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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
0
50
100
150
200
250
300
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
0
50
100
150
200
250
valu
e in
Bil
lio
n
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