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INDIAS GLOBAL COMPETITIVENESS THROUGH MERGERS AND ACQUISITIONS:
TRENDS AND STRATEGIES

(Lt. Col) Rattan Raina

ABSTRACT
Indias Global Competitiveness Through Mergers and Acquisitions: Trends and StrategiesThe new
business environment has provided an opportunity to Indian organizations to become global through
acquisition and merger. There seems to be a great rush of Indian organizations to achieve global status
through acquisition. In 1988, numbers of acquisitions by Indian companies were just15 foreign
companies, which has now grown to more then 115 foreign companies by 2006. In Oct. 2006 it self,
there have been two major acquisitions, one by Tata steel and other by Indias largest electronics firm
Videocon. Tata Steel took over European Steel giant-Corus for 4.3 billion pound and Videocon
acquired south Koreas Daewoo Electronics. With this trend, we do expect some more acquisitions by
Indian companies by end 2006. It is very tempting for a business leader venture for merger or
acquisition for instant growth. However, he need to understand that it is a very complex task and
requires detailed planning and execution with great care. This paper discusses trends of acquisition and
mergers by Indian companies and recommends strategies to make these a success.
Keywords: Global Competitiveness, Acquisition & Merger, strategies and implementation Indias Global Competitiveness Through Mergers
and Acquisitions: Trend and Strategies


INTRODUCTION
Following the liberalization and deregulation of Indian economy in 1991, organizations are passing through a phase of change as never
witnessed before. The new business environment has provided Indian organizations to become global organizations though acquisition and
expansion plans. However it has opened Indian markets to global players also. In this two way traffic, even successful Indian organizations
are facing challenges from both, domestic competitors as well as foreign competitors, who can suddenly appear from anywhere on the globe.
To remain ahead of competitors, business leaders need to have a global vision, be pro-active, able to take calculated risk and initiate and
manage acquisition and consolidation process smoothly. The paper discusses trends of acquisitions and mergers by Indian companies and
recommends strategies to be followed to make acquisition and merger process a success.
TRENDS OF MERGERS AND ACQUISITION IN INDIA
Mergers and acquisitions are not totally new to the Indian economy. In the past also, companies used the takeover strategy to expand
their business. In 1988, number of takeovers was 15
(1)
, which have now grown to 115 foreign acquisitions in the first three quarters of 2006
with total value of $ 7.4 billion. This is a huge increase as compared to the previous year. There seems to be a great rush of Indian
organization to achieve global status through takeover and consolidation. Indian business Leaders are on the shopping spree. This includes
IT firms, Pharmaceutical Industry, Tea Co., Steel Industry and even spare part producers are trying to enter global market. Recent cases
include takeover of Tetley Tea by Tata Tea by spending $ 435 million. This deal made Tata Tea, the worlds 2
nd
largest Tea Company. In
pharmaceutical, Ranbaxy bought Ethimed of Belgium and Mundogen, the Spanish generies arms of GlaxoSimithKline. In IT, Wipro took over
Technology firms in Portugal, Finland and California. Bharat Forge, the worlds second-biggest producer of forgings for engine and chassis
components has bought six companies in four countries Britain, Germany, Sweden and China
(2)
.
This year, Pune based Suzlon, producer of wind turbine bought Hansen, a Belgian gearbox maker. After taking over Singapore firm
Natsteel, Tata Steel has now concluded the biggest takeover of European Steel giant Corus for 4.3 billion Pounds (Rs. 36500 crores)
(3)
.
Day after Tata picked the deal to buy Corus, Indias largest electronics firm Videocon signed an agreement to acquire South Koreas debt-
Laden Daewoo Electronics for nearly $ 370 million (Rs.3300 crore)
(4)
. Latest effort is being made by Mahindra and Mahindra, Indias
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largest utility vehicle maker to acquire German forging company Schoeneweiss & Co. Acquisition cost is expected to be between $ 159 to
200 million
(5)
. With this trend, we do expect some more acquisition by Indian companies by end of 2006.
Above-mentioned examples show the trend and popularity of merger and acquisition as an easy route for achieving growth and
becoming global organization. No doubt merger and acquisition, if planned and executed properly can provide great opportunity of growth,
cost saving, technology up gradation and capturing market beyond the national boundaries. However success of Merger & Acquisition will
depend on the ability of management/business leader to critically analyze opportunities available considering geopolitical issue, technical issues,
cultural issues and above all human issues.
Creating Global Organization Through Merger and Consolidation
It is inherent desire and need for every business to grow both vertically and horizontally. Development within is slow and at times
difficult. Best way to have fast growth is to adopt a course of takeover and merger. This gives an organization an instant growth.
Considering its advantages the Indian companies seem to be in a great hurry to achieve rapid growth through merger & acquisition. However
all takeovers do not meet the required expectations. Sahara-Jet Airways is a living example of the same. Such a failure only leads to
confusion and pain to management and to its employees. Reasons for such failure are due to poor homework for acquisition and at times the
negotiators are excited and wish to conclude the deal in a hurry
(6)
. Although, no two acquisitions or mergers are same. Each situation is
unique and presents its own set of problems and potential solutions. Hence every deal requires individual approach. However, there are
some macro level aspects, which must be kept in mind while considering a targeting company for acquisition or merger. These are economical
environment, Geopolitical environment, impact of terrorism on that region, economical health of the company, availability of resources at
appropriate cost including manpower etc. These are discussed as under:
The Economical Environment
A business leader while planning Merger or Acquisition in other country must give due consideration to the type of market economy.
It is much easier to do business in a country where resources are owned and controlled by the private sector (Market Economy) as compared
to a country where it is controlled by the Government (Command Economy). However, due consideration must be given to the reforms
initiated by various governments to liberalize their economy. At present, most of the South East Asian countries which are governed by
command-based economy are now moving to be more market-based economy
(7)
.
Political Environment
A stable legal and political system is always preferred as it gives long-term stability to the business. History of unstable Government,
always increases the risk factor and business in such a country should be avoided. A leader must have a clear understanding of geopolitical
situation of the region where the targeted company is located. However, at times the countries with record of unstable Govt. do provide great
opportunities and a leader can afford to take calculated risk to grab the opportunity.
Impact of Global Terrorism
Terrorism has added a new dimension, which directly or indirectly affects the conduct of business. At times, terrorism even affects the
control of Govt. on national economy and resources. We have living examples of Afghanistan and Iraq where no business leader would like
to sink his investment. Terrorism has even affected the functioning of big global companies. Following the terrorist attack on September 11,
2001, Boeing Company (The Chicago-based Aerospace Company) laid off thousand of US workers because of uncertainty over customer
order
(8)
. Similar risk was felt by General Electric in the summer of 2002, when India and Pakistan nearly went to war due to terrorist
activities sponsored by Pakistan
(9)
. General Electrical has invested more than $ 80 million in Banglore (India) for creating largest research
center outside U.S.A. War between India and Pakistan would have greatly hampered their business.
Work Culture
The work culture of an organization is greatly influenced by the national work culture, which effect the functioning of local Government
and bureaucracy. This also includes level of corruption, which an organization is likely to face during the process of takeover and later on for
smooth conduct of the business. It is not possible to impose work culture of home organization fully. Research works have highlighted that
work culture of country has direct bearing on the work culture of a organization. For example German employees at an IBM facility in
Munich will be influenced more by German culture than by IBM culture
(10)
.
Based on the above-mentioned consideration, targeted companies should be identified and short-listed and put up to Board of
Directors for their consideration. Once the proposal is accepted in principle, the further process can be initiated.
Merger and Acquisition Strategy
Before any strategy is formulated, a company needs have a clear-cut policy regarding merger and acquisition. This policy must be
complimentary to its vision and mission. Once a policy decision to expand business through merger and acquisition has been taken, the first
step is to establish a Merger and Acquisition Cell. The roll of the cell would be to identify the potential companies, which would depend on
macro level issues discussed above and the broad guidelines laid down by the company for such a move i.e. to diversify the business or
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expand the existing business or for upgrading the technology.
This cell should be assisted by business analyst, representative of financial institution/investment bankers, technical experts, valuators
and lawyers specializing in this field. For faster decision making, which is vital in such cases, the cell must have direct axis to the business
leader/decision making authority. Sophisticated software that can handle financial analysis, projections, valuation, and so on is available in the
market and help of these can be taken.
Once the targeted company has been identified, option of finalizing deal through negotiation must be considered. However, if it is not
feasible due to any reason and takeover is vital for the organization, a hostile takeover should be considered. For hostile takeover, the stock
of targeted company should be bought quietly through third party. The whole process must be managed confidentially.
PROCESS OF MERGER AND ACQUISITION
Process of takeover should adopt a planned approach. Such a plan should include extensive explanation of various phases and
activities. The aim of developing such an action plan is to give the broad outlines of the various activities and to show the connection between
these. Process of a Merger or Acquisition can be divided into following steps:
Step I Finalization of Targeted Company for Acquisition/Merger
Step II Formulating the Approach for Acquisition.
Step III Working out the Agreement.
Step IV Integrating the merged /acquired company.
Step V Post-acquisition/merger Plan.

STEP I: FINALIZATION OF TARGETED COMPANY
Information about targeted companies must be collected from all possible sources & if required business intelligence agencies could
also be hired to collect additional information which may not be easily available. Final evaluation of targeted company will broadly depend on
the following:
1. Purpose of Merger or Acquisition
2. Financial information (Strength & Weakness of Company)
3. Management and organization Information
4. Environment of the country where targeted company is located)
As a result of this process some of the companies could be eliminated due to their failure to meet important criteria.
Selection of Targeted Company: The specific criteria to make final selection includes the following:
o Size of the company (in terms of earning, sales, volume and assets).
o Potential growth rate.
o Market value and financial condition including debts (if any).
o Coverage of market.
o Manufacturing facilities (location, capacity and condition).
o Management and personnel.
o Type of technology being used.
o Minimum return on investment.
Depending upon the circumstances, other criteria may also be added to meet the requirement of the objectives or companies basic
policies regarding minimum return on the investment human issues or environmental issues.
Step II: Formulating the Approach for Acquisition
Final recommendation must be put up to the Board of Directors for their approval. Such approval constitutes authorization of
Management to proceed with succeeding steps of the process. The first and the most effective strategy is to convince the
management/business leader of targeted company to explore the idea of affiliating with the acquirer and that it is going to gain from the
proposal. Importance in this strategy is to determine who should initiate the discussion
(11)
. It is desirable that first such discussion should be
initiated through a consultant or an investment broker. This gives an option for switching over to other strategy (hostile takeover).
If the management of targeted company is willing to be acquired or get merged, the process of discussion must continue. The first few
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discussions will normally be confined to generalities such as why two companies should combine, gains for both, financial position,
organizational structure and out look.
During the preliminary talks, targeted company may like to know approx price & other broad terms of condition before it is willing to
continue to discuss the deal seriously. Acquirer must do his homework well & be prepared to submit the proposed terms & conditions.
Step III: Working out the Agreement
The agreement for merger or acquisition should be done in two stages. In first stage, a preliminary agreement between two
companies could be worked out and in the second & final stage the final agreement can be worked out. This is essential to give breathing
time to both companies to workout finer details for final agreement and also check some additional detail, which might have been overlooked
previously. The preliminary agreement will include the following points:
1. The basis of agreement (Terms of Merger/Acquisition)
2. The authorization by the share holders of each company
3. The provision that during the interim period none of them will make any substantial change in its operation or enter into unusual
agreement without each others approval. This agreement will be in form of a memorandum.
After due consideration final agreement of acquisition/merger should be prepared considering legal aspects. This document should be
prepared by the legal council of both the companies in consultation with each other. Due consideration must be given to the law of the land
and code of conduct for acquisition and merger prepared by respective governments. Final agreement must be put up to board of Directors
for obtaining formal approval of the agreement and its terms and conditions.
Once the agreement is approved by Board of Directors, announcement of acquisition/merger should be made. This announcement
must highlight the advantages/gains of the both organization, their employees, shareholders and customers.
Step IV: Integration of Two Enterprises
To get full benefit from any acquisition or merger plan, it is essential that the two companies must get integrated rapidly and
effectively. To achieve this, it is essential to formulate an integration plan. This plan must cover management function, accounting controls,
budgeting control and functional control. In case of merger, it is essential to give due importance and share to both companies in running the
new organization. There may be a requirement to even develop a new organizational structure.
To achieve effective & smooth integration, it is essential to have integration cell comprising of key personnel of both the companies.
This cell could look after five types of integration
(12)
.
1. Strategic Integration It involves continuing contact among the top-leaders to discuss broad goals or changes in each company.
2. Tactical Integration: It brings middle management together to develop plans for specific projects of joint activities.
3. Operational Integration: Facilitating individual and small task group working relationship.
4. Interpersonal Integration: It is important that leaders of both companies try bringing people of their respective companies closer to
each other. The interpersonal ties between the members of the separate companies help in proper integration of two merged
companies.
Role of communication in Facilitating Integration: Communication plays an important role in facilitating proper integration. This can be
achieved by the followings
(13)
:
Handling the fundamental questions asked by stakeholders
Creating a communication strategy and infrastructure
Unfolding the vision and dealing with the dilemma of management disconnects
Establishing the key message(s)communicated to all stakeholders
Marketing the deal
Motivating staff: retaining key people
Controlling the rumor mill: how it can be done
Stabilizing the new organization: the tools to use
Getting buy-in from customers, suppliers, and alliance partners
Creating two-way communication channels
Step V: Post-Merger Integration
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There is generally tendency to become casual once deal has been finalized. Both the parties feel so relieved and at times they fail to
realize that the real problems come when dealing with the nuts & bolts of the merger/takeover. Hence it is important to prepare for rapid
responses to unanticipated situations. Human relation aspects need special attention.
Recommended model for merger and acquisition is appended as Appendix A
CONCLUSION
It is very tempting for a business leader to venture for merger or acquisition of other company. But is must be understood that it is a
very complex task. Hence any such move must be planned & executed with great care. Remember a successful attempt would be very
rewarding.
Appendix A
(Refer to page 12)

A Generalized Model of Merger and Acquisition Action Plans
Working out Broad policy regarding Acquisition\ Merger Programme
Defining Objectives of Acquisition\ Merger
Approval of the Board of Directors of the Objectives
Formulating The Programme
Search of a Partner for Acquisition\d Merger
Identifying, Selecting & Rating the Companies for the Final Choice
Formulating the Strategy of Approach
Undertaking Negotiations
Reaching the Preliminary Agreement
Considering Legal Aspects of Merger
Working out Final Agreement
Approval by the Boards of Directors
Announcement of the Merger\Acquisition
Integrating the Operations & Organizations of the Two Enterprises
Five Levels of Integration
Strategic Integration
Tactical Integration
Operational Integration
Interpersonal Integration
Cultural Integration
Communication for integration
Post-Merger Integration

Source: H.C.Chaudhary, Relevance of Mergers and Acquisition; Evolving Performing Organization Through People, New Age
International Publishers, New Delhi, P 281 (Modified)
BIBLOGRAPHY
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