using based on the percentage of the IPR useful
for the acquiring firm out of the total number of IPR the former have. On a scale
of 5 it can be rated as follows:1 If 0 10 % of the IPR of the target firm are
useful. 2 If 10 20 % of the IPR of the target firm are useful. 3 If 20 30 %
of the IPR of the target firm are useful. 4 If 30 50 % of the IPR of the target
firm are useful. 5 If 50 % or more of the IPR of the target firm are useful.

Market Viability Is industry life cycle in Expansion or Maturity or Contraction

stage? For any business, market opportunity is dependent on the stage in which is
industry is working. If the industry is relatively new or due to some development
growth rate has increased, it can be said to in expansion stage. If the industry
growth is stagnant and not much development takes place then it can be said to be
in maturity stage. Similarly if the industry growth rate turns to be negative then
it will be categorized in contraction stage. In the process of assessing market
viability of the target firm, it is very important for the acquiring firm to know
the stage of lifecycle in which the industry is operating. Industry lifecycle can
be rated on a scale of 3 as follows: 1 If the industry is in contraction stage. 2
If the industry is in maturity stage. 3 If the industry is in expansion stage.
- 44 -
What is the target companys competitive position? The acquiring firm should also
know about the competitive position of the target firm. In case of horizontal
merger if the target company is a market leader then it can take the acquiring firm
to a different position all together in the industry. In case if the target does
not have any significant position then it might not add much to the revenues of the
target firm. Similarly in case of vertical merger, if the target is the leader then
it will give a competitive edge to the acquirer and it will be in a better position
to negotiate with the customers. But if the target firm has a non dominant position
then it might not be that attractive for the acquiring firm to go ahead with the
deal. Competitive position of the target company can be rated on a scale of 3 as
follows:1 Non Dominant Position in the industry. 2 Prominent Position in the
industry. 3 Leader in the industry.

Is it possible to get access to the targeted geographic area? Business

organizations always aim to increase their customer base. This can be done by
entering in to a new geographic area. In M&A deals the acquiring firms might try to
expand by targeting some new geographic area. So it is important for them to know
if they can get access to the target market by acquiring the target firm. This can
be scaled based on the number of places the target company has presence as a
percentage of the number of places the acquiring wants to enter. On a scale of 3 it
can be rated as follows:1 If the target firm has presence in 0 20 % of the
places the acquiring firm wants to enter. 2 If the target firm has presence in 20
50 % of the places the acquiring firm wants to enter. 3 If the target firm has
presence in 50 % or more of the places the acquiring firm wants to enter. - 45 -

Management viability can be assessed from following aspects-

What is style of management in the target organization? Style of management of the

target firm can give lot of idea about their culture. If the employees participate
in the management decision then the culture can be said to be friendly and if they
are not at all consulted then it might be tagged as authoritative management. The
style of management can be rated on the scale of 3 as follows:1 If the management
does not bother to ask the opinions of employees. (Authoritative) 2 If the
management consult with the employees regarding various issues but ultimately they
have the final say. (Consultative) 3 If the management allows employees to take
part in decision making (Participative)

Employees are trained and managed properly? Employee training is very important
because they not only learn what to do but also how to do their work. Every
organization spends money and time in order to train the employees. In M&A also the
acquiring firm must know how much the target company spends on training its
employees. This is important because it will give the former an idea of how
knowledgeable and efficient are the employees of the latter. Employees training can
be scaled by comparing the expenses incurred in training as a percentage of total
operating expenses by the target firm with the similar percentage calculated for
the acquiring firm. This is because the acquiring firm should assume that the
training cost they are incurring for their employees is adequate. On a scale of
three it can be rated as follows:1 If the expense on training as a percentage of
total operating expense of the target firm is lower than that of the acquiring

- 46 -
2 If the expense on training as a percentage of total operating expense of the
target firm is equal to that of the acquiring firm. 3 If the expense on training
as a percentage of total operating expense of the target firm is more than that of
the acquiring firm.

Does the target organization supports Research and Development? Competition in

business environment is increasing day by day which is making market dynamic and
fast changing. In this situation it is very important for a business

organization to continually revise their range of product and services. Here comes
the importance of research and development. Investment in R&D reflects an
organization's willingness to use current resources or profit to improve its future
performance or returns. So an organization looking forward to enter into an M&A
deal must check if the target firm invests in R&D or not. This will give an
indication whether the management of the latter is proactive or reactive. The
acquiring firm must assume their investment in R&D as sufficient as compared to
total operating expenditure. The amount invested in R&D as a percentage of total
operating expenses can be compared with the similar percentage calculated for the
acquiring firm. on a scale of 3 it can be rated as follows:1 If the expenditure
on R&D as a percentage of total operating expense of the target firm is lower than
that of the acquiring firm. 2 If the expenditure on R&D as a percentage of total
operating expense of the target firm is equal than that of the acquiring firm. 3
If the expenditure on R&D as a percentage of total operating expense of the target
firm is more than that of the acquiring firm.

Is the organizational structure of the target firm very different? Organizational

structure speaks a lot about hierarchical levels, informational flow and decision
making process. So in M&A the acquiring firm must also study the organizational
structure of the target firm. It can give an idea about the level of difficulty

- 47 -
they might face in the integration process post merger. The more similar the
structure of the target firm with that of the acquiring firm, the easier it will be
to integrate. So, the organizational structure of the target organization can be
scaled on the basis of similarity with the acquiring firm. On scale of 3 it can be
rated as follows:1 If the target firms structure is not at all similar to that
of the acquiring firm. 2 If the target firms structure is somewhat similar to
that of the acquiring firm. 3 If the target firms structure is very similar to
that of the acquiring firm.

Is the work culture very different? Organizational culture plays a very important
role in success of an M&A deal. So it is very important for the acquiring firm to
study the target firms culture and see how smoothly they can integrate the
business. In case there is a cultural conflict between the merging firms then it
will hamper the objective of the deal to a very large extent. So it is necessary on
the part of the acquiring firm to assess the culture of the target organization and
check how similar they are. On a scale of 3 it can be rated as follows:1 If the
target firms culture is not at all similar to that of the acquiring firm. 2 If
the target firms culture is somewhat similar to that of the acquiring firm. 3 If
the target firms culture is very similar to that of the acquiring firm.

- 48 -

Maximum marks - 69 Minimum marks - 17

STATUS Viable Target Fairly Viable Target Non Viable Target

SCORE 44 - 69 34 - 43 16 - 33

The scores are set keeping a conservative approach. The lower limit of fairly
viable target has been calculated taking a score of 2 in all the questions.
Similarly the higher limit has been calculated taking 3 on scale of 5 and 2 on
scale of 3.


Scaling has been done using a general approach. The numbers used above for scaling
will vary from industry to industry. So it can be customized accordingly.

Equal weights are given to all dimensions of viability. However they can be altered
depending on the objective for which a company intends to enter into M&A deal.

- 49 -
CMC Ltd. once a government company has now been privatized and is a subsidiary of
Indias IT giant Tata Consultancy Services which owns 51.12 % of the stake. Both
the companies have been using each other capabilities well and have been able to
produce excellent work synergy. The synergy revenue for 2006-2007 amounted to Rs.
406crore, a 59 % growth as compared to previous year. Though there are no plans of
merger between the two companies but still according to various sources they will
merge sometime in future. So it is very important to test how much viable is CMC as
a potential target for TCS. Viability check of CMC can be done from operational and
management dimensions.


Financial Viability Size of CMC is insignificant as compared to the size of TCS. So

it will not add much to TCS from this point. Keeping this in mind the weight
assigned to CMC for financial viability will be less as compared to other

What is the investment amount required? The market capitalization of CMC is Rs.18
billion4 and that of TCS is Rs. 1200 billion. So CMC is just about 1.5 % of TCS.
The amount required to acquire remaining stake in CMC is about Rs. 9 billion which
is 0.75 % of total market capitalization of TCS. (Refer annexure) Score on scale

As on 31st March 2007

- 50 -
How much is margin percentage of the target firm? The profit margin of TCS is
around 29 % whereas the profit margin of CMC is around 9.5 %. This margin
percentage of CMC is about 67 % lower than that of TCS. (Refer annexure) Score on
scale 1

How is the short term debt paying capacity of the firm? Short term debt paying
capacity shows the capability of the firm to meet its short term financial
obligations. Since CMC belongs to IT industry where inventory is nil or very low,
quick ratio will be a better indicator of the short term liquidity. The industry
quick ratio is found to be 1.25 which is also same for CMC. (Refer annexure) Score
on scale 3

How is the ability of the firm to meet its long term financial obligations? Fixed
financial coverage ratio shows the ability of the firm to meet its long term fixed
financial obligations. It can be of the form of lease rent or interest. CMCs fixed
financial coverage ratio is 24.68 whereas that of industry is 7.74. Hence it is 218
% more in comparison to industry. (Refer annexure) Score on scale - 5

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Market Viability

Is industry life cycle in Expansion or Maturity or Contraction stage? Overall the

IT industry in India is growing at an average rate of 35 %5. Hence we can say the
industry is still in expansion stage. Score on scale 3

What is the target companys competitive position? CMC does not have a significant
market share in the Indian IT industry. It initially served a very niche market of
system maintenance and support in India. There it is still a market leader with a
lion share of 70 %6. It has also expanded its wing in international market working
along with TCS. Score on scale 3

Is it possible to get access to the targeted geographic area? When TCS acquired
stake in CMC in 2001, it wanted to increase its presence in India. CMC did not only
have significant domestic presence but also has government business which TCS
wanted to include in its revenue pie. Now TCS apart from CMC has an established
presence in the domestic market. CMC also has significant domestic presence and a
sizeable government clientele. So it will add more to the market share of TCS in
India. Score on scale - 3

5 6


- 52 -

What is style of management in the target organization? Initiatives, policies and

procedures in CMC have evolved through a consultative process with a high degree of
employee involvement. This kind management style is seen in maximum percentage of
organizations where employees are consulted but the final decision is taken by the
top management. (Refer annexure) Score on scale 2

Employees are trained and managed properly? Employees are the backbone of any
organization. CMC being a part of service industry is completely dependent on its
people. So training and management of employee is very important for CMC. The
percentage of total expenditure spent on training by CMC is compared with that of
TCS. It is assumed that higher the percentage is the better it is for the
organization. The training expense in TCS is 4.9 % of the total operating expenses
and it is 5.8 % in case of CMC. (Refer annexure) Score on scale 3

Does the target organization supports Research and Development? Research and
development shows how active the management is in terms of tapping future market
opportunity. Here the expense on R&D is scaled on similar lines of training cost.
The R&D investment in TCS and CMC is found to be equal at 1.2 % of total operating
cost. (Refer annexure) Score on scale - 2

- 53 -
Is the work culture very different? TCS culture includes integrity, progress
leaders, excellence, respect for the individual, and fostering an environment of
learning and sharing. Similarly CMCs core value and beliefs are trust and faith on
each other, flexibility, focus on learning, concern for individuals etc. they both
can be said to have somewhat similar culture. (Refer annexure) Score on scale 2

Conclusion: We can see that CMC is turning out to be a viable target for merger
from few dimensions that could be studied. We can also conclude that since CMC has
major percentage of its earning coming from domestic market, its major earning is
in rupee and can help TCS to offset the margin loss which is occurring due to rupee
appreciation. In this way it can work as hedge against its dollar earning to an

Limitations: Viability test of CMC Ltd. has been tested taking data as on 31.3.07
as data for all the criteria is not available for the present. Technical
viability of CMC could not be found out due to limited knowledge about their
business and so its viability score could not be calculated. Management of the
acquiring firm is in better position to assess the viability of the target firm for
M&A deal. .

- 54 -
Viable system model or VSM was developed by Stafford Beer, a leading figure in the
field of cybernetics. He studied extraordinary beauty of the human form, and made
an organizational model on the methods used by the central and autonomic nervous
systems to manage the workings of the organs and muscles. The intention of his
study was to find out the why an organizations have so much trouble meeting their
objectives or why they are not able to improve things with change in the
environment. For this he studied the human form, the way the organs, muscles,
nervous system works and got inspired to build VSM model. The peculiar feature of
this approach was its fresh unconventional relation with the human body. Beer
related the functioning of an organization to the central nervous system and
demonstrated how firms must operate in order to be viable. According to him living
organisms and human organizations both share a capacity to maintain their identity
in the face of pressures from their environment. It is estimated that in every
seven years, all the molecules in humans body are replaced by new ones, but they
are still recognizably the same person, i.e. they do not loose their identity. This
ability to maintain identity is related to the fact that people have purposes.
Similarly an organization has a purpose of its existence and it must aim to
continue working at least until the time when their purpose has been achieved. The
Viable System Model claims to reveal the underlying structures of the organization
necessary for a system to meet this criterion of viability so that it can reach
where it wants to. Beer divided the human body into five interacting systems:

SYSTEM 1: This forms the Operational System of both the human body and the
organization. In the human body, it is the muscles and the organs which actually
perform a task. The muscles perform the motor activities like writing, reading,
speaking and the vital organs like the heart, kidney and liver are the most
essential for the living organisms. So these together perform the primary
activities of the human body.

SYSTEM 2: It consists of the sympathetic nervous system which monitors the muscles
and organs and ensures that their interactions are kept stable.

- 55 -

SYSTEM 3: it consists of the Base Brain which oversees the entire complex of the
muscles and organs and hence controls their functioning. It plays an important part
in optimization and regulation of the activities of the human body like
consciousness and sleep. It maintains the synergy between the various functions of
the organs and the brain thus maintaining internal regulation.

SYSTEM 4: It consists of mid brain which gives human beings the ability to
understand the environmental changes and getting accustomed to it. It is the
connection of the body with the outside world through the senses.

SYSTEM 5: This system performs the higher brain functions and consists of cerebral
cortex. It plays a key role in memory, attention, and perceptual awareness,
thought, language and consciousness. Hence it performs the ultimate control
function of the body.

Based on these 5 systems, the structuring of an organization can also be done which
we can say will be viable from all aspects.

System 1 System 2 System 3 System 4 System 5

Primary activities, basic operations Conflict resolution, stability, coordination

Internal regulation, optimization, synergy Adaptation, forward planning, strategy
Policy, ultimate authority, identity

- 56 -
A basic VSM model can be drawn as shown below.

Source: The Viable System Model Guide

Here E is for environment which includes all those parts of the outside world which
directly affects the organization, M stands for Metasystem which ensures that
various operational unit work together in integrated and harmonious way. It
consists of system 2, 3, 4 and 5. Finally O stands for Operation which constitutes
the basic work. The arrow shows some of the many and various ways the three
elements interact with each other.


Mergers and acquisitions have always been risky. With billions of rupee at stake it
is very important for the merging companies to plan as much as possible in order to
achieve what they intend to. But business, cultural and technology integration
threaten to derail the entire effort. Transferring one firms processes and
procedures to another can be of great challenge. Avoiding disconnect between the
two firms requires a systematic process for capturing, connecting and communicating
the processes and work-around that are vital to each ones operations. But this is
not an easy task. Huge percentage of merger failure depicts this. To avoid these,
organizational structure of the combining firms can be planned using the VSM Model.
Though this model shows organizational structure in an

- 57 -
ideal situation it should be customized to depending upon the situation prevailing
at the time of merger.

System One - The Operation When two firms decide to merge into one, their primary
motive is to operate together in order to achieve what they cannot working
separately. The decision of merger only comes when they see certain benefits they
can harvest by working together. So the integration process of the firms should
start by initially deciding the primary activities they are going to do post
merger. Thus System 1 should consist of operational units of the combined firms
which will carry out the primary activities. Without System 1 there would be no
reason for the combined firms to exist. If they are into manufacturing business
then the production unit, distribution, warehousing will constitute this system.
Those who are into service sector, then the service they provide will form System

Source: The Viable System Model Guide - System 1

The diagram above shows few operational unit of the combined firm. Each operational
element will interact with the external environment to an extent irrespective of
their nature. The external environment for the operational units is known as local

- 58 -
which consists of suppliers or customer or local government. These local
environments are shown as small grey amoeboid shapes lying within the large
environment. Also the operational units will have some interactions between them
which are shown by squiggly lines between each unit. The local environment is shown
as overlapping each other due to the fact that some operational unit may work in a
common environment.

System Two - Stability and Conflict Resolution As two entities combine to become
one it is very important for the management of both the organizations to find the
way to deal with conflict between their operations. It is in fact due to conflicts
in the System 1 that most M&A deal fail. If the deal is a type of vertical merger
then the management needs to make some plans to stabilize the functioning of
manufacturing unit with that of distribution unit or suppliers unit which form
System 1. In case of horizontal merger the operating units of combined firm will be
engaged in similar kind of activity. So the management needs to decide how to avoid
conflict occurring between them. It is known that post merger the new firm faces
the problem of stability due to many reasons like conflict of interest, cultural
conflict etc. So there is need of some way for dealing with the instabilities
otherwise the merged firm will fall into pieces. Thus the importance of System 2
arises here which also forms the part of the Metasystem. The job of System 2 is to
ensure that the operational units of the combined firm should cooperate and not
compete with each other. In this way harmony can be maintained between them and
they can interact in a stable manner.

To make the new firm viable, it must have system 2 which can deal with the
following: Resolving conflicts Dealing with instability

A good example of System 2 is a production plan, or a school timetable. These are

usually arranged voluntarily between System 1units and is not required to be
imposed from senior management. The senior management only needs to intervene to

- 59 -
disagreements between the elements. Emphasis on integrating the culture, internal
company news letter can be used as effective System 2 tool.

Source: The Viable System Model Guide - System 2

In the figure above System 2 is shown as a triangle in the Metasystem and it passes
through all the operational units. It works as regulatory center and maintain
coordination between the units of System 1.

System 3 Optimization Achieving synergy is the basic objective behind any M&A
deal. So it is important on the part of the management of the combined firm to see
that the new organization formed does not only maintain harmonious relationship
between the operating units but they should also try to optimize their working in
order to achieve desired operational synergy. Here comes the role of System 3 which
includes senior management and it is engaged in supervision of System 2. System 3
should sit right in the middle of all the primary activities, thinking about ways
of optimizing the whole thing. This system can work by the help of formation a
committee consisting of one delegate from each segment of operation. They can sense
the problem they are facing in their respective units and can discuss with others
the ways and means to improve the overall efficiency. So System 3 should involve in
the following function: - 60 -

It should look the way the operational elements interact. It should consider ways
of optimizing the overall efficiency of the entire collection of operational

This improvement in efficiency can bring the synergy which the merging companies
intend to achieve. If the companies just merge assuming that working together will
help them to leverage synergy automatically, then they might up end up gaining
nothing or may loose whatever they had before merger. So they should think of the
importance of System 3 and should plan about it to reach to the desired
destination. In order to achieve the above objective, System 3 should be designed
to do the following task: Resource Bargain

In any organization resources are limited and hence should be used in way to get
maximum result. In M&A the combining firms gets access to each other resources. So
System 3 should have flexibility to divert resources of the individual firms to the
combined firm and allocate them to operational units in such a way, so as to
generate maximum synergy between them. Manipulation of resources will provide means
of optimization. Operational Accountability

Once an operational unit gets its share of resources, it must demonstrate that they
are being used properly. So the operational elements must be made accountable to
System 3. By this the operational units can justify of getting adequate resources.
In order to ensure that operations are going fine, System 3 can send task forces to
into the operations in order to carry out spot checks and audit. In case of human
body we can see the similar feature. Every part of the body sends continuous
messages to the base brain which knows just what's going on in real time. During
periods of intense activity, this information is used by the base brain to modify
the flow of adrenaline to the organs and muscles to optimize their operation.

- 61 -

Making Intervention Rules

An organization formed of combining two different firms are bound to face problem
in their operations. So the management should design certain rules to deal with
them. Since system three is concerned with optimizing the work process, so it
should also be given authority to intervene any operational unit in case it turns
out to be a threat to the new entitys existence. But the intervention rules must
be clearly defined, so that the operational units know their boundary.

Source: The Viable System Model Guide - System 3

In the above diagram the system 3 is shown to be passing from all operating
activities. It would give suggestions to the operating units of the combined firm
as to ways of improving the overall efficiency.

System 4: Intelligence This system is the most important part of the VSM model. The
organization as modeled so far is only capable of dealing with immediate concerns.
In a changing world, organizations which fail to adapt and cease to be viable, so
an intelligence function is necessary. But this activity is usually undertaken only
as the last resort.

- 62 -
The firms while entering into M&A deal know what they want to achieve. But how they
are going to achieve it depends upon how well they can sustain their combination in
the ever changing environment. They should find out what is happening in the
outside world and its likely effect on their company. So the combining firms should
adapt to changing environments and make strategies in context of the environmental
information. This should be the responsibility of System 4. System 4 fulfills the
intelligence function. It studies the environment in which the new organization is
embedded and then should list the activities under the following headings: Activity
Type of planning to be done. Time scale Period for which the planning should be
done. Priority Prioritizing the activity to be done. System 4 in order to work
properly should know the current status of the combined firm via System 3. Until
and unless it does not get the understanding of the internal environment,
intelligent adaptation will not be achieved. The quality of this internal model is
crucial to the capability of the organization to adapt to change. The information
gathered from outside should also be in conjunction with the internal capabilities.
So System 4 should continuously come up with future strategies which can be related
to marketing, organization, new products etc. A Research and Development department
can help in this regard.

Source: The Viable System Model Guide - System 4

- 63 -
The figure above shows System 4 of the combined firm which interacts with the
external environment. The thick curved arrows between System 3 and System 4 are
intended to indicate the very rich interaction that needs to exist between these
two functions.

System 5: Policy The new organization formed as a result of merger will have its
own ethos, its own distinctive identity. So the personality and the purpose of the
new firm will be defined by System 5. It should be concerned with policy, with
establishing the context within which the merged organization will function. Both
the combining firm should know their limitations and where they want to together.
Keeping this in mind the policies should be designed and ensured that nobody tries
to go beyond the defined boundaries. This system should have mainly two roles to
play: To supply logical closure to the viable system of the merged firm. To
make Top level Ethos in order to support the complex interaction between System 3
and System 4. The System 5 in the VSM model as shown in the figure below.

Source: The Viable System Model Guide - System 5

- 64 -
In the figure above it is observed that system 5 completes controls the function of
system 3 and system 4. The intelligence system does not work in vacuum. It works
under the boundaries provided by System 5. Thus system 5 answers as to why the two
firms have merged.

Thus by defining all the system properly, the combined new firm can be said to be
viable. The model looks easy to discuss but it is difficult to implement. But still
in merger if integration process can be planned based on the above model it will
give a strong base to the organization to be tagged as a viable one.

- 65 -
This exploratory study includes some important insights on Mergers and
acquisitions. Starting from introduction to the world of mergers and acquisitions,
it includes things like various rationales which push a company to enter into deal
and various issues and challenges faced by companies in it. The project includes a
case study on merger between Tata Consultancy Services Ltd. and Tata Infotech Ltd
which is an excellent example of how to make a merger successful. The efficient
integration process adopted by TCS in the merger deserves special mention. Along
with this another case study on work synergy between Tata Consultancy Services and
Computer Maintenance Corporation Ltd. has been build which shows that it is not
always necessary to merge in order to work together. The importance of this form of
inorganic growth is increasing day by day which is clear by looking at the current
scenario of Mergers and Acquisition in India. Based on various surveys it has been
found out that maximum mergers fail to achieve the result that is desired by the
management of the merging firms. So here comes the importance of study of business
viability in context of mergers and acquisition. An analysis of the target firm
from different dimensions of viability can give the management of the acquiring
firm an idea about how much is it worth to merge with the former. This can actually
save lot of time and money in carrying out the due diligence process also. Finally
the post merger organizational structure of the new firm can be planned based on
Viable System Model, which can help in ensuring the merging firms to work in a
profitable way.

- 66 -
Particular Market capitalization calculation Calculation Number of outstanding
share X closing prices as on 31.3.07 Source of data www.abnbroking.co.in

Margin percentage Short term debt paying capacity Long term financial obligation
Style of management

www.abnbroking.co.in www.abnbroking.co.in


www.tcs.com www.cmcltd.com It has been calculated as Annual report of TCS and CMC
for 2006-07

Employee training cost

percentage of total operating expenses.

Research & Development cost

It has been calculated as percentage of total operating expenses. Annual report of

TCS and CMC for 2006-07


www.tcs.com www.cmcltd.com

- 67 -

Part I Are Companies Getting Better At M&A?,

www.mckinseyquarterly.com/Strategy/ Assessing Business Viability and Beginning a
Turnaround Process,

www.michaelgoldman.com/assessing_viability Beer S, 1985, Diagnosing the System

for Organizations, England Business feasibility study outline,
bestentrepreneur.murdoch.edu.au/Business_Feasibility_Study_Outline.pdf Case
Study on Mergers and Acquisitions -Volume II, ICMR. Dimensions of business
ity.pdf. Four Primary Reasons Growth-Through-Acquisition Strategies Fail, Wiley,

corp.bankofamerica.com/.../abf/capeyes/archive_index&dcCapEyes=indCE&id=2 09 - 47k
How Culture Affects Mergers and Acquisitions.www.allbusiness.com Marion Devine,
Successful Mergers - Getting The People Issues Right, The Economist, Profile Books
Ltd Positioning Your Company For A Merger Or Acquisition from:

- 68 -









capeyes/archive_index&dcCapEyes=indCE&id=172 Rationale and Valuation Techniques
for Mergers and Acquisitions, Harish H.V. and C.G. Srividya, The Chartered
Accountant, May 2004 Running a winning M&A shop, www.mckinseyquarterly.com
Study Reveals The Long And The Short Of Successful Mergers from:
capeyes/archive_index&dcCapEyes=indCE&id=182. The Viable System Model, from:
www.users.globalnet.co.uk/~rxv/orgmgt/vsm.pdf The Viable System Model Guide, from:
www.esrad.org.uk/resources/vsmg_3/screen.php?page=home Unlocking shareholder
value: the keys to success Mergers ,

www.michaelgoldman.com/assessing_viability.htm Why M&A deals fail or succeed,

Part- II (TCS TIL) Annual Report, Tata Consultancy Services, 2005-06,

2006-07 Analysts/Investors Conference Call, Tata Consultancy Services, January 12,
2006 Businessworld: Awake and hungry, www.businessworldindia.com/nov2105
Dataquest : Focus : Goliath Wins Again!, www.dqindia.ciol.com.

- 69 -

Tata Infotech to merge with TCS, www.tata.com/tcs/media/20050716.htm Tata Infotech

merges with TCS at 1:2 swap, in.rediff.com/money/2005/jul/16tata.htm

TCS eyes multi-million $ acquisition, media room, Tata Consultancy Services,

November 19, 2004

The integrated future, Interview with Dr. Nirmal Jain, Tata Group Media Room Tata
Infotech building overseas direct marketing network, www.domain-b.com. IT Giants:
TATA Group - Merger on the Mind, www.dqindia.ciol.com Tata Infotech on the upswing,
Tata Media Release, May 11, 2005 TCS : Acquiring capabilities through M&As news,
www.domain-b.com TCS posts 33 pc rise in Q1 net Adds 68 clients; hires 2,690
people, Business Line, July 16, 2005

'Tata Infotech Ltd Merges With Tata Consultancy Services Ltd,


Urge To Merge, Business Today, October 2005 We are not merely a low-cost hub',

Part III (TCS CMC) Annual Report, Computer Maintenance Ltd., 2005-06,
2006-07 A painless privatization, www.tata.com/tata_sons/media/20011015 CMC aims to
improve overseas revenues, Business Line, January 18, 2008 CMC shapes up to face
competition, Express Computer, August 11, 2003 - 70 -

CMC plans to focus more on international business, www.domain-b.com Chairmans

address at the 30th AGM, www.cmcltd.com/investor Price bids called for CMC, HTL,
Business Line, September 19, 2001 Synergies with TCS help CMC, Business Line,
August 28, 2002 TCS emerges lone bidder for CMC, Business Line, September 29, 2001
TCS quote of Rs. 196 queers CMC sell-off, Business Line, October 03, 2001 TCS, CMC
join hands to tap domestic, int'l markets, Tata Group Media reports, June 21, 2005

TCS is not undercutting anybody, Business Standard, January 25, 2002 TCS sets up
squad to steer acquisitions, Business Standard, December 3, 2001 TCS, CMC to adopt
'joint go to market approach', Financial Express, June 21, 2005

3-year lock-in period for CMC divestment, Business Line, August 2, 2001

- 71 -