Master of Business Administration - Semester III MF0011 Mergers & Acquisitions - 4 Credits Assignment Set- 1 (60 Marks)

Note: Each Question carries 10 marks. Answer all the questions. Q1. Explain the types of mergers.
Types of Mergers and Acquisitions Depending on the kind of combination between the companies Mergers and Acquisition can take several forms. They are categorised as follows: 1. Horizontal: It is a merger of two competing firms which are engaged in the production of similar products or are providing similar kind of 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 market share, reduction in advertising costs etc. Examples are: (a) PHOENIX ELECTRIC (INDIA) merged with PHOENIX LAMPS (INDIA). (b) VIDEOCON NARMADA ELECTRONICS merged with VIDEOCON INTERNATIONAL LTD. (c) BANK of MADURA merged with ICICI. (d) Acquisition of BLUE DART by DHL WORLDWIDE. (e) Acquisition of THOMSON SA of France by VIDEOCON INDIA. Deal was worth $ 290 million. (f) INDIAN AIRLINES merges with AIR INDIA. 2. Vertical: When two or more companies involved in different stages of activities like production or distribution combine with each other the combination is called Vertical merger. An example can be the combination of a car manufacturing company and the company manufacturing a major component like piston (that is generally bought from others and used by the car manufacturing company). The acquiring company through merger of another company attempts to reduce of inventories of raw material and finished goods, implements its production plans as per the objectives and economizes on working capital requirements. There are two types of vertical combinations.

(a) Forward Integration: In this kind of vertical combination a manufacturer combines with its customer. For example when a TV manufacturer combines with a TV marketing company this is called forward integration. (b) Backward Integration: In this kind of vertical combination a manufacturer combines with the supplier of the raw material. For example the combination of car manufacturing company with piston manufacturing firm would be a backward combination. In other words, in vertical combinations, the merging undertaking would be either a supplier or a buyer using its product as intermediary material for final production. The following are some of the benefits which accrue from the vertical combination to the acquirer company: (a) Company can safeguard the source of supplies of raw materials or intermediary product. (b) Company is able to get the benefits of savings in transportation costs, overhead costs in buying department, etc. (c) Company has control over product specifications. 3. Circular Combination: Companies engaged in the production of different products seek combination to share common distribution and research facilities in order to obtain economies by elimination of duplication of cost. The acquiring company obtains benefits in the form of economies of resources sharing. Another major advantage is to achieve diversification.

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Q2. Firm X is having value of Rs 400 lakh and value of the firm Y is 150 lakh. If the two firms combine, the estimated cost savings would have present value of Rs 60 lakh. Firm X will have to make payments equal to Rs 170 lakh while making the acquisition. What will be the value of Synergy, Costs and Net Gain from the Merger? Hint: Value of Synergy=60 lakhs , cost = 20 Lakhs , Net gain = 40 lakhs Q3. Merger should be a capital budgeting decision. Explain. Q4. Explain international joint ventures. What are reasons of joint venture failure? Q5. The following is the balance sheet of XYZ Ltd: Liabilities Rs. Assets Rs.

Share Capital: 6000 Equity Shares of Rs. 100 each, fully paid General Reserve Profit & Loss Appropriation A/c Bills Payable Sundry Creditors Preliminary Expsenses 12,45,000

6,00,000

Goodwill

70,000

2,50,000 80,000 70,000 2,45,000 20,000

Plant and Machinery Furniture and Fittings Stock Debtors Cash at Bank 12,45,000

4,60,000 1,02,000 4,36,000 1,34,000 23,000

Q6. Explain the key regulatory provisions of M&A under: (a) FEMA, 1999 (b) Listing Agreement Master

Master of Business Administration - Semester III MF0011 Mergers & Acquisitions - 4 Credits Assignment Set- 2 (60 Marks)

Note: Each Question carries 10 marks. Answer all the questions. Q1. What are the steps for successful mergers?

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Q2. What are the key factors contributing to M&A activities? Q3. Explain the following (a) Spin-off (b) Sell-off (c) Equity carve out (d) ESOP Q4. What are the different methods of business valuation? Q5. . Explain the political, cultural and HRM issues in M&A. Q6. Explain the key guidelines of takeovers.