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Presentation

on Merger and acquisition

Presented by Vandana 843

business

Mergers
Amalgamation

combination

Acquisitions Takeovers

Merger

A merger is when two companies, more or less on equal footing, decide to join forces. It is considered to be an equal transaction, with both parties accepting risk and sharing in the potential rewards

in India merger is called Amalgamation

Merger takes place in two way:-

Merger Through Absorption

Merger
MERGER THROUGH CONSOLIDATION

Merger Through Absorption

Merger

An Absorption is Combination of two or more companies into an existing company All companies except one lose their identity

Examples

Western Union Bank Merged With IDBI

New Bank Of India Merged With PNB

Bank Of New York Merged With Mellon Financial

Merger Through Consolidation

Merger

A consolidation is a combination of two or more Companies into a new Company

All companies are dissolved to form a new Company

Merger Through Consolidation

Merger

Hindustan Computers Ltd

Hindustan Instruments Ltd

Indian Software Co .Ltd

Indian Reprographic Ltd

HCL LTD

FORMS OF MERGER

Horizontal Merger

Vertical Merger

Conglomerate Merger

Cross border international M&A

1. Horizontal

A merger in which two firms in the same industry combine. Often in an attempt to achieve economies of scale and/or scope.

For example, combining of two book publishers or two luggage manufacturing companies to gain dominant market share 2. Vertical

A merger in which one firm acquires a supplier or another firm that is closer to its existing customers. Often in an attempt to control supply or distribution channels.

For example, joining of a TV manufacturing(assembling) company and a TV marketing company or joining of a spinning company and a weaving company.

3. Conglomerate

A merger in which two firms in unrelated businesses combine. Purpose is often to diversify the company by combining uncorrelated assets and income streams

For example, merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investment and advertising agencies. L&T and Voltas Ltd are examples of such mergers. 4. Cross-border (International) M&As
A merger or acquisition involving a Indian and a foreign firm a either the acquiring or target company.

Acquisition

When one company takes over another and clearly established 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 traded

Acquisition & Takeover

When Acquisition is unfriendly or hostile It may be called Takeover

M&A Objectives

Faster Growth Improving Profitability Managerial Effectiveness Gaining Market Power Leadership Cost Reduction

Are there any alternatives to Mergers or acquisitions?

Merger
Alternatives

Joint Venture Strategic Alliance Eliminating Inefficient Operations Productivity Improvement Hiring Capable Managers

MOTIVES & BENEFITS


OF

MERGERS

Limit Competition Market Power Diversification Growth Economy of Scale Access to Foreign Market Resources Displace existing Management Aggressiveness Diversifying Risk Profitability

Accelerated Growth

MOTIVES & BENEFITS


OF

MERGERS

Expanding Existing Markets Entering New Markets Expand Internally Expand Externally Developing Operating Facilities Price Paid for Merger

Enhanced Profitability

MOTIVES & BENEFITS


OF

MERGERS

Economies of Scale Operating Economies Synergy

Reduction in Tax Liability

MOTIVES & BENEFITS


OF

MERGERS

Carry forward Losses Tax on Share

Financial Benefits

Eliminating Financial Constraints

MOTIVES & BENEFITS


OF

Deploying Surplus Cash Enhancing Debt Capacity Lowering Financial Costs

MERGERS

Increased Market Power

Market Share

MOTIVES & BENEFITS


OF

Bargaining Power

MERGERS

Technological Advancement
Pricing

Limiting Competition

Planning
Steps in Analysis Of Mergers & Acquisitions

Search & Screening Financial Evaluation Mode of Merger Negotiation


Post Merger

Steps in Analysis Of Mergers & Acquisitions

Planning

Objective of Acquisitions Strengths & Weaknesses Business Units-dropped or Added

Industry Data
Target Firm
Market Growth Competition Ease Of Entry Capital & Labour Degree of Regulation
Quality Of Mgt Market Share Size Capital Structure Profitability Production &Marketing Capabilities etc

Search & Screening


Steps in Analysis Of Mergers & Acquisitions

Where to look for candidates Is it too large or small Engaged in related or unrelated Activity Export oriented or Local Amenable or not amenable to merger

Financial Evaluation
Steps in Analysis Of Mergers & Acquisitions

Determining
Earnings Cash flows Areas Of Risk Maximum Price Payable How to Finance Merger

Current Market Value

Premium Value

Mode of Merger
Steps in Analysis Of Mergers & Acquisitions

Regulations
Time frame Resources Degree of control Assume hidden liabilities

Negotiation
Steps in Analysis Of Mergers & Acquisitions

Your intentions should be to pay one dollar more than the value to the next highest bidder and an Amount that is less than the value to you

Post Merger
Steps in Analysis Of Mergers & Acquisitions Check Hostility Anticipate Problems Solve Problems Treat people With Dignity

Art of taking over Company Without overtaking It

Value Created by Merger

Economic Advantage (EA) if VPQ > (VP + VQ)


Where

VPQ =Combined PV of merged firms

VP= Worth of Firm P VQ=Worth of firm Q

Value Created by Merger

Economic Advantage
EA = VPQ - (VP + VQ)

Few Mergers, Acquisitions, Take over