PROGRAM - MBA

SEMESTER - III
SUBJECT CODE & NAME - MF0011 MERGERS AND
ACQUISITIONS
1. Explain the types of mergers and acquisitions
(M&A).
Types of Mergers and Acquisitions
Mergers and acquisitions can take several forms.
1. Horizontal: It is a merger of two competing firms engaged in the
production of similar products or providing similar services. The acquiring firm
belongs to the same industry as the target company. The main purpose of such
mergers is to obtain economies of scale in production by eliminating
duplication of facilities, widening the product line, reduction in investment,
elimination of competition in product market, increase of market share, reduction
in advertising costs etc.
2. Concentric: This is a variation of horizontal mergers. It is a combination of two
firms that are not in the same industry but operate in related industrial
segments. For instance a company with a chain

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2.
Explain basic steps in organizing a merger.
Explain the owners decision to sell the business
a) Explanation of basic steps in organizing a merger
Steps in Organizing a Merger
The steps in an exercise of organising an acquisition are as follows:
Step 1: Pre-acquisition review: The preeminent reason for acquisition is growth,
and in this step the company management reviews the companys growth plans,
alternatives to achieving the growth, and the pros and cons of each alternative.
Pre-acquisition review includes answers to the following questions:
Is our company undervalued? What should we do to protect our valuation?
Why are we unable to grow or sustain market share? Will acquisition help?

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3. Explain about Operating synergy and the role of

Industry Lifecycle
a) Explanation of Operating synergy
Operating synergy
Synergies that enable companies to raise their operating income from existing
assets, increased growth or both are referred to as operating synergies. They
are of four types:

1. Economies of scale: It may result from the merger, enabling the combined
firm to become more cost efficient and profitable. Economies of scales can be
seen in mergers of firms in the same business (horizontal mergers).
For example, two banks merging to create a larger bank - like HDFC bank
with Centurion Bank of Punjab is an example of cost reduction through
economies of scale. The merged bank can be expected to cut costs considerably
on an account of sharing of resources and avoiding duplication of facilities.

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4. Write Short notes on :

1) Internalisation decision
2)
Recommendation for effective Cross-border
Acquisition
3) Role of government policies in international
M&A
1) Internalisation decision
The internalisation decision is similar to a make-or-buy decision. The
transaction and coordination costs of internalisation have to be compared with
costs of an external relationship like a joint venture. These costs are the potential
for holdup, loss of control over proprietary knowledge, risk of creating
potential rivals, and opportunistic behaviour by JV partners. Other issues are wrong
selection of alliance partner, moral hazards, inability to enforce accountability

for performance failure of the alliance and inability to get benefits from the alliance
commensurate with the contribution made and the risk taken.
2) Recommendation for effective Cross-border Acquisition
Each cross-border merger or acquisition is unique in itself in terms of its
challenges, opportunities and threats. However some basic guidelines have
emerged from the practices adopted. These are

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5. Explain the types of takeovers. Explain defenses

against takeover bids.
Types of Takeovers
Takeovers are of different types.
1. Bailout takeovers
Bailout takeover refers to a substantial acquisition of shares in a financially weak
company in pursuance to a scheme of rehabilitation approved by a public
financial institution or a scheduled bank. The lead institutions would be responsible
for ensuring compliance with the code. They would appraise the financially weak
company taking into account the financial viability, and assess the requirement of
funds for revival and transparency. The rehabilitation scheme has also to
specifically provide the details of any change in management. It may provide
for acquisition of shares

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6. Explain the factors in Post-merger integration
and Five rules of Integration Process.
Factors in Post-merger Integration
Some important factors that can decide the success or failure of a merger or
acquisition are:
Due diligence: Thorough due diligence involves comprehensive analysis of the
financial position, management capabilities, physical assets and intangible
assets of the target company. However, it can result in failure of the project if done
badly.
Financing: Manageable debt levels should be ensured.
Complementary resources: Ideal conditions for a merger are when the
primary resources of the acquiring and target firms are somewhat different, yet
simultaneously supportive of one another. Therefore, companies should seek for
such a situation.

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