mergers and acquisitions

transcript

Anurag Savarnya 10MI32003

Prateek Kishore 10MI10029

Mergers & Acquisitions

MergeroA transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage.oThe combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stockoExample: Company A+ Company B= Company C.

ACQUISITION

A transaction where one firms buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business

It also known as a takeover or a buyout It is the buying of one company by another. In acquisition two companies are combine

together to form a new company altogether. Example: Company A+ Company B=

Company A.

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

i. Increase Market Share.

ii. Economies of scaleiii. 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 IMPORTANT PROBLEM WITH MERGER

ACQUISITION:WHY & WHY NOT

i. Increased market share.

ii. Increased speed to market

iii. Lower risk comparing to develop new products.

iv. Increased diversification

v. 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

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

TOP 11 M&A DEALS…

1. TATA STEEL-CORUS: $12.2 BILLION

January 30, 2007

Largest Indian take-

After the deal TATA’S

became the 5th largest

STEEL co.

100 % stake in CORUS

paying Rs 428/- per

shareImage: B Mutharaman, Tata Steel MD; Ratan Tata, Tata chairman; J Leng, Corus chair; and P Varin, Corus CEO.

2. VODAFONE-HUTCHISON ESSAR: $11.1 BILLION

TELECOM sector11th February

20072nd largest

takeover deal67 % stake

holding in hutch

Image: The then CEO of Vodafone Arun Sarin visits Hutchison Telecommunications head office in Mumbai.

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 revenues

Image: Kumar Mangalam Birla (center), chairman of Aditya Birla Group.

4. RANBAXY-DAIICHI SANKYO: $4.5 B

Pharmaceuticals sector June 2008 Acquisition deal largest-ever deal in the

Indian pharma industry Daiichi Sankyo acquired

the majority stake of more than 50 % in Ranbaxy for Rs 15,000 crore

15th biggest drugmakerImage: Malvinder Singh (left), ex-CEO of Ranbaxy, and Takashi Shoda, president and CEO of Daiichi Sankyo.

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.

6. NTT DOCOMO-TATA TELE: $2.7 B

November 2008 Telecom sector Acquisition deal Japanese telecom

giant NTT DoCoMo acquired 26 per cent equity stake in Tata Teleservices for about Rs 13,070 cr.

Image: A man walks past a signboard of Japan's biggest mobile phone operator NTT Docomo Inc. in Tokyo.

7. HDFC BANK-CENTURION BANK OF PUNJAB: $2.4 BILLION

February, 2008 Banking sector Acquisition deal CBoP shareholders

got one share of HDFC Bank for every 29 shares held by them.

9,510 croreImage: Rana Talwar (rear) Centurion Bank of Punjab chairman, Deepak Parekh, HDFC Bank chairman.

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.

9. STERLITE-ASARCO: $1.8 BILLION May 2008 Acquisition deal Sector copper

Image: Vedanta Group chairman Anil Agarwal.

10. SUZLON-REPOWER: $1.7 BILLIONMay 2007 Acquisition dealEnergy sectorSuzlon is now the

largest wind turbine maker in Asia

5th largest in the world.

Image: Tulsi Tanti, chairman & M.D of Suzlon Energy Ltd.

11. RIL-RPL MERGER: $1.68 BILLION

March 2009 Merger deal amalgamation of

its subsidiary Reliance Petroleum with the parent company Reliance industries ltd.

Rs 8,500 crore RIL-RPL merger

swap ratio was at 16:1

Image: Reliance Industries' chairman Mukesh Ambani.

WHY INDIA?

Dynamic government policiesCorporate investments in industryEconomic stability“Ready to experiment” attitude of

Indian industrialists

AMONGST BRIC NATIONS, INDIA SECOND MOST TARGETED COUNTRY FOR MERGERS & ACQUISITIONS(2010):

MERGER & ACQUISITION(2010-11) :

PROCESS OF MERGER & ACQUISITION IN INDIA:

The process of merger and acquisition has the following steps:

i. Approval of Board of Directorsii. Information to the stock exchangeiii. Application in the High Courtiv. Shareholders and Creditors meetingsv. Sanction by the High Courtvi. Filing of the court ordervii. Transfer of assets or liabilitiesviii. 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

ImpactEmployees

Competition

Management

Public

Shareholders

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

MERGER BETWEEN AIR INDIA AND INDIAN AIRLINES

The government of India on 1 march 2007 approved the merger of Air India and Indian airlines.

Consequent to the above a new company called National Aviation Company of India limited was incorporated under the companies act 1956 on 30 march 2007 with its registered office at New Delhi.

AIM OF THE MERGER Create the largest airline in India and comparable to other airlines in

Asia. Provide an Integrated international/ domestic footprint which will

significantly enhance customer proposition and allow easy entry into one of the three global airline alliances, mostly Star Alliance with global consortium of 21 airlines.

Enable optimal utilization of existing resources through improvement in load factors and yields on commonly serviced routes as well as deploy ‘freed up’ aircraft capacity on alternate routes.

The merger had created a mega company with combined revenue of Rs 150 billion ($3.7billion) and an estimated fleet size of 150. It had a diverse mix of aircraft for short and long haul resulting in better fleet utilization.

Provide an opportunity to fully leverage strong assets, capabilities and infrastructure.

Provide an opportunity to leverage skilled and experienced manpower available with both the Transferor Companies to the optimum potential.

Provide a larger and growth oriented company for the people and the same shall be in larger public interest.

AIM OF THE MERGER Potential to launch high growth & profitability businesses

(Ground Handling Services, Maintenance Repair and Overhaul etc.)

Provide maximum flexibility to achieve financial and capital restructuring through revaluation of assets.

Economies of scale enabled routes rationalization and elimination of route duplication. This resulted in a saving of Rs1.86 billion, ($0.04 billion) and the new airlines will be offering more competitive fares, flying seven different types of aircraft and thus being more versatile and utilizing assets like real estate, human resources and aircraft better. However the merger had also brought close to $10 billion (Rs 440 billion) of debt.

The new entity was in a better position to bargain while buying fuel, spares and other materials. There were also major operational benefits.

Traffic rights - The protectionism enjoyed by the national carriers with regard to the traffic right entitlements is likely to continue even after the merger. This will ensure that the merged Airlines will have enough scope for continued expansion, necessitated due to their combined fleet strength.

POST MERGER SCENAREO NACIL's employee-to-aircraft ratio: at 222:1 (the global

average is 150:1), resulting in a surplus employee strength of almost 10,000.

Fleet Expansion: NACIL's fleet expansion seems out of sync with the times. Most airlines are actually rounding their fleet and cancelling orders for new planes. While NACIL plans to induct around 85 more aircrafts which means their debt going forward.

Mutual Distrust and strong unions: Strong opposition from unions against management’s cost-cutting decisions through their salaries have led to strikes by the employees.

Increased Competition: Air India’s domestic market share dropped from 19.8% in August 2007, when the merger took place, to 13.9% in January 2008 before rising to 17.2% in February 2009.

Lower load factor: The company’s load factor is decreasing year by year, in 2005- 06 load factor is 66.2% which is more than present load factor. Air India load factor is likely to be low because of the much higher frequency operated on each route. Lower load factor could decrease the company’s margins.

REASONS FOR FAILURE

The merger coincided with a flurry of increased domestic and international competition.

Weak management and organization structure.

More attention to non-core issues such as long term fleet acquisitions and establishing subsidiaries for ground handling and maintenance, than to addressing the state of the flying business.

Bloated workforce Unproductive work practices Political impediments to shedding staff

SUCCESS & FAILURE RATE(2009-10):

EXPERIENCES IN M&ALearn from mistakes of othersDefine your objectives clearlyComplete strategy to achieve goal.SWOT analysis for the merged business - a

mustConservative attitude necessary at

evaluation deskstrong arguments to support project

Pick holes in strategy to get the bestWill merged units be able to work at

efficient / ideal level?Acquire expertise to interpret changes

MERGERS , ACQUISITIONS & TAKEOVERS

WHAT DOES MERGER MEAN?

The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.

BENEFITS OF MERGER

Diversification of product and service offerings

Increase in plant capacity

Larger market share

Utilization of operational expertise and research and development (R&D)

Reduction of financial risk

WHY DO MERGERS FAIL ?

Lack of human integration Mismanagement of cultural issues Lack of communication

ACQUISITION

•When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition.

•Acquisition is generally considered negative in nature

SYNERGIES RELATED TO ACQUISITION Economies of scale

Staff reductions

Acquiring new technology

Improved market reach and industry visibility

Taxation

TOP ACQUISITIONS Rank Year Purchaser Purchased

Transaction value (in mil. USD)

1 2000America Online Inc. (AOL)

Time Warner 164,747

2 2000Glaxo Wellcome Plc.

SmithKline Beecham Plc.

75,961

3 2004Royal Dutch Petroleum Co.

Shell Transport & Trading Co

74,559

4 2006 AT&T Inc.BellSouth Corporation

72,671

5 2001Comcast Corporation

AT&T Broadband & Internet Svcs

72,041

6 2004Sanofi-Synthelabo SA

Aventis SA 60,243

7 2000Spin-off: Nortel Networks Corporation

59,974

8 2002 Pfizer Inc.Pharmacia Corporation

59,515

9 2004JP Morgan Chase & Co

Bank One Corp 58,761

TAKEOVERS

A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.

TAKEOVER MIGHT BE :

Hostile Takeover

A takeover attempt that is strongly resisted by the target firm

Friendly Takeover

Target company's management and board of directors agree to a merger or acquisition by another company.

WHY SHOULD FIRMS TAKEOVER?

To gain opportunities of market growth more quickly than through internal means

To seek to gain benefits from economies of scale To seek to gain a more dominant position in a

national or global market To acquire the skills or strengths of another firm

to complement the existing business To acquire a speedy access to revenue streams

that it would be difficult to build through normal internal growth

To diversify its product or service range to protect itself against downturns in its core markets

KNIGHTS AND SQUIRES

In the case of a hostile takeover, the firm making the bid can be referred to as a 'black knight'.

‘White knight' is a firm that may enter the fray as a 'friendly' bidder.

A 'grey knight' is a third firm that is not welcomed by the 'victim', seeking to exploit the situation to their own advantage.

‘Yellow knight' is a firm who originally seeks to launch a hostile takeover bid but then moderates its stance and negotiates on the basis of a merger.

‘White squires‘ is a firm which may not be big enough to be able to take control of another firm but may well seek to buy into the 'victim' firm to prevent the 'black knight' from being able to achieve its takeover plans.

TYPES OF MERGER

1. Horizontal Merger2. Vertical Merger3. Conglomerate Merger4. 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.

EXAMPLES OF HORIZONTAL MERGER

Lipton India and Brooke Bond.

Bank of Mathura with ICICI Bank.

BSES Ltd with Orissa Power Supply Company.

Associated Cement Companies Ltd Damodar Cement.

VERTICAL MERGER

A merger between two companies producing different goods or services.

EXAMPLE OF VERTICAL MERGER

Time Warner Incorporated, a major cable operation, and the Turner Corporation, which produces CNN, TBS, and other programming.

Pixar-Disney Merger

CONGLOMERATE MERGER

A merger between firms that are involved in totally unrelated business activities.

Two types of conglomerate mergers:

1. Pure conglomerate mergers involve firms with nothing in common.

2. Mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.

EXAMPLE OF CONGLOMERATE MERGER

Walt Disney Company and the American Broadcasting Company.

CONCENTRIC MERGER

A merger of firms which are into similar type of business.

EXAMPLE OF CONCENTRIC MERGER

Nextlink is a competitive local exchange carrier offering services in 57 cities and building a nationwide IP network.

Concentric, a national ISP, offers dedicated and dial-up Internet access, high-speed DSL and VPN services across the U.S. and overseas.

ANAND TANKS & VESSELS PVT.LTD. ATV PROJECTS INDIA LTD.ANANDMANGAL COMMODEAL PVT.LTD. SARASWATI COMMERCIAL (INDIA) LTD.

ANIL SYNTHETICS LTD. KANORIA CHEMICALS INDS.LTD.ANJU SYNTHETICS PVT.LTD. GUJARAT METAL FORM LTD.ANKLESHWAR ION EXCH.& CHEM.LTD. ION EXCHANGE (INDIA) LTD.APURAJ CHEM LTD. PIDILITE INDUSTRIES LTD.ARAVALLI SVACHALIT VAHAN LTD. KELVINATOR OF INDIA LTD.ARRON INVESTMENT LTD. LLOYDS STEEL LTD.ARTPLY WOOD INDUSTRIES LTD. KITPLY INDUSTRIES LTD.ARUN GENERAL INDUSTRIES LTD. GENERAL INDUSTRIAL SOCIETY LTD.ARUNA LEATHERS & EXPORTS LTD. MRF LTD.ASEA LTD. HINDUSTAN BROWN BOVERI LTD.ASHIANA PROTEINS LTD. ASHIANA HOUSING & FIN.(I) LTD.ASIAN CABLE & INDUSTRIES LTD. RPG CABLES LTD.ASIAN CABLES CORPN.LTD. ASIAN CABLES & INDUSTRIES LTD.ASIAN COFFEE LTD. CONSOLIDATED COFFEE LTD.ASIAN WOODS & POLYMERS PVT.LTD. KITPLY INDUSTRIES LTD.ASOKA MILLS LTD. ARVIND MILLS LTD.ASSOCIATED ELECTRICAL INDS.LTD. GENERAL ELECTRIC CO.OF INDIA LTD.ASSOCIATED HOTELS OF INDIA LTD. EAST INDIA HOTELS LTD.ASSOCIATED POWER CO.LTD. DISHERGARH POWER SUPPLY CO.LTDATLANTIC (EAST) LTD. RECKITT & COLEMAN OF INDIA LTD.ATTAREEKHAT TEA CO.LTD. GEORGE WILLIAMSON (ASSAM) LTD.ATTIKHAN (BILIGIRI) LTD. SANGAMESHWAR COFFEE EST.& INDS.LTD

ATUL PRODUCTS LTD. GUJARAT AROMATICS LTD.AUTO RUBBERS TOOLS LTD. TVS SRICHAKRA LTD.

Company Merged WithA & F HARVEY LTD. MADURA COATS LTD.A.A.ALLOYS LTD. BHUWALKA STEEL INDUSTRIES LTD.A.H.BHIWANDIWALA & CO.LTD. GREAT EASTERN SHIPPING CO.LTD.A.K.STRUCTURAL LTD. SUPREME INDUSTRIES LTD.A.P.COTEX ASIAN PAINTS LTD.ABRASIVES & CASTINGS LTD. WOOD POLYMERS LTD.ACT INDIA LTD. INDRAD AUTO COMPONENTS LTD.ADDI FASHIONS PVT.LTD. ADDI INDUSTRIES LTD.ADDI WOOLLENS LTD. ADDI INDUSTRIES LTD.ADDI WORSTED LTD. ADDI INDUSTRIES LTD.ADEQUATE WEIGHERS (INDIA)LTD. GILLANDERS ARBUTHNOT & CO.LTD.ADONI SPG.& WVG.CO.LTD. KOTHARI INDUSRIAL COPN.LTD.ADVANCE WELDING ALLOYS LTD. ADVANI-OERLIKON LTD.AEKTA LTD. KIRTIVARDHAN FINVEST SERVICES PVT.AELPE FINANCE LTD. ORIENT BEVERAGES LTD.AGIPI CHEMICALS LTD. STANDARD MEDICAL & PHARMA.LTD.AHMEDABAD LAXMI COTTON MILLS CO.LTD ARVIND MILLS LTD.

AKAR POLYMATIK LTD. AKAR LAMINATORS LTD.ALCO-CHEM LTD. UPPER GANGES SUGAR & INDUSTRIES LT

ALEMBIC DISTRIBUTORS LTD. ALEMBIC CHEMICALS WORKS CO.LTD.ALLIANCE FUND MANAGEMENT LTD. ALLIANCE CREDIT & INVESTMENT LTD.ALU CAPSULES LTD. LARSEN & TOUBRO LTD.AMBUJA SHIPYARD & SOFTWARE LTD. GALAXY APPLIANCE LTD.AMIT ALCOHOL & CARBON DIOXDIE LTD. AEGIS CHEMICALS INDUSTRIES LTD.

AMRIT PROTIEN FOOD LTD. AMRIT BANSPATI LTD.AMRITA EXPORTS PVT.LTD. MADHUR FOOD PRODUCTS LTD.ANAGRAM FIN.& INDUSTRIES LTD, BROOKE BOND (INDIA) LTD.ANAGRAM FINANCE LTD. ICICI LTD.

PAC-MAN DEFENSE Scare off by purchasing large amounts of the acquiring

company's stock. Resisting company may even sell off non-vital assets to

procure enough assets to buy out the acquirer.

Example Attempted acquisition of Martin Marietta by Bendix

Corporation in 1982 : Martin Marietta's management responded to takeover

attempt by selling non-core businesses in order to attempt a takeover of its own - of Bendix Corporation. In the end

Bendix Corporation was bought by Allied Corporation

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

VideoconDaewoo Electronics Corp.

Korea 729 Electronics

Dr. Reddy’s Labs Betapharm Germany 597 Pharmaceutica

lSuzlon Energy Hansen Group Belgium 565 Energy

HPCLKenya Petroleum Refinery Ltd.

Kenya 500 Oil and Gas

Ranbaxy Labs Terapia SA Romania 324 Pharmaceutica

Tata Steel Natsteel Singapore 293 Steel

Videocon Thomson SA France 290 Electronics

VSNL Teleglobe Canada 239 Telecom

INDIAN OUTBOUND DEALS SINCE 2000

William Durant, the founder of General Motors, lost control of his company due to his aggressive expansion plans. Going wholeheartedly from a carriage manufacturer to an automotive force, Durant used debt to finance his takeovers and mergers with other auto startups. The bankers, who helped with refinancing efforts, and the stockholders, to whom Durant had sold and resold shares, finally decided to oust him and consolidate current holdings, rather than to continue the breakneck expansion.

Durant immediately began to look for a way to regain control of his company. He hooked up with a Swiss racer named Louis Chevrolet and the two formed Chevrolet. Although Durant soon disagreed with Chevrolet about the direction of the company and bought him out, the company was highly successful. Durant still held a large amount of GM stock and he used the profits from his new company to buy even more.

Durant eventually owned enough GM stock to bring the company to the table for merger/buyout talks. Durant offered a five-for-one stock swap. GM shareholders jumped at the chance to get another popular brand under their umbrella at a cheap price. GM particularly relished merging with a brand that could help it fight off Ford. As part of the deal, Durant regained control of the company he had founded.

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