PRESENTATION ON

MERGERS ACQUISITION & JOINT VENTURE

PRESENTED BY:RASHMI PARUL GUPTA DINESH MITTAL M.B.A. 3rd sem.

MERGER

MERGER
 A merger is a combination of two or more businesses into one business. Laws in India use the term 'amalgamation' for merger. The Income Tax Act,1961 [Section 2(1A)]defines amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company, in such a way that all assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company and shareholders not less than nine-tenths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company.

A consolidation is a combination of two or more companies into a third entirely new company formed for the purpose. The new company absorbs the assets, and possibly liabilities, of both original companies which creates to exists. When two firm merge, stock of both are surrendered and new stocks in the name of new company are issued .Generally merger take place between two companies of more or less the same size. e.g. HCL

 In a case of absorption one company absorb another company i.e. it purchases either the assets or share of that company. The merger by absorption is always friendly in nature i.e. both the companies agree to the term of absorption. e.g. TCL

TYPES OF MERGERS

1. Horizontal 2. Vertical 3. conglomerate

Types of merger

AUTO

FINISHED GOOD

BLUE JEANS

GLASS

RAW METERIAL

Denim FABRIC

Types of merger

AUTO

FINISHED GOOD

BLUE JEANS

GLASS

RAW METERIAL BUSINESSLEVEL

Denim FABRIC

Types of merger

AUTO

FINISHED GOOD

BLUE JEANS

GLASS

RAW METERIAL

Denim FABRIC

Types of Merger

AUTO

BUSINESS LEVEL FINISHED GOOD

BLUE JEANS

GLASS

RAW METERIAL

Denim FABRIC

Horizontal Mergers
A horizontal merger results in the consolidation of firms that are direct rivalsthat is sell substitutable products with in overlapping geographic markets. This form of merger results in the expression of a firms operation in a given line product line and at the same time eliminates competitors

Types of Merger

AUTO

FINISHED GOOD

BLUE JEANS

B
The merger of supplier T and U represent the horizontal merger

C D E F

GLASS

RAW METERIAL

Denim FABRIC

VERTICAL MERGERS
When two firms working in different stages of production or distribution of the same product join together it is called vertical merger. A vertical merger is not in which the buyer expands backwards and merges with the firm supplying raw material or expand foreword in the direction of the ultimate consumer the economics benefits of this type of merger stem from the firms increased control over the acquisition of raw material or the distribution of finished goods.

Vertical mergers can best be understood from examining real world deals. One such merger occurred between Time Warner Incorporated, a major cable operation, and the Turner Corporation, which produces CNN, TBS, and other programming. In this merger, the Federal Trade Commission (FTC) was alarmed by the fact that such a merger would allow Time Warner to monopolize much of the programming on television. Ultimately, the FTC voted to allow the merger but stipulated that the merger could not act in the interests of anti-competitiveness to the point at which the public good was harmed.

Types of Merger

AUTO

FINISHED GOOD

BLUE JEANS

The merger of supplier F and Z represent the vertical merger

GLASS

RAW METERIAL

Denim FABRIC

Conglomerate Mergers
A conglomerate merger involve two firms in totally unrelated activities. A conglomerate is a firm that has external growth through a number of merger of companies through business are not related either horizontally and vertically . A conglomerate may have operation in manufacturing electronic , banking, fast food restaurants and other unrelated businesses this form of result in the expansion of a firms operation in different unrelated lines of business with an increased sense of operating synergies.

Types of merger

Merge ring related to un related firm is called Conglomerate mergers

FINISHED GOOD AUTO

BLUE JEANS

GLASS RAW METERIAL

Denim FABRIC

A merger can takes Plays in following four ways:By purchase of assets

By purchase of common share

By exchange of share and assets

Exchange of shares for shares

BY PURCHASE OF ASSET
The assets of company y may be sold to company x. once this is done ,company y is then legally terminated and company x survives.

BY PURCHASE OF COMMON SHARES

The common share of company y may be purchased by company x .when company x holds all the shares of company y, it is dissolved.

BY EXCHANGE OF SHARE OF ASSETS

Company x may give its shares to the shareholders of company y for its net assets . Then company y is terminated by its shareholders who now holds shares of company x.

EXCHANGE OF SHARES FOR SHARES

Company x gives its shares to the shareholders of company y and then company y is terminated.

EXAMPLES

ASIAN PAINTS-BERGER INTERNATIONAL

IN THE YEAR 2002

Asian paints acquired 50.1%controlling stake in berger international. Deal of Rs. 57.6 crores Berger international has no operation in INDIA but formed Berger paints INDIA ltd. In Calcutta (subsidiary) Objective enter into the south Eastasian market growth. Such as Singapore, Thailand, Myanmar, Bahrain ,Malta ,UAE, Jamaica.

ITC WITH ITC BHADRACHALAM PAPERBOARDS LTD.

2001 March end. ITCBPL- is subsidiary of ITC ITCBPL had a accumulated losses of RS.125 crores. The loss due to high depreciation rate. ITC had a profit of RS.1000crores Take over benefits one time to reduce tax of RS.100 crores.

MAHINDRA AND SATYAM

ACQUISITION
Acquisition refers to one company buying out another to combine the bought entity within itself. Acquisition increases the interest of the acquiring company in the target or acquired company. A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm its subsidiary within its portfolio of business. ACQUISITIONS

With acquisition, one firm takes over another and establishes its power as the single owner. Generally, the firm which takes over is the bigger and stronger one. The relatively less powerful, smaller firm loses its existence, and the firm taking over, runs the whole business with its own identity. Unlike the merger, stocks of the acquired firm are not surrendered, but bought by the public prior to the acquisition, and continue to be traded in the stock market.

When a deal is made between two companies in friendly terms, it is typically proclaimed as a merger, regardless of whether it is a buy out. In an unfriendly deal, where the stronger firm swallows the target firm, even when the target company is not willing to be purchased, then the process is labeled as acquisition. Often mergers and acquisitions become synonymous, because, in many cases, a bigger firm may buy out a relatively less powerful one and compel it to announce the process as a merger. Although, in reality an acquisition takes place, the firms declare it as a merger to avoid any negative impression.

Whether the deal results in a merger or an acquisition also depends on the way it is announced. In other words, the difference lies in how the purchase is communicated to and received by the target company's board of directors, shareholders and employees.

Procedure for Evaluating The Decision for Mergers and Acquisitions

Planning Search and scanning Financial Evaluation

Planning:- of acquisition will require the analysis of industry-specific and firm-specific

information. The acquiring firm should review its objective of acquisition in the context of its strengths and weaknesses and corporate goals. It will need industry data on market growth, nature of competition, ease of entry, capital and labor intensity, degree of regulation, etc. This will help in indicating the product-market strategies that are appropriate for the company. It will also help the firm in identifying the business units that should be dropped or added. On the other hand, the target firm will need information about quality of management, market share and size, capital structure, profitability, production and marketing capabilities, etc.

Search and Screening:- Search focuses on how and where to look for suitable candidates for acquisition. Screening process short-lists a few candidates from many available and obtains detailed information about each of them.

Financial Evaluation:- of a merger is needed to determine the earnings and cash flows, areas of risk, the maximum price payable to the target company and the best way to finance the merger. In a competitive market situation, the current market value is the correct and fair value of the share of the target firm. The target firm will not accept any offer below the current market value of its share. The target firm may, in fact, expect the offer price to be more than the current market value of its share since it may expect that merger benefits will accrue to the acquiring firm. A merger is said to be at a premium when the offer price is higher than the target firm's pre-merger market value. The acquiring firm may have to pay premium as an incentive to target firm's shareholders to induce them to sell their shares so that it (acquiring firm) is able to obtain the control of the target firm.

Motives for Merger and Acquisitions

Elimination of competition

Desired to unified control and self sufficiency

Adoption of modern technology

Motives for
Effect of trade cycles

Merger and Acquisitions

Lack of technical and management talent

Governmen t pressure

Desire to enjoy monopoly power

Regulations for Mergers & Acquisitions

The companies act ,1956

The companies act, 2002