Mergers, Mergers, Acquisitions & Joint Acquisitions & Joint

VenturesVentures

OverviewOverview

Mergers & AcquisitionMergers & Acquisition Differences Differences Modes of Mergers & AcquisitionsModes of Mergers & Acquisitions Types of MergersTypes of Mergers Types of AcquisitionsTypes of Acquisitions The Reasons Behind Mergers & AcquisitionsThe Reasons Behind Mergers & Acquisitions Pakistan Scenario- Real Life ExamplesPakistan Scenario- Real Life Examples Joint VentureJoint Venture Benefits & Risks of Joint VentureBenefits & Risks of Joint Venture Pakistan Scenario – Real Life ExamplePakistan Scenario – Real Life Example Difference between Merger, Acquisition, Joint Difference between Merger, Acquisition, Joint

VentureVenture

Merger and AcquisitionMerger and Acquisition

A A MergerMerger is a tool used by is a tool used by companies for the purpose of companies for the purpose of expanding their operations often expanding their operations often aiming at an increase of their long aiming at an increase of their long term profitability. term profitability.

An An AcquisitionAcquisition, also known as a , also known as a takeover, is the buying of one takeover, is the buying of one company (the ‘target’) by another. company (the ‘target’) by another.

DifferencesDifferences

Mergers Acquisitions

Two firms are combined on a relatively co-equal basis

One firm buys another firm

Parent stocks are usually Parent stocks are usually retired and new stock issuedretired and new stock issued

Name may be the original or a Name may be the original or a combinationcombination

One of the partners take over One of the partners take over the dominant managementthe dominant management

Can be by means of Can be by means of controlling share, a controlling share, a majority, or all of the target majority, or all of the target firm’s stockfirm’s stock

Can be friendly or hostileCan be friendly or hostile

Usually done through a Usually done through a tender offertender offer

Modes of Mergers & Modes of Mergers & AcquisitionsAcquisitions

Types of MergersTypes of Mergers

Horizontal – between business competitorsHorizontal – between business competitors

Vertical – Moving up or down the value Vertical – Moving up or down the value chainchain

Conglomerate – Unrelated sectorsConglomerate – Unrelated sectors

De-merger – Hive-off of an undertaking De-merger – Hive-off of an undertaking into a separate companyinto a separate company

Practical Examples of Practical Examples of Merger Merger

11 Merger of M/s. Pakistan Credit and Investment Corporation with Merger of M/s. Pakistan Credit and Investment Corporation with and into M/s. NIB Bank Limited. and into M/s. NIB Bank Limited.

31-12-2007 31-12-2007

22 Merger of M/s. PICIC Commercial Bank Limited with and into Merger of M/s. PICIC Commercial Bank Limited with and into M/s. NIB Bank Limited.. M/s. NIB Bank Limited..

31-12-200731-12-2007

33 Merger of M/s. Yousaf Sugar Mills Limited with M/s. Abdullah Merger of M/s. Yousaf Sugar Mills Limited with M/s. Abdullah Sugar Mills LimitedSugar Mills Limited

24-06-200824-06-2008

44 Merger of M/s. Crescent Bahuman Energy and M/s. Crescent Merger of M/s. Crescent Bahuman Energy and M/s. Crescent Bahuman Textile Limited with and into M/s. Crescent Bahuman Bahuman Textile Limited with and into M/s. Crescent Bahuman Limited. Limited.

16-04-2008 16-04-2008

55 Merger of M/s. Jubilee Energy Limited with and into M/s. Jubilee Merger of M/s. Jubilee Energy Limited with and into M/s. Jubilee Spinning and Weaving Mills Limited. Spinning and Weaving Mills Limited.

18-11-2008 18-11-2008

66 Merger of M/s. Nishat Apparel Limited with and into M/s Nishat Merger of M/s. Nishat Apparel Limited with and into M/s Nishat Mills Limited.Mills Limited.

11-11-2008 11-11-2008

Types of AcquisitionsTypes of Acquisitions

Asset PurchaseAsset Purchase

Stock PurchaseStock Purchase

Practical Examples OF Practical Examples OF Acquisition Acquisition

11 Acquisition of shares of M/s. Wazeer Ali Industries Limited by M/s. Acquisition of shares of M/s. Wazeer Ali Industries Limited by M/s. Dalda Foods (Pvt) Limited. Dalda Foods (Pvt) Limited.

13-12-2007 13-12-2007

22 Acquisition of shares of M/s. MCB Bank Limited by M/s. Malayan Acquisition of shares of M/s. MCB Bank Limited by M/s. Malayan Banking Berhad 20-05-2008 Banking Berhad 20-05-2008

20-05-200820-05-2008

33 Acquisition of shares of Agro General Insurance Company by M/s. Acquisition of shares of Agro General Insurance Company by M/s. The Direct Insurance Company. 21-05-2008The Direct Insurance Company. 21-05-2008

21-05-20021-05-2008 8

44 Acquisition of shares of M/s. ABN Amro Bank ( Pakistan ) Limited Acquisition of shares of M/s. ABN Amro Bank ( Pakistan ) Limited by a consortium led by The Royal Bank of Scotland Group PLC. by a consortium led by The Royal Bank of Scotland Group PLC.

22-05-200822-05-2008

55 Acquisition of shares of M/s. Pakistan Cement Company Limited by Acquisition of shares of M/s. Pakistan Cement Company Limited by M/s. Lafarge S .A. M/s. Lafarge S .A.

23-05-2008 23-05-2008

Acquisition ProcedureAcquisition Procedure

In an acquisition one firm acquires the In an acquisition one firm acquires the other, in either a friendly or hostile other, in either a friendly or hostile takeover:takeover:

Friendly ProcedureFriendly Procedure Unfriendly ProcedureUnfriendly Procedure

StockholdersStockholders

Have to be willing to give up their shares for the Have to be willing to give up their shares for the offered priceoffered price

The majority must approve for an acquisition to be The majority must approve for an acquisition to be successfulsuccessful

The Reasons Behind The Reasons Behind Mergers & AcquisitionsMergers & Acquisitions

SynergiesSynergies GrowthGrowth Diversification to Reduce RiskDiversification to Reduce Risk Economies of ScaleEconomies of Scale Acquiring Assets CheaplyAcquiring Assets Cheaply Tax Losses Tax Losses

Tax LossesTax Losses

Consider the following possible combination of Rich Inc. and Poor Inc.

Operating independently Rich pays $700 in taxes while Poor pays nothing, for a combined total of $700. However, the merged companies pay a combined tax of only $350.

Exa

mpl

e

$650$650($1,000)($1,000)$1,400$1,400EATEAT

350350-0--0-700700Tax (35%)Tax (35%)

$1,000$1,000($1,000)($1,000)$2,000$2,000EBTEBT

MergedMergedPoor Inc.Poor Inc.Rich Inc.Rich Inc.

Pakistan ScenarioPakistan Scenario

Real Life ExamplesReal Life Examples

Controlling AuthoritiesControlling Authorities

CCP (Competition Commission Pakistan)CCP (Competition Commission Pakistan)

SECP (Security Exchange Commission of SECP (Security Exchange Commission of Pakistan)Pakistan)

SBP (State Bank of Pakistan)SBP (State Bank of Pakistan)

High CourtHigh Court

Example of MergerExample of Merger

NIB Bank Ltd. NIB Bank Ltd. merged with PICIC and PICIC Commercial Bank on 31 December 2007

Horizontal type

NIB Bank Ltd is a wholly owned subsidiary of Temasek Holdings of Singapore

Initially NIB had 41 branches(2006)

A total of about 646.6mn shares were issued by NIB at the merger

NIB financed the merger at a right issue of Rs.18.65bn and acquired 63.36% of stake in the PICIC

Now NIB Bank is the 7th largest bank of Pakistan with 240 branches, 450,000 customers and 100 ATMs in 60 cities of Pakistan

NIB Bank Ltd.

At the date, 2nd highest paid-up capital of Rs.28.43bn after SCBPL with the total assets of Rs.176.6bn

PACRA rating AA- long-term and A1+ short-term

Merger with PICIC was in order to expand the business and enhance in innovative products

Concentrating on SME and Commercial banking and Salaam banking

NIB BankNIB Bank

Combined entity will gear up the

operational excellence by:enhancing staff productivity and customer

service delivery channels improving in technology and its usagestrengthening the risk management and

controlling the environmental challenges improving in the asset management arms

and insurance affiliate in order to ensure attractive dividend stream for NIB

Example of an Example of an AcquisitionAcquisition

Reasons Of Standard Reasons Of Standard CharteredChartered Getting listed in KSEGetting listed in KSE

Commonalities in both bankCommonalities in both bank

Expanded geographic coverageExpanded geographic coverage

Access to new customer segments Access to new customer segments [SME / Middle Market / Agriculture][SME / Middle Market / Agriculture]

Combined Entity Will DeliverCombined Entity Will Deliver

Economies of scaleEconomies of scale

Stronger operating platformStronger operating platform

Wider distribution reachWider distribution reach

Results Of AcquisitionResults Of Acquisition

5th largest bank in Pakistan in terms of profitability 5th largest bank in Pakistan in terms of profitability and assetsand assets

Revenue USD 225 millionRevenue USD 225 million

Operations in 22 cities of Pakistan.Operations in 22 cities of Pakistan.

800,000 Customers; 9000 workforce800,000 Customers; 9000 workforce

6th largest Consumer Banking in the Group6th largest Consumer Banking in the Group

3rd largest branch network (115 braches) in the 3rd largest branch network (115 braches) in the GroupGroup

Joint VentureJoint Venture

Combining complementary R & D technologiesCombining complementary R & D technologies Efficient commercialization of a technology or business Efficient commercialization of a technology or business

conceptconcept Developing or acquiring marketing or distribution Developing or acquiring marketing or distribution

expertiseexpertise Sharing of professionals with unique skillsSharing of professionals with unique skills Financial support or sharing of economic riskFinancial support or sharing of economic risk Acceleration of revenue growthAcceleration of revenue growth Ability to increase profit marginsAbility to increase profit margins Expansion to new domestic marketsExpansion to new domestic markets New product developmentNew product development

Benefits of Joint Benefits of Joint VenturesVentures

Businesses of any size can use joint ventures to strengthen long-term Businesses of any size can use joint ventures to strengthen long-term relationships or to collaborate on short-term projects.relationships or to collaborate on short-term projects.

A successful joint venture can offer:A successful joint venture can offer:

access to new markets and distribution networksaccess to new markets and distribution networks

increased capacityincreased capacity

sharing of risks and costs with a partnersharing of risks and costs with a partner

access to greater resources, including specialized staff, technology and access to greater resources, including specialized staff, technology and financefinance

A joint venture can also be very flexible. For example, a joint venture can A joint venture can also be very flexible. For example, a joint venture can have a limited life span and only cover part of what you do, thus have a limited life span and only cover part of what you do, thus limiting the commitment for both parties and the business' exposure.limiting the commitment for both parties and the business' exposure.

Joint ventures are especially popular with businesses in the transport and Joint ventures are especially popular with businesses in the transport and travel industries that operate in different countries.travel industries that operate in different countries.

Risks of Joint VenturesRisks of Joint Ventures

Partnering with another business can be complex. It takes time and effort Partnering with another business can be complex. It takes time and effort to build the right relationship. Problems are likely to arise if:to build the right relationship. Problems are likely to arise if:

the objectives of the venture are not 100 per cent clear and the objectives of the venture are not 100 per cent clear and communicated to everyone involvedcommunicated to everyone involved

the partners have different objectives for the joint venturethe partners have different objectives for the joint venture

there is an imbalance in levels of expertise, investment or assets brought there is an imbalance in levels of expertise, investment or assets brought into the venture by the different partnersinto the venture by the different partners

different cultures and management styles result in poor integration and different cultures and management styles result in poor integration and co-operationco-operation

the partners don't provide sufficient leadership and support in the early the partners don't provide sufficient leadership and support in the early stagesstages

Success in a joint venture depends on thorough research and analysis of Success in a joint venture depends on thorough research and analysis of aims and objectives. This should be followed up with effective aims and objectives. This should be followed up with effective communication of the business plan to everyone involved.communication of the business plan to everyone involved.

Example of a Joint Example of a Joint VentureVenture

Indus Motor Company Ltd.Indus Motor Company Ltd.

Indus Motor Company is a joint venture of Indus Motor Company is a joint venture of the House of Habib, Toyota Motor the House of Habib, Toyota Motor Corporation and Toyota Tsusho Corporation. Corporation and Toyota Tsusho Corporation.

It manufactures and markets Toyota and It manufactures and markets Toyota and Daihatsu vehicles in Pakistan. Daihatsu vehicles in Pakistan.

This is one of the few Toyota manufacturing This is one of the few Toyota manufacturing sites in the world that manufactures both sites in the world that manufactures both Toyota and Daihatsu vehicles on the same Toyota and Daihatsu vehicles on the same production line. production line.

Indus Motor Company Indus Motor Company Ltd.Ltd. Indus Motor Company, with support from Toyota Motor Indus Motor Company, with support from Toyota Motor

Corporation has worked closely with its 62 local Corporation has worked closely with its 62 local vendors for increased localization and technology vendors for increased localization and technology transfer. transfer.

Pakistan is the highest producer of Corolla in Asia. At Pakistan is the highest producer of Corolla in Asia. At the time of the Corolla launch in March 2002, the the time of the Corolla launch in March 2002, the company was producing 57 vehicles per day. Today, it company was producing 57 vehicles per day. Today, it produces 200 vehicles per day. produces 200 vehicles per day.

Indus Motor has undertaken a number of expansion Indus Motor has undertaken a number of expansion projects which include an in-house press plant for projects which include an in-house press plant for making car body parts, a cogeneration power plant to making car body parts, a cogeneration power plant to optimize energy consumption etc. which is a part of optimize energy consumption etc. which is a part of long term technology transfer strategy.long term technology transfer strategy.

PSO and Pizza Hut’s Joint PSO and Pizza Hut’s Joint VentureVenture

Pakistan State Oil and Pizza Hut‘s joint Pakistan State Oil and Pizza Hut‘s joint venture.venture.

Pizza Hut and Pakistan state Oil (PSO) Pizza Hut and Pakistan state Oil (PSO) jointly decided to open Pizza Hut branch jointly decided to open Pizza Hut branch on every PSO petrol pump all over the on every PSO petrol pump all over the Pakistan. The first shop is opened at the Pakistan. The first shop is opened at the PSO branch of Lahore Cantt.PSO branch of Lahore Cantt.

As per MD PSO Mr. Muhammad Jalees, it As per MD PSO Mr. Muhammad Jalees, it is the proof of quality service of PSO that is the proof of quality service of PSO that Pizza Hut decided to make a Joint venture Pizza Hut decided to make a Joint venture withwiththem.them.

Difference between Merger, Difference between Merger, Acquisition & Joint VentureAcquisition & Joint Venture

Merger = two companies come together "permanently" for Merger = two companies come together "permanently" for mutual gains or to reduce competition mutual gains or to reduce competition

Acquisition = one company buys another company which Acquisition = one company buys another company which may or may not be doing wellmay or may not be doing well

Takeover = same like "acquisition", but generally a Takeover = same like "acquisition", but generally a company buys another company which is not doing well or company buys another company which is not doing well or has gone bankrupt.has gone bankrupt.

Joint Venture = two companies come together "temporarily" Joint Venture = two companies come together "temporarily" for mutual gains for a particular project/job. after the for mutual gains for a particular project/job. after the project/job is completed the joint venture is dissolved.project/job is completed the joint venture is dissolved.

ConclusionConclusion