Mergers & Acquisitions

How to Expand Your Business in

Todays Environment
Types of Takeovers
General Guidelines
Takeover
The transfer of control from one ownership group to another.
Acquisition
The purchase of one firm by another
Merger
The combination of two firms into a new legal entity
A new company is created
Both sets of shareholders have to approve the transaction.
Amalgamation
A genuine merger in which both sets of shareholders must approve
the transaction
Requires a fairness opinion by an independent expert on the true
value of the firms shares when a public minority exists

Cont
Hostile Takeovers
Slowly acquire a grip (beachhead) by open
market purchase of shares at market prices
without attracting attention.
Accumulate 20% of the outstanding shares
through open market purchase over a longer
period of time

Mergers & Acquisitions Defined
Mergers
Acquisitions
Two firms are combined on
a relatively co-equal basis
One firm buys another
firm
the words are often used interchangeably even
though they mean something very different
parent stocks are usually
retired and new stock issued
name may be one of the
parents or a combination
can be a controlling
share, a majority, or
all of the target firms
stock
can be friendly or
hostile
Mergers Acquisitions
Mergers & Acquisitions Defined
usually done through
a tender offer
one of the parents usually
emerges as the dominant
management
Mergers & Acquisitions Defined
Types of M&A Activity
Categories

Vertical
Horizontal
Product Extension/
concentric
Market Extension
Conglomerate
suppliers or customers
competitors
complementary products
complementary markets
everything else
Related
Unrelated
Motives/Adv./Benefit of M&A
Economies of scale and Scope
to enable benefits of scale to be achieved
Scale - Production in high volumes
Scope combining marketing
To reduce competition
to co-opt an existing competitor in order to reduce
competition
Market power
increase market share
Cont...
Sharing complementary resources
bringing together the relative strength of each firm
New market entry
to facilitate expansion into new market
To reduce risk
diversification
Cont...
Managerial motive
to avoid being taken over (job security)
to pursue growth in size, status and higher
remuneration
Removal of inefficient Management
Expertise
Monopoly gains (Avoids Competition)
Efficiency gains by elimination of
duplication/operating synergies

Reasons
of
merger
Future
goals
Mutual
benefit
s
Maximiz
ing
profits
Expansi
on of
busines
s
Econom
y of
scale
Increase
market
share
Cost
maxim
ization
Diversifi
cation of
risk
Goodwill
Product
improveme
nt
9/18/2014 10 Swati Garg/ Merger
Top 10 acquisitions made by
Indian companies worldwide:

Acquirer Target Company
Country
targeted
Deal value ($
ml)
Industry
Tata Steel Corus Group plc UK 12,000 Steel
Hindalco Novelis Canada 5,982 Steel
Videocon
Daewoo
Electronics Corp.
Korea 729 Electronics
Dr. Reddys
Labs
Betapharm Germany 597 Pharmaceutical
Suzlon Energy Hansen Group Belgium 565 Energy
HPCL
Kenya Petroleum
Refinery Ltd.
Kenya 500 Oil and Gas
Ranbaxy Labs Terapia SA Romania 324 Pharmaceutical
Tata Steel Natsteel Singapore 293 Steel
Videocon Thomson SA France 290 Electronics
VSNL Teleglobe Canada 239 Telecom
Competitive Advantage M&A Process
Doing the Deal
Bidding Firms
Perspective
Search for
Rare Economies
Limit Information
to Other Bidders
Limit Information
to the Target
Avoid Bidding
Wars
Close the
Deal Quickly
Seek Thinly
Traded Markets
Competitive Advantage - Process
Doing the Deal
Target Firms
Perspective
Seek Information
from Bidders
Invite Other Bidders to
Join in Bidding Contest
Delay, But Do Not
Stop the Acquisition
14
Failure of M & A
Reasons:
Over-optimisation
Acquirers often pay too much for their targets as a
result of flawed evaluation process that
overestimates the likely benefits;
Failure of integration management
improper planning and execution of the
integration process.
Methods of Financing Mergers
Cash payment
pay the purchase consideration by cash
Shares
issue of ordinary and preference shares
Loan capital
debentures
convertible loans