Acquisition, Takeovers

With Contemporary Cases

CONTENTS
Introduction Acquisitions Takeovers Comparison Spectrum

INTRODUCTION

Corporate Restructuring

Acquisition Mergers Purchase of a unit or plant Takeovers

Divestitures Sell offs Demergers Equity Carve outs

Other Forms Going private Leveraged Buy outs Privatization

ACQUISITION
Definition : An acquisition is the purchase of one company by another company. Consolidation is when two companies combine together to form a new company altogether. An acquisition may be private or public, depending on whether the acquiree or merging company is or isn't listed in public markets.

TAKEOVER
Definition : A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.

TYPES OF TAKEOVERS
Friendly Takeovers The acquisition of a target company that is willing to be taken over. Hostile Takeovers A takeover in which the target has no desire to be acquired and actively rebuffs the acquirer and refuses to provide any confidential information.

COMPARISON
Acquisition Takeovers

It is Friendly. Acquisition is broader term. Here acquisition of assets and liabilities is involved. Involves acquisition of entire stake in the equity capital of the company.

It is Hostile. Takeover is a subset of Acquisition Based on the outstanding stake in the market. Involves acquisition of certain stake in the equity capital of the company.

Reasons for Acquisitions

Increased market power Overcome entry barriers Cost of new product development Increased speed to market Lower risk compared to developing new products Increased diversification Avoid excessive competition Acquisitions

Problems in Achieving Success

Integration difficulties Inadequate evaluation of target Large or extraordinary debt Inability to achieve synergy Too much diversification Managers overly focused on acquisitions Too large

TATA STEEL ACQUIRES CORUS- A CASE STUDY

An Introduction
TATA Steel was formed in 1907 and started its operation in 1912 Corus was formed on 6th Oct 1999 by merging of two companies Koninklijke Hoogovens and British Steel Corus is four times bigger than Tata but in the year 2006 the operating profit for Tata was $840 million, whereas in case of Corus it was $860 million

Continued
The deal, which creates the world's fifth-largest steelmaker, is India's largest ever foreign takeover Corus was involved in a number of deals before TATA ie 14 deals In 2005, when the deal was started the price per share was 455 pence. But during the time of acquisition held in 2007, the price per share was 608 pence, which is 33.6% higher than the first offer.

The Deal
Corus had been facing financial fluctuations since 19962005 The acquisition process started in 2005 and ended on 2nd Apr 2007 at $12 billion As stated by Tata, the initial motive behind the completion of the deal was not Corus revenue size, but rather its market value January 31, 2007 : Britain's Takeover Panel announces in an e-mailed statement that after an auction Tata Steel had agreed to offer Corus investors 608 pence per share in cash April 2, 2007 : Tata Steel manages to win the acquisition to CSN and has the full voting support form Corus shareholders

Post Acquisition TATA

Tata Steel has formed a seven-member integration committee to spearhead its union with Corus group Head of the company- Ratan Tata along with 3 members from both TATA Steel and Corus each The day after the acquisition was officially announced, Tata Steels share fell by 10.7 percent on the Bombay stock market Tata has managed to acquire a British steel maker that has been a symbol of Britains industrial power and at the same time its dominion over India has been perceived as quite ironic

Benefits
To Tata Steel: Tata Steel will leapfrog from the fifty-sixth largest steel producer in the world to the fifth position. The company will have better geographical mix. Tata steel will have access to 40 countries across the globe, transforming it into a major global player from a domestic player. It will also achieve access to high-developed markets and premium customer base. There will be a transfer, from Europe to India, of technology, and expertise, research and development capabilities in the automotive, packaging and construction sectors, increased procurement knowledge and in effect, a better bargaining power.