Some of the best business deals ever made

Vodafone India 'merger' with Idea Cellular to form Vodafone Idea Limited.

Walmart 'acquires' e-commerce giant Flipkart for a whopping $16 billion.

Google to invest INR 33,737 Cr. in JIO Platforms in exchange for a 'stake' of 7.7%.

Have you come across the word in bold? Or are you curious to know about them?

The blog below would help you understand -- i) what companies stand to gain out of a business deal and ii) throw light on the various factors at play in the background of some of the 'Best Business Deals Ever Made' across a spectrum of sectors.

Microsoft and IBM - Technology

November 1980 – International Business Machines a.k.a. IBM was twice as large compared to every other computer firm in the world. Even though the IBM PC was not the greatest product out there as per technological standards, it did manage to bring some of the most desirable features under the umbrella of their small machine. It was also the very first time that IBM outsourced the production of its components: i) Processor Chip - Intel and ii) Disk Operating System (DOS) - Microsoft.

Interestingly, Microsoft was only a 40-member team at the time, and the deal would see them creating software on which the IBM PC would operate on. Initially, it was supposed to be named IBM PC-DOS. Still, Bill Gates, CEO, Microsoft, pressed hard and got the management of IBM to agree to his proposition to let Microsoft license the OS to various manufacturers. It was the birth of the globally known MS-DOS, and the company ended up supplying the OS to billions of PCs' around the world.

It was only in July 1981, just a month before the OS began to get shipped into PCs' that Microsoft obtained the full rights to the same.

Disney and 21st Century Fox – Media and Entertainment

Dubbed as one of the biggest media deals ever made, Disney now owns 71.3 billion USD worth TV assets and film content held by 21st Century Fox – known for some of the greatest blockbusters of all times: The X-Men Series, Avatar, Martian, the list goes on and on.

Disney, who already has some of the biggest names in the Media and Entertainment Industry namely Pixar, Marvel and Star Wars under its belt, with its acquisition of 21st Century Fox will have the entire Marvel Family at its disposal.

What does Disney stand to gain out of this deal?

• Higher appealing quality content
• A plethora of entertainment options to meet changing consumer tastes and preferences
• Access to a larger fan community and a loyal customer base
• Enhancement of its international footprint
• It would also help the firm to expand on its direct-to-consumer products and services
• The launch of Disney+ streaming platform
• It would also bring major cable properties as well as talented and renowned faces in the M&E industry under the umbrella brand of Disney.
• Combined ownership along with 21st Century Fox in Hulu - American subscription-based Video-on-demand.

What factors propelled Fox to make this decision?

• As per reports, quite a few factors were underplaying in the background – Fear, Optimism and Pragmatism.
• Netflix, Amazon, and Apple – possibly in the future, and their bottomless wallets as well as high investments in original content, instilled a sense of Fear in the management.
• Fox was at its peak but was able to see a possible downfall in the future, and saw the present time as the perfect moment to cash out their assets.
• It was further fuelled by the absence of Murdoch's four sons in the business, who would have taken it to greater heights.

Walmart and Flipkart – E-commerce

May 2018 – In what many consider to be the biggest e-commerce deal ever, American Multinational Retail Corporation – Walmart Inc. acquired India's biggest player in the segment – Flipkart for a mammoth 16 billion USD, with a valuation of over 20 billion USD. The former now owns around 77% stake in the Bengaluru-based company and is also the largest buyout ever initiated by the American giant.

The acquisition means the entry of Walmart in a space dominated by Amazon, one of its major competitors back in the U.S. Along with gaining a stronghold in the Indian Market – which is expected to reach around 3.6 trillion USD by 2027 - Walmart Deal Confirmed: What Walmart's Flipkart acquisition means for India, consumers and its arch-rival Amazon (source: indiatimes.com).

Walmart has been put on the backfoot by Amazon on its home-turf back in the U.S. Elsewhere as well, as Amazon has been pushing more and more customers to shop online, from the comfort of their homes. Moreover, Amazon's acquisition of Whole Foods – American Multinational Supermarket Chain, has pushed Walmart to develop its technological weaponry and explore foreign markets to regain their lost stature.

But why would Flipkart, which is doing well benefit from the deal? – Compared to Amazon, Flipkart is not able to price its products at lower price-points. Tying forces with Walmart, would not only present Flipkart with additional funds but also aid the firm in keeping Amazon at bay. The latter also has a lot to gain from the former's experience in supply chain management, retailing and logistics, and can simultaneously strengthen itself to take on a growing and fierce Indian e-commerce market. The deal will further provide a much-needed boost to the Indian economy and help generate employment.

Walmart is known across the world for its hyper-competitive prices. It has, therefore, built a negative reputation due to its history of wiping out small businesses for its pricing. Even though the deal has met with a lot of criticism from various stakeholders ranging from small-scale suppliers and distributors, the concerned authorities have promised to look into the complaints raised and take appropriate action as and when required.

Reliance and Future Group – Retail

Reliance Industries Ltd. – the parent organisation of Reliance Retail, in an attempt to strengthen its retail footprint in the Indian Retail Segment acquired Kishore Biyani's Future Group's Consumer Business for a staggering INR 24,713 cr.

The deal would solidify the position of RIL as India's largest organised retailer. It would provide the firm access to Future Group's retail, wholesale, warehousing units and logistics to bolster its growth further. It will also allow RIL to gain ownership of various brands and their stores under Future Group – Big Bazaar, Nilgiris 1905, HyperCity, FBB and Foodhall, Heritage Fresh, Easyday and other well-established subsidiaries, and expand their existing pool of customer base and gain prominence in unexplored territories.

What about Future Group? What were the underlying factors? – The ongoing pandemic has not been very kind to most businesses across the world, and the treatment meted out to Future Group was no different. The firm lost close to 7,000 cr. revenue in just three months into the pandemic and saw multiple outlets being shut across the country. Moreover, the group still had to pay off their debts, and the interest kept on accumulating. Hence, with the amount of cash that was being burnt, there was no way the company could have survived, leaving the management with not much of choice but to sell their business to RIL before they lost their 'value' in the eyes of their stakeholders.

Lessons Learnt

Management needs to have a clear vision and should be able to predict what lies ahead. Fox and Future Group leveraged the same in their thought process and showed through their actions that it is better to abandon a sinking ship rather than sink along with it to the point of no return.

If you are fighting for profits in your home turf, it might be a good idea to explore new markets – Walmart.

Keep experimenting and innovating as one never knows when an opportunity might come your way and not being controlled just because one is a small entity – Microsoft.

Also read:

What is the Difference Between Commerce and Business?
What is the greatest business secret in the world?
3 Brilliant Business Strategy Lessons that We Can Learn from History
5 Cult Brands of India and How They Got Their Names

FAQs

Q. What is a merger?

Ans: It is defined as an agreement that sees two existing companies joining forces to become a single business entity.

Q. What is Acquisition?

Ans: It refers to a business transaction wherein the ownership of assets is transferred between two business entities.  

Q. What is a Stake?

Ans: When one owns a stake in a company one is entitled to a profit percentage (the same figure as the stake) in the company that has been invested in.  

Q. What is Valuation?

Ans: Refers to an analytical process that helps determine the current value of a company or an asset.

Q. What is a Buyout?

Ans: It refers to an investment transaction wherein a majority share of the stock of a firm is acquired.

Q. What is a Subsidiary?

Ans: A company controlled or owned by its parent company.

Q. What is Debt?

Ans: Money borrowed from another party that needs to be returned within a stipulated period along with interest accumulated over time.