All work, no play, a headline Business Today (BT) recently used on its cover to highlight Vijay Mallya's new-found, near-manic obsession with his two mainstay businesses-spirits & beer, and the more recent one of aviation-couldn't have been more apt. Prone to hitting the headlines more for his fast cars, fancy yachts and flamboyant lifestyle in the past, the UB group Chairman these days has his hands full with business and more business. "Yesterday I was sitting in my office till 1 a.m., with my spirits team, putting the finishing touches to the merger between Shaw Wallace and the UB Group's spirits division. Today, I was at the airline headquarters (the spanking new Kingfisher House, near the Mumbai domestic airport). Tomorrow I have got Scottish & Newcastle, my partners from England (in the beer business), coming to see me. I have to be in a multitasking mode all the time," grins Mallya, who was in Mumbai last fortnight.

Whilst aircraft acquisitions (and their financing), and opening up new routes for Kingfisher Airlines are doubtless keeping Mallya busy, he's also burning midnight oil to see through a one-of-a-kind mega-merger of his spirits business. Three listed companies, Herbertsons, McDowell and the recently-acquired Shaw Wallace, along with one private company, Triumph Distillers & Vintners, will all be merged into one single liquor colossus called United Spirits, which is expected to have a total sales turnover of Rs 14,000 crore, a 60 per cent share of the Indian market, and a #3 position in sales terms globally (of 60 million cases annually). The operational merger is slated to become effective from October 1. Mallya expects the merged company to get listed by the first quarter of 2006. "We have to go through three steps: One is valuation, two is compliance with SEBI regulations, and the third is court approvals," he adds.

Mallya-and shareholders in his spirits companies-has plenty to look forward to, but he isn't the only promoter attempting to create value via the merger route. To be sure, corporate India has been wrapped up in a swell of merger mania-largely consolidation of group companies under a single umbrella-with a spate of such announcements hitting the headlines last fortnight. First Kumar Mangalam Birla, Chairman of the Aditya Birla Group, announced he was merging Indo-Gulf Fertilisers and Birla Global Finance into Indian Rayon, in the process creating a Rs 4,000-crore monolith, Aditya Birla Nuvo. A few days later, investment banker Nimesh Kampani decided to merge one of his private companies JM Securities into the listed entity, JM Financials, transforming the latter into a holding company with interests in investment banking, asset management, retail and institutional equity, and fixed income broking. Around the same time, the boards of five Indian group companies of global specialty chemicals giant Clariant-Colour-Chem, Clariant (India), Vanavil Dyes & Chemicals, BTP India and Kundalika Investments-resolved to consolidate their operations into a single unit called Clariant Chemicals (India). Meantime, reports surfaced that luggage baron Dilip Piramal was considering merging his manufacturing and marketing arms, Blow Plast and VIP (although a company spokesperson denied any such immediate move, he didn't rule out the merger over the longer term).

Clearly, as creating shareholder value becomes the buzzword in a market that's hitting new highs almost every day, the merger wave is only gaining in momentum. In July, software services pioneer TCS took into its fold Tata Infotech, which is expected to result in the merged entity having sales of just over $3 billion (Rs 13,200 crore) by 2006 (last year TCS did sales of $2.2 billion or Rs 9,900 crore, and Tata Infotech $250 million or Rs 1,125 crore). Speculation persists around tcs merging other Tata it companies like Tata Elixi and Tata Technologies into the TCS fold, but TCS CFO S. Mahalingam says there's little provocation for doing so as of now. Elsewhere, Anil Ambani has indicated that he will eventually bring his telecom and convergence-related businesses-Reliance Infocomm, Reliance Telecom, Reliance Communications Infrastructure and Flag Telecom-under the banner of Reliance Communications Ventures Ltd. Of course, this will only happen once the demerger at Reliance Industries is complete (see The Demerger Option).

Kumar Mangalam Birla CHAIRMAN/ADITYA BIRLA GROUP

TRANSACTION: Indo Gulf Fertilisers and Birla Global Finance merges with Indian Rayon, to create Aditya Birla Nuvo COMBINED ENTITY'S TURNOVER: Rs 3,980 crore as on March 31, 2005 RATIONALE FOR MERGER: To use the cash flows of the brick and mortar businesses like carbon black and viscose filament yarn in high-growth businesses like insurance, BPO and telecom

That's just a sprinkling of the merger craze that's under way in the country today. And there will be much more such action in the days ahead. As Rajiv Memani, CEO and Country Managing Partner, Ernst & Young India, points out: "Promoters have realised that this is the best time to create shareholder value by consolidating like businesses and in the process becoming more efficient from the cost standpoint."

It's All About Focus

Indeed, focus and synergies are the most powerful provocations for bringing businesses under a single umbrella. After years of embarking on an acquisition spree, promoters are trying to reorganise their portfolios and make sense of the businesses they've bought. For example, after buying out Shaw Wallace, Mallya has now got to find the right fit for the former Chhabria company within his spirits division. Currently, along with Vijay Rekhi, head of the liquor business, the Chairman is finalising the portfolio of the new company. "We have identified brands that we will either franchise, or sell or simply guillotine," says Mallya. Birla's India Rayon, too, has been through a series of acquisitions as well as divestments, having bought out PSI Data Systems, and Madura Garments, hived off its cement business to sister company Grasim, and written off its sea-water magnesia operations. The creation of Aditya Birla Nuvo is in many ways a culmination of all those past efforts.

S. Ramadorai CEO/TCS

TRANSACTION: Merger of Tata Infotech into TCS COMBINED ENTITY'S TURNOVER: Projected at a little over $3 billion (Rs 13,200 crore) by 2006 RATIONALE FOR MERGER: Exploit the various synergies that exist between the two Tata companies and eventually become a more profitable entity, courtesy the added capabilities

Along with focus, exploiting synergies is also an 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," explains Mahalingam. Tata Infotech, for instance, 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 highly-skilled 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.

The Cash Flow Imperative

Vijay Mallya CHAIRMAN/UB GROUP

TRANSACTION: Merge four spirits companies, Shaw Wallace, Herbertsons, McDowell and Triumph Distillers into a new company, United Spirits COMBINED ENTITY'S TURNOVER: An estimated Rs 14,000 crore RATIONALE FOR MERGER: To create a liquor colossus with a huge market cap, and then, perhaps, offload equity to a global spirits giant or some private equity players

Clearly, one plus one equals three is the guiding principle behind most mergers-the merged entities shouldn't just fit into each other well, they have to result in non-linear growth on all fronts, right from the client roster to business lines to brands to profitability. However, it's not just obvious synergies that are guiding every merger of group companies. At the Aditya Birla Group, for instance, there's another driver for bringing together seemingly disparate businesses ranging from fertiliser to financial services to garments. "Basically we have two sets of businesses: The brick-and-mortar businesses that are throwing up cash but where the growth opportunities are limited, and the high-growth businesses like garments, financial services, BPO, telecom, mutual funds and insurance. The model is to invest the cash flows from the value business in the high-growth businesses," points out Birla. Adds Sanjeev Aga, MD of the soon-to-be-created Aditya Birla Nuvo: "Indo-Gulf is a strong-brand, in a predictable and profitable business. But the sector is over-regulated and politically sensitive. Indo-Gulf has a lot of funds which cannot be deployed. By bringing those funds into Indian Rayon, we can invest in telecom and financial services, where the returns should be faster."

Anil Ambani CHAIRMAN/ANIL DHIRUBHAI AMBANI ENTERPRISES

TRANSACTION: Reliance Communications Ventures Limited (RCVL) will be the holding company for Reliance Infocomm, Reliance Telecom, Reliance Communication Infrastructure and Flag Telecom COMBINED ENTITY'S TURNOVER: N.A. RATIONALE FOR MERGER: Bring all the telecom and convergence-related businesses under one holding company

The three-way merger-Birla Global Finance is the third prong-also serves another purpose: It helps Birla consolidate his financial services portfolio into one bouquet. Birla Global's activities include mutual funds distribution and insurance advisory. But the insurance business is a joint venture with Indian Rayon. "By bringing them together we have a much more complete financial services bouquet," says Aga.

Another noteworthy sub-trend amidst all the merger action is the increasing popularity of the holding company concept-Anil Ambani has that in mind, as does Nimesh Kampani. Conglomerates like Anil Aggarwal's Vedanta Resources and the Jindals have already opted for this structure, which has its advantages: Whilst each of the entities under the holding company has autonomous managements, the holding firm's responsibility typically is to develop strategies across the group, optimally allocate resources to each unit, monitor each of the managements, and build the brand. "The holding company structure is useful when there is a clean-up that needs to be done in terms of cross-holdings. Also, demarcating investments and operations helps bring about the requisite focus," adds Memani of E&Y. In fact, many groups have chosen the demerger route to separate investments from operations (see The Demerger Option).

A single colossus also means a stronger balance sheet, which can be leveraged for further growth via acquisitions, both local and global. Sometimes, though, the merged giant itself becomes an attractive target for potential wooers. Mallya, for instance, doesn't rule out selling equity in United Spirits-just as he did in United Breweries, where he sold 37.5 per cent to Scottish & Newcastle for Rs 940 crore-to a global liquor giant or to private equity players once the merger is complete. Liquor is quicker, even when it comes to creating shareholder value.