A

transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage. The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock Example: Company A+ Company B= Company C.

A transaction where one firms buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business It also known as a takeover or a buyout It is the buying of one company by another. In acquisition two companies are combine together to form a new company altogether. Example: Company A+ Company B= Company A.

MERGER
i.

ACQUISITION
i.

ii. iii.

iv.

v.

vi.

Merging of two organization in to one. It is the mutual decision. Merger is expensive than acquisition(higher legal cost). Through merger shareholders can increase their net worth. It is time consuming and the company has to maintain so much legal issues. Dilution of ownership occurs in merger.

ii.

iii.

iv.

v.

vi.

Buying one organization by another. It can be friendly takeover or hostile takeover. Acquisition is less expensive than merger. Buyers cannot raise their enough capital. It is faster and easier transaction. The acquirer does not experience the dilution of ownership.

WHY IS IMPORTANT

PROBLEM WITH MERGER

i.

ii.
iii. iv.

v.

Increase Market Share. Economies of scale Profit for Research and development. Benefits on account of tax shields like carried forward losses or unclaimed depreciation. Reduction of competition.

i. ii. iii.

Clash of corporate cultures Increased business complexity Employees may be resistant to change

WHY IS IMPORTANT

PROBLEM WITH ACUIQISITION

i. ii. iii.

iv. v.

Increased market share. Increased speed to market Lower risk comparing to develop new products. Increased diversification Avoid excessive competition

i. ii. iii.

Inadequate valuation of target. Inability to achieve synergy. Finance by taking huge debt.

Generally, a company with the track record should have a less profit earning or loss making but viable company amalgamated with it to have benefits of economies of scale of production and marketing network, etc. As a consequence of this merger the profit earning company survives and the loss making company extinguishes its existence. But in many cases, the sick companys survival becomes more important for many strategic reasons and to conserve community interest. The law provides encouragement through tax relief for the companies that are profitable but get merged with the loss making companies. Infect this type of merger is not a normal or a routine merger. It is, therefore, called as a Reverse Merger.

Division of a Company with two or more identifiable business units into two or more separate companies.

Combining of two or more commercial organizations into one in order to increase efficiency and sometimes to avoid competition.

As

a commercial term, it means when a Healthy Company (in terms of size, capital or listing status)is merging in a Weak Company (in terms of size, or unlisted).

MERGER

REVERSE MERGER

 Learn

from mistakes of others Define your objectives clearly Complete strategy to achieve goal. SWOT analysis for the merged business - a must Conservative attitude necessary at evaluation deskstrong arguments to support project Pick holes in strategy to get the best Will merged units be able to work at efficient / ideal level? Acquire expertise to interprete changes

The purpose for an offeror company for acquiring another company shall be reflected in the corporate objectives. It has to decide the specific objectives to be achieved through acquisition. The basic purpose of merger or business combination is to achieve faster growth of the corporate business. Faster growth may be had through product improvement and competitive position. Other possible purposes for acquisition are short listed below: -

(1)Procurement of supplies: (2)Revamping production facilities: (3) Market expansion and strategy

(4) Financial strength: (5) General gains:

(6) Own developmental plans (7) Strategic purpose: (8) Corporate friendliness: (9) Desired level of integration

(A) Vertical combination

(B) Horizontal combination :

(C) Circular combination

(D) Conglomerate 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 main benefits accrue from the vertical combination to the acquirer company i.e. it gains a strong position because of imperfect market of the intermediary products, scarcity of resources and purchased products; has control over products specifications.

It is a merger of two competing firms which are at the same stage of industrial process. The acquiring firm belongs to the same industry as the target company. The mail purpose of such mergers is to obtain economies of scale in production by eliminating duplication of facilities and the operations and broadening the product line, reduction in investment in working capital, elimination in competition concentration in product, reduction in advertising costs, increase in market segments and exercise better control on market.

Companies producing distinct products seek amalgamation to share common distribution and research facilities to obtain economies by elimination of cost on duplication and promoting market enlargement. The acquiring company obtains benefits in the form of economies of resource sharing and diversification.

It is amalgamation of two companies engaged in unrelated industries like DCM and Modi Industries. The basic purpose of such amalgamations remains utilization of financial resources and enlarges debt capacity through re-organizing their financial structure so as to service the shareholders by increased leveraging and EPS, lowering average cost of capital and thereby raising present worth of the outstanding shares. Merger enhances the overall stability of the acquirer company and creates balance in the companys total portfolio of diverse products and production processes.

As we all know combination of two companies effect number of people. So at the time of merger or acquisition their emotions and other social things should be take in to mind . may be those things are not compel by law to follow .But our social values compel more than law ,these are called ETHICS

Ethics is not an exact science. People define Ethics in accordance with their own set of values which differ depending on time, place and culture. Webster's defines Ethics as "the discipline dealing with what is good and bad or right and wrong or with moral duty and obligation." The word derives from the Greek word meaning "moral," a Latin word with roots in "mores" or "customs"in other words the values held by society.

Managerial mischief. Moral mazes

Madsen and Shafritz, in their book "Essentials of Business Ethics" explain that "managerial mischief" includes "illegal, unethical, or questionable practices of individual managers or organizations, as well as the causes of such behaviours and remedies to eradicate them." There has been a great deal written about managerial mischief, leading many to believe that business ethics is merely a matter of preaching the basics of what is right and wrong. More often, though, business ethics is a matter of dealing with dilemmas that have no clear indication of what is right or wrong.

Moral mazes. The other broad area of business ethics is "moral mazes of management" and includes the numerous ethical problems that managers must deal with on a daily basis, such as potential conflicts of interest, wrongful use of resources, mismanagement of contracts and agreements, etc.

Mergers and acquisitions involve a wide array of ethical questions, some of which relate to the degree of "fit" between the value systems of the merging firms. A mismatch can sometimes lead to serious problems, such as when one firm invests heavily in employees and the other focuses mainly on shareholders or customers

A secondary category of ethical issues, she notes, involves questions arising from the actual M&A; transaction. Some really vexing issues surface in the course of these deals. Management must decide, for example, when to disclose plans for the merger, what restrictions to place on insider use of information, what counts as fair and proper accounting and taxation,

During a merger and acquisition many employees lose their jobs. Because of combination of companies many of them become obsolete. So at that time it is ethical responsibility of management to try to maintain their living standard either by giving them compensation or by creating new job opportunities for them

Other major ethical issue during the cross national mergers and acquisitions is the legal policies of receiving country. Many of the rules are different in different countries so it is ethical as well as legal responsibility of company to take care of them. Like the taxation rules of country, rules regarding child labor etc. For example, the legal definition of 'redundant employees' varies widely as do requirements for severance arrangements. In the face of such differences, managers of the merging companies have to wrestle with what is fair to the different sets of employees and what will help build a cohesive organization with a single set of ethical standards going forward.

The two countries are different from each other at cultural point of view. So it is ethical duty of companies to take care of cultural values of both companies. For example a U.S company enters in India via merger have to adopt women dress-code according to Indian cultural that may be different from U.S.A. They also have to take care of working hours of women because Indian culture hardly allows women to work at night. So above points are now not legally bond but these are important from ethical point of view.

 Sometimes

companies enter into such a agreement which intensely or not intensely creates monopoly in the concern market. These type are agreement are void in the eye of law also but every law has some lose ends so companies take advantages of those to enjoy the monopoly it is unethical in nature and should be avoided because it directly resulted as consumer exploitation. Companies enter in M&A to reduce competition but beside that they should take care about the consumers also.

Companies have goal to maximize the wealth of shareholders and the decision about a companys merger or acquisition starts affecting the value of shares months before the actual transaction. The affect may be positive or negative so it is companys ethical duty to minimize the negative impact on the prices of shares to protect the wealth of shareholders

Sometimes companies take secret the information about merger and acquisition not only from the outsiders but also from the employees. So at the time of transaction there is a sudden shift for employees which may cause as low morale in them. It will have negative effect for both employees and company so company have to decide about the time of disclosure. So employees can be mentally prepare for the change.

The other main area of concern is about how to use the resources of the host country. Company should take care about that the use of natural resources. Try to use them in such a way that they are beneficially for both not for only the company. We can take example of such a unethically use of resources from history. East India company use Indian natural resources for the benefit of Britain. But in todays world this kind of behavior is unethical so it is ethical responsibility of company to fair use of natural resources.

Sometimes companies enter in a new market through merger and acquisition and starts disturbing the local or small scale industries. Because large companies have fair amount of financial resources and they are enjoying economies of large scale so small scale industries are unable to stand in front of them. Taking advantages of this MNCs try to vanish the local competition to enjoy monopoly. This may be profitable but it is unethical because it may be result as unemployment at large scale and consumer exploitation in long run. So it is also ethical responsibility of companies that when they enter in a small market through merger and acquisition they should also take care about the local competition.

When organizations merge there is a corresponding meshing of their compliance with applicable regulations. More often than not, organizations have achieved different levels of compliance, and the merged organization needs a strategy to bring the laggard up to par (or both up to par, if that is the case). In some instances, the M&A may bring the need to comply with new regulations, and that will require , planning, and execution.

 There

should be proper communication with the employees to help them to understand about new management and their new role with in the company. Management should Implement change processes thorough communication to all employees. This will help employees to understand new managerial rules and regulation.

 Inform

customers of both entities on the need and impact of the merger so they can easily understand what will be the effect on them this is beneficial for both company and the customers. Because sometimes the loyal customers of a company lose their faith in company after changes in company name or in any other manner so it is both ethic and beneficial to give information to consumers about such deals

 It

is the human nature that the person give much importance to the thing that is related to him. In the same way buyer company give more emphasis to its old employees rather than the new ones. But the manager should try to be non-discriminatory in nature.

 Some

time a company some special services or bonuses to the employees but after merger the dominating company stops this type of policy. Which creates feeling of dissatisfaction among them because they consider it as unethical behavior. So management of new company should respect the rights of employees they are already enjoyed or try to remove them with proper planning and consultancy.

Company should not use illegal ways to compel some other company to enter in deal. Normally bigger companies use their dominating position to force the smaller ones to enter in acquisition or merger deals. Mostly coercion about capturing their market or bribery to upper management are the common ways which are not ethical and legal in nature.

Revenue deserves more attention in mergers; indeed, a failure to focus on this important factor may explain why so many mergers dont pay off. Too many companies lose their revenue momentum as they concentrate on cost synergies or fail to focus on post merger growth in a systematic manner. Yet in the end, halted growth hurts the market performance of a company far more than does a failure to nail costs Some of the reasons why Mergers & Acquisitions have failed in recent times are as follows :-

>> Culture shock >> 2+2>4 attitude

>> No plan >> Poor integration: >> People trouble:

>> Lack of enthusiasm >> Who needs you >> Poor decisions: >> Ego clashes