Mergers and Acquisitionssssssssssss.pptx

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1. Mergers and Acquisitions : Zenith Infotech Sneha Agarwal (04) Ashish Aggarwal (05) Rohit Gogia (20) Mehul Golwala (21) Ricky Gupta (26) Sujit Khanna (40) Ashish Kumar (41)

2. Case Scenario Zenith Infotech Limited The Company is looking for stake/company sale. You have to evaluate options and come with your suggestions on the prospective buyers

3. Presentation Plan Introduction Company Financials FCCB Issue Option Available Synergy Prospective Buyer Conclusion

4. Introduction Founded by Mr Akash Saraf in 1996 Provides business solutions and cloud computing services for IT service providers Employs more than 300 professionals world-wide Clients include many Fortune 500 companies Services provided TigerCloud BDR-G12 VU Telepresence

5. Introduction Major projects include Managing disaster recovery systems on Banks/ Fis in Asia-pacific region Building B2B and B2C sites for various organizations in Singapore using the latest internet technologies Involved in various ERP implementations in finance, marketing and distribution Various government projects in Singapore Zenith Infotech Group subsidiaries Zenith Infotech PTE LTD., Singapore Zenith Infotech Inc , USA Zenith infotech services SDN. BDH, Malaysia Zenith Infotech Pty LTD., Australia Zenith infotech FZE, UAE

6. Share Holding Pattern

7. Zenith Infotech : Financials

8. Zenith Infotech : FCCB Issue Zenith Infotech raised two lots of foreign currency convertible bonds One for $33 million which was due on September 21, 2011 Second tranche of $50 million, which was due for repayment in August 2012.

9. Zenith Infotech : FCCB Issue Cross Default Exchange Clause It was part of the bond agreement. Under the cross default clause, all dues to bondholders become immediately payable if the company defaults on $1 million or more of debt.

10. Zenith Infotech : FCCB Issue Zenith’s troubles began in September last year, when the first tranche of FCCBs it had issued in 2006 came up for repayment. The company had issued bonds worth $33 million at a conversion price of Rs 310. The stock price was well below (190 Rs.) this level on the maturity date of September 21, 2011, prompting the lenders to demand repayment. company cited cash flow issues and did not arrange payment. In an exchange filing, the company said it had defaulted.

11. Zenith Infotech : FCCB Issue This failure triggered a cross default provision under which the second tranche of bonds issued in 2007 at a conversion rate of Rs 522 and due to mature in August 2012 is also being considered defaulted . The second tranche, which was for $50 million, has taken the total claims of creditors to Rs 450 crore . Share price fell from 190 to 39.5 Rs. Due to default on FCCB

12. Zenith Infotech : FCCB Issue A winding-up petition has been filed by some bondholders due to a cross-default situation bondholders said that question of negotiation does not arise since the company has enough cash in its books to cover the loans. Cash + Loans and adv. = 122+139 crore

13. After the default on FCCB issue Zenith spins off its RMM division by stake sale to Summit for an undisclosed amount The new entity in which Zenith Infotech has no interest is held in majority by Mr. Saraf who is also on the BOD of both the companies RMM was a profit centre & Zenith’s expertise and technological efficiency in the area was unmatched The step was taken to protect RMM revenues and assets from being take up by the FCCB holder QVT financial which later filed a law suit against the company. Spin Off : The Real Reason

14. The company was under fire due to alleged formation of Zenith RMM which was an obvious step to protect the profit centre. Zenith RMM was rebranded & named Continuum. Not only this Mr. Saraf became minority shareholder and the company’s business was revamped & now included BDR division which was the main forte of Zenith Infotech This was an attempt to show that Zenith RMM has nothing to do with Infotech & both are competitors further distancing the two companies Distancing & Rebranding : Just Another Tatic

15. Evaluating Options Zenith can choose to exercise one or a mix of the options mentioned below: Repayment through existing cash and cash equivalent Repayment through operating cash flow Refinancing of debt Restructuring of FCCBs Issue of further equity to repay debt Buyback Merger or stake sale

16. Evaluating Options Restructuring Of FCCB Restructuring of an FCCB usually means changing the maturity and interest rates, and will provide temporary relief to the issuing company. But, it depends on the acceptance of revised terms by the bondholders. Buyback of FCCB Buyback of FCCBs at a discount provides the Indian company an opportunity to substantially reduce their debt. Though, it does mean that the bondholder takes a hit on their FCCB investments.

17. Evaluating Options Refinancing of Debt The issuer takes new debt through banks. RBI has permitted issuers to avail of fresh ECB or FCCBs to finance the redemption of an existing FCCB under certain conditions. Availing of this alternative, will lead to higher interest rates and add to existing debt burden. Issue of Additional new equity The FCCB issuer can raise additional funds through dilution of equity to repay the incremental debt assumed to redeem the FCCB. This route might be a possibility for companies with high promoter holding, since the detrimental impact of dilution can be palatable.

18. Evaluating Options Repayment through existing cash, cash equivalent and operating cash flow If bond issuers have sufficient cash and cash equivalents on their balance sheet, they can use this to repay the FCCB holders. This payment is done at full redemption value as opposed to Buybacks, which can be executed at a discounted rate and so the latter is more beneficial to bond issuers.

19. Synergy What is Synergy Synergy is the additional value that is generated by combining two firms, creating opportunities that would not been available to these firms operating independently Types of Synergy Operating Synergy Financial Synergy Managerial Synergy Sales Synergy

20. Synergy Operating Synergy Economies of Scale Greater Pricing Power Combination of Different functional strength Higher growth in new or existing markets Financial Synergy Debt Capacity Tax Benefits Diversification

21. Parameters taken into consideration for synergy : Customer Base New Product Line Research and Development Management Technology gain Distribution and Marketing Brand Value Financing of the deal Current Requirements Analysis of Possible Buyer

22. AMD started with Cloud computing technology in 2009. Following are the benefits the company has experienced within 2 years: Reduce expenses Minimize data center footprints Improve IT efficiency Optimize data center floor space and power to help get more work out of every server dollar Achieve tremendous price/performance per VM and price/performance per rack Company is looking at aggressive expansionary plans in Asia (where mid-sized companies in cloud computing domain are moderately priced). AMD

23. AMD press release Computer processor maker Advanced Micro Devices (AMD) is on a recovery path in India. AMD India is planning to acquire three or four small and mid-sized companies engaged in cloud computing and specialised programme and software development. Besides planned acquisitions through a venture fund owned by AMD globally, the firm has enforced numerous structural changes to strengthen competitive positioning and improve financial performance both globally and in India. AMD : Prime Candidate Why?

24. Cable & Wireless Worldwide is now a wholly-owned subsidiary of Vodafone, bringing together two great British companies and two leading telecoms brands to deliver fixed and mobile communications internationally. Cable & Wireless Worldwide is led by Nick Jeffery, CEO. Services Cloud Computing Banking & Financial Services Managed Hosting Cable And Wireless Worldwide

25. Company is looking for major clients in Asia and is looking for companies in the mid cap range to acquire. CWW has its base in UK and USA only. Company is looking for new clients in telecom and media sector. Zenith InfoTech serves many media and telecom companies: Hitachi Motorola Singapore Network Services Tien Wah Press SingTel Reuters Cable And Wireless World wide : Why a Prospective Buyer?

26. Services Offered Public Cloud Hosting Private Cloud Hosting Managed Hosting Firewall Services Load Balancing Virtual Network Cloud Datacenter Locations London, England Madrid, Spain Milan, Italy Nieuwegein , Amsterdam Paris, France BT Global

27. Services sectors like government banking sector and IT sector. By acquiring Zenith InfoTech it can serve private banks in Europe and USA like: Citibank Deutsche Bank DBS Group JP Morgan Keppel Bank Also can increase its clientele in IT sector by obtaining clients like: Adroit Innovations Compaq Hewlett Packard BT Global

28. Indian Buyer

29. Wolf Frameworks PARAMETERS DETAILS CUSTOMER BASE Will have a strong customer base in the Asian markets NEW PRODUCT LINE Synergies in the terms of products will be new features in the existing product lines R&D Will have access to research in the untapped categories MANAGEMENT Will have experienced Zenith team on its disposal TECHNOLOGY Technology wise the synergy created will be immense DISTRIBUTION & MARKETING It being a startup will have access to wider distribution networks BRAND VALUE Will have a significantly large value attached to it FINANCING Financials strong enough to service the merger REQUIREMENT Requires the same to tap Asian markets

30. Synage PARAMETERS DETAILS CUSTOMER BASE Synage will have customer base extended to new markets such as Singapore, Hongkong and USA NEW PRODUCT LINE Will get access to products such as Truhaas R&D Will get access to diverse R&D team MANAGEMENT Since it has a small management, will have greater expertise TECHNOLOGY It will surely have access to superior technology DISTRIBUTION & MARKETING It will have access to distribution in the markets where Zenith exists BRAND VALUE Superior brand value FINANCING That’s a difficulty, but debt financing will not be an issue REQUIREMENT Launched in 2005, has not made any expansions since then

31. Orange Space PARAMETERS DETAILS CUSTOMER BASE Will have access to new markets-UK, Hongkong,Singapore NEW PRODUCT LINE Will have access to new products such as Tiger Cloud, Truhaas R&D High level research on untouched areas MANAGEMENT Low as it already has a experienced team TECHNOLOGY Technology in respect of the new product lines acquired DISTRIBUTION & MARKETING Zenith will benefit from the company’s wide channels BRAND VALUE A comparatively lesser brand value advantage FINANCING Good liquidity in the Balance Sheet REQUIREMENT Not requirement as such but can be a good bet to increase market share taking advantage of the plight of the ailing co

32. Conclusion