Merger & Acquisition/

Entry Strategy
Strategic Alliance
GROUP 6
Ayesha
Komal
Nikhat
 Sohail
 Anurag
 Vijay
 Tanmoy
Entry Strategies

Process by which a firm gains

entry into a foreign market or
Indian firms get their foothold
abroad.
 Why? -- Entry Strategy Objectives
MARKET RESOURCES LEARNING COORDINATION
EXPECTATIONS •Market penetration •Access to natural •Understand start •Set up a base
and development resources of the art tech. •Establish logistic
•Capture a share of •Access to skilled low •Be close to best centre
market cost labour practice •Be close to financing
•Access to supplies •Learn to compete institution

KEY •Growth •Cost •Know how •Speed

PERFORMANCE •Market share •Quality •Process •Control
INDICATORS •Gross margin •Supply access improvement •Synergy

TIMING •Windows of •First mover in order •As soon as country •Initiation

opportunities to pre-empt is recognised as •Growth
•First mover adv. resources competence •Co-ordination
TYPES OF •All types •Resources rich •With strong •Hubs
COUNTRIES countries technological and
knowhow infra.

MODE OF ENTRY •Depending upon •Wholly owned •Joint venture •Rep. Office
risk •Joint venture •R&D centre •Global HQ
•All modes of entry •Long term •observatory •Regional HQ
may apply •Logistic centre
•Training centre
•Financial HQ
 Entry Decisions
Low Risk, Investment and Control
Joint
Exporting Venture

Contract Direct
Manufacturing Investment

Strategic
Licensing
Alliance

Merger and Franchisin

Acquisition g

High Risk, Investment and Control

Factors affecting Entry Mode
ENTRY
MODES

COMPETITIVE
ADVANTAGES

GOVERNMENT
COUNTRY RISK
POLICIES

MARKET
STRATEGIC
ATTRACTIVENE
OBJECTIVES
SS
Tata Nano entry in Nigeria
Where in Ansoff’s matrix does it fit?
Demographic Overview of Nigeria
2010 2015

INDIA NIGERIA INDIA NIGERIA

Gross Domestic Product $341.6 $3,526.1 551.96 6,242.17

(billion)

GDP per capita $2,249.0 $2,940.7 3,088.39 4,804.48

Population (million) 151.874 1,199.06 178.721 1,299.24

PEST Analysis of the Nigerian Auto
market
 Political: Recently, motorcycles were banned as commercial transportation in
the major cities due to high accident rate (Pius 2010). Moves are being made
to curtail the influx of used cars.

 Economic: Nigerians are mostly low income earners which explain the fact
that about 85% of cars on the road purchased are used. Transporters
purchase old vehicles, but these wear out quickly making it difficult to obtain
adequate returns. Fuel costs about $0.5 per litre.

 Social: Everyone wants a car, and the newer and bigger the better. However, the
younger generation tends towards smaller Japanese cars due to fuel
efficiency (25 to 35mpg) and low price. In the less urban towns, bikes and 3‐
wheelers are the main transportation means – commercial and private.

 Technological: Cars are left‐hand drive and most use petrol.

Target selection
• Nano will be targeted at 3 segments of the Nigerian market –
Commercial, middle‐income singles and low‐income
families :

• A chance for those who can’t afford cars at all for the following
reasons:

• Stronger and cheaper than the Tokunbos being purchased.

• More fuel efficient than anything in the Nigerian market,
therefore cheaper to maintain.
• New vehicle with high aesthetics, hence has a ‘status’ feel,
especially for the towns.
• Small, so can easily manoeuvre the numerous small roads.
Marketing Objectives
To gain a 3% market share of the car market (new
and used) within two full years of entering the
Nigerian market, and 15% within five years.
To become the standard choice for commercial
transportation within Nigerian cities (taxis) by
gaining 80% of that market within five years.
Market entry
• Due to infrastructure and cultural needs, it would be
impractical for Tata to come in as a Wholly Owned
Subsidiary immediately.
• An acquisition would have high cost implications.
• A Joint Venture or Partnerships would be best in
this case.
• Established dealers with ready infrastructure
network who could help drive the brand include
Elizade, CFAO, Dana, Coscharis and Stallion.
Competitive advantage
• At half the price of the next cheapest car and
impressively low running costs, the Nano would
maintain competitive advantage by following a Cost
Leadership strategy as described by Micheal Porter
(RDI 2008a).
• The Nano’s competition isn’t other new vehicles which
don’t sell much anyway, but the massive used car
market. The unique selling points (USP) would be
that it is “a strong brand at a cheap price with low
running costs.”
Strategic Alliances
An agreement between two or
more individuals or entities
stating that the involved
parties will act in a certain
way in order to achieve a
common goal . Strategic
alliances usually make sense
when the parties involved
have complementary
strengths.
Motives for Strategic Alliance

 To obtain new and better

technology

 To enter into new markets

 To outsource business
functions

 To share risk
Types of Strategic Alliances

 Joint
venture
Outsourcing
 Licensing- Technology & Product
 Franchising
 Third-party logistics (3PL)
Fourth-party logistics (4PL)
Distribution Relationships
 Stages of Strategic Alliances
Alliance strategy formulation
Partner selection-
Developing screening criteria
 Agreeing on candidates
 Establishing initial contacts
 Formulating letter of content
Alliance structuring & start up-
 proper corporate governance structure
 relational quality
Alliance operation & adjustment-
• eg- Fuji-Xerox joint venture
Merger & Acquisition
MERGER-In a merger,companies come together to
combine and share their resources to achieve common
objectives.The shareholders of the combining
companies often remain as joint owners of the
combined entity.
ACQUISITION –An acquisition resembles more of an
arm’s-length deal,with one firm purchasing the assets
or shares or both of another,and with the aquired
firm’s shareholders ceasing to be owners of firm.
DIFFERENCES
MERGER
 Merger is defined as a combination of two or
more companies into a single company. A
merger can take place either as an amalgamation
or absorption.
 Amalgamation: This form is generally applied
to combinations of firms of equal size. Example:
the merger of Brooke Bond India Ltd. With
Lipton India Ltd. Resulted in formation of a
new company Brooke Bond Lipton India Ltd.
 Absorption: This type of merger involves
fusion of a small company with a large company.
Example: The recent merger of HDFC Bank
and Times Bank. After the merger Times Bank
ceases to exists while the expanded HDFC bank
continued.
ACQUISITION
 Acquisition involves buying the assets of
another company. These asset may be
tangible asset like manufacturing unit or
intangible asset like brands.
 Tangible asset acquisition Example:
The acquisition of the cement divisions of
Tata Steel by Lafarge of France. Lafarge
acquired only the 1.7 millions tones
cement plant and its related assets from
Tata steel.
 Intangible Asset acquisition Example:
Coca Cola paid Rs 170 crore to Parle to
acquire its soft drinks brand like Thumps
Up,Limca,Gold Spot ,etc.
The NPV of Merger
 Cash Deal:
 Example: Suppose A Co.(value Rs 60 lakhs)is acquiring B Co.(value Rs 20 lakhs)
at cost of Rs 27 lakhs. The value of synergy as a result of merger=Rs 10 lakhs.
 Therefore,NPV to A Company shareholders=90-60-27=3lakhs.
 Npv to B Company share holders= 27-20=7 lakhs.
 Since, Npv of the merger to both the companies is positive, they should go for
the merger.
 Stock Deal:
 Suppose in the previous problem, the no of outstanding shares of A & B co. are 3
lakhs and 2 lakhs respectively and an exchange of .3 is agreed between them.

 The common base used to exchange ratio are: 1. EPS 2. Book value per share
3.Market value per share.
TYPES OF M & A
TYPES OF MERGER
 Horizontal merger

 Vertical merger

 Conglomerate merger

 Concentric merger
Other types of mergers include:

 Product-extension merger

 Market-extension merger

 Congeneric merger

 Purchase merger

 Consolidation merger

 Reverse merger
 Major Acquisitions

Target Buyer Value ($ bn) Year

`
Arcelor Mittal Steel 31 2006

NKK Corp Kawasaki Steel 14.1 2001

LMM Holdings Ispat Intl 13.3 2004

Corus TATA 12.0 2006

Krupp AG Thyssen 8.0 1997

Dofasco Arcelor 5.2 2005

Intl Steel Mittal Steel 4.8 2005

 STAGES OF M & A
Major M & A phases Key Steps
Precombination • Search for & select candidate
• Create M & A team
• Establish business case
• Perform due diligence assessment
• Develop merger integration plans

Legal combination • Complete financial negotiations

• Close the deal
• Announce the combination
Operational combination • Day 1 activities
• Organizational & technical
integration activities
• Cultural integration activities
 Problems with M & A
Integration Difficulties
Differing financial and control systems can make
integration of firms difficult

Inadequate Evaluation of Target

“Winners Curse” bid causes acquirer to overpay for firm

Large or Extraordinary Debt

Costly debt can create onerous burden on cash outflows
 Problems with M & A
Inability to Achieve Synergy

Justifying acquisitions can increase estimate of

expected benefits

Overly Diversified
Acquirer doesn’t have expertise required to
manage unrelated businesses

Managers Overly Focused on Acquisitions

Managers may fail to objectively assess the value of
outcomes achieved through the firm’s acquisition
strategy
EXAMPLE OF AN UNSUCCESSFUL MERGER
THANK YOU…