M&A for class

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Mergers and cquisitions


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MEANING

Merger

A transaction where two firms agree to integrate theiroperations on a relatively co-equal basis because they have

resources and capabilities that together may create astronger competitive advantage.

The combining of two or more companies, generally by

offering the stockholders of one company securities in theacquiring company in exchange for the surrender of theirstock

Example: Company A+ Company B= Company C.


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ACQUISITION

A transaction where one firms buys another firm with

the intent of more effectively using a core competence

by making the acquired firm a subsidiary within its

portfolio of businessIt also known as a takeover or a buyout

It is the buying of one company by another.

In acquisition two companies are combine together to

form a new company altogether.

Example: Company A+ Company B= Company A.


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MERGER ACQUISITION

DIFFERENCE BETWEEN MERGER AND

ACQUISITION:

i. Merging of two organization in

to one.

ii. It is the mutual decision.

iii. Merger is expensive thanacquisition(higher legal cost).

iv. Through merger shareholders

can increase their net worth.

v. It is time consuming and the

company has to maintain so

much legal issues.

vi. Dilution of ownership occurs

in merger.

i. Buying one organization by

another.

ii. It can be friendly takeover or

hostile takeover.

iii. Acquisition is less expensive

than merger.

iv. Buyers cannot raise their

enough capital.v. It is faster and easier

transaction.

vi. The acquirer does not

experience the dilution of

ownership.


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WHY IS IMPORTANT PROBLEM WITH MERGER

MERGER:WHY & WHY NOT

i. Increase Market

Share.

ii. Economies of scale

iii. Profit for Research

and development.

iv. Reduction of

competition.

i. Clash of corporate cultures

ii. Increased business complexity

iii. Employees may be resistant to

change

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WHY IS IMPORTANT PROBLEM WITH ACUIQISITION

ACQUISITION:WHY & WHY NOT

i. Increased marketshare.

ii. Increased speed to

marketiii. Lower risk comparingto develop newproducts.

iv. Increaseddiversification

v. Avoid excessivecompetition

i. Inadequate

valuation of target.

ii. Inability to achieve

synergy.

iii. Finance by taking

huge debt.

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REASONS /ADVANTAGES

Size and Synergy

Increased revenue/Increased Market Share

Economies of Scale

Helps to face competition

Revival of sick units

Faster growth rate

Taxes Advantages

Finance related advantages

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Different Types Of Mergers Horizontal Merger

Conglomeration merger

Vertical Merger

Concentric Merger

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Horizontal Merger Horizontal mergers are those mergers where the companies

manufacturing similar kinds of commodities or running similartype of businesses merge with each other.


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Vertical MergerA merger between two companies producing different goods

or services.


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Example of Vertical MergerTime Warner Incorporated, a major cable operation, and

the Turner Corporation, which produces CNN, TBS

(Turner broadcasting system), and other programming.

Pixar-Disney Merger


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Conglomerate Merger

A merger between firms that are involved in totallyunrelated business activities.

Two types of conglomerate mergers:

1. Pure conglomerate mergers involve firms with nothing incommon.

2. Mixed conglomerate mergers involve firms that are lookingfor product extensions or market extensions.


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Example of ConglomerateMerger Walt Disney Company and the American Broadcasting

Company.


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Concentric Merger

A merger of firms which are into similar type of business.


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Example of Concentric Merger Nextlink is a competitive local exchange carrier offering

services in 57 cities and building a nationwide IP network.

Concentric, a national ISP, offers dedicated and dial-up

Internet access, high-speed DSL and VPN services acrossthe U.S. and overseas.


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TOP 5

M&A DEALS


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1. Tata Steel-Corus: $12.2 billion

January 30, 2007

Largest Indian take-over

After the deal TATAS

became the 5thlargest

STEEL co.

100 % stake in CORUS

paying Rs 428/- per share

Image: B Mutharaman, Tata Steel MD; Ratan

Tata, Tata chairman; J Leng, Corus chair;

and P Varin, Corus CEO.


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2. Vodafone-Hutchison Essar:$11.1 billion

TELECOM sector

11th February 2007

2nd largest

takeover deal

67 % stake holding

in hutch

Image: The then CEO of Vodafone

Arun Sarin visits Hutchison

Telecommunications head office inMumbai.


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3. Ranbaxy-Daiichi Sankyo: $4.5 b

Pharmaceuticals sectorJune 2008

Acquisition deal

largest-ever deal in the

Indian pharma industryDaiichi Sankyoacquired the majoritystake of more than 50

% in Ranbaxy for Rs15,000 crore

15th biggest drugmakerImage: Malvinder Singh (left), ex-CEOof Ranbaxy, and Takashi Shoda,

president and CEO of Daiichi Sankyo.


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4. Tata Motors-Jaguar LandRover: $2.3 billion

March 2008 (just ayear after acquiring

Corus)

Automobile sector

Acquisition deal

Gave tuff competition to

M&M after signing the

deal with ford

Image: A Union flag flies behind a

Jaguar car emblem outside a

dealership in Manchester, England.


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5. RIL-RPL merger: $1.68 billion

March 2009Merger deal

amalgamation of its

subsidiary ReliancePetroleum with the

parent company

Reliance industries

ltd.Rs 8,500 crore

RIL-RPL merger

swap ratio was at

16:1

Image: Reliance Industries'

chairman Mukesh Ambani.


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Why India?

Dynamic government policiesCorporate investments in industry

Economic stability

Ready to experiment attitude ofIndian industrialists


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Deals in India for first financial

quarter 2010Sector No. of Deals

Value in USD

million

Share in per

cent

Telecom 3 22732.26 67.19

Pharmaceutical 4 3958.29 11.02

BFSI 6 2651.54 7.84

Metal and Mining 4 1483.15 4.38

Energy 4 1320 3.90

Other sectors 39 1919.00 5.67


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PROCESS OF MERGER & ACQUISITION IN INDIA:

The process of merger and acquisition has the following steps:

i. Approval of Board of Directors

ii. Information to the stock exchange

iii. Application in the High Court

iv. Shareholders and Creditors meetingsv. Sanction by the High Court

vi. Filing of the court order

vii. Transfer of assets or liabilitiesviii.Payment by cash and securities

Maximum Waiting period:210 days from the filing of notice(or the order of

the commission - whichever earlier).


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Impact of Mergers and Acquisitions

ImpactEmployees

Competition

Management

Public

Shareholders


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Why Mergers and Acquisitions Fail?

Cultural Difference

defective Intention

No guiding principles

No ground rules

No detailed investigating

Poor stake holder outreach


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How to Prevent the Failure

Continuous communicationemployees,

stakeholders, customers, suppliers and

government leaders.

Transparencyin managers operations

Capacity to meet new culture higher

management professionals must be ready to

greet a new or modified culture.

Talent management by the management


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MERGER & ACQUISITION(2009-10) :

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