Mergers and Acquisitions

MEANING
Merger
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.

ACQUISITION
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.

DIFFERENCE BETWEEN MERGER AND ACQUISITION:

MERGER ACQUISITION

i.

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

i.

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

MERGER:WHY & WHY NOT

WHY IS IMPORTANT PROBLEM WITH MERGER

i. Increase Market Share. ii. Economies of scale iii. Profit for Research and development. iv. Reduction of competition.

i. ii. iii.

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

ACQUISITION:WHY & WHY NOT

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

REASONS /ADVANTAGES
Size and Synergy Increased revenue/Increased Market Share Economies of Scale Helps to face competition Revival of sick units

Faster growth rate

Taxes Advantages

Finance related advantages

Different Types Of Mergers

Horizontal Merger Conglomeration merger Vertical Merger

Concentric Merger

Horizontal Merger
Horizontal mergers are those mergers where the companies manufacturing similar kinds of commodities or running similar type of businesses merge with each other.

Examples of Horizontal Merger

Lipton India and Brooke Bond.

Bank of Mathura with ICICI Bank.

BSES Ltd(Bombay suburban electric supply) with Orissa Power Supply Company. Associated Cement Companies Ltd Damodar Cement.

Vertical Merger
A merger between two companies producing different goods or services.

Example of Vertical Merger

Time Warner Incorporated, a major cable operation, and the Turner Corporation, which produces CNN, TBS (Turner broadcasting system), and other programming.

Pixar-Disney Merger

Conglomerate Merger
A merger between firms that are involved in totally unrelated business activities.
Two types of conglomerate mergers:
1. Pure conglomerate mergers involve firms with nothing in common.

2. Mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.

Example of Conglomerate Merger

Walt Disney Company and the American Broadcasting Company.

Concentric Merger
A merger of firms which are into similar type of business.

Example of Concentric Merger

Nextlink is a competitive local exchange carrier offering services in 57 cities and building a nationwide IP network. Concentric, a national ISP, offers dedicated and dial-up Internet access, high-speed DSL and VPN services across the U.S. and overseas.

TOP 5 M&A DEALS

1. Tata Steel-Corus: $12.2 billion

January 30, 2007 Largest Indian take-over After the deal TATAS became the 5th largest

STEEL co.
100 % stake in CORUS paying Rs 428/- per share
Image: B Mutharaman, Tata Steel MD; Ratan Tata, Tata chairman; J Leng, Corus chair; and P Varin, Corus CEO.

2. Vodafone-Hutchison Essar: $11.1 billion

TELECOM sector 11th February 2007 2nd largest takeover deal 67 % stake holding in hutch
Image: The then CEO of Vodafone Arun Sarin visits Hutchison Telecommunications head office in Mumbai.

3. Ranbaxy-Daiichi Sankyo: $4.5 b

Pharmaceuticals sector June 2008 Acquisition deal largest-ever deal in the Indian pharma industry Daiichi Sankyo acquired the majority stake of more than 50 % in Ranbaxy for Rs 15,000 crore 15th biggest drugmaker

Image: Malvinder Singh (left), ex-CEO of Ranbaxy, and Takashi Shoda, president and CEO of Daiichi Sankyo.

4. Tata Motors-Jaguar Land Rover: $2.3 billion

March 2008 (just a year after acquiring Corus) Automobile sector Acquisition deal Gave tuff competition to M&M after signing the deal with ford
Image: A Union flag flies behind a Jaguar car emblem outside a dealership in Manchester, England.

5. RIL-RPL merger: $1.68 billion

March 2009 Merger deal amalgamation of its subsidiary Reliance Petroleum with the parent company Reliance industries ltd. Rs 8,500 crore RIL-RPL merger swap ratio was at 16:1

Image: Reliance Industries' chairman Mukesh Ambani.

Why India?
Dynamic government policies Corporate investments in industry Economic stability Ready to experiment attitude of Indian industrialists

Deals in India for first financial quarter 2010

Sector
Telecom Pharmaceutical BFSI Metal and Mining Energy Other sectors

Value in USD Share in per No. of Deals million cent

3 4 6 4 4 39 22732.26 3958.29 2651.54 1483.15 1320 1919.00 67.19 11.02 7.84 4.38 3.90 5.67

PROCESS OF MERGER & ACQUISITION IN INDIA:

The process of merger and acquisition has the following steps:

i. Approval of Board of Directors ii. Information to the stock exchange iii. Application in the High Court iv. Shareholders and Creditors meetings v. Sanction by the High Court vi. Filing of the court order vii. Transfer of assets or liabilities viii. Payment by cash and securities
Maximum Waiting period:210 days from the filing of notice(or the order of the commission - whichever earlier).

Impact of Mergers and Acquisitions

Management Public

Competition

Employees

Impact

Shareholders

Why Mergers and Acquisitions Fail?

Cultural Difference defective Intention No guiding principles No ground rules

No detailed investigating
Poor stake holder outreach

How to Prevent the Failure

Continuous communication employees, stakeholders, customers, suppliers and government leaders. Transparency in managers operations Capacity to meet new culture higher management professionals must be ready to greet a new or modified culture. Talent management by the management

MERGER & ACQUISITION(2009-10) :

30