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(Affiliated to G.G.S.I.P University, New Delhi)



Lecturer and Placement Advisor (10212303909)

SESSION 2009-11



The phrase mergers and acquisitions refers to the aspect of corporate strategy, corporate
finance and management dealing with the buying, selling and combining of different
companies that can aid, finance, or help a growing company in a given industry grow
rapidly without having to create another business entity.

A merger is a tool used by companies for the purpose of expanding their operations often
aiming at an increase of their long term profitability. There are 15 different types of
actions that a company can take when deciding to move forward using M&A. Usually
mergers occur in a mutual setting where executives from the target company help those
from the purchaser in a due diligence process to ensure that the deal is beneficial to both

An acquisition, also known as a takeover, is the buying of one company by another. An

acquisition may be friendly or hostile. In the former case, the companies cooperate in
negotiations in the latter case the takeover target is unwilling to be bought or the target's
board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a
smaller firm by a larger one. Sometimes, however, a smaller firm will acquire
management control of a larger or longer established company and keep its name for the
combined entity. This is known as a reverse takeover.

For this project ,m&a is really helpful in regards to capital appreciation of Indian
economy or not so that I have to mention in this project .So for that I have used
secondary research which I got it from various wesites,books and newspapers.
Sl. No Particulars Page no.
1 Objective of the Study 5
2 Research Methodology 6
3 Introduction to Merger & Acquisition 9
4 M&A laws in Indian Prospective 14

5 M&A laws in Global prospective 15

6 M&A trends in India 16
7 M&A trends across the Globe 22
8 Effects of M&A in Capital Appreciation in Indian Economy 25

9 Mixed activity 14
10 M & A in Telecom Sector 27
11 M &A in Finance Sector 29
12 M &A in Oil and Gas Sector 30
13 M & A in Banking Sector 32
14 M & A in Pharmaceutical Sector 35
15 Literature Review 38
16 Arcellor and Mittal deal 47
17 Reasons for Failure M&A 50
.18 Analysis and Interpretation of M & A 57
19 Recommendation 65
20 Limitations 66
21 Conclusion 67
22 Bibliography 69

This study aims at giving in detail information about evolution of Merger & acquisition
in India and their effect on capital appreciation

The increasing economic power of emerging economies has led to a dramatic expansion
in multinationals from these markets. Mergers and acquisitions (M&A) have become a
popular vehicle for these companies to rapidly access new markets, assets and

More than 1,100 mergers and acquisitions were conducted by emerging market
multinationals in 2006, representing US$128 billion in value1. Indian companies have
significantly increased their M&A activity over recent years, particularly in terms of
cross-border acquisitions. The value of deals conducted by Indian companies grew at a
compound annual growth rate of 28.3 percent over 2000-2007 to reach US$30.4 billion
in 2007, of which US$22 .6 billion represented cross-border transactions.

Indian M&A transactions are primarily driven by the desire for growth. Indian companies
are leveraging their low-cost advantage to create efficient global business models; they
are seeking entry into fast-growing emerging markets and market-share in profitable
developed economies; they are looking to augment their knowledge, reach and
capabilities through acquisitions of companies for their brands, technology, and talent
and product portfolios. Moreover, the competition to achieve these benefits is intense,
heightening the need for speed. Companies from Latin America, Eastern Europe, Africa,
and Middle East and across Asia are in a race to build their global businesses. Many
Indian companies are conducting multiple M&A deals, building a series of stakes in
different businesses and often a variety of industries. This “string of- pearls” approach
allows them to rapidly expand their growth opportunities and extend their geographical
footprint. Indian companies are also bringing a longer-term and more collaborative
perspective to M&A.

 To get broad view of effect of Merger & Acquisition on capital appreciation in

 Acquire the in-depth knowledge about the Merger and Acquisition in india.

 Understand the need for growth through acquisitions in foreign countries.

 Critically examine the rationale behind the acquisition of Arcellor- Mittal Deal.

 Study the regulations governing mergers & acquisitions in the case of a cross-
border acquisition.

Data collection:

As it is a secondary research, all the data is selected after rigorous analysis of articles
from newspapers, magazines and internet.

All the research collected is done by professional analyst across the world and is
compiled in this project to understand the financial and business impact of merger and
acquisition more effectively.

Tools for the data representation:

Charts (pie) and graphs (cone and bar) are used to portray the data for the analysis.

Time span of the study:

The data was collected for all the inbound and outbound deals happened from
2001 to 2010
The expression mergers and acquisitions (abbreviated M&A) refers to the aspect of
corporate strategy, corporate finance and management dealing with the buying, selling
and combining of different companies that can support, finance, or help a growing
company in a given industry grow rapidly without having to create another business


In business or economics a merger is a combination of two companies into one larger

company. Such actions are commonly chosen 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. A merger can look like a takeover but result in a new
company name (a lot combining the names of the original companies) and in new
branding, in some cases, term the combination a "merger" rather than an acquisition is
done purely for political or marketing reasons.
 Horizontal merger:
Two companies that are in direct competition and share the same product lines
and markets i.e. it results in the consolidation of firms that are direct rivals. E.g.
Exxon and Mobil, Ford and Volvo, Volkswagen and Rolls Royce and

 Vertical merger:
A customer and company or a supplier and company i.e. merger of firms that have
actual or potential buyer-seller relationship e.g. Ford- Bendix, Time Warner-TBS.

 Conglomerate merger:
Generally a merger between companies which do not have any common business
areas or no common relationship of any kind. Consolidated firma may sell related
products or share marketing and distribution channels or production processes.
Such kind of merger may be broadly classified into following:

 Product-extension merger: Conglomerate mergers which involve

companies selling different but related products in the same market
or sell non-competing products and use same marketing channels
of production process. E.g. Phillip Morris-Kraft, PepsiCo- Pizza
Hut, Proctor and Gamble and Clorox

 Market-extension merger: Conglomerate mergers wherein

companies that sell the same products in different markets/
geographic markets. E.g. Morrison supermarkets and Safeway,
Time Warner-TCI.

 Pure Conglomerate merger: Two companies which merge have

no obvious relationship of any kind. E.g.BankCorp of America-
Hughes Electronics.

On a general analysis, it can be concluded that Horizontal mergers eliminate sellers and
hence reshape the market structure i.e. they have direct impact on seller concentration
whereas vertical and conglomerate mergers do not affect market structures e.g. the seller
concentration directly.

An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by
another. An acquisition may be friendly or hostile. In the other way, the companies assist
in negotiations; in the latter case, the takeover target is unwilling to be bought or the
target board has no prior knowledge of the offer. Acquisition usually refers to a purchase
of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire
management control of a larger or longer established company and keep its name for the
combined entity. This is known as a reverse takeover.
 The buyer buys the shares, and therefore control, of the target company being
purchased. Ownership control of the company in turn conveys effective control
over the assets of the company, but since the company is acquired intact as a
going business, this form of transaction carries with it all of the liabilities accrued
by that business over its past and all of the risks that company faces in its
commercial environment.
 The buyer buys the assets of the target company. The cash the target receives
from the sell-off is paid back to its shareholders by dividend or through
liquidation. This type of transaction leaves the target company as an empty shell,
if the buyer buys out the entire assets. A buyer often structures the transaction as
an asset purchase to "cherry-pick" the assets that it wants and leave out the assets
and liabilities that it does not. This can be particularly important where
foreseeable liabilities may include future, unquantified damage awards such as
those that could arise from litigation over defective products, employee benefits
or terminations, or environmental damage. A disadvantage of this structure is the
tax that many jurisdictions, particularly outside the United States, impose on
transfers of the individual assets, whereas stock transactions can frequently be
structured as like-kind exchanges or other arrangements that are tax-free or tax-
neutral, both to the buyer and to the seller's shareholders.

Although they are often spoken in the same breath and used as though they were
identical, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly establishes itself as the new owner,
the purchase is called an acquisition. From a legal point of view, the target company
ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be

A merger happens when two firms, often of about the same size, agree to go forward as a
single new company rather than remain separately owned and operated. This kind of
action is more precisely referred to as a "merger of equals". Both companies' stocks are
surrendered and new company stock is issued in its place. For example, both Daimler-
Benz and Chrysler ceased to exist when the two firms merged, and a new company,
DaimlerChrysler, was created.

A purchase deal will also be called a merger when both CEOs agree that joining together
is in the best interest of both of their companies. But when the deal is cold - that is, when
the target company does not want to be purchased - it is always regarded as an

Whether a purchase is considered a merger or an acquisition really depends on whether

the purchase is friendly or hostile and how it is announced. In other words, the real
difference lies in how the purchase is communicated to and received by the target
company's board of directors, employees and shareholders.

 Geographical Expansion & Acquire New Customers:

By this way one can easily expand their business with the help of each
company for E.g. Hindalco has good coverage and Novelis has spread in
USA and UK.
Increased Market Share:
This assumes that the buyer will be fascinating a major competitor and
thus increase its market power to set prices.
Synergies & Improve Skill sets:
This refers to the fact that the combined company can often reduce its
fixed costs by removing duplicate departments or operations, lowering the
costs of the company relative to the same revenue stream, thus increasing
profit margins and can improve skills of exist employees by exchanging
Cross selling:
For example, some retailers buying one company’s FMCG product so that
retailer will also sell its products to customers and that FMCG company
could then sell that retailers products to their customers, Or a manufacturer
can acquire and sell complementary products.
A profitable company can buy a loss maker to use the target's loss as their
advantage by reducing their tax liability
 Economies of Scale:
For example, managerial economies such as the increased opportunity of
managerial area. Another example is purchasing economies due to
increased order size and associated bulk-buying discounts.
Resource transfer:
Resources are unequally distributed across firms and the communication
of target and acquiring firm resources can create value through either
overcoming information irregularity or by combining inadequate
While this may hedge a company against a downturn in an individual
industry it fails to deliver value, since it is possible for individual
shareholders to achieve the same hedge by diversifying their portfolios at
a much lower cost than those associated with a merger.

Vertical integration:
Vertical Integration occurs when an upstream and downstream firm
merges. There are several reasons for this to occur. One reason is when
both the upstream and downstream firms have monopoly power; each firm
reduces output from the competitive level to the monopoly level, creating
two burden losses. By merging the vertically integrated firm can collect
one loss by setting the upstream firm's output to the competitive level.
This increases profits and consumer surplus. A merger that creates a
vertically integrated firm can be profitable.
Mergers and Acquisitions in India are governed by the Indian Companies Act, 1956,
more particularly Sections 391 to 394. This Act consolidates provisions pertaining to
mergers and acquisitions and other related issues of compromise, arrangements and
reconstruction. Though mergers and acquisition may be initiated through agreements
between the parties, the process remains largely court driven as the sanction of the
concerned High Court is required for bringing such a merger/acquisition into effect.

Under the existing law in India, the scheme for merger and/ or acquisition or any such
arrangement should be approved by a majority in number representing not less than 3/4th
in value of shareholders/creditors present and voting during the General Body Meetings
of the companies concerned. However, different courts in India follow different
procedures of holding meetings of the creditors and shareholders or dispensing with the
requirement of such meetings.

The Government has a role to play in this process and it acts through an Official
Liquidator (OL) or the Regional Director of the Ministry of Company Affairs. After
hearing all the concerned parties including shareholders, the concerned High Court
approves Acquisition and Merger proposals.

Indian competition law grants a maximum time period of 210 days for the determination
of the combination, which comprises acquisitions, mergers, amalgamations and the like.
One needs to take note of the fact that this stated time frame is clearly distinct from the
minimum compulsory wait period for applicants. As per the law, the compulsory period
of waiting for applicants can either be 210 days starting from the day of notice filing or
receipt of the Commission's order, whichever occurs earlier. The threshold limits for
firms entering business combinations are substantially high under the Indian law. The
threshold limits are set either in terms of the asset value or in terms the firm's turnover.
Indian threshold limits are greater than those for the EU. They are twice as high when
compared with UK. The Indian law also provides for the modern day phenomenon of
merger and acquisitions, which are cross border in nature.

As per the law domestic nexus is a pre-requisite for notification on this type of
combinations. It can be noted that Competition Act, 2002 has undergone a recent
amendment. This has replaced the voluntary notification regime with a mandatory
regime. Of the total number of 106 countries, which possess competition laws only 9 are
thought to be credited with a voluntary notification regime.

Voluntary notification regimes are generally associated with business uncertainties.

Post-combination, if firms are seen to be involved in anti-competitive practices de-merger
shows the way out.
Until now a couple of years back, the news that Indian companies having acquired by
American-European companies were very rare. However, this situation has taken a swift
U turn. Nowadays, news of Indian Companies acquiring a foreign business is more
common than other way round. So earlier only American or European companies were
acquiring Indian companies and that too specially IT companies but now scenario has
totally changed to Indian companies are merging or acquiring other country’s companies
in such sectors like IT, Pharmaceutical, Banking, Steel, Electronics, Energy, Oil and Gas,
Automobiles, Telecom, Retail, Media, etc.

In the 1990s when the modification processes were initiated, there were speculations that
Indian companies would not be able to compete with foreign firms and the Indian firms
would be acquired by foreign firms. It did happen but only to a small level. Many Indian
companies competed, thrived and won over foreign multinationals. And now Indian
companies are taking over foreign firms. Of course this credit goes to the Indian
Government for liberalizing its economy. It does reflect the competitive and managerial
prowess of Indian firms. Even before the liberalization of Indian economy Aditya Birla
group extended its operation globally way back in the 1960s. But many companies started
to go global only after the liberalization of the Indian economy.

One of the notable aspects in the Indian companies’ overseas acquisitions is that the size
of the deal is much bigger than the size of the acquiring firms. Some Indian companies
are purely known for their acquisitive growth. Bharat Forge in auto components and
Subex in IT are two firms which have grown mainly through acquisitions. As a result
Bharat Forge has become world’s second largest forging company and Subex, the leader
in telecom fraud management business

Cheerful Indian Economy, spare cash with Indian corporate, Government policies and
newly found energy in Indian businessmen have all contributed to this new acquisition
development. Indian companies are now assertively looking at North American and
European markets to spread their wings and become the global players.

The Indian IT and ITES companies already have a strong presence in foreign markets;
however, other sectors are also now growing swiftly. The increasing commitment of the
Indian companies in the world markets, and particularly in the US, is not only an
indication of the middle age reached by Indian Industry but also the level of their
participation in the overall globalization development.

Here, are few examples of Indian IT companies Acquiring or merging with foreign
company and M&A activity is on the rise in the Indian IT industry with the last couple of
years having seen a few large mergers and acquisitions.


Polaris Merged with OrbiTech Acquired IPR of OrbiTech's

range of Orbi Banking
product suite.

Wipro Acquired Spectramind Intended at growing in the

BPO space. The acquisition
gave Wipro an opportunity
to run a profitable BPO

Wipro Acquired global energy It acquired skilled

practice of American professionals and a strong
Management Systems customer base in the area of
energy consultancy.

Wipro Acquired the R&D It acquired specialized

divisions of Ericsson expertise and people in
telecom R&D.

Wipro GE Medical Systems It acquired IP from the

(India) medical systems company,
which in turn gave it a
platform to expand its
offerings in the Indian and
Asia Pacific healthcare IT

vMoksha Challenger Systems & X Primarily aimed at

media expanding its customer
base. The company also
leveraged on the expertise
of the companies in the
BFSI space.

Mphasis Acquired China-based Expanded its presence in the

Navion software Japanese and the Chinese
markets. It also plans to use
it as a redundancy centre for
its Indian operations.

Mascot Systems Acquired US-based eJiva Expanded in size and

and Hyderabad-based Aqua leveraged on technical
Regia expertise of the acquired
companies. Acquisitions
have helped the company in
offering multiple services
and expanding its customer
base significantly.

Tata Consultancy Services Citigroup Global Services Acquisition of Citigroup's

captive business process
outsourcing (BPO) arm
Table 1

Indian companies are going global with big bash acquisitions. Even though Indian firms
have been taking over foreign firms for about a decade, the years 2005-2007 are
unforgettable years as far as India’s acquisition spree is concerned. The first two months
of 2007 saw India’s two biggest overseas acquisitions. Which is, 56th ranked Tata Steel’s
big bang acquisition of 9th ranked Corus for about US$12 billion is the major acquisition
by an Indian firm in foreign soil? The second biggest acquisition was done by Aditya
Birla Group. Its flagship firm Hindalco acquired an American firm Novelis for about
US$6 billion. These two acquisitions clearly show India Inc.’s hunger for growth and that
they will not hesitate to take the acquisition route to take their companies global.

Initially, Indian companies ventured abroad through export and joint ventures. Today
Indian companies want the mergers and acquisitions route to take their company global.
Acquisition gives immediate access to new products, markets, technologies, distribution
network, manpower and well established brands. Through the acquisition of Corus, Tata
Steel became the world’s 5th largest steel maker overnight. It is impossible to scale up
their operation so instantly without acquisition. Birla’s’ acquisition of Novelis, a US
based firm, Dr. Reddy’s acquisition of Betapharm, Suzlon’s acquisition of Hansen and
Videocon’s acquisition of color picture tube business of Thomson are some of the
landmark deals of India Inc. These deals are meant to expand their business globally as
also bring synergy to the acquired firms.



Corus Group
Tata Steel UK Steel 12,000

Hindalco Novelis Canada 5,982

Videocon Electronics Korea Electronics 729

Dr. Reddy’s
Betapharm Germany Pharmaceutical 597

Suzlon Energy Hansen Group Belgium 565


HPCL Petroleum Kenya Oil and Gas 500
Refinery Ltd.

Ranbaxy Labs Terapia SA Romania 324

Tata Steel Natsteel Singapore 293


Videocon Thomson SA France 290


VSNL Teleglobe Canada 239

Table 2
(US Billion)








These are few examples of M&A held by Indian companies to foreign companies.But
there are many M&A held by foreign companies to Indian companies, which are also
benefiial to India and the concerned company and some of them are very big deal in


Essar Group Algoma Steel
Mahindra & Renault Group Automobile
Wipro Infocrossing IT Infrastructure
Reliance Industries Hualon Corporation Textiles
ONGC Videsh Ltd Imperial Energy Plc Oil & Gas
Table 3


Vodafone Hutchison Essar Telecom
Holcin Ambuja Cement Cement
Temasek Holdings, Bharti Infratel LTd Telecom
ICD, Macquaire,AIF
Group,India Equity
Matsushita Anchor Electricals Electronics
Table 4


Mahindra & Punjab Tractors Automotive
Jet Airways Sahara Airline Aviation
Kingfisher Airlines Deccan Aviation Aviation
HDFC Bank Centurion Bank of Banking
Table 5
The huge Merger Movement was a mainly U.S. business phenomenon that happened
from 1895 to 1905. During this time, small firms with little market share merged with
similar firms to form large, powerful institutions that dominated their markets. It is
estimated that more than 1,800 of these firms disappeared into mergers, many of which
acquired large shares of the markets in which they operated. The vehicle used was so-
called trust. To truly understand how large this movement was—in 1900 the value of
firms acquired in mergers was 20% of GDP. In 1990 the value was only 3% and from
1998–2000 it was around 10–11% of GDP. Organizations that controlled the greatest
share of the market in 1905 saw that command break up by 1929 as smaller competitors
joined forces with each other. However, there were companies that merged during this
time such as DuPont, Nabisco, US Steel, and General Electric that have been able to keep
their dominance in their respected sectors today due to growing technological advances
of their products, patents, and brand recognition by their customers. These companies
that merged were consistently mass producers of homogeneous goods that could use the
efficiencies of large volume production. Companies which had specific fine products,
like fine writing paper, earned their profits on high margin rather than volume and took
no part in huge Merger Movement.

In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large
M&A deals cause the domestic currency of the target corporation to appreciate by 1%
relative to the acquirer's. For every $1-billion deal, the currency of the target corporation
increased in value by 0.5%. The report found that in the period immediately after the deal
is announced, there is generally a strong upward movement in the target corporation's
domestic currency. Fifty days after the announcement, the target currency is then, on
average, 1% stronger.

The rise of globalization has exponentially increased the market for cross border M&A.
In 1996 alone there were over 2000 cross border transactions worth a total of
approximately $256 billion. This rapid increase has taken many M&A firms by surprise
because the majority of them never had to consider acquiring the capabilities or skills
required to effectively handle this kind of transaction. In the past, the market's lack of
significance and a more strictly national mindset prevented the vast majority of small and
mid-sized companies from considering cross border intermediation as an option which
left M&A firms inexperienced in this field. This same reason also prevented the
development of any extensive academic works on the subject.

Due to the complicated nature of cross border M&A, the vast majority of cross border
actions have unsuccessful results. Cross border intermediation has many more levels of
complexity to it then regular intermediation seeing as corporate governance, the power of
the average employee, company regulations, political factors customer expectations, and
countries' culture are all crucial factors that could spoil the transaction. However, with the
weak dollar in the U.S. and soft economies in a number of countries around the world, we
are seeing more cross-border bargain hunting as top companies seek to expand their
global footprint and become more agile at creating high-performing businesses and
cultures across national boundaries.

Even mergers of companies with headquarters in the same country are very much of this
type. When Boeing acquires McDonnell Douglas, the two American companies must
integrate operations in dozens of countries around the world. This is just as true for other
supposedly "single country" mergers, such as the $27 billion dollar merger of Swiss drug
makers Sandoz and Ciba-Geigy (now Novartis).

Major M&A in the 1990s

Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999:

Purchaser Purchased Transaction

value (in mil.

Vodafone Airtouch PLC Mannesmann 183,000

Pfizerwer Warner-Lambert 90,000

Exxon Mobil 77,200

Citicorp Travelers Group 73,000

SBC Communications Ameritech Corporation 63,000

Vodafone Group AirTouch Communications 60,000

Bell Atlantic GTE 53,360

BP Amoco 53,000

Qwest Communications US WEST 48,000

Worldcom MCI Communications 42,000

Table 6
Major M&A from 2000 to present
Top 9 M&A deals worldwide by value (in mil. USD) since 2000

Purchaser Purchased Transactio

n value (in
mil. USD)

America Online Inc. Time Warner 164,747


Glaxo Wellcome Plc. SmithKline Beecham Plc. 75,961

Royal Dutch Petroleum Co. Shell Transport & Trading Co 74,559

AT&T Inc. BellSouth Corporation 72,671

Comcast Corporation AT&T Broadband & Internet 72,041


Sanofi-Synthelabo SA Aventis SA 60,243

Pfizer Inc. Pharmacia Corporation 59,515

JP Morgan Chase & Co Bank One Corp 58,761

Table 7

The sectors attracting investments by Corporate India include metals, pharmaceuticals,

industrial goods, automotive components, beverages, cosmetics and energy in
manufacturing and mobile communications, software and financial services, with
pharmaceuticals, IT and energy.

The Indian economy has been growing with a quick rapidity and has been emerging at
the top, be it IT, R&D, pharmaceutical, infrastructure, energy, consumer retail, telecom,
financial services, media, and hospitality etc. It is second fastest growing economy in the
world with GDP touching 9.3 % in the year 2007. This growth drive was supported by
the double digit growth of the services sector at 10.6% and industry at 9.7% in the first
quarter of 2006-07. Investors, big companies, industrial houses view Indian market in a
growing and proliferating phase, whereby returns on capital and the shareholder returns
are far above the ground. Both the inbound and outbound mergers and acquisitions have
increased dramatically. According to Investment bankers, Merger & Acquisition deals in
India will cross $100 billion in 2008, which is double last year’s level and quadruple of

The power sector has been the support of this year's M&A, accounting for $5 bn or 42
per cent of the deal value in the infrastructure sector. The power sector commanded 19
per cent share in the total M&A value of $26 bin this year as compared to about $4 bn
last year representing a 7.4 per cent share of the total deal value of $51 bn. Investments
by India Inc in the UK during 2007-08 created 3,846 jobs, ahead of its rival economy
China that was involved in creating only 898 jobs.

In the starting year of 2007, corporate India witnessed deals worth close to $40 billion.
One of the first overseas acquisitions by an Indian company in 2007 was Mahindra &
Mahindra’s takeover of 90 percent stake in Schoneweis, a family-owned German
company with over 140 years of experience in forging business. The biggest news in
M&A was Tata’s takeover of Corus for slightly over $10 billion. On the heels of that
deal, Hutchison Whampoa of HNong Kong sold their controlling stake in Hutchison-
Essar to Vodafone for a whopping $11.1 billion. Bangalore-based MTR’s packaged
food division found a buyer in Orkala, a Norwegian company for $100 million. Service
companies have also joined the M&A diversion. The taxation practice of Mumbai-based
RSM Ambit was acquired by PricewaterhouseCoopers. There are many other bids in
the pipeline. On an average, in the last four years corporate earnings of companies in
India have been increasing by 20-25 percent, contributing to enhanced profitability and
healthy balance sheets. For such companies, M&A are a helpful strategy to expand their
businesses and acquire global footprint.
Indian outbound deals, which were valued at US$ 0.7 billion in 2000-01, increased to
US$ 4.3 billion in 2005, and further crossed US$ 15 billion-mark in 2006. In fact, 2006
will be remembered in India’s corporate history as a year when Indian companies
covered a lot of new ground. They went shopping across the globe and acquired a number
of strategically important companies. This comprised 60 per cent of the total mergers and
acquisitions activity in India in 2006. And almost 99 per cent of acquisitions were made
with cash payments.

The total M&A deals for the period January-February 2007 have been 102 with a
value of US$ 36.8 billion. Of these, the total outbound cross border deals have been 40
with a value of US$ 21 billion. There were 111 M&A deals with a total value of about
US$ 6.12 billion in March - April 2007. Of these, the number of outbound cross border
deals was 32 with a value of US$ 3.41 billion. There were 74 M&A deals with a total
value of about US$ 4.37 billion in May 2007. Of these, the number of outbound cross
border deals was 30 with a value of US$ 3.79 billion.

The total M&A deals for the year during January-May 2007 have been 287 with a
value of US$ 47.37 billion. Of these, the total outbound cross border deals have
been 102 with a value of US$ 28.19 billion, representing 59.5 per cent of the total
M&A activity in India.

Unlike in the past when growth was led by a few sectors, 2007 has seen a more broadly
based activity. The telecom sector overtook the IT Industry and dominated the M&A
scene with a 33 per cent share in the total deal value. It was followed by finance with a 15
per cent share, cement and building material 7 per cent, oil and gas 5 per cent and metals
5 per cent. One of the emerging sectors for this year has been aviation, shipping and
logistics accounting for 4 per cent of total deal value.
Oil & Gas

5% Media

6% 15%
Shipping, Aviation &
7% Logistics

Figure 1

23 deals, totaling $13 billion
The largest deal of the sector was Vodafone acquiring a 67 per cent stake in Hutchison
Essar, now Vodafone Essar, India’s fourth largest telecom player. With more than five
contenders, including India’s Reliance Infocomm, Egypt’s Orascom and Malaysia’s
Maxis amongst others, the deal finally concluded in March 2007 after a three month long
battle. Vodafone paid $10.9 billion for the stake. It also paid a further $415 million to
Essar Group to secure management control of the company.

With company’s profits from customers being squeezed by stiff competition, selling
stakes in their telecom tower businesses or sharing towers became an appealing avenue
for mobile telecom companies. The second largest deal of the telecom sector was the sale
by Bharti of a 9 per cent stake in Bharti Infratel for $1 billion.

Other companies that sold stakes in their tower businesses included Reliance Telecom
Infrastructure and Aster Infrastructure. Recently Bharti Infratel, Vodafone Essar and Idea
Cellular merged their tower businesses to form a new entity Indu Tower Ltd.
Significant Mergers and Acquisitions in Telecom Sector

Following are the important mergers and acquisitions that took place in the
telecommunications sector:

The takeover of Mobilink Telecom by Broadcom. This can also be described as

a suitable example of product extension merger

 AT&T Inc. taking over BellSouth

 The acquisition of Scription Inc. by Nuance Communications Inc.
 The taking over of Hutchison Essar by the Vodafone Group. Now it has become
Vodafone Essar Limited
 China Communications Services Corporation Ltd. taking over China
International Telecommunication Construction Corporation
 The acquisition of Ameritech Corporation by SBC (Southwestern Bell
Corporation) Communications
 The merger of GTE (General Telephone and Electronics) with Bell Atlantic
 The acquisition of US West by Qwest Communications
 The merger of MCI Communications Corporation with WorldCom

Following are the benefits provided by the mergers and acquisitions in

the telecommunications industry:

 Building of infrastructure in a more convenient way

 Licensing options for mergers and acquisitions are often found to be easier
 Mergers and acquisitions offer extensive networking advantages
 Brand value
 Bigger client base
 Wide array of products and services
164 deals, totaling $6 billion
The Indian financial services sector continued to attract overseas and domestic
investments, taking 15 per cent of the total deal flow by value and 19 per cent by number.
The share of PE deals was over 65 per cent. The largest deals in the sector were the $646
million investment in ICICI Financial Services and the $644 million investment in HDFC

The separation of several foreign partners from their Indian joint ventures in a pursuit to
go solo. Morgan Stanley acquired JM Morgan Stanley’s securities business for $480
million while JM Financial retained the investment banking business for Rs 900 million
$22 million. Similarly, ASK Investment Financial Consultants bought 50 per cent stake
in ASK Raymond James Securities India Pvt. Ltd. from its foreign partner, Raymond

The securities broking segment was the largest recipient of the investment with a 26 per
cent share. Among the bigger deals were Citigroup Venture Capital’s acquisitions of 75
per cent in Sharekhan for $170 million followed by Orient Global Tamarind Fund
acquiring a 6.5 per cent stake in India Infoline for $135 million and ICICI Venture and
Baring together acquiring 32 per cent stake in Karvy Stock Broking for $122 million.

The second largest segment to attract investors was the stock exchanges, accounting for a
21 per cent share, with National Stock Exchange and Bombay Stock Exchange attracting
investments worth $608 million and $576 million respectively from various PE and trade

Cement and building materials

23 deals, totaling $3 billion
The sector made up for 7 per cent of the total deal value out, of which 87 per cent was
driven by a single acquirer, Holcim. Holcim strengthened its position in India by
increasing its holding in Ambuja Cement from 22 per cent to 56 per cent through various
open market transactions and an open offer for a total investment of $1.8 billion.

It also increased its stake indirectly by 12 per cent in ACC Cement for $486 million.
Imerys from France acquired Ace Refractory from ICICI Ventures for $134 million.
Oil and Gas
16 deals, totaling $2 billion
Reliance Industries (RIL) alone accounted for 68 per cent of the total deal value with its
two deals. Mukesh Ambani, along with associates, consolidated his holding in RIL
through an issue of convertible warrants which, upon conversion, would increase his
stake to 55 per cent in the Company.

RIL enhanced its already strong position in the sector with the merger of Indian
Petrochemicals Corporation (IPCL) into RIL at a deal size of $1 billion. RIL had
acquired 26 per cent in IPCL in 2002 from the government and an additional 20 per cent
through a consequent open offer. Another important transaction was by German company
Linde AG. Linde increased its holding in BOC India from 55 per cent to 74 per cent
through a preferential allotment of equity shares. It paid approximately $146 million for
the stake.


Metal Dominate Cross

Boarder Deals
4% 3% Metals
7% Engineering
Information Technology
Oil & Gas
Pharmaceuticals & Healthcare

Figure 2
32 deals, totaling $2 billion
The metal sector accounted for 5 per cent of the total deal values. The largest deal in the
sector was Vedanta’s acquisition of a 71 per cent stake in Sesa Goa, 51 per cent from
Mitsui & Co and 20 per cent through an open offer, for a total consideration of $1.4
billion. Another major transaction was the investment of $320 million by Aditya Birla
Group companies to consolidate their position in Hindalco Industries through a
preferential allotment.

Other Sectors

The media sector (4 per cent) saw 45 deals and a lot of private equity interest with the
largest deal being the investment of $259 million by Temasek investing in Inx Media, a
TV broadcast company. Other deals included an investment of $166 million by South
Asia Entertainment Holdings Ltd. (a group company of Astro All Asia Networks Plc) in
Sun Direct TV for a 20 per cent stake and Blackstone in Ushodaya Enterprise taking a 26
per cent stake for $146 million.

Engineering had a 4 per cent share in total deal value with its largest deal being the
acquisition of Anchor Electricals by the Japan-based Matsushita for $488 million. In the
automotive sector (automotives and auto components 3 per cent) Robert Bosch acquired
an additional 9 per cent stake in its subsidiary Motor Industries Co. through an open
offer, for $330 million increasing its holding to 70 per cent. Also, M&M acquired 63 per
cent stake in Punjab Tractors for $340 million which increased its share in the tractors
market to 40 per cent. The aviation sector (2 per cent) saw consolidation with a few large
deals. Jet Airways took over Sahara Airline, and Kingfisher Airlines acquired a
significant stake in Deccan Aviation. Separately, the Government decided to merge
operations of the two state owned carriers, Indian Airlines and Air India.

Mergers and acquisitions in banking sector have become familiar in the majority of all
the countries in the world.

A large number of international and domestic banks all over the world are engaged in
merger and acquisition activities. One of the principal objectives behind the mergers and
acquisitions in the banking sector is to reap the benefits of economies of scale. With the
help of mergers and acquisitions in the banking sector, the banks can achieve significant
growth in their operations and minimize their expenses to a considerable extent.

Another important advantage behind this kind of merger is that in this process,
competition is reduced because merger eliminates competitors from the banking industry.
Mergers and acquisitions in banking sector are forms of horizontal merger because the
merging entities are involved in the same kind of business or commercial activities.
Sometimes, non-banking financial institutions are also merged with other banks if they
provide similar type of services.

In the context of mergers and acquisitions in the banking sector, it can be reckoned that
size does matter and growth in size can be achieved through mergers and acquisitions
quite easily.

Growth achieved by taking assistance of the mergers and acquisitions in the banking
sector may be described as inorganic growth. Both government banks and private sector
banks are adopting policies for mergers and acquisitions. In many countries, global or
multinational banks are extending their operations through mergers and acquisitions with
the regional banks in those countries.

These mergers and acquisitions are named as cross-border mergers and acquisitions in
the banking sector or international mergers and acquisitions in the banking sector. By
doing this, global banking corporations are able to place themselves into a dominant
position in the banking sector, achieve economies of scale, as well as garner market
share. Mergers and acquisitions in the banking sector have the capacity to ensure
efficiency, profitability and synergy. They also help to form and grow shareholder value.

In some cases, financially distressed banks are also subject to takeovers or mergers in the
banking sector and this kind of merger may result in monopoly and job cuts.
Deregulation in the financial market, market liberalization, economic reforms, and a
number of other factors have played an important function behind the growth of mergers
and acquisitions in the banking sector. Nevertheless, there are many challenges that are
still to be overcome through appropriate measures. Mergers and acquisitions in banking
sector are controlled or regulated by the apex financial authority of a particular country.
For example, the mergers and acquisitions in the banking sector of India are overseen by
the Reserve Bank of India (RBI).

Change in scenario of Banking Sector

1. The first mega merger in the Indian banking sector that of the HDFC Bank with
Times Bank, has created an entity which is the largest private sector bank in the
2. The merger of the city bank with Travelers Group and the merger of Bank of America
with Nation Bank have triggered the mergers and acquisition market in the banking
sector world wide.
3. Europe and Japan are also on their way to restructure their financial sector thought
merger and acquisitions. Merger will help banks with added money power, extended
geographical reach with diversified branch Network, improved product mix, and
economies of scale of operations. Merger will also help banks to reduced them
borrowing cost and to spread total risk associated with the individual banks over the
combined entity. Revenues of the combine entity are likely to shoot up due to more
effective allocation of bank funds.
4. ICICI Bank has initiated merger talks with Centurion Bank but due to difference
arising over swap ration the merger didn’t materialized. Now UTI Bank is egeing
Centurion Bank.
The proposed merger of UTI Bank and Centurion Bank will make them third largest
private banks in terms of size and market Capitalization State Bank of India has also
planned to merge seven of its associates or part of its long-term policies to regroup
and consolidate its position. Some of the Indian Financial Sector players are already
on their way for mergers to strengthen their existing base.

5. In India mergers especially of the PSBS may be subject to technology and trade union
related problem. The strong trade union may prove to be big obstacle for the PSBS
mergers. Technology of the merging banks to should complement each other NPA
management. Management of efficiency, cost reduction, tough competition from the
market players and strengthen of the capital base of the banks are some of the
problem which can be faced by the merge entities. Mergers for private sector banks
will be much smoother and easier as again that of PSBS.

There are several causes of mergers and acquisitions in the global pharmaceutical
industry. Among them are the absence of proper research and development facilities,
gradual expiry of patents and competition within specific pharmaceutical genres. The
high profile product recalls have also played a major role in the continuing mergers and
acquisitions in the industry.

Mergers and Acquisitions in Indian Pharmaceutical Sector

In the Indian pharmaceutical market there are a number of companies that have entered
into merger and acquisition agreements in the context of the global market scenario.
These companies would be selling off the non-core business divisions like Over-the-
Counter. This is expected to further the consolidation in the mid-tier as far as
the pharmaceutical industry in Europeis concerned.

The sheer number of companies acquiring parts of other companies has

shown that the Indian pharmaceutical industry is ready to be a dominant force in this
scenario. In the recent times Nicholas Piramal has taken the ownership of 17% of
Biosyntech that is a major pharmaceutical packing organization in Canada.

Torrent has got the ownership of Heumann Pharma, a general drug making
company and, formerly, a subsidiary of Pfizer. Matrix has acquired Docpharma, a major
pharmaceutical company of Belgium.

Sun Pharmaceutical Industries is set to make acquisitions in pharmaceutical

companies in the US and has set aside $450 million to execute these plans. In Bengaluru,
Strides Arcolab has aimed at acquiring 70 percent in a pharmaceutical facility in Italy that
is worth $10 million.
Opportunities for Pharmaceutical Companies
There are a number of opportunities for the major pharmaceutical products and services
providers in the Indian pharmaceutical sector as the price controls have been relaxed and
there have been significant changes in the medicinal requirements of the Indians.

The manufacturing base in India is also strong enough to support the major international
pharmaceutical companies from the performance perspective.

This may be said as the Indian pharmaceutical market is varied as well as economical. It
is expected that in the coming years the Indian pharmaceutical companies would be
executing more mergers and acquisitions. It is expected that the regulated pharmaceutical
markets in the United States and Europe would be the main areas of operation.

In the recent years the Indian pharmaceutical companies have been venturing into
mergers and acquisitions so that they can gain access to the big names of the international
pharmaceutical scenario.

Patterns of Mergers and Acquisitions in Pharmaceutical Sector

One of the major features of the mergers and acquisitions in the pharmaceutical sector of
the Asia-Pacific region has been the integration of the local pharmaceutical companies.
This has happened especially in India and China. Acquisition has made it convenient for
a number of companies to do business in various pharmaceutical markets. Previously the
pharmaceutical markets of Europe were closed to the companies of other countries due to
the difference in language. There were also other problems for companies like the trade
barriers for instance.

Figures of Mergers and Acquisitions in Pharmaceutical Sector

As per the figures of mergers and acquisitions in pharmaceutical sector, from the year
2004, there have been more mergers and acquisitions in the pharmaceutical sector in the
Asia-Pacific region compared to North America. The combined financial value of the
mergers and acquisitions in Asia-Pacific region has been greater than North America.
One of the major merger and acquisition deals in the Asia-Pacific region in the recent
years has been the merger of Fujisawa and Yamanouchi in Japan.

This deal was worth $7.9 billion. In the same period the Asia-Pacific region has
experienced the highest percentage of growth in the mergers and acquisitions in
pharmaceutical sector. In the same period the rate of growth in the Asia-Pacific region
has been 37%. In Western Europe the rate of growth has been 11% and in North America
it has been 20%. The pharmaceutical market in Eastern Europe has not experienced any
increase in the rate of mergers and acquisitions.

Mergers and Acquisitions in Global Pharmaceutical Sector

Since the year 2004 there has been an increase in the mergers and acquisitions in the
global pharmaceutical sector. This was reflective of the increase in the mergers and
acquisitions in other industries at the same period. There was 20% increase in the number
of deals, which stood at 1,808. There were eight deals with the value of more than $1
billion. This was three more than 2003. The total financial value of the deals was $112
billion and this was an increase of 53%. However, these figures do not include the
acquisition of Aventis by Sanofi-Synthelabo that was worth $60 billion. This is the
biggest acquisition in the pharmaceutical industry after the merger of Pharmacia and
Pfizer in 2002.


India aiming to double steel production by 2011-12

Sunday, 14 December 2008

India is aiming to more than double its steel production to 124 million tonnes by 2011-12
and further raise it to 280 million tonnes by 2020, Steel Minister Ram Vilas Paswan told
Rajya Sabha today. Replying to supplementary during Question Hour, Paswan said India
ranked eighth in world steel production when UPA Government took office in 2004 and
has today climbed to 5th spot with 54 million tonnes of annual steel production. "Our
National Steel Policy had targeted 124 million tonnes of steel production by 2020. But
we have now brought the target forward to 2011-12 and for 2020 we are aiming to raise
production capacity to 280 million tonnes," he said. Steel Ministry, he said, was of the
view that high quality iron ore, the reserves of which in the country are very limited,
should not be exported or their export discouraged through high export duties.

The exports cannot be fully stopped as iron ore mines employ some 500,000 people and
their employment cannot be risked, he said adding export duty on iron ores has already
been levied. The global economic slowdown has seen growth in steel consumption in the
country fall to 1.75 per cent from a high of 13 per cent. Also, prices of steel products
have fallen since June. Paswan said his Ministry has been holding consultations with the
industry and recently the Government rolled back export duty on all categories of steel
items, except melting sap, to help producers tide over fall in consumption levels in the

(Source-economic times 13th December)

India’s steel imports jumped more than 70% to 1.4 mn tonnes last month against 8 lakh
tonne in the same month a year ago. The sharp rise in imports was due to low-priced
shipments coming from China, Thailand and Ukraine into India at $450-500 per tonne,
25% cheaper than the international price, then ruling at $600-700 per tonne. The steel
ministry’s Joint Planning Committee that collects data on iron and steel on a monthly
basis shows that steel imports dipped 10.7% to 5.25 million tonnes in April-October
against 5.88 million tonnes in the corresponding period a year ago. Availability of low-
priced imports from some countries resulted in huge imports in November. This
happened when domestic steel makers were cutting production due to lower demand.
Last month, the government imposed 5% import duty on steel products to protect
domestic industry against cheap imports. But steel producers feel the move is insufficient
to bring down imports as china as withdrawn export tax on some steel products to get rid
of surplus stock. The government has also initiated investigation into dumping from
China but steel firms feel it’s a lengthy process and will take at least 8-9 months to

The current global steel industry is in its best position in comparing to last decades. The
price has been rising continuously. The demand expectations for steel products are
rapidly growing for coming years. The shares of steel industries are also in a high pace.
The steel industry is enjoying its 6th consecutive years of growth in supply and demand.
And there is many more merger and acquisitions which overall buoyed the industry and
showed some good results. The subprime crisis has lead to the recession in economy of
different Countries, which may lead to have a negative effect on whole steel industry in
coming years. However steel production and consumption will be supported by
continuous economic growth.



3% CLS

The countries like China, Japan, India and South Korea are in the top of the above in steel
production in Asian countries. China accounts for one third of total production i.e. 419m
ton, Japan accounts for 9% i.e. 118m ton, India accounts for 53m ton and South Korea is
accounted for 49m ton, which all totally becomes more than 50% of global production.
Apart from this USA, BRAZIL, UK accounts for the major chunk of the whole growth.

The steel industry has been witnessing robust growth in both domestic as well as
international markets. In this article, let us have a look at how has the steel industry
performed globally in 2007.

Capacity: The global crude steel production capacity has grown by around 7% to 1.6
bn in 2009 from 1.5 bn tonnes in 2008. The capacity has shown a growth rate of 7%
CAGR since 2005. The additions to capacity over last few years have ranged from 36 m
tonnes in 2006 to 108 m tonnes in 2009. Asian region accounts for more than 60% of the
total production capacity of world, backed mainly by capacity in China, Japan, India,
Russia and South Korea. These nations are among the top steel producers in the world.

Production: The global steel production stood at 1.3 bn tonnes in 2009, showing an
increase of 7.5% as compared to 2008 levels. The global steel production showed a
growth of 8% CAGR between 2005 and 2009. China accounts for around 36% of world
crude steel production followed by Japan (9%), US (7%), Russia (5%) and India (4%). In
2009, all the top five steel producing countries have showed an increase in production
except US, which showed a decline.

Rank Country Production (mn tonnes) World share (%)

1 China 489 36.0%
2 Japan 120 9.0%
3 US 98 7.0%
4 Russia 72 5.0%
5 India 53 4.0%
6 South Korea 51 3.5%
Source: JSW Steel AR FY08

Consumption: The global steel consumption grew by 6.6% to 1.2 bn tonnes as

compared to 2008 levels. The global finished steel consumption showed a growth of 8%
CAGR, in line with the production, between the period 2005 and 2009. The finished steel
consumption in China and India grew by 13% and 11% respectively in 2009. The BRIC
countries were the major demand drivers for steel consumption, accounting for nearly
80% of incremental steel consumption in 2009.
Rank Country Consumption (mn tonnes) World share (%)

1 China 408 36.0%

2 US 108 9.0%

3 Japan 80 6.7%

4 South Korea 55 4.6%

5 India 51 4.2%

6 Russia 40 3.3%
Source: JSW Steel AR FY08

Outlook: As per IISI estimates, the finished steel consumption in world is expected
to reach a level of 1.75 bn tonnes by 2016, growth of 4% CAGR over the consumption
level of 2009. The steel consumption in 2011 and 2012 is estimated to grow above 6%

Indian Steel Industry

India, which has emerged among the top five steel producing and consuming countries
over the last few years, backed by strong growth in its economy.

Capacity: Steel capacity increased by 6% to 60 m tonnes in FY08. It registered a

robust growth of 8% CAGR between the period FY05 and FY09. The capacity expansion
in the country was primarily through brown field expansions as it requires lower
investments than a Greenfield expansion.

Production: Steel production has registered a growth of 6% to reach a level of 54 m

tonnes in FY8. The production has grown nearly in line with the capacity expansion and
registered a growth of 7% CAGR with an average capacity utilization of 92% between
the period FY04 and FY08. India is currently the fifth largest producer of steel in the
world, contributing almost 4% of the total steel production in world. The top three steel
producing companies (SAIL, Tata Steel and JSW Steel) contributed around 45% of the
total steel production in FY08.
Consumption: Steel consumption has increased by 10% to 51.5 m tonnes in FY08.
Consumption growth has been exceeding production growth since past few years. It grew
at a CAGR of 12% between FY04 and FY08. Construction & infrastructure,
manufacturing and automobile sectors accounted for 59%, 13% and 11% for the total
consumption of steel respectively in FY08. Although steel consumption is rapidly
growing in the country, the per capita steel consumption still stands at 48 kgs. Moreover,
in the rural areas in the country, it stands at a mere 2 kg. It should be noted that the
world’s average per capita steel consumption was 189 kg and while that of China was
309 kg in 2007.







2003 2004 2005 2006 2007

Trade equations: India became net importer of steel in FY08 with estimated net
imports of 1.9 m tonnes. In the past few years, its exports have remained at more or less
the same levels while on the other hand, imports have increased on the back of robust
demand and capacity constraints in the domestic markets. The imports showed a growth
of around 48% while exports declined by around 6% in FY08.

Outlook: As per IISI estimates, the demand for steel in India are expected to grow at a
rate of 9% and 12% in 2010 and 2011. The medium term outlook for steel consumption
remains extremely bullish and is estimated at an average of above 10% in the next few

A new steel giant is to be created out of a bitter battle, after Arcelor formally agreed on a
€26.5 billion takeover by rival Mittal Steel. The deal combines Arcelor - a symbol of
successful, pan-European cooperation and economic revival, with operations that span
Luxembourg, Belgium, France and Spain - with a fast- growing conglomerate founded by
the India-born Lakshmi Mittal, who built a fortune turning around sick steel plants in
rapidly expanding markets from Trinidad to Kazakhstan.

The deal, valued at $33.1 billion, is the latest sign that shareholder activism is
marching through the once staid and sleepy boardrooms of Europe. The agreement to pair
with Mittal caps a wrenching turnaround for Arcelor's management, which once
dismissed Mittal as a "company of Indians" but was forced to backtrack after
shareholders threatened to revolt.

Politicians in Europe who once criticized Mittal have remained mum in recent
days, and the merger brings hope that protectionist barriers against such deals may be
eroding in Europe.

Mittal is paying €40.37 a share for Arcelor, nearly double what the company was trading
at when Mittal first made an offer in January. The new company named Arcelor-Mittal
and headquartered in Luxembourg. Joseph Kinsch, chairman of Arcelor, is chairman of
the new company, and succeeded by Mittal when Kinsch retires next year.

"It's been a long struggle," for investors and Mittal board member.
"Now that we have had an opportunity to be inside, with management’’.The deal would
create "global leadership in steel" not just by ton but by value.

Getting to this point has involved a bruising fight for both sides. Mittal first
made an unexpected €18.6 billion offer for Arcelor and was swiftly and harshly rebuked
by Arcelor management and a chorus of European politicians who criticized everything
from his grammar to his Indian origins to the quality of his company's steel. Arcelor's
bare-knuckled defense strategy included refusing to meet with Mittal until a string of
demands were met, and simultaneously orchestrating a €13 billion deal with Severstal of
Russia to keep him away.

The case……

 Mittal makes surprise €18.6 billion bid for Arcelor in January 2006
 Arcelor management announce large dividend
 Arcelor makes very positive profit report, which is later found to be inflated
 Arcelor makes rosy forecast for future performance
 Arcelor management and European politicians criticize Mittal
 Arcelor management refuses to meet with Mittal until a string of demands
were met
 Arcelor tries to get Luxembourg government to write a takeover law shutting
out Mittal
 Arcelor unions fear job cuts, reduction in social standards
 Arcelor managers fear Mittal will shift emphasis from long- to short-term
 Arcelor commits to buy North American steel company that will cause Mittal
anti-trust problems Agreement contains clause making it costly to not go
through with sale

 Arcelor made €13 billion deal with Severstal of Russia, including break-up
fee of €140 million
 Arcelor, Mittal, and Severstal engage in heavy advertising, meetings with
investors and politicians
 Arcelor arranges for shareholder meeting where Severstal deal would be
approved unless 50% plus one of shareholders were present and voted it
down, an unusually high percent. The meeting isn’t scheduled until after
Severstal deal has been nearly finalized.
 Mittal raises offer to €26.5 billion, and agreed to cede some management
control and family voting rights



However the M&A basically try at enhancing the shareholders value or wealth, the
results of several experiential studies make known that M&A time after time benefit the
target company's shareholders but not the acquirer company shareholders. A majority of
corporate mergers fail. Failure occurs on average, in every sense, acquiring firm stock
prices likely to reduce when mergers are announced; many acquired companies sold off;
and prosperity of the acquired company is lower after the merger relative to comparable
non-merged firms. Consulting firms have also estimated that from one half to two thirds
of M&A do not come up to the expectations of those transacting them, and many resulted
in divestitures. Statistics show that roughly half of acquisitions are not successful. M&A
fails quite often and fails to create value or wealth for shareholders of the acquirers. An
exact answer as to why mergers fail to generate value for acquiring shareholders cannot
be provided because mergers fail for a mass of reasons. Some of the important reasons
for failures of mergers are discussed below:

 Too Much Premium

In an aggressive bidding situation, a company may tend to pay more. Often

highest bidder is one who overestimates value out of ignorance. Though he
emerges as the winner, he happens to be in a way the unlucky winner. This is
called winners curse theory. When the acquirer fails to get the synergies required
compensating the price, the M&A fails. More you pay for a company, the harder
you will have to work to make it worthwhile for your shareholders. When the
price paid is too much, how fine the deal may be executed; the deal may not
create value.

 Size Issues

A disparity in the size between acquirer and target has been found to lead to poor
acquisition performance. Many acquisitions fail either because of 'acquisition
indigestion' through buying too big targets or failed to give the smaller
acquisitions the time and attention it required.

 Lack of Investigation

Acquisition requires gathering a lot of data and information and analyzing it. It
requires extensive research. A carelessly carried out research about the acquisition
causes the ruin acquirer’s wealth.

 Diversification

Very few firms have the capability to successfully manage the diversified
businesses. Unrelated diversification has been associated with lower financial
performance, lower capital productivity and a higher level of variance in
performance for a variety of reasons including a lack of industry or geographic
knowledge, a lack of focus as well as perceived inability to gain meaningful
synergies. Unrelated acquisitions, which may appear to be very promising, may
turn out to be big dissatisfaction in reality.

 Previous Acquisition Familiarity

While previous acquisition experience is not necessarily a requirement for future

acquisition success, many failed acquirers usually have little previous acquisition
experience. Previous experience will help the acquirers to learn from the previous
acquisition mistakes and help them to make successful acquisitions in future. It
may also help them by taking advice in order to maximize chances of acquisition
success. Those serial acquirers, who have the in house skills necessary to promote
acquisition success as well trained and competent implementation team, are more
likely to make successful acquisitions.

 Unwieldy and Inefficient

Multinational mergers proliferated in 1960s and 1970. Many conglomerates

proved unwieldy and inefficient and were injured in 1980s and 1990s. The
uncontrollable conglomerates contributed to the rise of various types of
divestitures in the 1980s and 1990s.

 Poor Cultural Fits

Cultural fit between an acquirer and a target is one of the most abandoned areas of
analysis prior to the closing of a deal. However, cultural due diligence is every bit
as important as careful financial analysis. Without it, the chances are great that
M&A will quickly amount to misunderstanding, confusion and conflict. Cultural
due diligence involve steps like determining the importance of culture, assessing
the culture of both target and acquirer. It is useful to know the target management
behavior with respect to dimensions such as centralized versus decentralized
decision making, speed in decision making, time horizon for decisions, level of
team work, management of conflict, risk orientation, openness to change, etc. It is
necessary to assess the cultural fit between the acquirer and target based on
cultural profile. Potential sources of conflict must be managed. It is necessary to
identify the impact of cultural gap, and develop and execute strategies to use the
information in the cultural profile to assess the impact that the differences have.

 Poor Organization Fit

Organizational fit is described as "the match between managerial practices,

cultural practices and employees characteristics of the target and acquirer. It
manipulates the ease with which two organizations can be integrated during
implementation. Mismatch of organization fit leads to failure of mergers.

 Poor Strategic Fit

A Merger will give up the desired result only if there is strategic fit between the
merging companies. Mergers with strategic fit can get better profitability through
reduction in overheads, effective utilization of facilities, the ability to raise funds
at a lower cost, and deployment of surplus cash for expanding business with
higher returns. But many a time lack of strategic fit between two merging
companies especially lack of synergies results in merger failure. Strategic fit can
also include the business philosophies of the two entities (return on investment v/s
market share), the time frame for achieving these goals (short-term v/s long term)
and the way in which assets are utilized. For example, P&G –Gillette merger in
consumer goods industry is a unique case of acquisition by an innovative
company to expand its product line by acquiring another innovative company,
which was, described analysts as a perfect merger.

 Striving for Bigness

Size no doubt is an important element for success in business. Therefore there is a

strong tendency among managers whose compensation is significantly influenced
by size to build big empires. Size maximizing firms may engage in activities,
which have negative net present value. Therefore when evaluating an acquisition
it is necessary to keep the attention focused on how it will create value for
shareholders and not on how it will increase the size of the company.

 Defective Evaluation

At times acquirers do not carry out the detailed diligence of the target company.
They make an incorrect assessment of the benefits from the acquisition and land
up paying a higher price.

 Inadequately Managed Integration

Integration of the companies requires a high quality management. Integration is

very often poorly managed with little planning and design. As a result
implementation fails. The key variable for success is managing the company
better after the acquisition than it was managed before. Even good deals fail if
they are poorly managed after the merger.

 Failure to Take Instant Control

Control of the new unit should be taken immediately after signing of the
agreement. ITC did so when they took over the BILT unit even though the
consideration was to be paid in 5 yearly installments. ABB put new management
in place on day one and reporting systems in place by three weeks.

 Failure to Set the Pace for Integration

The significant task in the merger is to integrate the target with acquiring
company in every respect. All function such as marketing, commercial, finance,
production, design and employees should be put in place. In addition to the
famous persons of acquiring company the key persons from the acquired
company should be retained and given sufficient prominence opportunities in the
combined organization. Delay in integration leads to delay in product shipment,
development and slow down in the company's road map. Acquisition of Scientific
Data Corporation by Xerox in 1969 and AT&T's acquisition of computer maker
NCR Corporation in 1991 were troubled deals, which resulted in large write offs.
The speed of integration is extremely important because uncertainty and
ambiguity for longer periods destabilize the normal organizational life.

 Incomplete and Inadequate Due Diligence

Lack of due diligence is lack of in depth analysis of all important features like
finance, management, capability, physical assets as well as intangible assets
results in failure. ISPAT Steel is a corporate acquirer that conducts M&A
activities after complicated due diligence.

 Ego Conflict

Ego clash between the top management and subsequently lack of coordination
may lead to collapse of company after merger. The problem is more important in
cases of mergers between equals.

 Merger between Equals

Merger between two equals may not work. The Dunlop Pirelli merger in 1964,
which created the world's second largest tier company, ended in an expensive
divorce. Manufacturing plants can be integrated easily, human beings cannot.
Merger of equals may also create ego clash.

 Over Leverage

Cash acquisitions results in the acquirer assuming too much debt. Future interest
cost consumes too great a portion of the acquired company's earnings.

 Incompatibility of Partners

Alliance between two strong companies is a safer bet than between two weak
partners. Frequently many strong companies actually seek small partners in order
to gain control while weak companies look for stronger companies to bail them
out. But experience shows that the weak link becomes a drag and causes friction
between partners. A strong company taking over a sick company in the hope of
rehabilitation may itself end up in liquidation.

 Limited Focus

If merging companies have entirely different products, markets systems and

cultures, the merger is ruined to failure. Added to that as core competencies are
weakened and the focus gets unclear the fallout can be dangerous. Purely
financially motivated mergers such as tax driven mergers on the advice of
accountant can be hit by adverse business consequences. The Tata’s for example,
sold their soaps business to Hindustan Lever.

 Failure to Get Figures Audited

It would be serious mistake if the takeovers were done without a proper audit of
financial affairs of the target company. Though the company pays for the assets of
the target company, it also assumes responsibility to pay all the liabilities. Areas
to look for are stocks, salability of finished products, receivables and their
collectibles, details and location of fixed assets, unsecured loans, claims under
litigation, loans from the promoters, etc. When ITC took over the paperboard
making unit of BILT near Coimbatore, it arranged for complete audit of financial
affairs of the unit. Many a times the acquirer is mislead by window-dressed
accounts of the target.

 Failure to Get an Objective Evaluation of the Target Company' Condition

Risk of failure will be minimized if there is a detailed assessment of the target

company's business conditions carried out by the professionals in the line of
business. Detailed examination of the manufacturing facilities, product design
features, rejection rates, and distribution systems, profile of key people and
productivity of the workers is done. Acquirer should not be carried away by the
state of the art physical facilities like a good head quarters building, guest house
on a beach, plenty of land for expansion, etc.

 Failure of Top Management to Follow-Up

After signing the M&A agreement the top management should not sit back and let
things happen. First 100 days after the takeover determine the speed with which
the process of tackling the problems can be achieved. Top management follow-up
is essential to go with a clear road map of actions to be taken and set the speed for
implementing once the control is assumed.

 Mergers between Lame Ducks

Merger between two weak companies does not succeed either. The example is the
Stud backer- Packard merger of 1955 when two ailing carmakers joined hands.
By 1964 both companies were closed down.

 Lack of Proper Communication

Lack of proper communication after the announcement of M&A will create lot of
uncertainties. Apart from getting down to business quickly companies have to
necessarily talk to employees and constantly. In spite of how well executives
communicate during a merger or an acquisition, uncertainty will never be
completely eliminated. Failure to manage communication results in inaccurate
perceptions, lost trust in management, morale and productivity problems, safety
problems, poor customer service, and defection of key people and customers. It
may lead to the loss of the support of key stakeholders at a time when that support
is needed the most.

 Failure of Leadership Role

Some of the role leadership should take seriously are modeling, quantifying
strategic benefits and building a case for M&A activity and articulating and
establishing high standard for value creation.

 Insufficient Attention to People Issues

Not giving sufficient attention to people issues during due diligence process may
prove costly later on. While lot of focus is placed on the financial and customer
capital aspects, not enough attention is given to aspects of human capital and
cultural audit. Well conducted HR due diligence can provide very accurate
estimates and can be very critical to strategy formulation and implementation.

 Loss of Identity

Merger should not result in loss of identity, which is a major strength for the
acquiring company. Jaguar's car image dropped drastically after its merger with
British Leyland.

 Diverging from Core Activity

In some cases it reduces buyer's efficiency by diverting it from its core activity
and too much time is spent on new activity neglecting the core activity.
 Expecting Results too quickly

Immediate results can never be expected except those recorded in red ink.
Whirlpool ran up a loss $100 million in its Philips white goods purchase.
R.P.Goenk's takeovers of Gramaphone Company and Manu Chhabria's takeover
of Gordon Woodroffe and Dunlops fall under this category.


A merger is a combination of two corporations in which only one corporation survives
and the merged corporation goes out of subsistence. Alternatively, in merger two
corporations combine and share their resources in order to accomplish mutual objectives
and both companies bring their own shareholders, employees, customers and the
community at large. Acquisition takes place when one firm is purchasing the assets or
shares of another company.

Mergers are often categorized as horizontal, vertical, or conglomerate. A horizontal

merger is one that takes place between two firms in the same line of business whereas
vertical merger involves companies at different stages of production. The buyer expands
backwards in the direction of the source of the raw material or forward in the direction of
the customer. The last one, i.e., conglomerate merger involves companies in unrelated
line of business. This distinction is very much necessary to make and understand the
reasons for the mergers.

The scale and the pace at which merger activities are coming up are remarkable. The
recent booms in merger and acquisitions suggest that the organizations are spending a
significant amount of time and money either searching for firms to acquire or worrying
about whether some other firm will acquire them. Also, mergers are regarded as one of
the activities the purpose of business expansion or a measure of external growth in
contrast to internal growths. The recent phenomenon booms in mergers and acquisitions
would increase at a much faster rate in near future because the world markets are
becoming more integrated because of open trade policies and hence more and more
companies are adopting and forming strategic alliances in order to compete in the
competitive world and to maintain there market shares.

Merger and acquisition decision is an investment decision. This is the most important
decision, which influences both the acquiring firm and the target firm, which is to be
acquired. An organization cannot make that crucial decision without incisive analysis by
financial planners and corporate managers. The acquiring firm must correctly value the
firm to be acquired and the acquired firm must get the returns for the goodwill they have
created over the years in the market. Growth through acquisition is occurring in an
unprecedented number of companies today as strategic acquisitions replace the once-
prevalent hostile takeovers by corporate raiders. In the current business environment, it is
vital to understand how to blend strategic and financial concepts to evaluate potential


The findings from the theoretical material and the empirical investigation will be
analyzed both horizontally and vertically according to the following: -


There are two types of motives involved in merger and acquisition and these are Explicit
and Implicit motives.

Explicit Motives

 Synergy: Synergy means that the merged firm will have a greater value than
the sum of its parts as a result of enhanced revenues and the cost base.
 Economies of Scale: Economic of scale refer to the reduction in unit cost
achieved by producing a large volume of a product. Horizontal mergers aim
at achieving economies of scale. This phenomenon continues while the firm
grows to its optimal size, after which a firm experiences diseconomies of
 Economies of Vertical Integration: Economies of vertical integration are
achieved in vertical mergers. It makes coordination of closely related
operating activities easier.
 Entry to New Markets and Industries: A firm that wants to enter a new
market but lacks the know-how can do so through the purchase of an existing
player in that product or geographical market. This makes the two firms
worth more together than separately.
 Tax Advantages: Past losses of an acquired subsidiary can be used to
minimize present profits of the parent company and thus lower tax bills.
Thus, firms have a reason to buy firms that have accumulated tax losses.
 Diversification: One of the reasons for conglomerate mergers is
diversification of risk. There are two types of risks associated with
businesses- systematic and unsystematic risk. Systematic variability cannot
be removed by diversification and hence mergers are not able to eliminate
this risk. Though, unsystematic risk can be spread through mergers.
 Managerial Motives: The management team of the acquiring firm tends to
benefit from the merger activity. The four most important managerial
motives for merger are empire building, status, power and remuneration.

Implicit Motives
 Hubris: It is like a maturity test for the owners and the company boards of
directors when they see the opportunity to form a new business cycle.
 Excess of Money: When a company has excess of money, the question of
what to do with it eventually comes up and this leads towards merger and

Steps Involved in an Acquisition Valuation

Procedures for Analyzing Valuation of the Firm

An acquisition valuation program can be segregated into five distinct steps like:

Step 1: Establish a motive for the acquisition.

Step 2: Choose a target.

Step 3: Value the target with the acquisition motive built in.

Step 4: Choose the accounting method for the merger/acquisition - purchase or pooling.
Step 5: Decide on the mode of payment - cash or stock.


Implicit Motives

• Financing Mergers

The triangle in the figure provides a view of acquisition financing mechanism. As the
options for financing the acquisition would increase, the layers in the triangle would also
increase. But the basic question that arises or the consideration that comes is whether the
transaction should be made in cash or stock as it has different effect on the various
stakeholders of both the organizations the acquiring firm as well as the target firm. The
influence of method of payment on post-merger financial performance is ambiguous.

Post merger performance maybe affected by the means of payment in the takeover. There
are mainly two ways, in which mergers can be financed,

 Cash
 Stock
Using cash for payment helps the acquirer's shareholders to retain the same level of
control over the company. Another obvious reason of financing mergers through cash is
the simplicity and preciseness that gives a greater chance of success. Another advantage
of using cash to the target's shareholders is that it is more certain in its value. Also, the
recipients can spread their investments by purchasing a wide-ranging portfolio. There is
also a disadvantage to target shareholders. They may be liable to pay capital gains tax.
This is payable when a gain is realized.

 Estimating Cost When the Merger is financed by Stock

The cost depends on the value of the shares in the new company received by
the shareholders of the selling company.

Cost = N * P of AB - PV of B

N = the number of shares received by the sellers

P of AB = price per share of the merged firm

PV of B = present value of B (selling firm)

Workings of Mergers

Merger accounting

A merger can be either treated as a purchase or a pooling of interests. Under this method,
assets of the acquired firm must be reported at the fair market value on the books of the
acquiring firm. Under this method, goodwill, which is the excess of the purchase price
over the sum of the fair market values of the individual assets acquired, is generated.
Under the second method, pooling of interests, the assets of the merged firm are valued at
the same level as they were carried out in acquired and acquiring firms.

Tax Considerations

An acquisition can be taxable or tax-free. In a taxable acquisition, shareholders of the

selling firm are treated for tax purposes as having sold their shares and are liable to pay
tax on any capital gains or losses. In a tax-free acquisition, the selling shareholders are
viewed as exchanged their old shares for similar ones, and they do not experience any
capital gains or losses. The taxes paid by the merged firm also depend on the tax-status of
the acquisition. There is no revaluation of assets in a tax-free acquisition, whereas, in a
taxable acquisition, the assets are devalued and any increase or decrease is treated as a
taxable gain or loss.

The Impact of Mergers

Mergers have a universal impact, practically everyone from society, shareholders,

employees, and directors to financial institutions. Society can benefit from the merger if
it results in producing goods at low costs due to economies of scale or improved
management. The acquiring shareholders usually get poor returns and therefore very
small average gains. However, target shareholders usually gain from mergers, as the
acquirers have to pay a substantial premium over the pre-bid share price to convince
target shareholders to sell. Employees may gain or lose from a merger activity. Mergers
generate significant gains to the target firm's stockholders and buyers generally break
even, there are positive benefits from mergers. The yardstick to measure a successful
merger is the profit level. Profitability is the only overall significant identifier.

Mergers & Acquisitions have given many benefits to Indian Economy in many ways like
in terms of creating many jobs, increasing the profit portfolio of various mergerd or
acquired companies. Here are few companies examples that it is beneficial to Indian
economy. The Polaris-OrbiTech merger saw a jet in the merged entity’s revenues from
$60 million to $125 million. The merger also added 1,400 employees to Polaris, taking
the total employee strength to 4,000.

The Indian economy has been growing with a quick rapidity and has been emerging at
the top, be it IT, R&D, pharmaceutical, infrastructure, energy, consumer retail, telecom,
financial services, media, and hospitality etc. It is second fastest growing economy in the
world with GDP touching 9.3 % in the year 2007. This growth drive was supported by
the double digit growth of the services sector at 10.6% and industry at 9.7% in the first
quarter of 2006-07. Investors, big companies, industrial houses view Indian market in a
growing and proliferating phase, whereby returns on capital and the shareholder returns
are far above the ground. Both the inbound and outbound mergers and acquisitions have
increased dramatically. According to Investment bankers, Merger & Acquisition deals in
India will cross $100 billion in 2008, which is double last year’s level and quadruple of

The power sector has been the support of this year's M&A, accounting for $5 bn or 42
per cent of the deal value in the infrastructure sector. The power sector commanded 19
per cent share in the total M&A value of $26 bin this year as compared to about $4 bn
last year representing a 7.4 per cent share of the total deal value of $51 bn. Investments
by India Inc in the UK during 2007-08 created 3,846 jobs, ahead of its rival economy
China that was involved in creating only 898 jobs.

M&As have become very popular over the years especially during the last two decades
owing to rapid changes that have taken place in the business environment. Generally the
objective of M&A is wealth maximization of shareholders by seeking gains in terms of
synergy, economies of scale, better financial and marketing advantages, diversification
and reduced earnings volatility, improved inventory management, increase in domestic
market share and also to capture fast growing international markets abroad. But
surprisingly, however the number and value of M&A are growing rapidly which is
beneficial for that particular company and also for the Indian economy in increasing the
capital gain.


Every work has its own limitation. Limitations are extent to which the process should not
exceed. Limitations of this project are:-

 The project was constrained by short time limit of few months.

 No personal interaction with the clients of the organization.

 Non disclosure of company’s policy or its system or pattern of doing work was an
obstacle in acquiring complete information.

 No accessibility to the storage of the information available on the intranet of the


By doing this project I came to know that after having so many mergers and acquisitions
in India it is very beneficial for Indian companies and also for an Indian economy in
terms of capital appreciation because if there is any merger then it creates many jobs, so
that gives direct effect. Apart from this the company which is merging or acquiring
another one and if that is a good prifit making company in that case it will help in
increasing Indian companyy’s revenue and also return on investment.

For example Hindalco has acquired Novelis , its profit was good but Novelis was uder
debt so Hindalco has paid all its debt and acquired the company because novelis presence
is almost everywhere in the world and its customers are like BMW,DC,Coca Cola, Audi
Ford,Jaguar so Hindalco will get these many clients inheritance by Novellis so which will
give help to gain more and more profit and that will increase revenue so this is how it
gives effect on the capital appreciation of Indian economy.

To do research for this project I have used secondary data that is from various books,
newspapers and websites. I came to the conclusion part that yes if there are more mergers
and acquisitions will be there then it gives good effect on capital appreciation of Indian

 A merger can happen when two companies decide to combine into one entity or
when one company buys another. An acquisition always involves the purchase of
one company by another.
 The functions of synergy allow for the enhanced cost efficiency of a new entity
made from two smaller ones - synergy is the logic behind mergers and
 Acquiring companies use various methods to value their targets. Some of these
methods are based on comparative ratios - such as the P/E and P/S ratios -
replacement cost or discounted cash flow analysis.
 An M&A deal can be executed by means of a cash transaction, stock-for-stock
transaction or a combination of both. A transaction struck with stock is not
 Break up or de-merger strategies can provide companies with opportunities to
raise additional equity funds unlock hidden shareholder value and sharpen
management focus. De-mergers can occur by means of divestitures, carve-outs
spin-offs or tracking stocks.
 Mergers can fail for many reasons including a lack of management foresight, the
inability to overcome practical challenges and loss of revenue momentum from a
neglect of day-to-day operations.


1) Rajesh kumar – Mergers and acquisition

2) Financial management 3rd edition (M.Y.khan)

3) Companies ACT 1956

4) Income tax ACT 1961