FINANCIAL FINANCIAL MANAGEMENTMANAGEMENT
Presented By:
Pratima Tiwari 51
Shweta Seth 57
Reena Kamble 68
Devisha Nayak 74
Nidhi Shetty 77
Priyanka Singhal 78
MERGERMERGER
What Is Mergers?What Is Mergers?A mergers is a
combination of two or more corporations in which only one corporation survives and the merged corporations go out of business.
Types of MergersTypes of Mergers Horizontal
mergers.– Eg:Arcelor
declares merger with Mittal Steel
Vertical Mergers .
Conglomerate mergers.
A Mergers can take place in A Mergers can take place in following waysfollowing ways
Mergers through absorption
Mergers through consolidation
Mergers Procedure Mergers Procedure 1. Examination of object clauses2. Intimation to stock exchanges:3. Approval of the draft amalgamation proposal by
the respective boards:4. Application to the National Company Law Tribunal
(NCLT): 5. Dispatch of notice to shareholders and creditors6. Holding of Meetings of shareholders and creditors:7. Petition to the NCLT for confirmation and passing of
NCLT orders8. Filing the order with the registrar9. Transfer of assets and liabilities10.Issue of shares and debentures:
ACQUISITIONSACQUISITIONS
What is Acquisitions?What is Acquisitions? A 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.
Types Of AcquisitionTypes Of Acquisition Straight takeover
Ownership of company is captured
Takeover of a sick company
Bail-out takeover
Management BuyoutsManagement Buyouts
Create a win-win situation for shareholders
To avoid lawsuits
Target may make itself less attractive
Leveraged BuyoutLeveraged Buyout The term leveraged buyout (LBO) describes an
acquisition or purchase of a company financed through substantial use of borrowed funds or debt
Usually a ratio of 90% debt to 10% equity
Purchase price.
The tangible assets of the company
Investors in LBOs
Common features of LBO Common features of LBO and MBOand MBO
One-time disgorgement of cash value
Dramatic leveraging
Restructuring is accompanied
Operational control
Restructuring operation
Important difference Important difference between LBO and MBObetween LBO and MBO
MBO leads to private companies MBO, the company saves on public reporting costs MBO, control of the firm changes LBO leaves the company publically traded with
shareholders receiving”stub”equity LBO preserves equity liquidity but exploits no
savings on reporting. LBO, control may not necessarily changes
Reasons for acquisitionsReasons for acquisitions Business model. Cyclicality reduction. Defensive Executive compensation. Intellectual property. Internal development alternative. Local market expertise.
Reasons for acquisitionsReasons for acquisitions Market growth.
Market share.
Production capacity.
Products.
Regulatory environment.
Sales channels.
Vertical integration
Problems with acquisitionsProblems with acquisitions Integration Difficulties
Differing financial and control systems can make integration of firms difficult
Inadequate Evaluation of Target“Winners Curse” bid causes acquirer to overpay for firm
Large or extraordinary Debt
Costly debt can create onerous burden on cash outflows
Problems with acquisitionsProblems with acquisitions Inability to Achieve Synergy
Justifying acquisitions can increase estimate of expected benefits
Overly DiversifiedAcquirer doesn’t have expertise required to manage unrelated businesses
Too largeLarge bureaucracy reduces innovation and
flexibility
Managers overly focused on axquisitionsManagers may fail to objectively assess the value of outcomes achieved through the firm’s acquisition strategy
Takeover BidTakeover Bid
Is a technique for affecting either a takeover or an amalgamation.
It may be defined as an offer to acquire shares of a company, whose shares are not closely held, addressed to the general body of shareholders with a view to obtaining at least sufficient shares to give the offer or, voting control of the company.
Takeover Bid is thus adopted by company for taking over the control and management affairs of listed company by acquiring its controlling interest.
Types of Takeover Bid Types of Takeover Bid
Negotiated bid
Tender offer
Hostile takeover bid
Valuation MattersValuation Matters
Comparative Ratios– Price-Earnings Ratio– Enterprise-Value-to-Sales Ratio
Replacement Cost
Discounted Cash Flow
Accounting for Accounting for Mergers and Mergers and AcquisitionsAcquisitions
Purchase Purchase Consideration(PC)Consideration(PC)
PC means price payable by buyer of business to the seller of the business.
Price has to paid either to owner of business or to the equity and preference share holder of the selling company.
Modes Of PC: Buying company can discharge PC by issue of
securities in the new company formed.
Calculation of PCCalculation of PC Lump sum Method
Total PC is pre determined. Business is transfer at a fixed rate. Break up price is not available.
Payment Method PC is the total of all payment made by buyer
company to the equity and preference holder of the seller company
Net Asset Method Value of asset is considered which is taken over by
the buyer company at revalued figure.
Purchase MethodPurchase Method Under the purchase method, the assets and
liabilities of the acquiring firm after the acquisition of the target firm may be stated at their exiting carrying amounts or at the amounts adjusted for the purchase price paid to the target company.
ExampleExample
Liabilities Amt Assets AmtAuthorised and Issued Capital
Goodwill 100000
8000 , equity shares of Rs.50 each fully paid
400000 Sundry assets 250000
3000, 13% preference shares of Rs.25 each , fully paid
75000 Cash 10000
12% debentures 50000 Profit and loss A/c 190000
Creditors 25000
Total 550000 Total 550000
On 1 july , 2005 the balance sheet of Amrit limited was as under
A new company to be formed, called Amrit(2005) limited with an authorized capital of Rs. 500000 all in equity shares of Rs.100 each.
One equity share of Rs.100 each fully paid in the new company to be issued in exchange of 3 preference shares in the old company.
Debenture holders to receive 500 equity shares in the new company as fully paid.
Creditors to be taken over by the new company and immediately paid off.
The new company to issue remaining euity shares for public subscription.
The new company to take over old company’s assets, subject to revaluation of “sundry assets” at Rs.265000
SolutionsSolutionsPC by Payment method
To whom Amt Mode of Payment
1) Preference share holder of old company
100000 1000 equity shares in new company of Rs.100 3 old 1 new 3000 ?
2) Equity shareholder of old company
200000 2000 equity shares in new company of Rs.1004 old 1 new8000 ?
Total 300000
Entries recorded in the books of Amrit(2005) Limited
Sundry Assets A/c Dr 265000Cash A/c Dr 10000Goodwill A/c Dr 100000 To 12% debentures of old company
50000 To Creditors 25000 To business purchase 300000
Pooling of Interests Method Pooling of Interests Method or Mergersor Mergers
If following conditions are satisfying: All assets and all liabilities except share capital is
taken over. Assets and liabilities are taken over at book value. 90% of share holder should agree for merger Business of selling company must be continued by
the buying company. Ascending share holder must be paid only by equity
shares Descending share holder and preference share
holder can be given equity , preference , debentures and cash.
ExampleExample On 31st march, 2006 Thin ltd was absorbed by
Thick ltdd, the latter taking over all the assets and liabilities of the former at book values. The consideration for the business was fixed at Rs.400000 to be discharged by the transferee company in the form of its equity shares of Rs.10 each, to be distributed among the shareholders of the transferor company, each.
The balancesheet of the two companies are as follows:
Liabilities Thick ltd
Thin ltd Assets Thick ltd Thin ltd
Authorised and Issued Capital
Goodwill 200000 60000
Equity shares of Rs.10 each fully paid
900000 200000 Plant and machinery
412000 100000
General Reserve
180000 50000 Furniture 80000 30000
Profit and loss A//c
20502 12900 Stock in trade 265500 60000
Workers compensation fund
12000 9000 Debtors 221200 46000
Creditors 58567 30456 Prepaid insurance
- 700
Staff provident fund
10200 4000 Income tax refund claim
- 6000
Provison for taxation
12300 5000 Cash in hand 869 356
Cash at bank 14000 8300
Total 1193569
311356 Total 1193569 311356
SolutiSolutionon
PC by lumpsum method Rs.400000 Profit or Loss on Mergers:
Particulars AmtPC 400000
Less Share capital of old company (200000)
Excess paid 200000
Adjusted against
General reserve of old company 50000
150000
General reserve of new company 150000
Loss on mergers Nil
Journal entries in the book of Thick ltd:Goodwill A/c DR 60000Plant and machinery A/c DR 100000Furniture A/c DR 30000Stock in trade A/c DR 60000Debtors A/c DR 46000Prepaid insurance A/c DR 700Income tax refund claim A/c DR 6000Cash in hand A/c DR 8300Cash at bank A/c DR 356General reserve DR 150000 To Creditors 30456
To Profit and loss a/c 12900 To Workers compensation fund 9000 To Staff Provident Fund 40000
To Provision for tax 50000 To Business purchase 4000000
Company profileCompany profile British company started by john cadbury in
1824 Started as a shop selling chocolates His son took the business It began making milk chocolates in 1897 and
diary milk in 1905 Company made its first major in 1921 by buying
rival fry
Company profile Company profile It started in 1903 with capital $65 Started as a wholesale cheese business in
chicago In 1920, kraft entered the canadian market
by purchasing MacLaren’s Imperial Cheese Co Ltd
In 1945, the company changed the name to KRAFT FOODS
2007, Kraft Foods Inc. became a fully independent company
Kraft and Cadbury: How Kraft and Cadbury: How they compare they compare
Although second only to Mars in the confectionery world, Cadbury is dwarfed by Kraft, which brings in nearly five times more in revenues and employees twice as many people worldwide.
Kraft and Cadbury: Why Kraft and Cadbury: Why Merger Merger
After the Second World War, Cadbury joined with US drinks giant Schweppes in the 1960s as it looked to expand overseas, but the firms split in 2008
Kraft has been touted as a possible buyer for Cadbury ever since it demerged its US soft drinks business in May last year, leaving it vulnerable to a takeover.
A month earlier, Cadbury lost its status as global confectionery leader after Mars paid $23bn for Wrigley's global business
Kraft and Cadbury: Kraft and Cadbury: BidingBiding
First Bid of £10.2bn ($16.7bn) on 7th Sep was rejected by Cadbury
Initial offer seems undervalues to Cadbury
This leads Kraft to go public with the bid in order to “encourage and further” the process. Shares of Cadbury soared 35 per cent at the start of London trading on the news
Second Bid of £11.5bn ($19.5bn)
Kraft's sold its North American pizza business for $3.7bn to help raise the funds to pay for the Cadbury deal
Kraft and Cadbury: Kraft and Cadbury: BidingBiding
Kraft Foods sealed a friendly deal to buy British candy maker Cadbury for about $19.6 billion (11.5 billion pounds) after frantic last-minute talks broke an impasse over price.
Cadbury board has agreed to Kraft's improved offer of 840 pence ($13.78) per Cadbury share
As per the revised offer Kraft would offer 2,000 pence in cash and 0.7496 new shares for each Cadbury ADS (American Depository Shares).
Kraft and Cadbury: Kraft and Cadbury: BidingBiding
Cadbury board has agreed to Kraft's improved offer of 840 pence ($13.78) per Cadbury share
As per the revised offer Kraft would offer 2,000 pence in cash and 0.7496 new shares for each Cadbury ADS (American Depository Shares).
A Kraft-Cadbury combination will create a portfolio with more than 40 confectionery brands,each with annual sales in excess of $100 million
Kraft and Cadbury: Kraft and Cadbury: BidingBiding
US food major Kraft Foods today said it required only 50 per cent support from Cadbury shareholders to take over the British confectioner.
British Prime Minister Gordon Brown pledged to "do everything we can" to secure jobs at chocolate maker Cadbury, the day after it accepted a takeover bid from US giant Kraft Foods
TATA- CORUS TATA- CORUS AcquisitionAcquisition
Tata Steel – An overviewTata Steel – An overview Formerly known as TISCO (Tata Iron and Steel
Company Limited
Established by Indian Parsi Businessman Jamsetji Tata in 1907– 100 years back
Asia first and India's largest private sector steel company
Annual revenues of US$ 5 billion and crude steel production of 5.3 million tonnes across India and South-East Asia.
Corus – an overviewCorus – an overview Formed on 6th October 1999 through the
merger of British Steel and Koninklijke Hoogovens
Operates as an international company, fulfilling the demand of many steel customers worldwide.
Europe's second largest steel producer, annual revenues of over £11 billion and crude steel production 20 million tonnes
Negotiation By TATANegotiation By TATA September 20, 2006: Corus decides to acquire a
strategic partnership with a low cost producer
October 17, 2006: Keeps Offer at 455p per share
November 18, 2006: The Brazilian Steel Group CSN makes counter offer of 475p per share
December 18, 2006: Within hours of Tata Steel increasing its original bid for Corus to 500 pence per share, CSN made counter bid for Corus at 515 pence per share in cash
Contd……Contd…… January 31, 2007: Tata Steel agrees to offer
Corus investors 608 pence per share in cash
April 2, 2007: Tata Steel won the acquisition to CSN
The DealThe Deal April 2, 2007: Tata Steel completed its US$12
billion acquisition of Corus Group plc
Value 100% acquisition:
Corus, four times larger than TATA’s size, largest steel producer in the U.K.
Deal creates world’s fifth largest steel maker
India’s largest ever foreign takeover , follows Mittal Steel’s $31 billion acquisition of rival Arcelor
Financing of Corus Financing of Corus Acquisition Acquisition
TATA-CORUS deal - $12 billion Equity contribution from TATA Steel- $3.88
billion Credit Suisse leaded, joined by ABN AMRO &
Deutsche Bank in the consortium Of the $8.12 billion of financing Credit Suisse
provided 45% and ABN AMRO & Deutsche provided 27.5% each
Synergies Synergies
Tata, lowest cost steel producer, self sufficiency in raw material.
Corus was fighting to keep its productions costs under control and was on the look out for sources of iron ore.
Rich iron, chromium and manganese mining assets in India & abroad.
Strong retail and distribution network in India and SE Asia.
In-road for Corus into the emerging Asian markets.
Contd…….Contd……. Tata Steel, leapfrog from the fifty-sixth largest
steel producer in the world to the fifth position.
Technology transfer of R&D capabilities between the companies
TATA- Domestic player to global player
Conclusion Conclusion
If the acquisitions well planned, executed and necessary precautions taken for the deal a company can achieve its
strategic objectives and thus ensure its growth through a deal.
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