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M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE 1
ADissertationReportOn
MERSGERSCREATINGVALUETO
SHAREHOLDERS
WEALTH
Submittedinpartialfulfillmentofrequirementfortheawardof
thedegreeofMasterofBusinessAdministrationofBangalore
University
ByHARSHITHAJILAK
Reg.No:05XQCM6029
UndertheGuidanceandSupervisionOf
Dr.NAGESH.SMALAVALLI
M.P.BIRLAINSTITUTEOFMANAGEMENTAssociateBharathiyaVidyaBhavan
#43,RaceCourseRoad,BANGALORE560001
2005-2007
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DECLARATION
I hereby declare that this dissertation entitled
MERGERS CREATING VALUE TO THE SHAREHOLDERS
WEALTHis the result of my own research work carried
out under the guidance and supervision ofDr. Nagesh S
Malavalli, Principal M P Birla Institute of Management
Bangalore.
I also declare that this dissertation has not been
submitted earlier to any Institute/ organization for the
award of any degree or diploma.
Place: Bangalore
Date: Harshith Ajila K
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CERTIFICATE
I hereby certify that this dissertation entitled
MERGERS CREATING VALUE TO THE SHAREHOLDERS
WEALTH is the research carried out by MR. HARSHITH
AJILA K bearing the registration No 05XQCM6029 under
the guidance of Dr. Nagesh S Malavalli, Principal M P
Birla Institute of Management Bangalore.
Place: Bangalore
Date:
Dr N.S.MALAVALLI
Principal
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GUIDE CERTIFICATE
I hereby certify that this dissertation entitled
MERGERS CREATING VALUE TO THE SHAREHOLDERS
WEALTH is the result of research work carried out by
MR. HARSHITH AJILA K bearing the registration No.
05XQCM6029under my guidance and supervision.
Place: Bangalore
Date: Dr N.S. MALAVALLI
Principal
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ACKNOWLEDGEMENT
I whole-heartedly extend my deep and sincere
gratitude to Dr. Nagesh S Malavalli, Principal M.P.Birla
Institute of Management, Bangalore for his constant
encouragement and guidance during the course of the
research Study.
I would like to thank Dr. T.V. Narasimha Rao
Faculty for Finance, M. P. Birla Institute of
Management for his full support and timely guidance
while conducting the research.
I am also thankful to Prof. S. Santhanam, M. P.
Birla Institute of Management for sharing his
expertise in the field of statistics and guiding me in
completing the research.
I w ould also like to thank my Parents and all my
Friends who have helped me in completing this
project without any hassles and hiccups.
HARSHITH AJILA K
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Chapter ParticularsPageNo
1 Abstract 1
2 Introduction2.1 Background o f the
study 2
2.2 Introduction 6
2.3 Varieties of merger 9
2.4 Acquisitions 10
2.5 Valuation matter 11
2.6 Statement of the
problem 16
2.7 Objective of thestudy 16
3 Review of literature
3.1 L iterature review 17
4 Methodology
4.1 Methodology 20
4.2 Scope 20
4.3 Actual collection o f
data 20
4.4 Statistical toolsused 20
4.5 limitations 21
4.6 T test 21
5
Data analysis andinterpretation
5.1 Hypothesis 24
5.2 Presentation ofData 24
5.3 Interpretation 26
6 Conclusion
6.1 Conclusion 27
6.2 Suggestions for
further research 27
7 Annexure 28
8 8.1 Bibliography 45
8.2 References 46
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CHAPTER 1
1. ABSTRACT:
Theories hold that mergers and amalgamations have potential social benefits. They
generally involve improving the performance of incumbent management or achieving a
form of synergy. The apparent reason for companies to merge is to make profits larger
than the joint profits of the merging companies. This is an attempt to evaluate the impact
of Mergers on companies through a database of 32 Companies selected from Capitaline.
Companies during the year 2003-04 where selected for the study. Study was conducted
by collecting the monthly stock prices of the companies prior to merger and monthly
stock prices of the company post merger.
The study shows that companies can use merger as a tool not only to grow but also to
thwart competition. This study has shown that the synergy has worked in case of the
sample selected. Companies can use merger as a tool to grow, increase their market
share, to ward off competition, improve their performance etc.
Following study proves that the mergers have added value to the company and the
shareholders. Market capitalisation of the companies has increased after the merger,
which implies that shareholders have gained after the merger. The study has helped to
conclude that mergers can be used as an effective tool to improve the performance of the
company.
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CHAPTER 2
2.1 Background Of The Study
The (Indian) Companies Act, 1956 ("Companies Act") deals with mergers under the headof"amalgamations" and sets out the procedure and requirements for the same, which
have been dealt with in greater detail below. Apart from an amalgamation of Indian
companies, the Companies Act also envisages an amalgamation between an Indian
company and an "unregistered company" which may include a foreign company or a
branch of a foreign company. Mergers between branches of foreign companies in India
with Indian companies have been sanctioned in the past, pursuant to the Companies Act.
Mergers have to be sanctioned by the High Courts of the respective States in which the
companies being amalgamated are registered. The procedure for amalgamation has been
set out in a separate paragraph in this report.
Amalgamating two companies ordinarily requires around 6 months.
Amalgamations are also dealt with under the Income Tax Act, 1961 (the "Tax Act"),
which allows for certain exemptions and benefits, including waiver of capital gains tax.
To avail of these benefits however it is important that the said amalgamation satisfy the
preconditions laid down in the Tax Act, such as the condition that, shareholders of the
transferor company, who hold at least three-fourth of its paid up share capital must
become shareholders of the transferee company i.e., the surviving entity.
The Tax Act also defines a demerger, as a transfer pursuant to a scheme of arrangement
under the Companies Act (which involves shareholder / creditor consent and Court
sanction) by one company (the "Demerged Company") of one or more undertakings to
another company (the "Resulting Company") such that:
(i) All the property and liabilities of the undertaking/s in question are transferred to the
Resulting Company at the values appearing in the books of accounts of the Demerged
Company;
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(ii) The Resulting Company issues shares in itself to the shareholders of the de-merged
Company in consideration for the above transfer;
(iii) Shareholders holding not less than three-fourths in value of the shares in the de-
merged company become shareholders of the Resulting Company; and
(iv) The transfer of the undertaking/s is on a "going concern basis".
Acquisition of shares
An acquisition of shares could take place either by way of:
a) Subscription to fresh equity in a company; i.e de novo allotment, or
b) Purchase of existing equity in a company from another shareholder, i.e. a transfer
Under the Companies Act, companies have been classified into two main categories,
namely:
(i) Private companies - which enjoy a more "relaxed regime" and
(ii) Public companies - which are subject to greater controls.
The Companies Act was amended in December 2000 to include a private company which
is a subsidiary of a company which is not a private company, under the definition of a
public company. As a result even if a company has been duly incorporated as a private
company, it will lose its private company status if it were to become a subsidiary of a
public company at any subsequent point of time.
Pursuant to the Companies Act, a private company is required to have provisions in its
charter documents restricting transfers of its shares and restricting invitations to the
public for accepting deposits. It is common to find blanket provisions in the charter
documents of private companies giving its board of directors the power to refuse any
transfer of shares, if it deems fit, in its sole discretion.
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Shares in a public company, on the other hand, are freely transferable. The board of
directors of a public company can reject transfers only on limited grounds of "sufficient
cause" which has often been interpreted by the Courts to mean failure to comply with
legal requirements.
Acquisition of Assets
Acquisitions of movables are governed by the Sale of Goods Act, 1972 ("SGA"). The
Companies Act defines shares and debentures as movable property and lays down the
mechanism for their transfer. Acquisitions of immovable properties on the other hand, are
governed by the Transfer of Property Act, 1882.
These statutes deal with the numerous aspects of a transfer, such as pre-requisites for
valid transfers, rights and obligations of the seller and the acquirer, implied conditions
and warranties, point of transfer of title and risk in the assets.
Acquisitions of intangible property such as copyrights, patents and trademarks are
governed by the specific statutes dealing with these intellectual property rights.
Acquisition of the same has to take place pursuant to a written document, and in respect
of registered trademarks and patents, the transfer is effective only upon registration with
the concerned registration authority.
Pursuant to the Trademarks Act, 1999, the person entered in the Register of Trademarks
as the proprietor of a registered trademark has the right to assign the trademark. Both
registered and unregistered trademarks can be assigned with or without the goodwill of
the business concerned. However where the transfer of a trademark is without goodwill,
certain additional advertising requirements have to be complied with, in accordance with
the directions of the Registrar of Trademarks. The Trademarks Act, 1999 also restricts
certain assignments which may result in the creation of multiple exclusive rights in
respect of the use of the trademarks in relation to the same (or same description of) goods
and services or in relation to goods or services or description of goods and services,
which are associated with each other.
Transaction costs play an important role in the structuring of the mode of acquisition of
assets and documentation of asset transfers. These costs include stamp duty and taxes
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such as capital gains and sales tax etc. These have been dealt with in greater detail, under
the head of "Taxation Issues".
Joint Ventures
Where a wholly owned entity is not the preferred option for an investor, a business may
be undertaken as a joint venture. From the perspective of a foreign entity, in certain
sectors where there are foreign equity ceilings, a joint venture with an Indian entity often
becomes necessary so as to satisfy the conditions of balance shareholding over and above
the foreign investment ceiling. In other sectors, from a new entrant's perspective, factors
such as the local partner's pre-established marketing and distribution chain, human
resource availability, etc play an important role in opting for a joint venture. In large
projects involving a prolonged and often arduous developmental phase, the acquisition of
a stake after the commissioning of the project helps avoid numerous development related
problems and risks.
However, before considering this route it is advisable to examine whether the foreign
participant intends to set up an independent entity in India engaged in a similar or allied
field at any point in the future. The reason being that, once a foreign entity enters into a
joint venture, technical collaboration or a trademark licensing with an Indian party, then
any subsequent venture (wholly owned / joint venture or collaboration) by the foreign
entity in the same or allied field requires a no-objection from such Indian party. Such a
subsequent venture also requires prior consent from the Government of India, through the
Foreign Investment Promotion Board ("FIPB"), even if foreign investment were
otherwise permitted in the sector in question under the "Automatic Route".2
This often
leads to Indian joint venture partners creating impediments. Investments in the
information technology sector, investments by multilaterals such as IFC and ADB and
venture funds (registered with the Securities and Exchange Board of India) and certain
investments in the mining sector (subject to certain conditions) are exempt from these
restrictions.
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2.2 Mergers and Acquisitions: Introduction
Mergers and acquisitions (M&A) and corporate restructuring are a big part of the
corporate finance world. Every day, investment bankers arrange M&A
transactions, which bring separate companies together to form larger ones. When they're
not creating big companies from smaller ones, corporate finance deals do the reverse and
break up companies through spin-offs, carve-outs or tracking stocks.
Not surprisingly, these actions often make the news. Deals can be worth hundreds of
millions, or even billions, of dollars. They can dictate the fortunes of the companies
involved for years to come. For a CEO, leading an M&A can represent the highlight of a
whole career. And it is no wonder we hear about so many of these transactions; they
happen all the time. Next time you flip open the newspapers business section, odds are
good that at least one headline will announce some kind of M&A transaction.
Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this
question, this tutorial discusses the forces that drive companies to buy or merge with
others, or to split-off or sell parts of their own businesses. Once you know the different
ways in which these deals are executed, you'll have a better idea of whether you should
cheer or weep when a company you own buys another company - or is bought by one.You will also be aware of the tax consequences for companies and for investors.
Mergers and Acquisitions: Definition
The Main Idea
One plus one makes three: this equation is the special alchemy of a merger or an
acquisition. The key principle behind buying a company is to create shareholder value
over and above that of the sum of the two companies. Two companies together are more
valuable than two separate companies - at least, that's the reasoning behind M&A.
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This rationale is particularly alluring to companies when times are tough. Strong
companies will act to buy other companies to create a more competitive, cost-efficient
company. The companies will come together hoping to gain a greater market share or to
achieve greater efficiency. Because of these potential benefits, target companies will
often agree to be purchased when they know they cannot survive alone.
Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the new owner,
the purchase is called an acquisition. From a legal point of view, the target company
ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be
traded.
In the pure sense of the term, a merger happens when two firms, often of about the same
size, agree to go forward as a single new company rather than remain separately owned
and operated. This kind of action is more precisely referred to as a "merger of equals."
Both companies' stocks are surrendered and new company stock is issued in its place.
In practice, however, actual mergers of equals don't happen very often. Usually, one
company will buy another and, as part of the deal's terms, simply allow the acquired firm
to proclaim that the action is a merger of equals, even if it's technically an acquisition.
Being bought out often carries negative connotations, therefore, by describing the deal as
a merger, deal makers and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining together
is in the best interest of both of their companies. But when the deal is unfriendly - that is,
when the target company does not want to be purchased - it is always regarded as an
acquisition.
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Whether a purchase is considered a merger or an acquisition really depends on whether
the purchase is friendly or hostile and how it is announced. In other words, the real
difference lies in how the purchase is communicated to and received by the target
company's board of directors, employees and shareholders.
Synergy
Synergy is the magic force that allows for enhanced cost efficiencies of the new business.
Synergy takes the form of revenue enhancement and cost savings. By merging, the
companies hope to benefit from the following:
Staff reductions - As every employee knows, mergers tend to mean job losses. Consider
all the money saved from reducing the number of staff members from accounting,
marketing and other departments. Job cuts will also include the former CEO, who
typically leaves with a compensation package.
Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new
corporate IT system, a bigger company placing the orders can save more on costs.
Mergers also translate into improved purchasing power to buy equipment or office
supplies - when placing larger orders, companies have a greater ability to negotiate prices
with their suppliers.
Acquiring new technology - To stay competitive, companies need to stay on top of
technological developments and their business applications. By buying a smaller
company with unique technologies, a large company can maintain or develop a
competitive edge.
Improved market reach and industry visibility - Companies buy companies to reach
new markets and grow revenues and earnings. A merge may expand two companies'
marketing and distribution, giving them new sales opportunities. A merger can also
improve a company's standing in the investment community: bigger firms often have an
easier time raising capital than smaller ones.
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That said, achieving synergy is easier said than done - it is not automatically realized
once two companies merge. Sure, there ought to be economies of scale when two
businesses are combined, but sometimes a merger does just the opposite. In many cases,
one and one add up to less than two.
Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the
deal makers. Where there is no value to be created, the CEO and investment bankers -
who have much to gain from a successful M&A deal - will try to create an image of
enhanced value. The market, however, eventually sees through this and penalizes the
company by assigning it a discounted share price. We'll talk more about why M&A may
fail in a later section of this tutorial.
2.3Varieties of Mergers
From the perspective of business structures, there is a whole host of different mergers.
Here are a few types, distinguished by the relationship between the two companies that
are merging:
Horizontal merger - Two companies that are in direct competition and share the same
product lines and markets.
Vertical merger - A customer and company or a supplier and company. Think of a cone
supplier merging with an ice cream maker.
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.
There are two types of mergers that are distinguished by how the merger is financed.
Each has certain implications for the companies involved and for investors:
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Purchase Mergers - As the name suggests, this kind of merger occurs when one
company purchases another. The purchase is made with cash or through the issue of some
kind of debt instrument; the sale is taxable.
Acquiring companies often prefer this type of merger because it can provide them with a
tax benefit. Acquired assets can be written-up to the actual purchase price, and the
difference between the book value and the purchase price of the assets can depreciate
annually, reducing taxes payable by the acquiring company. We will discuss this further
in part four of this tutorial.
Consolidation Mergers - With this merger, a brand new company is formed and both
companies are bought and combined under the new entity. The tax terms are the same as
those of a purchase merger.
2.4Acquisitions
As you can see, an acquisition may be only slightly different from a merger. In fact, it
may be different in name only. Like mergers, acquisitions are actions through which
companies seek economies of scale, efficiencies and enhanced market visibility. Unlike
all mergers, all acquisitions involve one firm purchasing another - there is no exchange of
stock or consolidation as a new company. Acquisitions are often congenial, and all
parties feel satisfied with the deal. Other times, acquisitions are more hostile.
In an acquisition, as in some of the merger deals we discuss above, a company can buy
another company with cash, stock or a combination of the two. Another possibility,
which is common in smaller deals, is for one company to acquire all the assets of another
company. Company X buys all of Company Y's assets for cash, which means that
Company Y will have only cash (and debt, if they had debt before). Of course, Company
Y becomes merely a shell and will eventually liquidate or enter another area of business.
Another type of acquisition is a reverse merger, a deal that enables a private company to
get publicly-listed in a relatively short time period. A reverse merger occurs when a
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private company that has strong prospects and is eager to raise financing buys a publicly-
listed shell company, usually one with no business and limited assets. The private
company reverse merges into the public company, and together they become an entirely
new public corporation with tradable shares.
Regardless of their category or structure, all mergers and acquisitions have one common
goal: they are all meant to create synergy that makes the value of the combined
companies greater than the sum of the two parts. The success of a merger or acquisition
depends on whether this synergy is achieved.
2.5 Mergers and Acquisitions: Valuation Matters
Investors in a company that are aiming to take over another one must determine whether
the purchase will be beneficial to them. In order to do so, they must ask themselves how
much the company being acquired is really worth.
Naturally, both sides of an M&A deal will have different ideas about the worth of a target
company: its seller will tend to value the company at as high of a price as possible, while
the buyer will try to get the lowest price that he can.
There are, however, many legitimate ways to value companies. The most common
method is to look at comparable companies in an industry, but deal makers employ a
variety of other methods and tools when assessing a target company. Here are just a few
of them:
Comparative Ratios - The following are two examples of the many comparative metrics
on which acquiring companies may base their offers:
Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring
company makes an offer that is a multiple of the earnings of the target company. Looking
at the P/E for all the stocks within the same industry group will give the acquiring
company good guidance for what the target's P/E multiple should be.
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Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring company
makes an offer as a multiple of the revenues, again, while being aware of the price-to-
sales ratio of other companies in the industry.
Replacement Cost - In a few cases, acquisitions are based on the cost of replacing the
target company. For simplicity's sake, suppose the value of a company is simply the sum
of all its equipment and staffing costs. The acquiring company can literally order the
target to sell at that price, or it will create a competitor for the same cost. Naturally, it
takes a long time to assemble good management, acquire property and get the right
equipment. This method of establishing a price certainly wouldn't make much sense in a
service industry where the key assets - people and ideas - are hard to value and develop.
Discounted Cash Flow (DCF) - A key valuation tool in M&A, discounted cash flow
analysis determines a company's current value according to its estimated future cash
flows. Forecasted free cash flows (net income + depreciation/amortization - capital
expenditures - change in working capital) are discounted to a present value using the
company's weighted average costs of capital (WACC). Admittedly, DCF is tricky to get
right, but few tools can rival this valuation method.
Restructuring Methods
There are several restructuring methods: doing an outright sell-off, doing an equity carve-
out, spinning off a unit to existing shareholders or issuing tracking stock. Each has
advantages and disadvantages for companies and investors. All of these deals are quite
complex.
Sell-Offs
A sell-off, also known as a divestiture, is the outright sale of a company subsidiary.
Normally, sell-offs are done because the subsidiary doesn't fit into the parent company's
core strategy. The market may be undervaluing the combined businesses due to a lack of
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synergy between the parent and subsidiary. As a result, management and the board decide
that the subsidiary is better off under different ownership.
Besides getting rid of an unwanted subsidiary, sell-offs also raise cash, which can be used
to pay off debt. In the late 1980s and early 1990s, corporate raiders would use debt to
finance acquisitions. Then, after making a purchase they would sell-off its subsidiaries to
raise cash to service the debt. The raiders' method certainly makes sense if the sum of the
parts is greater than the whole. When it isn't, deals are unsuccessful
.
Equity Carve-Outs
More and more companies are using equity carve-outs to boost shareholder value. A
parent firm makes a subsidiary public through an initial public offering (IPO) of shares,
amounting to a partial sell-off. A new publicly-listed company is created, but the parent
keeps a controlling stake in the newly traded subsidiary.
A carve-out is a strategic avenue a parent firm may take when one of its subsidiaries is
growing faster and carrying higher valuations than other businesses owned by the parent.
A carve-out generates cash because shares in the subsidiary are sold to the public, but the
issue also unlocks the value of the subsidiary unit and enhances the parent's shareholder
value.
The new legal entity of a carve-out has a separate board, but in most carve-outs, the
parent retains some control. In these cases, some portion of the parent firm's board of
directors may be shared. Since the parent has a controlling stake, meaning both firms
have common shareholders, the connection between the two will likely be strong.
That said, sometimes companies carve-out a subsidiary not because it's doing well, but
because it is a burden. Such an intention won't lead to a successful result, especially if a
carved-out subsidiary is too loaded with debt, or had trouble even when it was a part of
the parent and is lacking an established track record for growing revenues and profits.
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Carve-outs can also create unexpected friction between the parent and subsidiary.
Problems can arise as managers of the carved-out company must be accountable to their
public shareholders as well as the owners of the parent company. This can create divided
loyalties.
Spin-offs
A spin-off occurs when a subsidiary becomes an independent entity. The parent firm
distributes shares of the subsidiary to its shareholders through a stock dividend. Since this
transaction is a dividend distribution, no cash is generated. Thus, spin-offs are unlikely to
be used when a firm needs to finance growth or deals. Like the carve-out, the subsidiary
becomes a separate legal entity with a distinct management and board.
Like carve-outs, spin-offs are usually about separating a healthy operation. In most cases,
spin-offs unlock hidden shareholder value. For the parent company, it sharpens
management focus. For the spin-off company, management doesn't have to compete for
the parent's attention and capital. Once they are set free, managers can explore new
opportunities.
Investors, however, should beware of throw-away subsidiaries the parent created to
separate legal liability or to off-load debt. Once spin-off shares are issued to parent
company shareholders, some shareholders may be tempted to quickly dump these shares
on the market, depressing the share valuation.
Tracking Stock
A tracking stock is a special type of stock issued by a publicly held company to track the
value of one segment of that company. The stock allows the different segments of the
company to be valued differently by investors.
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Let's say a slow-growth company trading at a low price-earnings ratio (P/E ratio) happens
to have a fast growing business unit. The company might issue a tracking stock so the
market can value the new business separately from the old one and at a significantly
higher P/E rating.
Why would a firm issue a tracking stock rather than spinning-off or carving-out its fast
growth business for shareholders? The company retains control over the subsidiary; the
two businesses can continue to enjoy synergies and share marketing, administrative
support functions, a headquarters and so on. Finally, and most importantly, if the tracking
stock climbs in value, the parent company can use the tracking stock it owns to make
acquisitions.
Still, shareholders need to remember that tracking stocks are class B, meaning they don't
grant shareholders the same voting rights as those of the main stock. Each share of
tracking stock may have only a half or a quarter of a vote. In rare cases, holders of
tracking stock have no vote at all.
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2.6 Statement of the problem:
The study finds the benefits the firm would be gaining from the merger and the value
addition to the shareholders.
2.7 Objective of the study:
To find
Whether gains accrue to shareholders as a consequence of merger Whether gains from the merger persist after the event Whether merger will improve the performance of the company
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Chapter 3
3.1 REVIEW OF LITERATURE
Factors Influencing Wealth Creation From Mergers And Acquisition: A
Meta Analysis
Deepak K Dutta & George E. Pinches
V.K Narayanan
This study analyses the empirical literature concerning the influence of various factors on
shareholders wealth creation in mergers and acquisition using a multivariate framework.
Overall, results indicate that while the target firms shareholders gain significantly from
use of stock financing has a significant impact on the wealth of both the target and
bidding firms shareholders. The presence of multiple bidders and the type of acquisition
influence the bidders return, while regulatory changes and tender offers influence the
targets returns. The paper also provides a comparison of our findings with that of
previous narrative reviews and discusses their implications from the viewpoint of
managers and researchers.
The performance implications of m&a have been of considerable interest to researchers
over the last couple of decades. In this paper we provide a meta analytic synthesis of the
findings of studies on wealth creation or the market performance of m&a where market
performance or shareholder wealth gains refers to the stock market appraisal of specific
merger transactions. Unlike traditional literature reviews it employs a multivariate
framework and regression analysis using observations from 41 studies. The results
indicate that a select set of factors explain a substantial proportion of wealth gains to both
bidding and target firm shareholders.
The paper is structured as follows. First, it provides an overview of the literature an
wealth creation in m&a , discussing five key factors which have been hypothesized to
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influence shareholder wealth. Next it describes the method employed in this study, the
studies used in analysis and the way the variables are coded from the studies. Third, it
presents the result of regression analysis assessing the influence of various factors on
shareholder gains. Finally in the concluding section it discusses the findings and compare
them with those identified in two prior narrative reviews of the literature. It also raises the
important theoretical questions and issues for future research, and discuss their
implications for both practice and research in strategic management.
Strategic Management Journal
Volume (Year): 13 (1992) Pages: 67-84
Do Long Term Shareholders Benefit From Corporate Acquisitions?
Tim Loughran and Anand M Vijh
Using 947 acquisitions during 1970 1989, this article finds a relationship between the
post acquisition returns and the mode of acquisition and the form of payment.
Corporate acquisitions are imp events. An examination of delistings from the center for
research in security prices(CRSP) tapes show that over half a trillion dollars worth of
equity in publicly traded companies was acquired by other publicly- traded firms during
1970-1989. many researchers have addressed the questions of wealth gains from
acquisitions . they typically find three patterns :
Target shareholders earn significantly positive abnormal returns from all the
acquisitions
Acquiring shareholders earn a little or no abnormal returns from tender offers,
and
Acquiring shareholders earn negative abnormal returns from mergers.
The evidence is usually based on returns computed over a pre acquisition period
starting immediately before the announcement date and ending on or before the
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effective date. This assumes that prices fully adjust to the likely efficiency gains from
acquisitions.
A few studies also examine the assumption of market efficiency by measuring
abnormal returns after the acquisition effective date. These findings are mixed. Frank,
Harris and others find no evidence of significant abnormal returns over a 3 year
period after the lst bid date. However, Agarwal, Jaffe and Mandelkar (1992) find that
tender offers are followed by insignificant abnormal returns, but mergers are followed
by significant abnormal returns of -10 percent over a 5 year period after the effective
date.
The Journal of Finance, Vol.52, No. 5 (Dec 1997)
Merger Types & Shareholders Returns: Additional Evidence
Pieter T. Elgers & john J. Clark
From a shareholders standpoint, business combinations are justified when the market
value of the equity shares of buyer and seller firms increases as a result of their intention
to merge. The incremental value might accrue from expectations of the replacement ofincompetent mgt, scale of economies, extension of the product line, improved market
control, reduction of business risk, or changes in the final structure.
There potential benefits notwithstanding, a recent comprehensive evidence on the wealth
effects of corporate mergers come to the conclusion that a laissez faire policy toward
mergers has been successful, since managers continue to engage in enterprises that seem
to provide little if any benefit to the buyers shareholders. To be sure, some studies show
gains to merging firms. But these are attributed to causes other than the merger event: the
gains may predate and actually cause the merger, or may instead be the result of general
stock market buoyancy. Accordingly, new legislation has been suggested to ban all
mergers unless managers can prove in advance that a given merger will create economic
efficiencies.
Financial Management, Vol.9, No.2 (Summer 1980), pp. 66 72
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Chapter 4
4.1 METHODOLOGY:
First step was to identify the Companies merged during the year 2003-
2004.
Monthly stock prices of the companies two years prior to merger and
two years post merger was collected.
I identified the high and low price of the stock for the company during
the month and it was repeated for 24 months prior merger and post
merger.
Average stock price computed was multiplied with the number of shares
outstanding every month for the company. This gave the market
capitalization for the particular month for the respective company.
Procedure was repeated for all the 16 companies.
Computation of mean of the market capitalization for the respective
companies was done, which gave the mean of market capitalization.
T test was done for the computed mean.
4.2 SCOPE
The scope of the study is limited to the 32 Indian companies which are merged
during the year 2003-2004.
.
4.3 Actual collection of data: The data includes the following:
1. Two years prior to merger
2. Two years post merger
4.4 Statistical tool used:
T Test
Null hypothesis is accepted if the T test value is less than 1.746 otherwise null hypothesis
is rejected
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4.5 LIMITATIONS
Although the results obtained through this study are acceptable in light of the previous
study, yet there are few limitations of this study. These limitations include:
First, the study included results of only two years prior to merger and two years post
merger.
Second, there are various other variable that should have been included in the study
which couldnt be included because the data wasnt accessible
Third, data prior to year 2002 couldnt be used because it wasnt accessible.
4.6 T-Test
The t-test assesses whether the means of two groups are statistically different from each
other. This analysis is appropriate whenever you want to compare the means of two
groups, and especially appropriate as the analysis for the posttest-only two-group
randomized experimental design.
Statistical Analysis of the t-test
The formula for the t-test is a ratio. The top part of the ratio is just the difference between
the two means or averages. The bottom part is a measure of the variability or dispersion
of the scores. This formula is essentially another example of the signal-to-noise metaphor
in research: the difference between the means is the signal that, in this case, we think our
program or treatment introduced into the data; the bottom part of the formula is a
measure of variability that is essentially noise that may make it harder to see the group
difference. Figure 1 shows the formula for the t-test and how the numerator and
denominator are related to the distributions.
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Figure 1: Formula for the t-test.
The top part of the formula is easy to compute -- just find the difference between the
means. The bottom part is called the standard error of the difference. To compute it, we
take the variance for each group and divide it by the number of people in that group. We
add these two values and then take their square root. The specific formula is given in
Figure 2
Figure 2. Formula for the Standard error of the difference between the means.
Remember, that the variance is simply the square of the standard deviation.
The final formula for the t-test is shown in Figure 3:
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Figure 5. Formula for the t-test.
The t-value will be positive if the first mean is larger than the second and negative if it is
smaller. Once you compute the t-value you have to look it up in a table of significance to
test whether the ratio is large enough to say that the difference between the groups is not
likely to have been a chance finding. To test the significance, you need to set a risk level
(called the alpha level. In most social research, the "rule of thumb" is to set the alpha
level at .05. This means that five times out of a hundred you would find a statistically
significant difference between the means even if there was none (i.e., by "chance"). You
also need to determine the degrees of freedom (df) for the test. In the t-test, the degrees of
freedom is the sum of the persons in both groups minus 2. Given the alpha level, the df,
and the t-value,you can look the t-value up in a standard table of significance(available
as an appendix in the back of most statistics texts) to determine whether the t-value is
large enough to be significant. If it is, you can conclude that the difference between the
means for the two groups is different (even given the variability). Fortunately, statistical
computer programs routinely print the significance test results and save you the trouble of
looking them up in a table.
The t-test, one-way Analysis of Variance (ANOVA) and a form of regression analysis are
mathematically equivalent and would yield identical results.
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Chapter 5
5.1 Hypothesis:
Ho:Mergers do not add value to shareholders
H1: Mergers add value to shareholders
5.2 Presentation of data
Table 1:
MEAN
PRIOR
MERGER MEAN
POST
MERGER
INDUS
_
X B 5648919443_
X A 15946969653
Oriental
_
X B 31100013550
_
X A 58082738866
SUPREME
_
X B 853881606.5_
X A 2978397246
TATA
_
X B 15798475778_
X A 38663241176
TVS
_
X B 14160712511_
X A 20814344510
AMB EX
_
X B 389494327.8_
X A 1262002509
PFIZER
_
X B 10426665586_
X A 13528986556
LAX MACWRK
_X B 1687544886
_X A 9751290545
ASAHI
_
X B 1230802040_
X A 10796973826
MATRIX
_
X B 1069785720_
X A 20261160315
CADILLA
_
X B 8455398220_
X A 29807373992
SUNDRAM
_
X B 4467104679_
X A 13466512985
JK TYRES
_
X B 838964155.7
_
X A 2708853710
WELSPN
_
X B 1139478577_
X A 4894656466
ISPAT
_
X B 5433786540_
X A 13000229230
GSK
_
X B 34531048710_
X A 76390590839
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Table 2:
t-Test: Two-Sample Assuming Equal Variances
Variable 1 Variable 2
Mean 8577004771 20772145152Variance 1.13511E+20 4.3824E+20
Observations 16 16
Pooled Variance 2.75876E+20
Hypothesized Mean Difference 0
Df 30
t Stat -2.076705399
P(T
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5.3 Interpretation:
From the above table it can be inferred that mergers create values to the company. From
the T test it can be concluded that companies have infact gained after the merger. All the
companies selected have shown positive results and there has been an increase in the
market capitalisation of the companies and they are performing exceedingly well post
merger. Since the t statistics value is significant the merger has created value to
shareholders and the company.
Based on the interpretation null hypothesis is rejected and the alternative hypothesis is
accepted.
Here T value is 2.076705399 which is greater than 1.746, so alternative hypothesis is
accepted
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Chapter 6
6.1 Conclusion:
This study proves that Mergers have added sufficient value to the company as well as the
shareholders. The sample selected has shown that mergers do add value to the acquiring
company, which can be seen through the performance of the companies. The stock prices
of the companies have increased post merger and the market capitalisation of the
company has also increased.
The study shows that companies can use merger as a tool not only to grow but also to
thwart competition. This study has shown that the synergy has worked in case of thesample selected. Companies can use merger as a tool to grow, increase their market
share, to ward off competition, improve their performance etc. Probably this is the reason
why the companies make a beeline to acquire another company and go on a buying spree.
This study has proved that mergers have created value to shareholders as well as the
company. But we cant conclude by saying that all mergers add value to the company,
there are lots of mergers wherein the companies have failed to reap the benefits of
merger. Even though this study might have proven that mergers create value to the
company as well as the shareholders, it might not be true all the time.
6.2 Suggestions for further research
In the research study done only few companies where selected. To have a perfect picture
about the impact of merger more companies can be selected and also more than 5 years
data can be used to study the effects of merger.
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7. Annexure
Companies selected for the study
COMPANY TARGET COMPANYMERGED
COMPANY
1 Ashok Leyland Finance Ltd IndusInd Bank Ltd
2 Global Trust Bank Ltd
Oriental Bank of
Commerce
3 Siltap Chemicals Ltd
Supreme Industries
Ltd
4 Hind Lever Chemicals Ltd - Tata Chemicals Ltd
5 Lakshmi Auto Components Ltd
TVS Motor Company
Ltd
6 Jupiter Biotech Ltd
Gujarat Ambuja
Exports Ltd
7 Parke Davis (India) Ltd Pfizer Ltd
8 Textool Company Ltd
Lakshmi Machine
Works Ltd
9 Float Glass India Ltd Asahi India Glass Ltd
10 Vorin Laboratories Ltd
Matrix Laboratories
Ltd
11 German Remedies Ltd
Cadila Healthcare
Ltd
12 TVS Autolec Ltd
Sundram Fasteners
Ltd
13 Vikrant Tyres Ltd
JK Tyre & Industries
Ltd
14
Eupec-Welspun Pipe Coatings (India)
Ltd
Welspun Gujarat
Stahl Rohren Ltd
15 Ispat Metallics India Ltd Ispat Industries Ltd
16 Burroughs Wellcome (India) Ltd
Glaxosmithkline
Pharma Ltd
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Table showing calculation of Mean of Market Capitalization:
IndusInd Bank Ltd
Prior Merger Post MergerAvg
Prices Share o/s Market cap Avg Share o/s Market cap
17.28 160000000 2764000000 37.6 290701836 10930389034
16.05 160000000 2568000000 52.13 290701836 15154286711
16.25 160000000 2600000000 53.6 290701836 1558161841014.28 160000000 2284000000 47 290701836 13662986292
15.00 160000000 2400000000 51.53 290701836 14979865609
15.88 160000000 2540000000 56.9 290701836 1654093446816.85 160000000 2696000000 57.53 290701836 16724076625
16.73 160000000 2676000000 55.13 290701836 16026392219
16.85 160000000 2696000000 61.7 290318736 1791266601118.68 160000000 2988000000 74.5 290318736 21628745832
20.05 160000000 3208000000 78.43 290318736 22769698464
20.13 160000000 3220000000 72.18 290317636 20955126966
23.23 220226983 5114771680 68.23 290317636 1980837230426.75 220226983 5891071795 57.48 290317636 16687457717
25.15 220226983 5538708622 54.4 290317636 15793279398
24.05 220226983 5296458941 54.4 290317636 1579327939833.00 220226983 7267490439 57.73 290317636 16760037126
41.83 220226983 9210993564 58.48 290317636 16977775353
43.95 220226983 9678975903 54.43 290317636 15801988927
39.75 220226983 8754022574 43.5 290317636 1262881716638.03 220226983 8374131029 39.45 290317636 11453030740
50.40 220226983 11099439943 40.5 290317636 11757864258
51.30 220226983 11297644228 42.8 290317636 1242559482152.73 220226983 11611467679 48.13 290317636 13972987821
32.50 290701836 9447809670
INDUS
_
X B 5648919443 _
X A 15946969653
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Oriental Bank of Commerce
Prior Merger Post Merger
Avg Share market cap Avg Share Market cap
41.7 192539700 8028905490 242.9 192539700 46767893130
42.48 192539700 8179086456 245.93 192539700 47351288421
41.33 192539700 7957665801 270 192539700 51985719000
42.18 192539700 8121324546 323.08 192539700 62205726276
48.25 192539700 9290040525 316.13 192539700 60867575361
58.28 192539700 11221213716 312.63 192539700 60193686411
57.45 192539700 11061405765 337.33 192539700 64949417001
61.58 192539700 11856594726 295.33 192539700 56862749601
76.28 192539700 14686928316 266.38 192539700 51288725286
120.65 192539700 23229914805 264.88 250539700 66362955736
131.13 192539700 25247730861 269 250539700 67395179300169.75 192539700 32683614075 267.43 250539700 67001831971
171.55 192539700 33030185535 268.2 250539700 67194747540
182.85 192539700 35205884145 263.5 250539700 66017210950
234.58 192539700 45165962826 250.75 250539700 62822829775
234.13 192539700 45079319961 254.43 250539700 63744815871
243.73 192539700 46927701081 260 250539700 65140322000
262.6 192539700 50560925220 241.1 250539700 60405121670
255.75 192539700 49242028275 241 250539700 60380067700
287.25 192539700 55307028825 237.2 250539700 59428016840
334.6 192539700 64423783620 217.9 250539700 54592600630
234.75 192539700 45198694575 177.58 250539700 44490839926228.95 192539700 44081964315 162.9 250539700 40812917130
245.5 192539700 47268496350 182.5 250539700 45723495250
230.83 192539700 44443938951
Oriental_
X B 31100013550 _
X A 58082738866
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Supreme Industries Ltd
Prior Merger Post Merger
Avg Shares market cap Avg Shares market cap
40.95 9714910 397825565 197.24 13057837 2575527770
42.00 9714910 408026220 200.02 13057837 2611828557
43.33 9714910 420947050 222.74 13057837 2908502613
48.25 9714910 468744408 214.55 13057837 2801493639
45.90 9714910 445914369 183.65 13057837 2398071765
57.25 9714910 556178598 175.00 13057837 2285056186
54.04 9714910 524993736 217.05 13390837 2906414217
67.88 9714910 659448091 184.12 13390837 2465520908
95.08 9714910 923693643 170.50 13390837 2283070754
92.38 9714910 897463386 176.55 13390837 2364152272
96.83 9714910 940694735 187.58 13390837 251178625092.58 9714910 899406368 199.50 13390837 2671471982
93.50 10012261 936146404 178.00 13390837 2383568986
86.40 10012261 865059350 183.80 13390837 2461168886
84.25 10012261 843532989 223.00 13390837 2986089697
96.53 10012261 966483554 226.80 13390837 3036974877
107.35 10012261 1074816218 249.00 13390837 3334251459
98.05 10012261 981702191 269.05 13390837 3602804695
84.73 10012261 848338875 265.37 13390837 3553526415
79.82 10012261 799178673 249.54 13390837 3341549465
99.00 10012261 991213839 262.31 13390837 3512550453
125.25 10012261 1254035690 274.48 13390837 3675449986129.55 10012261 1297088413 318.39 13390837 4263508592
139.50 10012261 1396710410 339.58 13390837 4547193474
154.75 10012261 1549397390
SUPREME
_
X B 853881607
_
X A 2978397246
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Tata Chemicals Ltd
Prior Merger Post Merger
Avg Share mak cap Avg share mak cap
55.20 180638651 9971253535 119.43 180638651 21572770896
60.58 180638651 10942186284 123.68 180638651 2234048516258.30 180638651 10531233353 126.30 180638651 22814661621
54.65 180638651 9871902277 132.18 180638651 23875913696
50.98 180638651 9208055235 138.08 215102651 29700298537
49.90 180638651 9013868685 159.10 215102651 34222831774
56.05 180638651 10124796389 156.75 215102651 33717340544
62.20 180638651 11235724092 164.93 215102651 35475804716
62.73 180638651 11330559384 154.48 215102651 33227982013
61.98 180638651 11195080396 153.23 215102651 32959103699
66.98 180638651 12098273651 167.63 215102651 36056581874
73.68 180638651 13308552612 175.15 215102651 37675229323
71.78 180638651 12965339176 183.45 215102651 39460581326
77.23 180638651 13949819823 185.15 215102651 39826255833
88.75 180638651 16031680276 196.78 215102651 42326824151
91.40 180638651 16510372701 190.45 215102651 40966299883
109.23 180638651 19730256655 204.85 215102651 44063778057
127.58 180638651 23044975901 223.50 215102651 48075442499
145.43 180638651 26269375822 242.35 215102651 52130127470
144.00 180638651 26011965744 245.95 215102651 52904497013
121.63 180638651 21970175928 249.50 215102651 53668111425
113.13 180638651 20434747394 260.95 215102651 56131036778
136.68 180638651 24688787625 228.95 215102651 49247751946120.28 180638651 21726313749 211.43 215102651 45478077988
126.20 180638651 22796597756
TATA
_
X B 15798475778 _
X A 38663241176
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TVS Motor Company Ltd
Prior Merger Post Merger
Avg Share mkt cap Avg share mkt cap
425.05 23100070 9818684754 75.75 231000700 17498303025
442.45 23100070 10220625972 65.53 231000700 15137475871429.36 23100070 9918246055 61.63 237543557 14639809418478.78 23100070 11059851515 73.4 237543557 17435697084
431.98 23100070 9978768239 78.03 237543557 18535523753
384 23100070 8870426880 78.75 237543557 18706555114405 23100070 9355528350 84.75 237543557 20131816456
434.38 23100070 10034208407 86.3 237543557 20500008969
489.95 23100070 11317879297 80.83 237543557 19200645712495.5 23100070 11446084685 74.4 237543557 17673240641
510.95 23100070 11802980767 72.88 237543557 17312174434
459 23100070 10602932130 70.65 237543557 16782452302
403.7 23100070 9325498259 73 237543557 17340679661492.73 23100070 11382097491 74.9 237543557 17792012419
560.03 23100070 12936732202 79.83 237543557 18963102155
548.43 23100070 12668771390 80.03 237543557 19010610867669.95 23100070 15475891897 87.5 237543557 20785061238
789.63 23100070 18240508274 91.35 237543557 21699603932
879.63 23100070 20319514574 94.25 237543557 22388480247915 23100070 21136564050 101.38 237543557 24082165809
621.3 23100070 14352073491 108 237543557 25654704156
111.2 231000700 25687277840 118.48 237543557 28144160633
109.03 231000700 25186006321 131.88 237543557 31327244297
94 231000700 21714065800 163.35 237543557 3880274003691.63 231000700 21166594141
TVS
_
X B 14160712511 _
X A 20814344510
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Gujarat Ambuja Exports Ltd
Prior Merger Post Merger
Avg Share mak cap Avg share mak cap
7.53 29982782 225620434.6 25.13 29982782 753317398
7.95 29982782 238363116.9 27.43 29982782 8222777967.80 29982782 233865699.6 34.25 23765698 813975157
7.90 29982782 236863977.8 35.75 23765698 849623704
8.73 29982782 261599773 34.00 23765698 808033732
10.50 29982782 314819211 36.30 23765698 862694837
9.53 29982782 285585998.6 34.38 23765698 816945869
10.13 29982782 303575667.8 36.50 23765698 867447977
10.13 29982782 303575667.8 37.05 23765698 880519111
9.75 29982782 292332124.5 40.88 23765698 971422906
9.58 29982782 287085137.7 40.50 23765698 962510769
9.75 29982782 292332124.5 38.73 23765698 920326655
9.25 29982782 277340733.5 36.75 23765698 8733894029.85 29982782 295330402.7 33.58 23765698 797933310
9.60 29982782 287834707.2 35.25 27863698 982195355
10.78 29982782 323064476.1 39.70 27863698 1106188811
13.50 29982782 404767557 49.78 27863698 1386915568
14.75 29982782 442246034.5 50.73 27863698 1413386081
17.74 29982782 531894552.7 62.10 27863698 1730335646
18.50 29982782 554681467 92.68 27863698 2582268212
19.00 29982782 569672858 91.90 27863698 2560673846
19.25 29982782 577168553.5 87.88 27863698 2448522462
22.83 29982782 684356999.2 85.10 27863698 237120070026.00 29982782 779552332 61.23 27863698 1705954910
24.48 29982782 733828589.5
AMB
EX
_
X B 389494327.8 _
X A 1262002509
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE41
Pfizer Ltd
Prior Merger Post Merger
Avg share mak cap Avg share mak cap
585.00 23440296 13712573160 312.53 23440296 7325678507533.50 23440296 12505397916 364.00 23440296 8532267744
501.03 23440296 11744174303 386.80 23440296 9066706493
482.28 23440296 11304668753 422.50 23440296 9903525060
467.00 23440296 10946618232 411.10 23440296 9636305686
425.90 23440296 9983222066 431.75 23440296 10120347798
406.50 23440296 9528480324 412.00 28797540 11864586480
401.00 23440296 9399558696 441.40 28797540 12711234156
430.23 23440296 10084601347 523.53 28797540 15076232129
471.28 23440296 11046825497 516.05 28797540 14860970517
449.00 23440296 10524692904 479.25 28797540 13801221045
453.00 23440296 10618454088 448.00 28797540 12901297920450.48 23440296 10559267341 469.43 28797540 13518285215
491.15 23440296 11512701380 418.25 28797540 12044571105
491.00 23440296 11509185336 422.58 28797540 12169120466
507.00 23440296 11884230072 454.40 28797540 13085602176
476.00 23440296 11157580896 446.60 28797540 12860981364
451.83 23440296 10590911740 495.95 28797540 14282139963
428.50 23440296 10044166836 511.63 28797540 14733541403
407.00 23440296 9540200472 564.00 28797540 16241812560
395.03 23440296 9259502927 647.83 28797540 18655766351
385.53 23440296 9036820115 709.70 28797540 20437614138
360.75 23440296 8456086782 704.08 28797540 20275627976
345.00 23440296 8086902120 715.00 28797540 20590241100
325.50 23440296 7629816348
PFIZER
_
X B 10426665586
_
X A 13528986556
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE42
Lakshmi Machine Works Ltd
Prior Merger Post Merger
Avg share mak cap Avg share mak cap
680.53 1219173 829677706 4,548.00 1219173 5544798804
761.00 1219173 927790653 4,657.48 1219173 5678267768695.00 1219173 847325235 4,502.50 1219173 5489326433
661.00 1219173 805873353 4,554.50 1219173 5552723429
652.50 1219173 795510383 5,104.98 1219173 6223847686
757.47 1219173 923486972 4,575.48 1219173 5578295582
676.05 1219173 824221907 4,534.98 1219173 5528919076
847.50 1219173 1033249118 5,549.88 1219173 6766257753
1,065.00 1219173 1298419245 6,752.40 1219173 8232343765
1,060.50 1219173 1292932967 7,197.48 1219173 8774967188
989.45 1219173 1206310725 7,495.50 1219173 9138311222
965.48 1219173 1177081052 7,802.48 1219173 9512566853
972.50 1219173 1185645743 8,307.48 1219173 101282492181,025.00 1219173 1249652325 8,350.63 1219173 10180856533
1,148.48 1219173 1400189711 7,750.48 1219173 9449169857
1,162.50 1219173 1417288613 8,098.98 1219173 9874051648
1,012.50 1219173 1234412663 8,125.45 1219173 9906329253
938.38 1219173 1144041464 9,312.45 1236925 11518802216
1,266.05 1219173 1543533977 9,600.48 1236925 11875067539
1,837.85 1219173 2240657098 10,769.45 1236925 13321001941
2,382.40 1219173 2904557755 11,944.45 1236925 14774388816
2,731.48 1219173 3330140570 13,307.50 1236925 16460379438
3,004.58 1219173 3663096716 13,826.00 1236925 171017250503,571.15 1219173 4353849659 14,083.58 1236925 17420326007
3,739.98 1219173 4559676541
LAX MAC
WRK
_
X B 1687544886
_
X A 9751290545
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE43
Asahi India Glass Ltd
Prior Merger Post Merger
Avg share mak cap Avg share mak cap
187.00 3700000 691900000 98.5 79963763 7876430656
212.50 3700000 786250000 111 79963763 8875977693225.05 3700000 832685000 132.63 79963763 10605593887
225.00 3700000 832500000 137.7 79963763 11011010165
244.00 7400000 1805600000 122.89 79963763 9826746835
289.00 7400000 2138600000 118.5 79963763 9475705916
303.37 7400000 2244938000 128.75 79963763 10295334486
339.03 7400000 2508822000 114.13 79963763 9126264271
374.01 7400000 2767637000 91.56 79963763 7321482140
366.45 7400000 2711730000 101.52 79963763 8117921220
386.50 7400000 2860100000 113.23 79963763 9054296884
365.50 7400000 2704700000 125.78 79963763 10057842110
322.52 7400000 2386648000 120.55 79963763 9639631630181.75 7400000 1344950000 129.5 79963763 10355307309
34.30 7400000 253820000 140.34 79963763 11222114499
33.50 7400000 247900000 152.5 79963763 12194473858
36.95 7400000 273393000 166.77 79963763 13335556756
39.13 7400000 289562000 167.55 79963763 13397928491
36.75 7400000 271913000 164.5 79963763 13154039014
39.00 7400000 288563000 187.73 79963763 15011597228
47.78 7400000 353572000 179.99 79963763 14392677702
55.98 7400000 414252000 181.19 79963763 14488634218
68.47 7400000 506678000 172.5 79963763 1379374911880.34 7400000 594516000 81.25 79963763 6497055744
89.03 7400000 658822000
ASAHI
_
X B 1230802040
_
X A 10796973826
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE44
Matrix Laboratories Ltd
Prior Merger Post Merger
Avg share mak cap Avg share mak cap
23.88 7200000 171936000 555.825 9718451 5401758027
27.6 7200000 198720000 665.075 9718451 646349879926 7200000 187200000 824.65 9718451 8014320617
30.78 7200000 221616000 919.025 12297886 1130206468130.05 7200000 216360000 1078.35 12297886 13261425368
31.98 7200000 230256000 1350.425 12297886 16607372702
31.23 7200000 224856000 1589 12297886 19541340854
30.05 7187500 215984375 1470.2 12297886 1808035199728.8 7187500 207000000 1559 12297886 19172404274
30.9 7187500 222093750 1491.975 14547886 21705082215
47 7187500 337812500 1461.85 14547886 2126682714950.95 7187500 366203125 1387.975 14547886 20192102071
68.3 7187500 490906250 1400 14547886 20367040400121.93 7187500 876371875 1464.975 14547886 21312289293115.53 7187500 830371875 1553.475 14547886 22599777204
109.5 7187500 787031250 1749.95 14968321 26193813334
128.48 7187500 923450000 1812.475 14968321 27129707604
151.85 7187500 1091421875 2158.1 14968321 32303133550168.55 7187500 1211453125 1365.675 14968321 20441861782
244.4 7187600 1756649440 199.25 149683210 29824379593
313.05 7187600 2250078180 165.8 149683210 24817476218295.7 7187600 2125373320 173.35 149722210 25954345104
306.1 9718451 2974817851 168.625 149722210 25246907661
382.43 9718451 3716627216 194.15 149722210 29068567072505.23 9718451 4910052999
MATRIX
_
X B 1069785720
_
X A 20261160315
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE45
Cadila Healthcare Ltd
Prior Merger Post Merger
Avg share mak cap Avg share mak cap
98.7 59541368 5876733022 319.19 62806854 20047319728
110.35 59541368 6570389959 360.60 62806854 22648151552
125.7 59541368 7484349958 398.03 62806854 24999012098
126.75 59541368 7546868394 395.00 62806854 24808707330
127.73 59541368 7605218935 442.49 62806854 27791404826
129.25 59541368 7695721814 441.48 62806854 27727969904
127.98 59541368 7620104277 515.49 62806854 32376305168
138.78 59541368 8263151051 463.55 62806854 29114117172
134.75 59541368 8023199338 439.76 62806854 27619942115
132.5 59541368 7889231260 453.50 62806854 28482908289
134.88 59541368 8030939716 487.25 62806854 30602639612
132.3 59541368 7877322986 494.35 62806854 31048568275122.13 59541368 7271787274 522.80 62806854 32835423271
113.95 59541368 6784738884 516.04 62806854 32410848938
113.05 59541368 6731151652 566.08 62806854 35553703912
117.79 59541368 7013377737 534.50 62806854 33570263463
126.49 59541368 7531387638 530.00 62806854 33287632620
121.5 59541368 7234276212 495.00 62806854 31089392730
120.5 59541368 7174734844 446.73 62806854 28057705887
122.68 59541368 7304535026 465.00 62806854 29205187110
123.89 59541368 7376580082 489.50 62806854 30743955033
148.3 59541368 8829984874 556.30 62806854 34939452880
215.53 59541368 12832951045 522.47 62806854 32814697009265.07 59541368 15782630416 535.00 62806854 33601666890
319.67 59541368 19033589109
CADILLA
_
X B 8455398220
_
X A 29807373992
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE46
Sundram Fasteners Ltd
Prior Merger Post Merger
Avg share mak cap Avg share mak cap
278.45 10215662 2844551084 92.29 102156620 9428034460
276.75 10215662 2827184459 92.37 102156620 9436206989286.95 10215662 2931384211 91.74 105064185 9638588332
297.65 10215662 3040691794 100.13 105064185 10520076844291.7 10215662 2979908605 114.25 105064185 12003583136
304.56 10215662 3111282019 112.29 105064185 11797657334
286.5 10215662 2926787163 109.8 105064185 11536047513
300.48 10215662 3069602118 114.52 105064185 12031950466318.5 10215662 3253688347 111.7 105064185 11735669465
332.53 10215662 3397014085 120.05 105064185 12612955409
319.02 10215662 3259000491 112.95 105064185 11866999696337.21 10215662 3444823383 117.84 105064185 12380763560
354.48 10215662 3621247866 130.64 105064185 13725585128419.91 10215662 4289658630 129.02 105064185 13555381149464.28 10215662 4742927553 130.99 105064185 13762357593
492.78 10215662 5034073920 144.43 105064185 15174420240
515.05 10215662 5261576713 147.5 105064185 15496967288
581.03 10215662 5935606092 146.25 105064185 15365637056711.4 10215662 7267421947 154.47 105064185 16229264657
840.3 10215662 8584220779 158.05 105064185 16605394439
1065.03 10215662 10879986500 166.14 105064185 17455363696697.4 10215662 7124402679 154.74 105064185 16257631987
101.46 10215662 1036481067 163.49 105064185 17176943606
91.28 10215662 932485627.4 165.64 105064185 1740283160396.73 102156620 9881609853
SUNDRAM
_
X B 4467104679
_
X A 13466512985
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE47
JK Tyre & Industries Ltd
Prior Merger Post Merger
Avg share mak cap Avg share mak cap
13.85 34565102 478726662.7 40.325 34565102 1393837738
14.30 34565102 494280958.6 70.55 34565102 2438567946
15.25 34565102 527117805.5 67.7 37459346 2535997724
16.43 34565102 567731800.4 56.85 37459346 2129563820
15.18 34565102 524525422.9 45.25 37459346 1695035407
15.65 34565102 540943846.3 50.775 37459346 1901998293
16.23 34565102 560818780 43.75 37459346 1638846388
18.38 34565102 635133749.3 39.3 37459346 1472152298
20.30 34565102 701671570.6 37.35 37459346 1399106573
27.30 34565102 943627284.6 45.75 37459346 1713765080
29.25 34565102 1011029234 54.875 37459346 205558161225.20 34565102 871040570.4 62.525 37459346 2342145609
23.63 34565102 816600534.8 68.025 37459346 2548172012
24.80 34565102 857214529.6 78.425 37459346 2937749210
25.83 34565102 892643759.2 74.25 37459346 2781356441
28.08 34565102 970415238.7 84.5 37459346 3165314737
27.90 34565102 964366345.8 98.275 37459346 3681317228
25.38 34565102 877089463.3 105.9 37459346 3966944741
22.70 34565102 784627815.4 102.775 37459346 3849884285
22.70 34565102 784627815.4 106.225 37459346 3979119029
29.55 34565102 1021398764 103.175 37459346 3864868024
34.38 34565102 1188175381 121.45 37459346 454943757235.33 34565102 1221012228 113.8 37459346 4262873575
38.93 34565102 134544659540.33 34565102 1393837738
JK
TYRES
_
X B 838964155.7
_
X A 2708853710
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE48
Welspun Gujarat Stahl Rohren Ltd
Avg share mak cap Avg share mak cap
9.08 122719760 1114295421 10 141355760 1413557600
9.65 122719760 1184245684 15.78 141355760 2230593893
9.28 122719760 1138839373 24.25 141355760 34278771807.35 122719760 901990236 25.83 141355760 3651219281
7.20 122719760 883582272 28.75 141355760 4063978100
6.13 122719760 752272128.8 37.68 140345760 52882282377.20 122719760 883582272 43.88 140345760 6158371949
9.83 122719760 1206335241 47.73 140345760 6698703125
11.00 122719760 1349917360 43.8 141355760 6191382288
9.93 122719760 1218607217 37.38 141355760 52838783099.05 122719760 1110613828 32.98 141355760 4661912965
9.53 122719760 1169519313 35.15 141355760 4968654964
8.23 141355760 1163357905 31.9 141355760 45092487447.60 141355760 1074303776 27.93 141355760 3948066377
9.15 141355760 1293405204 31.65 141355760 4473909804
10.65 141355760 1505438844 32.23 141355760 45558961458.20 141355760 1159117232 37.8 141355760 5343247728
7.83 141355760 1106815601 40.73 141355760 5757420105
7.55 141355760 1067235988 40.18 141355760 56796744378.95 141355760 1265134052 42.45 141355760 6000552012
9.60 141355760 1357015296 43.88 141355760 62026907499.03 141355760 1276442513 43.2 141355760 6106568832
8.60 141355760 1215659536 38.25 141355760 54068578207.25 141355760 1024829260 38.55 141355760 5449264548
7.53 141355760 1064408873
WELSPN
_
X B 1139478577
_
X A 4894656466
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE49
Ispat Industries Ltd
Prior Merger post merger
Avg share mak cap Avg share mak cap
1.83 692590309 1267440265 8.01 692590311 5547648391
2.68 692590309 1856142028 6.68 692590311 4626503277
5.4 692590309 3739987669 8.26 692590311 5720795969
6.33 692590309 4384096656 10.92 692590311 7563086196
4.48 692590309 3102804584 11.18 692590311 7743159677
3.95 692590309 2735731721 12.43 692590311 8608897566
3.85 692590309 2666472690 15.43 692590311 10686668499
4.6 692590309 3185915421 21.30 692590311 14752173624
5.3 692590309 3670728638 22.23 692590311 15396282614
5.8 692590309 4017023792 26.30 692590311 18215125179
5.4 692590309 3739987669 29.23 692590311 202444147914.93 692590309 3414470223 26.45 692590311 18319013726
4.68 692590311 3241322655 22.08 692590311 15292394067
4.9 692590311 3393692524 19.00 692590311 13159215909
7.68 692590311 5319093588 19.43 692590311 13457029743
12.03 692590311 8331861441 21.50 692590311 14890691687
16.14 692590311 11178407620 22.63 692590311 15673318738
13.2 692590311 9142192105 17.43 692590311 12071849121
13.76 692590311 9530042679 12.82 692590311 8879007787
12.18 692590311 8435749988 10.30 692590311 7133680203
14.9 692590311 10319595634 19.68 1222442218 24057662850
14 692590311 9696264354 16.70 1222442218 2041478504110.78 692590311 7466123553 13.54 1222442218 16551867632
8 692590311 55407224889.34 692590311 6468793505
ISPAT
_
X B 5433786540
_
X A 13000229230
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE50
GlaxoSmithKline Consumer Healthcare Ltd
Prior Merger Post merger
Avg share mak cap Avg share mak cap
372.53 74475000 27744171750 650.1 74475000 48416197500349.00 74475000 25991775000 731.5 74475000 54478462500
330.45 74475000 24610263750 756.45 74475000 56336613750319.68 74475000 23808168000 723.8 87322546 63204058795
303.55 74475000 22606886250 707.5 87322546 61780701295
297.45 74475000 22152588750 736 87322546 64269393856
300.00 74475000 22342500000 731.95 87322546 63915737545308.33 74475000 22962876750 739 87322546 64531361494
354.03 74475000 26366384250 783.45 87322546 68412848664
361.00 74475000 26885475000 853.5 84703017 72294025010387.50 74475000 28859062500 920 84703017 77926775640
423.98 74475000 31575910500 874.08 84703017 74037213099454.50 74475000 33848887500 878.5 84703017 74411600435446.50 74475000 33253087500 1,029.50 84703017 87201756002
492.00 74475000 36641700000 1,095.03 84703017 92752344706
555.95 74475000 41404376250 1,012.33 84703017 85747405200
589.00 74475000 43865775000 1,042.25 84703017 88281719468621.00 74475000 46248975000 1,093.50 84703017 92622749090
601.50 74475000 44796712500 1,105.53 84703017 93641726384
642.98 74475000 47885935500 1,090.08 84703017 92333064771622.50 74475000 46360687500 1,033.50 84703017 87540568070
595.03 74475000 44314859250 1,014.63 84703017 85942222139
605.00 74475000 45057375000 1,109.50 84703017 93977997362617.53 74475000 45990546750 1,054.48 84703017 89317637366
640.50 74475000 47701237500
GSK
_
X B 34531048710
_
X A 76390590839
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Mergers Creating Value To Shareholders Wealth
M.P BIRLA INSTITUTE OF MANAGEMENT, BANGALORE51
8.1 BIBLIOGRAPHY
Books
Approaches to M&A - Jangaiah Paladi
Financial Management- Ravi M Kishore
WEBSITES
www.capitalmarket.com
www.investopidia.com
www.finance.yahoo.org
www.jstor.org
Database
Capitaline
Prowess
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8.2. References
Friedrich Trautwein (May-June 1991), merger motives and mergerprescriptions Strategic management journal, Vol.11, No.4, pp 283-295
Pieter T. Elgers; John J. Clark (1980), merger types and shareholdersreturns: additional evidence Financial management, Vol.9, No.2, pp 66-72
Tim Loughran and Anand M Vijh(Dec 1997), Do Long Term ShareholdersBenefit From Corporate Acquisitions The Journal of Finance, Vol.52, No. 5
Deepak K Dutta & George E. PinchesV.K Narayanan (1992), FactorsInfluencing Wealth Creation From Mergers And Acquisition: A Meta
Analysis" Strategic Management Journal Volume, Pages: 60-84