7/28/2019 45436565 Merger n Acquisitions
1/27
MERGERS
In merger two firms, agree to move ahead and exist as a singlenew company. Merger can be
merger of equals : both companies are of equal sizes.
merger of unequal's : large company merge with smaller one
Voluntary process : consent of both companies.
Name of new merged entity is usually a combination of bothparent companies
Mergers are mostly financed by a stock swap. Both companiessurrender their stocks and stock of the new company is issuedas a replacement.
7/28/2019 45436565 Merger n Acquisitions
2/27
Types of mergerHorizontal merger : When two merging companies are of the same
industry and produce similar products.
Example : Footwear Company Merging with Footwear company
Vertical merger : When two companies are producing the same
goods, but are at different stages, it is a vertical merger.
Example : Footwear Company Merging with Leather Tannery
Concentric merger : when two companies are related to each other
in terms of customer functions or customer groups.
Example : Footwear Company Merging with another specialty
Footwear Company
Conglomerate merger : When two companies operate in different
industries.
Example : Footwear Company Merging with Pharmaceutical
Firms
7/28/2019 45436565 Merger n Acquisitions
3/27
EXAMPLE:-
Example X + Y= Z
X + Y = X
7/28/2019 45436565 Merger n Acquisitions
4/27
7/28/2019 45436565 Merger n Acquisitions
5/27
EXAMPLES OF HORIZONTAL
MERGER:-
Lipton India and Brooke Bond.
Bank of Mathura with ICICI Bank.
BSES Ltd with Orissa Power SupplyCompany.
Associated Cement Companies Ltd Damodar
Cement.
7/28/2019 45436565 Merger n Acquisitions
6/27
EXAMPLES OF VERTICAL
MERGER:-
Time Warner Incorporated, a major cable
operation, and the Turner Corporation, which
produces CNN, TBS, and other programming.
Pixar-Disney( Merger ).
7/28/2019 45436565 Merger n Acquisitions
7/27
EXAMPLE OF CONGLOMORATE
MERGER:-
Walt Disney Company and the American
Broadcasting Company.
7/28/2019 45436565 Merger n Acquisitions
8/27
Major Mergers in the telecom:-
AUQUIRER
VODAFONE
MCL WorldCom
BELL Atlantic
AT AND T
SBC
TARGET
Manes and man
Spirit
GTE
MeCaw celluar
Pacific telesis
7/28/2019 45436565 Merger n Acquisitions
9/27
EXAMPLE OF CONCENTRIC
MERGER:-
Nextlink is a competitive local exchange carrieroffering services in 57 cities and building anationwide IP network.
Concentric, a national ISP, offers dedicated and dial-up Internet access, high-speed DSL and VPN servicesacross the U.S. and overseas.
Citigroup (principally a bank) buying SalomonSmith Barney (stock brokerage investmentoperation.).
j A i i i i
7/28/2019 45436565 Merger n Acquisitions
10/27
Major Mergers and Acquisitions in
India
Hindalco acquired Canada based Novelis. The deal involvedtransaction of $5,982 million.
Tata Steel acquired Corus Group plc. The acquisition dealamounted to $12,000 million.
Dr. Reddy's Labs acquired Betapharm through a deal worth of$597 million.Ranbaxy Labs acquired Terapia SA. The dealamounted to $324 million.
Suzlon Energy acquired Hansen Group through a deal of $565million.
The acquisition of Daewoo Electronics Corp. by Videoconinvolved transaction of $729 million.
HPCL acquired Kenya Petroleum Refinery Ltd.. The dealamounted to $500 million.
VSNL acquired Teleglobe through a deal of $239 million.
7/28/2019 45436565 Merger n Acquisitions
11/27
Are all mergers successful?
Hindalco-Novelis (failure) Hindalco (metal maker of Birla group) acquired Novelis for a
staggering $ 5.76 billion.Novelis , on a net worth of $ 322 million, had a debt of $ 2.33billion
Hindalco took $ 3.13 bn loan to aquire Novelis. Right after
the acquisition hindalco came on a rough road.With the debt market tightening , the metal maker is left withno choice but to dilute its equity through a 1:3 rights issue.
Further, high interest costs, which rose by over 490 % loan
increased from Rs 3.13 billion in FY 07 to Rs 18.49 billion inFY 08.
Finally Hindalcos earning per share in FY08 dropped toRs.15.76, from Rs. 26.73 in FY07, a fall of 41% !
7/28/2019 45436565 Merger n Acquisitions
12/27
Acquisition is a deal when one company takes over anothercompany and buyer becomes sole proprietor.
At times takeover occurs when the target company does notwant to be purchased. However with better offering of prices
shareholder are attracted by acquirer.
In legal terms, the target company ceases to survive. The buyerswallows the company and the buyer's stock continues to betraded.
Unlike mergers which are friendly, acquisitions can be friendlyand unfriendly.
AQUISITION
7/28/2019 45436565 Merger n Acquisitions
13/27
Some notable Acquisitions
Google bought YouTube ($1.65B in 2006)
Google bought a rival.
YouTube had four times as many hits as Google Video
YouTube streamed nine times as many clips as Google Video.Googles choice to buy rather than build marked a big strategic change.
(Economist, 10/14/06, p82).
7/28/2019 45436565 Merger n Acquisitions
14/27
CONTINUED
AOL acquired Time Warner for $164B (2003)
eBay acquired Skype for $2.6B (2005)
Newscorp acquired MySpace.com for $580M(2005)
T S l d C
7/28/2019 45436565 Merger n Acquisitions
15/27
Tata Steel and CorusOn January 31, 2007, Tata Steel Limited, one of the leading steel producersin India, acquired the Anglo Dutch steel producer Corus Group for US$12.11 billion.
Corus was 2.5 times bigger company than TATA.
It took nine rounds for Tata to acquire Corus. In the first bid Tata hadclosed the deal at US $ 7.6 bn and later it ended up by paying US $ 12.11bn, making it an expensive turnover.
This acquisition was the biggest overseas acquisition by an Indiancompany. Tata Steel emerged as the fifth largest steel producer in theworld.
After acquisition Tata benefited itself from Corus:
Distribution network of Europe.
expertise in steel making for automobiles.
In return Corus benefit itself from Tata Steel's expertise in low costmanufacturing of steel.
7/28/2019 45436565 Merger n Acquisitions
16/27
Major Laws Involved:-
SEBI (substantial Acquisition of shares &Takeovers) Regulations1997.
The Securities and Exchange Board of India Act,1992 .
Security Contract Regulation Act ,1956 .
The Depositories Act,1956. SEBI Disclosure and Investor Protection Guidelines 2000.
Securities and Exchange Board of India (Prohibition of InsiderTrading Regulation ),1992.
Securities and Exchange Board of India (Merchant Bankers)Rules/Regulation 1992.
SEBI (Delisting of Securities )Guidelines,2003.
Foreign Exchange Management Act,1999.
Companies Act,1956.
7/28/2019 45436565 Merger n Acquisitions
17/27
the legal procedures for mergers or
acquisitions :-
Permission for merger
Information to the stock exchange
Approval of board of directors
Application in the High Court Shareholders' and creators' meetings
Sanction by the High Court
Filing of the Court order
Transfer of assets and liabilities
Payment by cash or securities
7/28/2019 45436565 Merger n Acquisitions
18/27
Why M & A OCCUR ?
To reduce competition.
To increase growth rate & capture a greater market share
To improve value of organizations stock.
To acquire a needed resource quickly.
To take advantage of synergy.
To acquire resources to stabilize operations.
To achieve economies of scale.
7/28/2019 45436565 Merger n Acquisitions
19/27
Disadvantages of M&A
Reduced competition may even facilitate monopolistic or
oligopolistic tendencies among firms.
Increase of prices.
Job losses for employees.
Difficulties in cultural integration of the merging firms.
Interest of minority shareholders is not protected.
7/28/2019 45436565 Merger n Acquisitions
20/27
JOINT VENTURE An entity formed between two or more parties to undertake a specified
activity together. Parties agree to create a new entity by both contributing
equity, and they then share revenue, expenses, and control of the enterprise.
The venture can be for one specific project only or a continuing business
relationship Eg: Sony Ericsson.
Unlike mergers and acquisitions, in joint venture the parent companies doesnot cease to exist.
Types of Joint Ventures
(a) Between 2 Indian org. in one industry
(b) Between 2 Indian org. across different industries.(c) Between an Indian org. & a foreign org. in India.
(d) Between an Indian org. & a foreign org. in that foreign country.
(e) Between an Indian org. & a foreign org. in third country.
J i t V t
7/28/2019 45436565 Merger n Acquisitions
21/27
Joint Venture
Maruti Udyog Ltd. & Suzuki Motor Corp.
Maruti Suzuki is one of India's leading automobile manufacturersand the market leader in the car segment, both in terms of volume of
vehicles sold and revenue earned.
Until recently, 18.28% of the company was owned by the Indiangovernment, and 54.2% by Suzuki of Japan.
The Indian government held an initial public offering of 25% of thecompany in June 2003.
As of May 10, 2007, Govt. of India sold its complete share to Indianfinancial institutions. With this, Govt. of India no longer has stake in
Maruti Udyog.
During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 wereexported.
In all, over six million Maruti cars are on Indian roads since the first car
was rolled out on December 14, 1983.
7/28/2019 45436565 Merger n Acquisitions
22/27
Strategic alliancesA strategic alliance is a form of affiliation that involves a mutual sharing of
resources or partnering to improve efficiency.
In strategic alliances, the focus is on sharing of resources rather thanseeking change in control. Equity investment in each others company is not
any focus.
Types of strategic alliances :
Pre competitive alliance : vertical value chain alliances b/w manufacturers
and suppliers.
Non competitive alliances : Intra industry partnerships b/w noncompetitive
firms
like two firms in same industry but different geographical locations.
Competitive alliance : partnerships which brings two rival firms in a
cooperative arrangement where intense interaction is necessary.
Pre competitive alliance : partnerships which brings two firms of differentindustry
7/28/2019 45436565 Merger n Acquisitions
23/27
Reasons for strategic alliances Market entry -A strategic alliance can ease entry into a foreign market .
Eg: strategic alliance between British Airways and American Airlines.
Share risk & expenses -firms involved can share risks. Eg: In early 1990sfilm manufacturers Kodak and Fuji joined with camera manufacturers
Nikon, Canon, and Minolta to create cameras and film for an "Advanced
Photo System.
Synergistic Effects of Shared Knowledge and Expertise- help a firmgain knowledge and expertise
Skills+ brand + market knowledge+ assets= synergizing effect
Eg: For example, in the early 1990s, Motorola initiated an alliance amongvarious partners, including Raytheon, Lockheed Martin, China Great Wall,and Nippon Iridium, to develop and build a global satellite-basedcommunications network.
Gaining Competitive Advantage-
7/28/2019 45436565 Merger n Acquisitions
24/27
Pitfalls
Lack of trust & commitment.
Perceived misunderstanding among partners.
Conflicting goals & interests.
Inadequate preparation for entering into partnership.
Hasty implementation of plans.
Jet airways-Kingfisher Alliance
7/28/2019 45436565 Merger n Acquisitions
25/27
Jet airways-Kingfisher Alliance
market leaders with share of
Jet30%
kingfisher29%
Economic slowdown and high ATF prices resulted in decline of air travel
both in international and domestic segments of the air travel market.
Airline sector is set to incur a loss of $ 2bn (Rs.10,000 Crore) this year
Thus Jet and Kingfisher have decided to form an alliance in fields includingfuel management, ground handling, sharing of technical resources and crew
for training and cross-utilization on similar aircraft types.
This will help both carriers to significantly rationalize and reduce costs and
provide improved standards of service and a wider choice of air traveloptions to consumers with immediate effect.
They could not merge as of rule that two airline companies with
combined market share greater than 40 % can not merge in India. So they
formed an alliance.
MERGER AQUISITION
7/28/2019 45436565 Merger n Acquisitions
26/27
MERGER AQUISITION
JOINT VENTURE STRATEGIC ALLIANCE
Usually two companies of equal size merge
Together.
Voluntary and friendly process
Stock swap :both companies surrender their
stocks and stocks of new companies are given
as replacement.
Parent companies cease to exist.
Large company takes over the smaller
Company.
Often forceful or unfriendly where larger
company attracts the shareholders of targetcompany by offering them better price for
their shares.
Parent companies cease to exist.
Two or more companies agree to form an
Entity for a specific task or period.
Always friendly.
One company receives financial assistance,
Managerial inputs and technological inputs
from superior company.
Parent companies keep functioning in theirRespective areas.
To improve efficiency of companies.
Includes no equity investments.
Parent companies keep functioning
as normal by supporting each other.
7/28/2019 45436565 Merger n Acquisitions
27/27