erger and Acquisition2352534

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Merger

In common parlance it means combination oftwo or more commercial organizations intoone.

Merging company loses its separate identity. Itis fusion of two or more existing companies.

All assets and liabilities of one or moreCompanies are transferred to another

Company.Example:

Merger of Idea and Spice Telecom

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Before Merger

Shareholders of X

X Ltd Y Ltd

Shareholders of Y


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Option 1

Option 2

Shareholders

of X & Y

X Ltd Y Ltd New co Z

Shareholders

of X & Y

Shareholders

of X & Y

Option 3

After Merger

Note- Based on the swap ratio, the shareholders of the transferor

company are issued shares of transferee company


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We cant merge again. Our letterhead

already takes up the entire page.


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Types of MergersVertical Merger:

Merger with suppliers or customers

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Eg: Kochi Refineries Ltd Merges

into Bharat Petroleum CorporationLimited

Cont


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Types of Mergers (Cont.)Horizontal Merger: Between firms in the same

kind of business usually ascompetitors.

Generally has the effect ofreducing competition

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Countries committed to a competitive economy use Antitrust laws to

prohibit such mergers.

Eg: Centurion bank of Punjab

merging into HDFC BankCont


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Types of Mergers (Cont.)

Conglomerate Merger:

Lines of business have nothing to do with one another

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Eg: Indo Gulf and Birla Global Finance

merging into Indian Rayon. New Co

rechristened Aditya Birla Nuvo


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Acquisition

Purchase of a company by another company.

Acquirer more interested in assets (including intangibles) /cash flows; less interested in mutual sharing of risks andbenefits with the target company.

Examples: Tata Steel acquired Corus Group Plc.

Hindalco acquired Novelis

Videocon acquired Daewoo Electronics Corp.

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Types of Acquisitions

Acquisition - friendly or unfriendly

Friendly Takeovers:

Acquirer's contacts target's management & proposes adeal. Target agrees and cooperates

Unfriendly Takeovers:Acquiring firm makes a tender offer to target's shareholders.Meanwhile, target's management contests defensive measures

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Why called unfriendly ?

Price is too low; fear to lose power, often jobs


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Merger Consideration discharged

by issue of shares of

transferee co.

Shareholders of mergingco. will become share-holders of Merged co.

Usually by negotiations.

Acquisition Consideration may be

by cash or shares.

Acquirer companyshareholders havecontrolling interest.

May be friendly orhostile.

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Difference between merger &

acquisition


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Process

Market Valuation

Exit Planning

Structured Marketing Process

Letter of Intent

Buyer Due Diligence

Definitive Purchase Agreement

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TATA GROUP is 150 year old, Previously TataEngineering and Locomotive Company, Telco.India & apos;s largest passenger automobile and

commercial vehicle.

Tata Motors was established in 1945Listed on the New York Stock Exchange in 2004.

It is the 5th largest medium and heavy commercialvehicle manufacturer in the world. listed in BSE, NSE &NYSE.

TATA MOTORS: An overview


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FORD

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Location: Dearborn, Michigan

Founded:1903 by Henry Ford

Competitors: General Motors

,ToyotaBrand names: Lincoln, Mercury,

Volvo, Mazda, Jaguar and Landover

CEO:Alan Mulally


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Jaguar: The ups and downs1922- Founded in Black pool as Swallow Side car

company

1960- Jaguar name first appearedin1935

1975- Nationalized in due to financial difficulties1984- Floated off as a separate coin the stock

market

1990- Taken over by Ford


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A statement of ultra luxury

Holds Royal warrants

Rarely advertised

Fords formula one entry since 1990s


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The US auto major put the two marquees on themarket in 2007 after posting losses of $12.6billion in2006 - the heaviest in its 103-year historyJaguar was not able to provide any profit for ford

because of the high manufacturing costs provided inthe United KingdomThe strong boy Land Rover & apos;s profit, on theother hand, was driven by the record sale of 2.26 lakh

vehicles, an 18% YoY growth in 2007Ford was combining both the brands since theproducts and manufacturing of vehicles for LandRover and Jaguar was so intertwined

Why was Ford selling?


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Long term strategic commitment toautomotive sector.Opportunity to participate in two fast growingauto segments.Increased business diversity across marketsand products.

Jaguar offered a range ofperformance/luxury vehicles to broaden thebrand portfolio.Benefits from component sourcing, design

services and low cost engineering

Why to acquire JLR?


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Likely buyers

Tata Motors

M&M

Ceribrus capital Management

TPG Capital

Apollo Management

The Deal Process


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Tata Motors was vulnerable to greater competition

at home.

Foreign vehicle makers including Daimler, NissanMotor, Volvo and MAN AG had struck local

alliances for a bigger presence.

Tata Motors, which had a joint venture with Fiat for

cars, engines and transmissions in India, was alsofacing heat from top car maker Maruti Suzuki India

Ltd, Hyundai Motor, Renault and Volkswagen

COMPETITIVE ADVANTAGE


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Tata Motors could comfortably finance the

acquisition of

Jaguar and Land Rover. The Indian automaker wassitting on a cash pile of over Rs 6,000 crore and

generated free cash of over Rs 1,000 crore during

FY07. It could easily use these reserves to raise more

funds without endangering its finances.At the end of last financial year, Tata Motors debt-

to-equity ratio was a low 0.56, giving it ample head

room to raise more funds.

Financing strategy


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Low leverage of the auto biz provided fundingflexibility

At the time financed the purchase through a

$3bn, 15month bridge loan

Additional amount of US $ 0.7 billion was for

engine and component supply, contingencies and

working capital.

It intended to refinance the loan through long-term funds valuable stakes in group companies

Owns $400m of Tata Steel at current prices

Owns stake in Tata Sons (Tata Groups holding

company) worth at least $600m


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3 modern plants in UK2 advance design and engineering center26 national sell companiesIntellectual property: free license to share technologywith FordSupport from ford motor credit: Ford motor credit will

continue to support the sale of Jaguar and Land rover for next 12months

For what Tata motors paid


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Post merger

Following Cost Rationalization initiatives were taken to improvecash flows:1. Single shifts and down time at all three UK assembly plants.2. Supplier payment terms extended from 45 to 60 days in line

with industry standard.3. Receivables reduced by 133 million from 38 to 27 days4. Inventory reduced by 217m between June 2008 and March

2009 from 70 to 50 days .5. Labor actions

- Voluntary retirement to 600 employees.- Agency staff reduced by 800.-Offered leaves to 300 workers of Brom which and solihullplant.

-Additional 450 job cuts including 300 managers.


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6. Agreement with Unions to implement payfreeze and longer working hours

(equivalent to approximately 20%reduction in labor costs.7. Engineering and capital spending

efficiencies.

8. Fixed marketing and selling costsreduced in line with sales volume.

9. Reduction in all other non-personnelrelated overhead costs.


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Drop in share pricesFailure of rights issueHuge debt burden

Sales volume decreased by 35.2%Lack of consumer loansIssue of timingOperational freedom slows pace of change

Depressed state of the global premium carmarket

Problems


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Jaguar/Land Rover lost 306 million pounds($504 million) for the fiscal year endingMarch 2009

Tata Motors reported a net loss ofRs3.29bn ($67 million) for the quarter toend-JuneTatas core commercial vehicles market in

India is also suffering from slower salesExtremely high manufacturing costs inBritainEliminated more than 2,200 jobs


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Tata wanted to make a global impact and it thinks thatbuying these brands at a lower rate now, will give bettervalue later on.

This acquisition also eases the entry of Tata inEuropean market which it has been eyeing for long. Aprevious JV with FIAT took place, this will further helpthem penetrate EU market.

Reduce the company dependence on the Indianmarket which accounted for 90% of its salesIncrease sales in emerging marketsReduce dependence on mature markets

Benefits


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Opportunity to spread its business across differentcustomer segmentAt the price staring from 63 lakh and going upto 93 lakh,

it seems Tata has just got the right place to compete withthe current market leaders BMW, Audi, MercedesPublicity on an international scaleAccess to large distribution networkJLR had many new models lined up for next 3 years, so

no much work just profitsStrong R & D culture and facilitiesComponent sourcing, engineering and design benefits


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TEN BIGGEST MERGERS AND

ACQUISITIONS DEALS IN INDIA

Tata Steel acquired 100% stake in Corus Group on January 30, 2007. It was an all

cash deal which cumulatively amounted to $12.2 billion.

Vodafone purchased administering interest of 67% owned by Hutch-Essar for a totalworth of $11.1 billion on February 11, 2007.

India Aluminium and copper giant Hindalco Industries purchased Canada-based firm

Novelis Inc in February 2007. The total worth of the deal was $6-billion.

Indian pharma industry registered its first biggest in 2008 M&A deal through theacquisition of Japanese pharmaceutical company Daiichi Sankyo by Indian major

Ranbaxy for $4.5 billion.


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The Oil and Natural Gas Corp purchased Imperial Energy Plc in January2009. The deal amounted to $2.8 billion and was considered as one of the

biggest takeovers after 96.8% of London based companies' shareholders

acknowledged the buyout proposal.

In November 2008 NTT DoCoMo, the Japan based telecom firm acquired

26% stake in Tata Teleservices for USD 2.7 billion.

India's financial industry saw the merging of two prominent banks -

HDFC Bank and Centurion Bank of Punjab. The deal took place in February

2008 for $2.4 billion.

Tata Motors acquired Jaguar and Land Rover brands from Ford Motor in

March 2008. The deal amounted to $2.3 billion.


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2009 saw the acquisition Asarco LLC by Sterlite Industries Ltd's for $1.8

billion making it ninth biggest-ever M&A agreement involving an Indian

company.

In May 2007, Suzlon Energy obtained the Germany-based wind turbine

producer Repower. The 10th largest in India, the M&A deal amounted to $1.7

billion.


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