Presentation by : Group 2

Ashfaque ul haque
Anshita Kashyap
Aamir Rahman
Atisha Parashar
Khusboo Kumari
Manoj Kumar
 TREND OF MERGER AND ACQUISITION IN INDIA

The concept of merger and acquisition in India was not popular until the year 1988.

The key factor contributing to fewer companies involved in the merger is the regulatory and
prohibitory provisions of MRTP Act, 1969. (Monopolies and Restrictive Trade Practices
Act,1969)

The year 1988 witnessed one of the oldest business acquisitions or company mergers in India.

As for now the scenario has completely changed with increasing competition and
globalization of business. It is believed that at present India has now emerged as one of the
top countries entering into merger and acquisitions.

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 MERGER AND ACQUISITION

WHAT IS MERGER?
A merger is a combination of two or more companies where one corporation
is completely absorbed by another corporation.

WHAT IS ACQUISITION?
Acquisition essentially means to acquire or to takeover. Here a bigger
company will take over the shares and assets of the smaller company.

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 MERGER
A merger is a transaction that result in
the transfer of ownership and control of a
corporation.

When one company purchases another

company of an approximately similar size.
The two companies come together to
become one.

Two companies usually agree to merge

when they feel that they can do something
together that they can not do one their
own.
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 EXAMPLES:

Rajasthan bank and ICICI bank

Arcelor Mittal
Renault and Nissan

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 TYPES OF
MERGER

CONGLOMERA VERTICAL HORIZONTA

TE L

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 VERTICAL MERGER
This type of merger involves a customer and a company
or a supplier and a company merging. Imagine a bat
company merging with a wood production company.

Backward Merger- When a company combines with the

supplier of material it is called as backward merger

Forward Merger Where it combines with the customer,

its known as forward merger

Example- Disney and Pixar.

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 HORIZONTAL MERGER
It refers to the merger of two companies who
are direct competitors of one another. They serve
the same market and sell the same product
This type of merger occurs frequently as a
result of larger companies attempting to create
more effective economies of scale.

Example-
The formation of Brook Bond Lipton India Ltd
through the merger of Lipton India and Brook
Bond

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 CONGLOMERATE
A merge betweenMERGER
firms that are involved
in totally interrelated business activity.

Two types of conglomerate merger are:

Pure conglomerate merger- It involve

firms with nothing common.

Mixed conglomerate merger- It involves

firms that are looking for product
extensions or market extensions.

Example- PepsiCo-Pizza Hut; Proctor &

Gamble-Clorox.
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 Ways of merger A merger can take place in
following ways:

By purchasing of assets
By purchase of common shares
By exchanging of shares for assets
By exchanging of shares for shares

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 The assets of company Y may
By purchase of be sold to company X.
assets Once this is done company Y is
then legally terminated and
company X survives.

The common share of company

By purchase of Y may be purchased by
common shares company X. When company X
holds all the share of company
Y, it is dissolve.

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 The company X may give their
By exchanging of shares to stakeholders of
shares for assets company Y for its net assets.
The company Y terminated by
its shareholder who now holds
share of company X.

By exchanging of Company X gives its shares to

shares for shares the shareholder of company Y
and then company X is
terminated.

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 Different Types of acquisitions

Friendly acquisition - Both the companies approve

of the acquisition under friendly terms.

Reverse acquisition When a smaller co. takeover

the big company

Bailout acquisition- Takeover of a financially sick

company by a profit earning company to bail out the
former is known as bailout takeover

Hostile acquisition - Here, as the name suggests, the

entire process is done by force.

Cross border acquisition Its for topline revenue

growth through new capabilities and assets, product
diversification and market entry
 DIFFERENCE BETWEEN MERGER AND
ACQUISITION:
MERGER
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.
ACQUISITION
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 i. Clash of corporate cultures
ii. Increased business
iii. Profit for Research and
complexity
development.
iii. Employees may be resistant
iv. Benefits on account of to change
tax shields like carried
forward losses or
unclaimed depreciation.
v. Reduction of
competition.
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 ACQUISITION : WHY & WHY NOT
WHY IS IMPORTANT PROBLEM WITH ACUIQISITION
i. Increased market share.
ii. Increased speed to
i. Inadequate valuation
market
of target.
iii. Lower risk comparing to
develop new products. ii. Inability to achieve
synergy.
iv. Increased diversification
v. Avoid excessive iii. Finance by taking
competition huge debt.

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 Motives for Mergers &acquisitions

Economies of large scale business

large-scale business organization enjoys
both internal and external economies. Economies of
Elimination of
large scale
competition
Elimination of competition business
It eliminates severe, intense and wasteful
expenditure by different competing organizations.
Desire to enjoy Adoption of
monopoly modern
Desire to enjoy monopoly power power technology
M&A leads to monopolistic control in the market.

Adoption of modern technology Lack of technical

corporate organization requires large resources and managerial
talent
Lack of technical and managerial talent
Industrialization, scarcity of entrepreneurial,
managerial and technical talent
 Benefits of Mergers and Acquisitions

Greater Value Generation.

Mergers and acquisitions generally succeed in generating cost efficiency through the
implementation of economies of scale. It is expected that the shareholder value of a firm after
mergers or acquisitions.

Gaining Cost Efficiency.

When two companies come together by merger or acquisition, the joint company benefits
in terms of cost efficiency. As the two firms form a new and bigger company, the production is
done on a much larger scale.

Increase in market share - An increase in market share is one of the plausible benefits of
mergers and acquisitions.

Gain higher competitiveness - The new firm is usually

more cost-efficient and competitive as compared to its
financially weak parent organization.
 Problems of Merger and Acquisitions

Integration difficulties

Large or extraordinary debt

Managers overly focused on acquisitions

Overly Diversified
 PROCESS OF MERGER & ACQUISITION IN INDIA:

The process of merger and acquisition has the following steps:

Approval of Board of Directors
Information to the stock exchange
Application in the High Court
Shareholders and Creditors meetings
Sanction by the High Court
Filing of the court order
Transfer of assets or liabilities
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
Employees:
Mergers and acquisitions impact the employees or the workers the most. It is a well known
fact that whenever there is a merger or an acquisition, there are bound to be lay offs.

Impact of mergers and acquisitions on top level management

Impact of mergers and acquisitions on top level management may actually involve a "clash
of the egos". There might be variations in the cultures of the two organizations.

Shareholders of the acquired firm:

The shareholders of the acquired company benefit the most. The reason being, it is seen in
majority of the cases that the acquiring company usually pays a little excess than it what
should. Unless a man lives in a house he has recently bought, he will not be able to know its
drawbacks.

Shareholders of the acquiring firm: hey are most affected. If we

measure the benefits enjoyed by the shareholders of the acquired company in
degrees, the degree to which they were benefited, by the same degree, these shareholders
are harmed
 Why Mergers and Acquisitions Fail?

Cultural Difference

Flawed 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

 Types of M&A
M&A

Market-extension Product-extension
Conglomeration
merger merger

Two companies Two companies selling Two companies that

that sell the same different but related have no common
products in products in the same business areas
different markets market
TOP 11 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
Image: B Mutharaman, Tata Steel CORUS paying Rs
MD; Ratan Tata, Tata chairman; J
Leng, Corus chair; 428/- per share
and P Varin, Corus CEO.
 It is a 100% acquisition
Flipkart acquired online fashion retailer Myntra in
an estimated Rs 2,000 crore deal.
Asian Paints on May 14, 2014, entered into a binding agreement
with Ess Ess Bathroom Products Pvt Ltd
Its promoters to acquired its entire front-end sales business
including brands, network and sales infrastructure
(RIL) acquired majority control of Network18 Media
& Investments and TV18 Broadcast (TV18) for up to
Rs 4,000 crore through its arm Independent Media
Trust (IMT).
Ola (formerly Olacabs), the mobile app for personal
transportation acquired Taxi ForSure for $200 mn in a cash and
equity deal.
With this deal, Ola, which is already the market leader in the
personal transportation space with over 1-lakh vehicles on its
platform, has further deepened its footprint with Taxi ForSures
operator led model.
 3. Hindalco-Novelis: $6 billion

June 2008
Aluminium and copper
sector
Hindalco Acquired
Novelis
Hindalco entered the
Fortune-500 listing of
world's largest
companies by sales
Image: Kumar Mangalam Birla revenues
(center), chairman of Aditya Birla
Group.
 8. 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. ONGC-Imperial Energy:$2.8billion

January 2009
Acquisition deal
Imperial energy is a
biggest chinese co.
ONGC paid 880 per
share to the shareholders
of imperial energy
ONGC wanted to tap the
siberian market
Image: Imperial Oil
CEO Bruce March.
SunPharma Ranbaxy Acquisition

SunPharma + Ranbaxy
= Profile of a New Global Leader
 Acquisition
Apr 06, 2014: To create worlds 5th largest
specialty generic pharma company
No. 1 pharma company in India with
leadership position in 13 specialty segments
No. 1 Indian pharma company in the US
Daiichi Sankyo to become the second largest
shareholder in Sun Pharma
Financial Strength
 Sun Pharma

Established in 1983, listed since 1994 and headquartered in India,

Sun Pharma is an international, integrated, specialty
pharmaceutical company.
In India, the company is a leader in niche therapy areas of
psychiatry, neurology, cardiology, diabetology, gastroenterology,
orthopedics and ophthalmology.
The company has strong skills in product development, process
chemistry, and manufacturing of complex dosage forms and APIs.
The 2014 acquisition of Ranbaxy will make the company the
largest pharma company in India, the largest Indian pharma
company in the US, and the 5th largest speciality generic
company globally.
 Ranbaxy
Ranbaxy Laboratories Limited is an Indian multinational pharmaceutical
company that was incorporated in India in 1961. The company went
public in 1973 and Japanese pharmaceutical company Daiichi
Sankyo acquired a controlling share in 2008.
Ranbaxy Limited is an integrated, research based, international
pharmaceutical company producing a wide range of quality, affordable
generic medicines, trusted by healthcare professionals and patients
across geographies.
Ranbaxy serves its customers in over 150 countries and has an expanding
international portfolio of affiliates, joint ventures and alliances, ground
operations in 43 countries and manufacturing operations in 8 countries.
In 2011, Ranbaxy Global Consumer Health Care received the OTC
Company of the year award.
 Why Ranbaxy?

Ranbaxy got a lot of ANDA's (Abbreviated New Drug

Application) approved for marketing in USA. Their problem is
to find an API plant because main source of API was from
Toansa. If Sun Pharma fills this gap, Ranbaxy can begin its
export to the USA. So, Sun Pharma has got into this deal at
the right time and deal has an upside for all the shareholders.

Sun Pharmas managing director Dilip Shanghvi has acquired a

reputation for acquiring companies in trouble at a good price,
and then turning around their operations
 Why Daichi sold Ranbaxy ?
Daiichi faced criticism after Ranbaxys plants came
under the US Food and Drug Administrations (FDAs)

Ranbaxys inability to overcome its FDA-related

problems has put pressure on its promoters.

With Sun Pharma acquiring Ranbaxy, Daiichi is relieved

of the burden of managing Ranbaxys problems. It will
hold a 9% stake in Sun Pharma, as a result of its current
stake in Ranbaxy.
 Valuation

Sun Pharmaceutical Industries fully acquired troubled

Ranbaxy Laboratories, in an all-stock transaction with a total
equity value of USD 3.2 billion.
Under these agreements, Ranbaxy shareholders received 0.8
share of Sun Pharma for each share of Ranbaxy.
The deal lead to 16.4% dilution in the equity capital of Sun
Pharma. This is because its total equity value is $3.2 billion
and the deal size is $4 billion
The combined entitys revenues were USD 4.2 billion with
EBITDA of USD 1.2 billion for the twelve month period ended
December 31, 2013.
Fiscal Period March (in INR crores) 2014 2015 2016 2017
Sales Rs. 13,040.30 Rs.12,944.80 Rs. 12,912.90 Rs.13,577.00

Operating income (EBITDA) Rs. 973.20 Rs. 2,259.80 Rs. 1,775.40 Rs. 1,975.20

Operating profit (EBIT) Rs. 4,97.00 Rs. 1,689.00 Rs.13,63.00 Rs. 1,503.00

taxes Rs. 343.50 Rs. 311.00 Rs. 323.00 Rs. 488.00

NOPAT [EBIT(1-t)] Rs. 153.5.00 Rs. 1378.80 Rs. 1,040.00 Rs. 1,015.00

D&A Rs. 476.20 Rs. 570.00 Rs. 412.40 Rs. 471.80

Capex Rs. 780.90 Rs. 495.10 Rs. 530.10 Rs. 522.40

change in NWC Rs. 326.00 Rs. 324.00 Rs. 323.00 Rs. 339.00

Free Cash Flow Rs. - 477.70 Rs. 1,129.70 Rs. 599.30 Rs. 625.80

Terminal Value Rs. 24,416.98

WACC 8.72%

8.72% Rs. - 477.70 Rs. 1,129.70 Rs. 599.30 Rs. 25,042.78

 Implied firm value (in INR crores) 18909.35

Reference Values

Wd* 85%

We* 15%

Beta** 0.59

Rf*** 8%

Rm-Rf**** 8%

Ke 13%

Kd 12%

Tax 34%

Sources
*www.moneycontrol.com
**Reuters
***www.investing.com
g = 0.0514
****EY-india-cost-of-capital-a-survey.pdf
References
http://www.ranbaxy.com/sun-pharma-to-acquire-ranbaxy-in-a-us4-billion-landmark-transaction/
http://businesstoday.intoday.in/story/ranbaxy-acquisition-good-for-sun-pharma-shareholders-experts/1
/205526.html
http://www.business-standard.com/article/companies/sun-pharma-draws-up-plan-to-fix-ailing-ranbaxy
-114091101300_1.html
http://www.business-standard.com/article/companies/sun-pharma-buys-ranbaxy-from-japan-s-daiichi-
114040700737_1.html
http://www.livemint.com/Money/1V8H9u0YoEyKFZ3vM7AcYL/Sun-Pharmas-Ranbaxy-acquisition-winner
s-and-losers.html
http://www.livemint.com/Companies/lNC0kH0QAs2TSqlapEXO0N/Sun-Pharma-to-acquire-Ranbaxy-in-32-
billion-deal.html
http://articles.economictimes.indiatimes.com/2014-04-11/news/49058869_1_daiichi-sankyo-sun-pharma
-share-swap-ratio
http://www.ndtv.com/article/india/sun-pharma-to-acquire-ranbaxy-in-4-billion-all-stock-deal-505205
http://www.dnaindia.com/money/report-sun-pharma-s-ranbaxy-deal-on-course-hints-at-more-acquisitio
ns-2010611
http://www.edupristine.com/blog/ranbaxy-financial-model/