Mergers & AcquisitionBy Swati Mathur

2008

Corporate Restructuring

It is defined as a comprehensive process by which a company

can consolidate its business operations & strengthen its

position for achieving the desired objective.

It involves significant reorientation or realignment of assets

and liabilities through conscious management actions with an

objective of drastically altering the quality of future cash flows

It is any change in capital structure, operations size or

ownership that is outside the ordinary course of business.

Forms of Restructuring

Corporate restructurin

g

Divestitures Mergers andAcquisitions

Portfolio Restructuring

Financial Restructuring

OrganizationalRestructuring

Sell offs

Spin offs

Equity carve outs

Merger

Purchase of Plant or a Division

Take over or acquisitions

Joint ventures

Leveraged buy outLBO

Mergers and Acquisitions: Three Types

MergerA transaction where two firms agree to integrate their operations on a relatively equal basis because they have resources and capabilities that together may create a stronger competitive advantage

AcquisitionIt is an attempt by one firm called the acquiring firm to gain a majority interest in another firm called the target firm, for effectively using core competence. Also called as friendly takeover

TakeoverAn acquisition where the target firm did not solicit the bid of the acquiring firm. Against the wishes of the company

What is a Merger

A merger is said to occur, when two or more companies combine into one company

Merger may take 2 forms : Merger through absorption Merger through Consolidation

Practically amalgamation & consolidation are used interchangeably

Merger by Absorption Merger by Consolidation

A ltd

A ltdC ltd

A ltd B ltdB ltd

Combination of two or more companies into a new company

It is a combination of two or more companies into an existing company

Types of mergers

Horizontal mergers: 2 firms that operate same kind of

business

Vertical mergers: firms in diff stages of prod/operation

Lateral Merger: Firms producing different products related to each other in some

way Conglomerate mergers: Firms that are in different

unrelated business activity.

Circular mergers: When firms belonging to diff industries

combine together

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Combined X&YCompany YCompany X

THE THEORY OF ACQUISITIONSECONOMIC VALUE ADDED

Mergers will create an economic advantage> Synergy V a + V b < (V a b)

> Economies of scale 

> Increased Market share

> Accelerated growth

Net Economic Advantage = Vab – (Va +Vb) – cost of merging

Problems inAchieving Success

Problems inAchieving Success

IntegrationDifficulties/Cultures

Inadequate evaluation of target

Too muchdiversification

Large orextraordinary debt

Inability toachieve synergy

Managers overlyfocused on acquisitions

Too large

Increasedmarket power

Overcomeentry barriers

Lower riskcompared to developing

new products

Cost of newproduct development

Increased speedto market

Increaseddiversification

Avoid excessivecompetition

M&A

Reasons forM&A

India Cross Border M&A Deals

India Inc’s cross border acquisitions may have topped $ 20

billion in 2006

M&A volume reached a record $4 trillion through 31,858 deals

L N Mittals’ merger of Mittal Steel and Arcelor emerged the

world’s fourth biggest deal this year.

Subex Systems recent acquisitions of Azure Systems (UK), a

company larger than itself (Azure has a turnover of $ 31 million

against Subex’s revenues of $ 25 million).

INDIA: Cross Border M & A

Tata takes Corus along

Tatas takeover of Corus is the biggest takeover in history of India at Rs 12 Bn ( Rs 54000 cr)

The takeover triples Tatas Steel capacity to almost 28million tonnes from 8.7 million tonnes

Gives access to high value European market

Lifts Tata Steel from 56th to 5th steel makers in the world

Source : Times of India Feb 1 2007

Volume of Mergers & Acquisitions in India

Year Number Amount ( in crores )

1998-99 292 16,071

1999-00 765 36,963

2000-01 1177 32,130

2001-02 1045 34,322

2002-03 838 23,106

2003-04 834 35,980

Emerging Trends & Developments in Mergers & Acquisitions

India ranks 4th in the entire Asia Pacific region which is just after China

as far as M&A activities are concerned.

Indian companies realized that M & A will be an integral part of their

growth strategy and this has fuelled the boom even more 2006

There were more than 15 transactions involving Indian companies in

amounts in excess of US $ 500 million.

Global companies believe that Indian managerial skills in certain sectors

are worth paying for.

No of M&A Deals

There were 82 inbound

deals worth $ 5.5

billion.

170 outbound deals

worth $ 9.57 billion

208 domestic deals

worth $ 4.43 billion.

No of deals

82

170

208

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valu

e in

Bil

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Inbound Outbound Domestic

Increase in Deal Sizes, India vs. Global

Breakdown of India’s cross-border M&A activity by industry group

Major Acquisitions in 2005-06India has only 1.3% of the global M&A deals

Top 5 WORLD DEAlS Buyer Value($bn)

Endessa SA E. ON AG 66.64

Arcelor Mittal Steel 35.63

Scottish power Iberdrola SA 27.21

BAA PLC Multiple acquires 27.13

Gallaher group Japan Tobacco 19.02

TOP INDIA DEALS

Corus Tata 12 bn

HDFC Citigroup 677.23 mn

Energy Brand Tatagroup 677 mn

Betapharm Dr Reddy’s Lab 570.29 mn

Eveholding Sulzon Energy 494.89 mn

Source : IPE Bulletin Feb 2007

Issues Are M & A good or bad for the economic wealth & health of

nation?

Do they divert the energies of management from bonafide economic activity to financial manipulations?

Do they use up financial resources which otherwise would be employed in real investment activities?

Why as such heightened M & A been a phenomenon during the last couple of years?

CONCLUSION

M&A reflects a big change in the mindset of Indian companies that has come about as a result of greater exposure and increased competitiveness.

As companies have successfully faced the

challenges of competing on foreign turf, they have matured and grown in self confidence.

Thank you