Valuing Sify's Acquisition of Indiaworld

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Case Details:

Case Code : FINC031
Case Length : 15 Pages
Period : 1998 - 2003
Pub. Date : 2003
Teaching Note : Available
Organization : Satyam Infoway Ltd., Indiaworld Communications Private Ltd.
Industry : Software, IT, Finance
Countries : 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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Sify's Acquisition of Indiaworld

The first phase of IndiaWorld's acquisition was financed by Sify through the funds raised from its initial public offering (IPO) of American Depository Shares (ADS) on NASDAQ which raised $75 million in October 1999.

Sify completed the second phase of the acquisition of IndiaWorld on June 30, 2000, by modifying the option agreement entered in November 1999. The revised agreement changed the acquisition from an all cash transaction to a cash plus stock deal.

Sify settled the final payment of Rs. 3.25 billion by making a payment of Rs. 2.15 billion in cash and issuing 2,68,500 fresh equity shares of Sify worth Rs. 1.10 billion. Hence, in the deal each equity share of Sify was valued at Rs. 4097. The equity shares issued under the deal were neither listed in India nor could be converted into ADSs according to the law during that time...

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The Valuation Debate

Though the analysts and valuation experts were convinced about the benefits to Sify from IndiaWorld's acquisition they were divided on the valuation of the deal.

Some of the experts felt that the value of a company varied depending on the buyer. For example, a strategic buyer could be willing to pay a higher price for a company compared to a financial buyer. Analysts argued that the acquisition of IndiaWorld by Sify was made with a strategic objective.

They said that IndiaWorld would be a perfect complement to Sify's website. The deal would allow Sify to exploit cross-selling opportunities within its own portal and ISP service and ready access to the existing customer base and content of IndiaWorld's portal. Moreover, IndiaWorld was the second largest portal in India in 1999 and enjoyed good brand equity...


Exhibit I: Traditional Models for Valuing Companies
Exhibit II: Indiaworld's Websites
Exhibit III: Sify's Websites
Exhibit IV: Indiaworld's Financial Statements
Exhibit V: Sify's Financial Statements
Exhibit VI: Sify Ads Price 2000-2002 (Quarterly Closing Prices)
Exhibit VII: Valuation Models for Dotcoms

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