ORIENTAL EDUCATION SOCIETY’S

SANPADA COLLEGE OFCOMMERCE AND TECHNOLOGY.

SUBJECT

MERGER AND

ACQUISITION

MERGER

A merger occurs when two companies combine to form a single company.

A merger is very similar to an acquisition or takeover, except that in the case of a merger existing stockholders of both companies involved retain a shared interest in the new corporation.

Types of Mergers

Horizontal: Combination of two or more firms operating in

the same stage of production. Example: The merger of ACC with Damodar

Cements.Vertical:

Merger between two companies producing different goods or services for one specific finished product.

Example: cement manufacturing company acquires a company engaged in civil construction.

Types of Mergers

Conglomeration: In this type of merger, the participating companies do not represent the same industry.Example: General Electric buying NBC television.

Congeneric merger:A merger is said to be congeneric when two companies belong to the same industry. They however, do not have any common customer, buyer, supplier. 

ACQUISITION

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

The acquisition can be expensive as the acquiring company will be paying for the net assets, goodwill and brand name of the company they are buying.

Types of Acquisition

Friendly Acquisition: The acquisition of a target company

that is willing to be taken over.EXAMPLE: IBM acquires Daksh e-Services on May 2004

Hostile Acquisition: Target has no desire to be acquired and

actively rebuffs the acquirer and refuses to provide any confidential information.

EXAMPLE: Kraft acquires Cadbury on 19 Jan 2010 for $18.9 b

DIFFERENCE

Merger Acquisition

The case when two companies (often of same size) decide to move forward as a single new company instead of operating business separately

The case when one company takes over another and establishes itself as the new owner of the business

DIFFERENCE

The stocks of both the companies are surrendered, while new stocks are issued afresh.

The buyer company “swallows” the business of the target company, which ceases to exist

For example: Tata & Docomo, Maruti & Suzuki,

For example: Tata Steel acquired Corus Group, Vodafone purchased Hutch-Essar.

A MERGER & ACQUISITION CAN TAKES PLAYS IN FOLLOWING FOUR WAYS

By purchase of asset

By purchase of common share

By exchange of share for asset

Exchange of shares for shares

REASONS FOR M&A

Accessing new markets. Maintaining growth momentum. Acquiring visibility and international brands. Buying cutting edge technology rather than

importing it. Taking on global competition. Improving operating margins and efficiencies. Developing new product mixes.

Advantages of M & A

A merger is legally simple and does not cost as much as other forms of acquisition.

The reason is that the firms simply agree to combine their entire operations.

Merger also enables the company to restructuring and strengthening the organization as firms involved in the transaction share strategies to strengthen the organization, thus eliminate weaknesses in the firm.

MARKET VALUATION

EXIT PLANNING

STRUCTURED MARKETING PROCESS

LETTER OF INTENT

BUYER DUE DILIGENCE

PROCEDURE

DEFINITIVE PURCHASE AGREEMENT

Motives for mergers and

acquisitions

Motives for Mergers and

Acquisitions

Economies of large scale business

Elimination of competition

Adoption of moderntechnology

Lack of technical & Managerial talent

Effects of trade cycles

Desire to enjoy monopoly

power

Patent right

Desire to unified control & selfsufficiency

Personalambition

Government pressure

Mergers &

Acquisit-ion

Integrationdifficulties

MERGER & ACQUISITION

Problems in achievingsuccess

Inadequate Evaluation of

Target

Larger or Extraordinary

debt

Inability toAchievesynergy

To much diversification

Managers Overly focusedOn acquisitions

Why Mergers and Acquisitions Fail?

Difference Cultural

Flawed Intention

Kraft& Cadburys

Offer

Kraft Foods is proposing an offer for Cadbury Plc. Of 300 pence in cash and 0.2589 new Kraft Foods shares per Cadbury share.This values each Cadbury share at 745 pence and values the entire issued share capitalof Cadbury at £10.2 billion.

Deal

Cadbury ordinary share at 840 pence and each CadburyADS at 33.60 and valued the entire issued share capital of Cadbury at

11.9 billion(approximately $19.4 billion)

Vodafone & Essar

Vodafone -Hutchison Essar: $11.1 billion $11.1

On February 11, 2007, Vodafone agreed to buy out the controlling interest of 67% held by Li Ka Shin.

Holding in Hutch-Essar for $11.1 billion. This is the second-largest M&A deal ever

involving an Indian company. Vodafone Essar is owned by Vodafone 52%,

Essar Group 33% and Other Indian nationals 15%.

TATA STEEL & CORUS

Tata Steel-Corus: $12.2 billion

On january 30, 2007, Tata Steel purchased a 100% stake in the Corus ,Corus accepted a $7.6 billion takeover bid from Tata Steel, cumulatively valued at $12.2 billion.

The deal is the largest Indian takeover of a foreign company till date and made Tata Steel the world’s fifth-largest steel group.

Tata Steel-Corus

The company was also recognized as the world's best steel producer by World Steel Dynamics in 2005.

Tata Steel's bid to acquire Corus Group was challenged by CSN, the Brazilian steel maker.

ICICI PRUDENTIAL

ICICI PRUDENTIAL

ICICI Prudential is a joint venture between ICICI Bank and Prudential plc engaged in the business of life insurance in India based in Mumbai .

ICICI Prudential Life's capital stands at Rs. 37.72 billion (as on March, 2008) with ICICI Bank and Prudential plc holding 74% and 26% stake respectively.

TATA SKY

TATA SKY

It is a joint venture between the Tata Group, that owns 80% and STAR Group that owns a 20% stake.

Tata Sky was incorporated in 2004 but was launched only in 2006 .

Tata Sky was selected as a SUPER BRAND for the year 2009-2010 by Superbrands Council .

TATA SKY

It is the only Indian DTH to have won this distinction.

It currently offers close to 264 channels (As of August 2010) and some interactive ones; this count includes some numbers off HD channels offered by Tata Sky (as Tata Sky - HD) and interactive services also.

Mahindra Renault

Merger of MAHINDRA & RENAULT

Mahindra Renault

Mahindra Renault Limited is a Joint Venture between India’s largest Utility vehicle manufacturer Mahindra &Mahindra Limited & Renault S.A of France.

This Joint venture was formed in year 2007. Their holding proportion ratio is 51% & 49% ( Mah & Mah and Renault) respectively.

SOME NOTABLE EXAMPLES OF FAILURES OF MERGER

AIRTEL & MTN

Airtel MTN merger Failure

India's telecom giant Bharti Airtel and South Africa's MTN on the USD-23 billion merger deal.

The proposed mega deal, which would have been the world's largest in the telecom sector, fell through for the second time in just over a year.

Airtel MTN merger Failure

Deal would have created the world's third largest telecom company with combined revenues of over USD 20 billion annually and a subscriber base of over 200 million.

The deal failed as the Indian laws did not provide for dual listing of shares, which was being insisted by the South African government.

FACEBOOK & TWITTER

Facebook Twitter merger failure

Twitter and Facebook have failed to come to an agreement about a possible acquisition of the micro-blogging service by the social network.

Facebook had reportedly offered Twitter $500 million, mainly in stocks and a certain cash component. While this might seem like a very good offer for Twitter, which is currently valued at around $98 million,

Facebook Twitter merger failure

Twitter currently has about 6 million registered users.

Another reason the deal may have failed to materialise, could be concerns regarding additional costs, in order to pay for SMS messages sent through Twitter. It has been estimated that if all of Facebook’s 120 million users were given access to Twitter, the SMS costs would be in the range of $75 million annually.

MICROSOFT & YAHOO

MICROSOFT & YAHOO MERGER FAILURE

Microsoft had raised its initial bid by about US$5 billion, but that didn't convince Yahoo to accept the revised offer.

In response, Yahoo issued a statement reiterating its position that Microsoft's offer was too low

CONCLUSION

A merger can happen when two companies decide to combine

into one entity or when one company buys another.

An acquisition always involves the purchase of one company by another