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Mergers and AcquisitionsPARVESH AGHI

India's 10 largest M&A dealsTata Steel- Corus $ 12.2 billion Vodafone- Hutchison Essar $ 11.1 billion Airtel-Zain $ 10.7 billion Hindalco- Novelis $ 6 billion Ranbaxy Diaiichi Sankyo $ 4.5 billion ONGC- Imperial Energy $2.8 billion NTT DoCoMo Tata tele $2.7 Billion HDFC-Centurion Bank $2.4 billion Tata Motors-Jaguar-landRover $2.3 billion Sterlite-ASACRCO $ 1.8$ billion

Tata Steel- CorusTata Steel-Corus: $12.2 billion On January 30, 2007, Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at $12.2 billion. The deal is the largest Indian takeover of a foreign company till date and made Tata Steel the world's fifth-largest steel group

Vodafone- HutchisonVodafone-Hutchison Essar: $11.1 billion On February 11, 2007, Vodafone agreed to buy out the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for $11.1 billion. This is the second-largest M&A deal ever involving an Indian company. Vodafone Essar is owned by Vodafone 52%, Essar Group 33% and other Indian nationals 15%.

Hindalco- Novelis

Aluminium and copper major Hindalco Industries, the Kumar Mangalam Birla-led Aditya Birla Group flagship, acquired Canadian company Novelis Inc in a $6-billion, all-cash deal in February 2007. Till date, it is India's third-largest M&A deal. The acquisition would make Hindalco the global leader in aluminium rolled products and one of the largest aluminium producers in Asia. With post-acquisition combined revenues in excess of $10 billion, Hindalco would enter the Fortune-500 listing of world's largest companies by sales revenues

Ranbaxy Diaiichi SankyoMarking the largest-ever deal in the Indian pharma industry, Japanese drug firm Daiichi Sankyo in June 2008 acquired the majority stake of more than 50 per cent in domestic major Ranbaxy for over Rs 15,000 crore ($4.5 billion). The deal created the 15th biggest drugmaker globally, and is India's 4th largest M&A deal to date

Airtel-Zain $ 10.7 billion New Delhi, March 25 -- India's largest telecom service provider Bharti Airtel is set to become a large global player, with the Zain board on Wednesday approving closure of the deal under which Bharti would buy Zain's Africa operations for an enterprise value of $10.7 billion (Rs 49,000 crore). The two companies will make a formal announcement on Thursday, a senior executive close to the deal said. Currently, Bharti's non-India operations include Sri Lanka and Bangladesh. This acquisition will take its footprint to 15 African countries.

Major M&A in the 2000sYEAR 2000 2000 2004 2006 2001 2009 PURCHASER PURCHASED Transaction value (in mil. USD AOL TIME 164,747 WARNER GLAXO SMITHKLINE 75,961 BEECHAM ROYAL SHELL 74,559 DUTCH TRANSPORT PETORLEUM CO SOUTH 72,671 AT &T INC BELL CORP COMCAST AT & T 72,041 CORP BROADBAND JP MORGAN BANK ONE 58,761 CHASE CORP

Lecture Agenda

Motives

behind M&A Conceptual framework Reasons for M & A Problems with M & A Attributes of effective acquisitions Types of Mergers History of M & A M & A in India

Motives behind M&A Economy

of scale Increase revenue or market share Synergy Cross selling Taxation Resource transfer Diversification Empire Building

CONCEPTUAL FRAMEWORK

MEANING OF MERGERS ACQUSITIONS AMALAMATIONS TAKEOVERS ABSORPTIONS

MERGERA

transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger and competitive advantage

MERGERSMerger is a transaction that results in transfer of ownership and control of a corporation. When one company purchases another company of an approximately similar size. The two companies come together to become one. Two companies usually agrees to merge when they feel that they can do something together that they cant do on their own.

MERGER

Merger refers to the merging of one company into another or two companies getting merged to form a new corporate entity. A merger is popularly understood to be fusion of two companies

MERGER

In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal.

Ways of Merger

A merger can take place in following four ways :

By purchase of assets

The asset of company Y may be sold to company X . Once this is done company Y is then

By purchase of common share. The common share of company Y may be purchased by company X. when company X hold

Ways of Merger

By exchange of share for assets

y give its share to stake holders of company Y for its net assets. Then company Y is termina

Exchange of shares for shares

Company X gives its shares to the share holders of company Y and then

ACQUSITIONA

transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business

ACQUSITION Acquisition

or take over denotes a company acquiring controlling stake in another so that the acquirer can have management control over the other firm Generally , acquisition is the purchase by one company of a substantial part of the assets or securities of another .

ACQUISITION Strategy

through which one firm buys a controlling, 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio

Mergers & AcquistionsMERGERS ACQUISITIONS

mbining of two business entities under common ownership assets or shares of another firm On firm buys the

ake over implies the acquiring firm is larger than the target. Reverse take over takes place coalesce and share resources in order to realize a common goal

Mergers & AcquistionsMERGERS ACQUISITIONS

parent stocks are usually retired and be a stock issued can new controlling share, a majority, or all of the target firm

name may be one of the parents or a combination

can be friendly or hostile

the parents usually emerges as the dominant management through a tender offer usually done

TAKEOVER An

acquisition where the target firm did not solicit the bid of the acquiring firm

Reasons for AcquisitionsIncreased market power Overcome entry barriers Cost of new product development Increased speed to market Lower risk compared to developing new products Increased diversification Avoid excessive competition Acquisitions

Problems in Problems in Achieving Success Achieving SuccessIntegration difficulties Inadequate evaluation of target Large or extraordinary debt Inability to achieve synergy Too much diversification Managers overly focused on acquisitions Too large

Reasons for AcquisitionsIncreased Market PowerAcquisition intended to reduce the competitive balance of the industry Example: British Petroleums acquisition of U.S. Amoco

Overcome Barriers to EntryAcquisitions overcome costly barriers to entry which may make start-ups economically unattractive Example: Belgian-Dutch Fortis acquisition of American Bankers Insurance Group

Lower Cost and Risk of New Product DevelopmentBuying established businesses reduces risk of start-up ventures Example: Watson Pharmaceuticals acquisition of TheraTech

Reasons for AcquisitionsIncreased Speed to MarketClosely related to Barriers to Entry, allows market entry in a more timely fashion Example: Kraft Foods acquisition of Boca Burger

DiversificationQuick way to move into businesses when firm currently lacks experience and depth in industry Philip Morris acquired Millers' Brewing for $ 227 million

Reshaping Competitive Scope Reshaping Competitive ScopeFirms may use acquisitions to restrict its dependence on a single or a few products or markets Airtel-Zain

Problems with AcquisitionsIntegration DifficultiesDiffering financial and control systems can make integration of firms difficult Example: Intels acquisition of DECs semiconductor division

Inadequate Evaluation of TargetWinners Curse bid causes acquirer to overpay for firm Example: Marks and Spencers acquisition of Brooks Brothers

Large or Extraordinary Debt Large or Extraordinary DebtCostly debt can create onerous burden on cash outflows

Problems with AcquisitionsInability to Achieve SynergyJustifying acquisitions can increase estimate of expected benefits Example: Quaker Oats and Snapple

Overly DiversifiedAcquirer doesnt have expertise required to manage unrelated businesses Example: GE--prior to selling businesses and refocusing

Managers Overly Focused on Acquisitions Managers Overly Focused on AcquisitionsManagers may fail to objectively assess the value of outcomes achieved through the firms acquisition strategy Example: Ford and Jaguar

Too LargeLarge bureaucracy reduces innovation and flexibility

Problems with AcquisitionsInability to Achieve SynergyJustifying acquisitions can increase estimate of expected benefits Example: Quaker Oats and Snapple

Overly DiversifiedAcquirer doesnt have expertise required to manage unrelated businesses

Managers Overly Focused on Acquisitions Managers Overly Focused on AcquisitionsManagers may fail to objectively assess the value of outcomes achieved through the firms acquisition strategy Example ; Ford and Jaguar

Too LargeLarge bureaucracy reduces innovation and flexibility

Types