MERGERS & ACQUISITION

BY LERIE PERERA-

PRATIK SAVLA-135RITESH TRIPATHI-161

VISHAL WAVAL-SURAJ .J - 162

SAGAR SRIVASTAVA-155

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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DEFNITIONS

Parties to the acquisitions: The target company The acquiring company Classified based on endorsement of parties’ management: A hostile takeover A friendly transaction

DIFFERENCE BETWEEN MERGER AND 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 ACQUISITION

MERGER:WHY & WHY NOT

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i. Increase Market Share.

ii. Economies of scale

iii. Profit for Research and development.

iv. Benefits on account of tax shields like carried forward losses or unclaimed depreciation.

v. Reduction of competition.

i. Clash of corporate cultures

ii. Increased business complexity

iii. Employees may be resistant to change

WHY IS IMPORTANTPROBLEM WITH MERGER

ACQUISITION:WHY & WHY NOT

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i. Increased market share.ii. Increased speed to

marketiii. Lower risk comparing to

develop new products.iv. Increased diversificationv. Avoid excessive

competition

i. Inadequate valuation of target.

ii. Inability to achieve synergy.

iii. Finance by taking huge debt.

WHY IS IMPORTANT PROBLEM WITH ACUIQISITION

TYPES OF M&A

M&A

Market-extension merger

Two companies that sell the same

products in different markets

Product-extension merger

Two companies selling different but related products in the same market

Conglomeration

Two companies that have no

common business areas

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).

FAILED MERGERS

TYPES OF MERGER

1. Horizontal Merger

2. Vertical Merger

3. Conglomerate Merger

4. 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.

COMMON MOTIVATIONS FOR M&A

Synergies Achieving more rapid growth Increased market power Gaining access to unique capabilities Diversification

Bootstrapping EPS Personal benefits for managers Tax benefits Unlocking hidden value Achieving international business goal

MOTIVES OF MERGER

Factors are Need for capital.

Need for resources.

Degree of competition and the number of competitors.

Growth opportunities .

Opportunities for synergy.

Industry’s stage in its life cycle.

FORM OF ACQUISTION In a stock purchase.

A stock purchase needs shareholder approval.

Target shareholders are taxed on any gain.

Acquirer assumes target’s liabilities.

In an asset purchase. An asset purchase may not need shareholder approval.

Acquirer likely avoids assumption of liabilities.

M&A ANALYSIS

The discounted cash flow (DCF) method is often used in the valuation of the target company.

The cash flow that is most appropriate is the free cash flow (FCF). To estimate future FCF.

Pro forma financial statements to estimate FCF

We use a two-stage model when we can more accurately estimate growth in the near future and then assume a somewhat slower growth out into the future.

BENEFITS OF MERGERS Mergers create value Acquirers tend to overpay in merger bids.

The transfer of wealth is from acquirer to target company shareholders.

Roll: Overpayment results from “hubris.”

Acquirers tend to underperform in the long run. They are unable to fully capture any synergies or other benefit from the merger.