The Polaris - Orbitech Merger

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Case Details:

Case Code : FINC030
Case Length : 13 Pages
Period : 2002 - 2004
Pub. Date : 2004
Teaching Note : Available
Organization : Polaris Software Labs, Orbitech Solutions
Industry : Software, IT, Finance
Countries : USA, India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Merger

Under the terms of the merger, the shareholders of OrbiTech were to receive 14 newly issued equity shares of Polaris (face value of Rs 5) each, for every 25 OrbiTech shares (face value of Rs 2) held by them.

The swap ratio was arrived at on the basis of the enterprise value of the two companies, valued by Ernst & Young. While Polaris was valued at $210 mn, OrbiTech was valued at $246.75 mn, 17.5 percent higher than Polaris. Polaris shareholders would hold 46 percent while OrbiTech shareholders would hold 54 percent in the merged entity. Kotak Mahindra Capital Company and Enam Financial Consultants were the advisors for Polaris in the deal, while Salomon Smith Barney was the sole advisor for OrbiTech. The valuation favored Polaris shareholders. While OrbiTech's post tax earnings in the financial year 2001-02 were over 1.83 times Polaris' earnings of $12 mn for the same period, it was valued at only 1.17 times the valuation of Polaris (Refer Table I)...

The Revised Terms

As per the new scheme of amalgamation, the merger was to take effect from November 01, 2002.

Ernst and Young revalued OrbiTech, estimating its enterprise value at $188.1 mn compared to the earlier valuation of $246.75 mn.

Under the revised agreement, the shareholders of OrbiTech received 10.6 newly issued Polaris shares (with a face value of Rs 5), for every 25 shares (face value of Rs. 2) held in OrbiTech.

The total enhanced share capital of the merged entity would be approximately 97 million (mn) shares. Polaris shareholders would hold about 51 mn and OrbiTech shareholders will hold around 46 mn shares. In this deal, Citigroup got 6.57 mn shares less, when compared to the previous deal...

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