MERGER & ACQUISITION

ARINDOM MUKHERJEE

OM! MAY THE LORD PROTECT US BOTH; MAY THE LORD NOURISH US BOTH; MAY WE WORK TOGETHER WITH ENERGY & OUR STUDY BE ILLUMINATING AND FRUITFUL; MAY WE REMAIN CORDIAL TO EACH OTHER FOREVER. OM.. LET PEACE OF MIND PREVAIL.

IT IS CLEAR THAT YOU CANNOT STAY IN THE TOP LEAGUE IF YOU ONLY GROW INTERNALLY. YOU CANNOT CATCH UP JUST BY INTERNAL GROWTH. IF YOU WANT TO STAY IN THE TOP LEAGUE,YOU MUST COMBINE.
DANIEL VASELIA , CEO NOVARTIS

COURSE LAYOUT: M&A & OTHER RESTRUCTURING ACTIVITIES

PART I: M&A ENVIRONMENT

PART II: M&A PROCESS

PART III: M&A VALUATION & MODELING

PART IV: DEAL STRUCTURING & FINANCING

PART V: ALTERNATIVE STRATEGIES

MOTIVATIONS FOR M&A

BUSINESS & ACQUISITION PLANS

SEARCH THROUGH CLOSING ACTIVITIES

PUBLIC COMPANY VALUATION

PRIVATE COMPANY VALUATION FINANCIAL MODELING TECHNIQUES

PAYMENT & LEGAL CONSIDERATIONS

ACCOUNTING & TAX CONSIDERATIONS FINANCING STRATEGIES

BUSINESS ALLIANCES

REGULATORY CONSIDERATIONS TAKEOVER TACTICS AND DEFENSES

DIVESTITURES, SPIN-OFFS & CARVE-OUTS BANKRUPTCY & LIQUIDATION

M&A INTEGRATION

CROSS-BORDER TRANSACTIONS

10 LARGEST M&A TRANSACTIONS WORLDWIDE

TRANSACTION VALUE RANK YEAR 1 2 3 4 5 6 7 8 9 10 ACQUIROR** TARGET** MANNESMANN AG TIME WARNER PHILIP MORRIS INTL INC ABN-AMRO HOLDING NV WARNER-LAMBERT CO MOBIL CORP SMITHKLINE BEECHAM PLC SHELL TRANSPORT & TRADING COMPANY BELLSOUTH CORP CITICORP

(IN BIL. USD)

202.8 164.7 107.6 98.2 89.2 78.9 76.0 74.6 72.7 72.6

(IN BIL. EUR)

204.8 160.7 68.1 71.3 84.9 68.4 74.9 58.5 60.2 67.2

1999 VODAFONE AIRTOUCH PLC 2000 2007 2007 1999 1998 2000 2004 2006 1998 AMERICA ONLINE INC SHAREHOLDERS RFS HOLDINGS BV PFIZER INC EXXON CORP GLAXO WELLCOME PLC ROYAL DUTCH PETROLEUM COMPANY AT&T INC TRAVELERS GROUP INC

10 LARGEST M&A TRANSACTIONS IN EUOROPE

TRANSACTION VALUE RANK YEAR ACQUIROR** TARGET** (IN BIL. USD) 1 2 3 4 5 6 1999 2007 2007 2000 2004 2006 VODAFONE AIRTOUCH PLC SHAREHOLDERS RFS HOLDINGS BV GLAXO WELLCOME PLC ROYAL DUTCH PETROLEUM CO GAZ DE FRANCE SA MANNESMANN AG PHILIP MORRIS INTL INC ABN-AMRO HOLDING NV SMITHKLINE BEECHAM PLC SHELL TRANSPORT & TRADING CO SUEZ SA AIRTOUCH COMMUNICATIONS INC AVENTIS SA ANHEUSER-BUSCH COS INC ELF AQUITAINE 202.8 107.6 98.2 76.0 74.6 60.9 (IN BIL. EUR) 204.8 68.1 71.3 74.9 58.5 44.6

1999

VODAFONE GROUP PLC

60.3

51.7

8 9 10

2004 2008 1999

SANOFI-SYNTHELABO SA INBEV NV TOTAL FINA SA

60.2 52.2 50.1

50.0 39.7 48.3

10 LARGEST M&A TRANSACTIONS IN INDIA

TATA STEEL-CORUS : $12.2 BILLION VODAFONE-HUTCHISON ESSAR : $11.1 BILLION CAIRN-VEDANTA : $9.8 BILLION HINDALCO-NOVELIS : $6 BILLION RANBAXY-DAIICHI SANKYO : $4.5 BILLION ONGC-IMPERIAL ENERGY : $2.8 BILLION NTT DOCOMO-TATA TELE : $2.7 BILLION HDFC BANK-CENTURION BANK : $2.4

TOP 10 OUTBOUND ACQUISITIONS MADE BY INDIAN COMPANIES WORLDWIDE

ACQUIRER TATA STEEL BHARATI AIRTEL HINDALCO ONGC TATA MOTORS HINDUJA GROUP STERLITE INDUSTRIES SUZLON ENERGY HZL(VEDANTA) LANCO INFRATECH VIDEOCON

TARGET COMPANY COUNTRY TARGETED DEAL VALUE ($ ML) CORUS GROUP PLC ZAIN AFRICA BV NOVELIS IMPERIAL ENERGY JAGUAR LAND ROVER KBL EUOROPIAN PRIVATE BANKERS ASARCO LLC RE POWER ANGLO AMERICAN PLC GRIFFIN COAL DAEWOO ELECTRONICS UK VARIOUS COUNTRIES IN AFRICA CANADA UK UK BELGIUM BRAZIL GERMANY U.K AUSTRALIA KOREA 12,000 10,700 5,982 2,800 2,300 1,863 1,800 1,700 1,340 845 729

INDUSTRY STEEL TELECOM STEEL OIL & GAS AUTOMOBILE BANKING & FINANCIAL SERVICES MINERAL RESOURCES WIND TURBINE ZINC BUSINESS COAL ELECTRONICS

10 LARGEST M&A TRANSACTIONS IN ASIA PACIFIC REGION

TRANSACTION VALUE
RANK YEAR ACQUIROR** TARGET** (IN BIL. USD) (IN BIL. EUR) 1 PACIFIC CENTURY CYBERWORKS LTD CHINA TELECOM HONG KONG 2000 LTD 2000 CABLE & WIRELESS HKT 37.4 38.4

2 3 4 5 6 7
8 9

BEIJING MOBILE,6 OTHERS BHP BILLITON LTD

CHINA NETCOM GRP(HK)CORP LTD

34.2 26.4 25.4 17.9 17.0 15.3

14.9 14.3

39.7 18.1 16.4 11.6 12.4 11.3

11.9 9.7

2007 2008 2008 2007 2007

2006

BHP BILLITON LTD CHINA UNICOM LTD WESTPAC BANKING CORP SHAREHOLDERS WESFARMERS LTD
KEMBLE WATER LTD

ST GEORGE BANK LTD

SK CORP-PETROCHEMICAL BUSINESS

COLES GROUP LTD

THAMES WATER PLC RIO TINTO PLC

2008 SHINING PROSPECT PTE LTD

10 2006

CEMEX SAB DE CV

RINKER GROUP LTD

14.2

10.6

10 LARGEST M&A TRANSACTIONS IN SOUTH AMERICA

TRANSACTION VALUE RANK YEAR 1 2 3 4 5 6 7 8 9 ACQUIROR** TARGET** INCO LTD YPF SA BOVESPA HOLDING SA TELECOMMUNICACOES DE SAO PAULO BRASILCEL NV UNIBANCO HOLDINGS SA JOHN LABATT LTD REPSOL YPF BRASIL SA PAN AMERICAN ENERGY LLC CORREO ARGENTINO SA (IN BIL. USD) 17.2 13.2 10.3 10.2 9.7 8.5 7.8 7.1 7.1 6.2 (IN BIL. EUR) 13.5 12.4 6.5 10.0 7.5 6.7 6.4 5.2 5.3 5.7

2006 CIA VALE DO RIO DOCE SA 1999 2008 2000 2010 2008 2004 2010 2010 REPSOL SA BOLSA BRASILEIRA DE MERCADORIAS TELEFONICA SA TELEFONICA SA BANCO ITAU HOLDING FINANCEIRA AMBEV SINOPEC GROUP BRIDAS CORP INVESTOR GROUP

10 1997

MERGER WAVES IN U.S.A

PERIOD NAME FACET

1887- 1904

FIRST WAVE

HORIZONTAL MERGERS

1916 - 1929

SECOND WAVE

VERTICAL MERGERS

1963 - 1974

THIRD WAVE

DIVERSIFIED CONGLOMERATE MERGERS

1981 - 1989

FOURTH WAVE

HOSTILE TAKEOVERS; CORPORATE RAIDING

2000 -

FIFTH WAVE

CROSS-BORDER MERGERS

CHARACTERISTICS OF FIRST MERGER WAVE IN USA (1887-1904)

TRANSCONTINENTAL RAILROAD SYSTEM INTEGRATED THE MARKET & LED TO TRANSFORMATION OF REGIONAL FIRMS INTO NATIONAL FIRMS THROUGH MERGERS CREATED LARGE MONOPOLIES LIKE AMERICAN TOBACCO (90%),STANDARD OIL(85%),U S STEEL(75%) ,GENERAL ELECTRIC, INTERNATIONAL HARVESTOR, DU PONT,ETC THROUGH HORIZONTAL MERGERS CREATED MORE THAN 300 MAJOR COMBINATIONS COVERING MORE THAN 40% MANUFACTURING SPACE LARGE TRUSTS OF SHAREHOLDERS USED THEIR VOTING POWERS TO FORCE MULTIPLE MERGERS COLLAPSE OF SHIP BUILDING TRUST,STOCK MARKET CRASH OF 1904 & BANK FAILURES IN 1907 ENDED THE ERA

 GROWTH IN RAILROAD &MOTOR VEHICLE TRANSPORTATION & PROLIFERATION OF RADIO LEADING TO NATIONAL BRAND ADVERTISING BROUGHT THE ERA OF MASS MERCHANDISING. THIS LED TO WAVES OF CONSOLIDATION PARTICULARLY IN PRIMARY METAL,BANKING,PUBLIC UTILITIES, FOOD PRODUCTS ,CHEMICAL & TRANSPORTATION SECTORS . MORE THAN 12000 FIRMS DISAPPEARED. FEDERAL POLICY ENCOURAGED FORMATION OF BUSINESS CO OPS WHICH EVENTUALLY LED TO VERTICAL MERGERS LARGER FIRMS ACQUIRED PRIVATE FIRMS AS TRANSFER OF BUSINESS WITHIN FAMILY WAS NOT TAX FRIENDLY INVESTMENT BANKERS PLAYED A DECISIVE ROLE IN INFLUENCING BUSINESS LEADERS & ARRANGING FINANCE FOR MERGER & ACQUISITION THE STOCK MARKET CRASHED ON 29.10.1929.IT EVENTUALLY LED TO THE TERMINATION OF SECOND WAVE OF MERGER

CHARACTERISTICS OF SECOND MERGER WAVE IN USA (1916-1929)

CHARACTERISTICS OF THIRD MERGER WAVE IN USA (1963-1974)

MORE THAN 25000 FIRMS DISAPPEARED & AROUND 6000 MERGERS TOOK PLACE BOOMING ECONOMY ENCOURAGED CONGLOMERATE MERGERS.TOUGH ANTITRUST ENFORCEMENT DISCOURAGED BOTH HORIZONTAL & VERTICAL MERGERS MERGERS THROUGH STOCK TRANSACTIONS WERE NOT TAXABLE. BOOMING STOCK MARKET ENCOURAGED EQUITY FINANCING OF MERGERS MERGERS OF WHOLLY UNRELATED INDUSTRIES ALSO LED TO LARGE NO. OF FAILED MERGERS THIRD WAVE OF MERGER ENDED FOLLOWING U.S ECONOMIC RECESSION IN 1974-1975

CHARACTERISTICS OF FOURTH MERGER WAVE IN USA (1981-1989)

PERIOD OF MEGA CONGENERIC MERGERS . DEREGULATION OF AIRLINES, DRUGS , MED EQUIP.,OIL & GAS ETC LED TO SPATE OF HIGH PROFILE MERGERS IN THE RESPECTIVE INDUSTRIES EMERGENCE OF CORPORATE RAIDERS MAKING HANDSOME PROFIT THROUGH RESELLING OF TARGET CO. SHARES MERGER SPECIALISTS OF INVESTMENT BANKERS & LAW FIRMS DEVELOPED INNOVATIVE TECHNIQUES TO EITHER FACILITATE OR PREVENT HOSTILE TAKEOVERS. THEIR EXPERTISE BECAME INCREASINGLY INDISPENSABLE IN CONCLUDING THE MERGER DEALS OR WARDING OFF HOSTILE BIDS INCREASED USE OF DEBT , JUNK BONDS & SOPHISTICATED INVESTMENT VEHICLES FOR FINANCING MERGERS THE FOUTH MERGER WAVE SLOWED WITH THE DOWNTURN IN US ECONOMY DURING 1990-1991

MERGERS & ACQUISITIONS DEFINED

MERGER
PARENT STOCKS ARE USUALLY
RETIRED AND NEW STOCK ISSUED

ACQUISITION

CAN BE A CONTROLLING
SHARE, A MAJORITY, OR ALL OF THE TARGET FIRMS STOCK

NAME MAY BE ONE OF THE

PARENTS OR A COMBINATION

CAN BE FRIENDLY OR
HOSTILE

ONE OF THE PARENTS USUALLY

EMERGES AS THE DOMINANT MANAGEMENT

USUALLY DONE THROUGH

A TENDER OFFER

MERGER & ACQUISITION AN ONGOING PROCESS OF BUSINESS RESTRUCTURING

EXPANSION FRIENDLY TAKEOVER HOSTILE TAKEOVER REVERSE MERGER ASSET ACQUISITION JOINT VENTURE CONTRACTION SPIN OFFS SPLIT OFFS SPLIT UP SELL OFF OR DIVESTITURE EQUITY CARVE OUTS ASSET SALE

MERGER & ACQUISITION AN ONGOING PROCESS OF BUSINESS RESTRUCTURING

FRIENDLY TAKEOVERS : THE ACQUIRING COMPANY AFTER EXTENSIVE DUE DILIGENCE OFFERS THE NEGOTIATED TAKEOVER TERMS TO THE TARGET COMPANYS BOARD OF DIRECTORS WHICH AFTER BEING SATISFIED RECOMMENDS THE SAME FOR ACCEPTANCE BY THE SHAREHOLDERS. HOSTILE TAKEOVERS: A TAKEOVER IS CONSIDERED "HOSTILE" IF THE TARGET COMPANY'S BOARD REJECTS THE ACQUIRING COMPANYS OFFER OR THE ACQUIRING COMPANY TENDERS A PUBLIC OFFER AS PER PROCEDURE .THIS MAY LEAD TO OTHER POTENTIAL ACQUIRERS TO JUMP IN THE FRAY . PROXY FIGHT : AN ACQUIRING COMPANY CAN ALSO ENGAGE IN A PROXY FIGHT WHEREBY IT TRIES TO PERSUADE ENOUGH SHAREHOLDERS OF THE TARGET COMPANY, USUALLY A SIMPLE MAJORITY , TO REPLACE THE MANAGEMENT WITH A NEW ONE WHICH WILL APPROVE THE TAKEOVER.

MERGER & ACQUISITION AN ONGOING PROCESS OF BUSINESS RESTRUCTURING

SPIN OFF : COMPANY DISTRIBUTES ON PRORATA BASIS ALL OF THE SHARES IT OWNS IN A SUBSIDIARY TO ITS OWN SHARE HOLDER SPLIT OFF : A NEW COMPANY IS CREATED AND ENTIRE BUSINESS OF A DIVISION OR UNIT IS TRANSFERRED TO THE SAME. EXISTING SHAREHOLDERS RECEIVES STOCK IN THE NEW COMPANY IN EXCHANGE OF SHARES IN THE EXISTING COMPANY SPLIT UP : ENTIRE COMPANY IS BROKEN UP IN A SERIES OF SPIN OFFS SO THAT PARENT COMPANY NO LONGER EXISTS

MERGER & ACQUISITION AN ONGOING PROCESS OF BUSINESS RESTRUCTURING

RETAINING CORPORATE CONTROL TAKEOVER DEFENSES SHARE REPURCHASES EXCHANGE OFFER PROXY CONTEST CHANGES IN OWNERSHIP STRUCTURE LEVERAGED BUYOUT GOING PRIVATE ESOPS MLPs

MERGER & ACQUISITION AN ONGOING PROCESS OF BUSINESS RESTRUCTURING

TYPE ONE REVERSE MERGER : A REVERSE MERGER OCCURS WHEN A SMALLER FIRM ACQUIRES MANAGEMENT CONTROL OF A LARGER OR LONGER ESTABLISHED COMPANY AND KEEP ITS NAME FOR THE COMBINED ENTITY. TYPE TWO REVERSE MERGER : A REVERSE MERGER OCCURS WHEN A PRIVATE COMPANY WITH STRONG PROSPECTS AND EAGER TO RAISE PUBLIC FINANCING BUYS A PUBLICLY LISTED SHELL COMPANY, USUALLY ONE WITH NO BUSINESS AND LIMITED ASSETS.

MERGER & ACQUISITION AN ONGOING PROCESS OF BUSINESS RESTRUCTURING

SELL OFFS OR DIVESTITURES : SALE OF A PORTION OF A FIRM TO AN OUTSIDE PARTY IN EXCHANGE OF CASH EQUITY CARVE OUT : A PORTION OF THE FIRM IS TRANSFERRED TO A NEW COMPANY & ITS SHARES ARE THEN ISSUED TO OUTSIDERS JOINT VENTURE: PARTICIPANTS IN J.V PUT IN PREDETRMINED RESOURCES IN THE J.V FOR ACHIEVING CERTAIN BUSINESS OBJECTIVES.IT IS A FAVOURITE VEHICLE FOR M.N.C TO ENTER FOREIGN MARKET.

TYPES OF MERGERS
HORIZONTAL MERGERS : TWO COMPANIES THAT ARE IN DIRECT COMPETITION AND SHARE THE SAME PRODUCT LINES AND MARKETS.
RATIONALE ECONOMIES OF SCALE AND SCOPE SYNERGIES SUCH AS COMBINING OF BEST PRACTICES

VERTICAL MERGERS : COMBINATIONS BETWEEN A CUSTOMER AND COMPANY OR A SUPPLIER AND COMPANY OR FIRMS AT DIFFERENT STAGES
RATIONALE INFORMATION AND TRANSACTION EFFICIENCY

TYPES OF MERGERS
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. CONCENTRIC DIVERSIFIED MERGER: COMBINE WITH FIRMS IN LESS RELATED ACTIVITIES TO BROADEN MARKET POTENTIALS CONGLOMERATE MERGERS : COMBINATION OF FIRMS IN UNRELATED TYPES OF BUSINESS ACTIVITY REVERSE MERGER : OCCURS WHEN A PRIVATE COMPANY MERGES INTO A PUBLIC COMPANY, AND FORM AN ENTIRELY NEW COMPANY WITH TRADABLE SHARES.

 ECONOMIES OF SCALE /SCOPE : OPERATIONAL SYNERGY REDUCTION OF FINANCIAL RISK : FINANCIAL SYNERGY NEW PRODUCT/CURRENT MARKET,NEW PRODUCT NEW MARKET OR CURRENT PRODUCT NEW MARKET : DIVERSIFICATION COPE WITH TECHNOLOGICAL ,REGULATORY OR POLITICAL CHANGES : STRATEGIC REALIGNMENT CAPTURE MARKET POWER INCREASED CROSS-SELLING OPPORTUNITIES BUYING UNDERVALUED ASSETS ( Q RATIO)

MOTIVATIONS FOR M&A

MANAGERIAL MOTIVATIONS FOR M&AS(AGENCY PROBLEM)

THE TWO MOST COMMON FACTORS( NOT NECESSARILY IN THE BEST INTEREST OF THE FIRM OR SHAREHOLDERS) THAT MOTIVATES MANAGERS TO PURSUE M&A: 1. OVER PAY BY OVERESTIMATING SYNERGY AND OWN CAPABILITY : HUBRIS (MANAGERIAL PRIDE) 2. EMPIRE BUILDING : MANAGERIALISM 3. REPLACE MANAGERS NOT ACTING IN THE BEST INTEREST OF SHAREHOLDERS : AGENCY PROBLEM

M&A VALUE PROPOSITION

STOCK MARKET ASSUMED TO BE: EFFICIENT FIRMS (TARGET) ASSUMED TO BE: INEFFICIENT

EFFICIENT

SYNERGY ROUTE

OPPORTUNISTIC ROUTE

EFFICIENT ROUTE

MIXED

FGS

31

FRIENDLY ACQUISITION
THE FRIENDLY TAKEOVER PROCESS

THE ACQUISITION OF A TARGET COMPANY THAT IS WILLING TO BE TAKEN OVER. NORMALLY STARTS WHEN THE TARGET CO. INITIATES A DIVESTITURE & VOLUNTARILY PUTS ITSELF INTO PLAY. USES AN INVESTMENT BANK TO PREPARE AN OFFERING MEMORANDUM
MAY SET UP A DATA ROOM AND USE CONFIDENTIALITY AGREEMENTS TO PERMIT ACCESS TO INTEREST PARTIES PRACTICING DUE DILIGENCE A SIGNED LETTER OF INTENT SIGNALS THE WILLINGNESS OF THE PARTIES TO MOVE TO THE NEXT STEP (USUALLY INCLUDES A NOSHOP CLAUSE AND A TERMINATION OR BREAK FEE) ACQUISITOR & ITS CONSULTANT/MERCHANT BANKER CONDUCTS DUE DILIGENCE FINAL SALE USUALLY REQUIRES NEGOTIATIONS OVER DEAL STRUCTURE

CAN ALSO BE INITIATED BY A FRIENDLY OVERTURE BY AN ACQUISITOR. IN FRIENDLY ACQUISITION, THE TARGET CO. WILL ACCOMMODATE THE OVERTURES AND PROVIDE ACCESS TO CONFIDENTIAL INFORMATION TO FACILITATE THE SCOPING AND DUE DILIGENCE PROCESSES.

HOSTILE TAKEOVERS
A TAKEOVER IN WHICH THE TARGET HAS NO DESIRE TO BE ACQUIRED AND ACTIVELY REBUFFS THE ACQUIRER AND REFUSES TO PROVIDE ANY CONFIDENTIAL INFORMATION. THE ACQUIRER USUALLY HAS ALREADY ACCUMULATED AN INTEREST IN THE TARGET (20% OF THE OUTSTANDING SHARES) AND THIS PREEMPTIVE INVESTMENT INDICATES THE STRENGTH OF RESOLVE OF THE ACQUIRER.

TAKEOVER DEFENSES : RETAINING CORP. CONTROL AGAINST HOSTILE BIDS

SHARE REPURCHASE : LARGE ISSUE OF DEBT BY THE COMPANY TO BUY ITS OWN SHARES LEADING TO HIGH FINANCIAL LEVERAGE & REDUCTION IN THE EQUITY CAPITAL OF THE COMPANY THERE BY INCREASING PROMOTERS SHAREHOLDING %. EXCHANGE OFFER : IT COMMONLY INVOLVES GIVING RIGHT OR OPTION TO DEBT OR BONDHOLDERS TO EXCHANGE THE SAME AGAINST EQUITY THUS INCREASING THE COST OF ACQUISITION LITIGATION: THE TARGET COMPANY WILL SEEK AN INJUNCTION TO STOP THE TAKEOVER FROM PROCEEDING. THIS GIVES THE TARGET COMPANY TIME TO MOUNT A DEFENSE.

TAKEOVER DEFENSES : RETAINING CORP. CONTROL AGAINST HOSTILE BIDS(CONTD)

WHITE SQUIRE: IDENTIFY & ISSUE SHARES TO A FRIENDLY INVESTOR WHICH SEEKS A QUALITY INVESTMENT AND NOT CONTROL OF THE TARGET COMPANY. WHITE KNIGHT: IF THE TARGET COMPANY WANTS TO AVOID A HOSTILE MERGER SEEK OUT ANOTHER COMPANY FOR A MORE FRIENDLY MERGER. PAC MAN DEFENSE: AS A LAST RESORT, THE TARGET COMPANY CAN MAKE A TENDER OFFER TO ACQUIRE THE STOCK OF THE HOSTILE BIDDER.

TAKEOVER DEFENSES : RETAINING CORP. CONTROL AGAINST HOSTILE BIDS(CONTD)

FLIP IN RIGHTS : UNDER FLIP IN STOCK RIGHTS ARE ISSUED TO SHAREHOLDERS ENTITLING THEM TO BUY TARGET COMPANY STOCK AT DEEP DISCOUNT WHICH CAN BE EXERCISED ONLY IF ACQUIRING COMPANY TENDER OFFER EXCEEDS 20% FLIP OVER RIGHTS : FOLLOWING TAKEOVER, RIGHTS WILL ENTITLE SHAREHOLDERS OF TARGET CO. TO PURCHASE THE UNFRIENDLY COMPETITOR'S SHARES AT A DISCOUNT. PUT OPTIONS TO BONDHOLDERS : IN THE EVENT OF AN UNFRIENDLY TAKEOVER BONDHOLDERS CAN EXCERSISE THE OPTION TO REDEEM BONDS THEREBY RENDERING LARGE PRINCIPAL PAYMENTS AND LOWERING THE VALUE OF THE TARGET COMPANY.

5 PHASES OF MERGER & ACQUISITION

PHASE 1 - PRE ACQUISITION REVIEW PHASE 2 - SEARCH & SCREEN TARGETS PHASE 3 DUE DILIGENCE & VALUATION PHASE 4 - NEGOTIATION & ACQUISITION PHASE 5- POST MERGER INTEGRATION

DUE DILIGENCE : CHECKING TARGET COMPANY RECORDS/DATA ROOM

CORPORATE RECORDS FINANCIAL RECORDS TAX RECORDS REGULATORY RECORDS CUSTOMER & DEBT RECORDS EMPLOYMENT RECORDS PROPERTY RECORDS CONTRACTS & AGREEMENTS WITH VENDORS ALL OUTSTANDING LEGAL ISSUES

DUE DILIGENCE : COMPATIBILITY ISSUES

STRATEGIC COMPATIBILITY INVESTMENT COMPATIBILITY MARKETING COMPATIBILITY OPERATING COMPATIBILITY MANAGEMENT COMPATIBILITY FINANCIAL COMPATIBILITY

FIRM VALUATION IN MERGERS AND ACQUISITIONS

BALANCE SHEET VALUATION MODELS : BOOK VALUE, LIQUIDATION VALUE, REPLACEMENT COST RATE OF RETURN RULE THE ECONOMIC PROFIT MODEL DIVIDEND DISCOUNT MODELS GORDON GROWTH MODEL COMPARATIVE COMPANIES MODEL FUNDAMENTAL ANALYSIS : DISCOUNTED CASH FLOW MODELS FOR EQUITY & FIRM VALUATION OPTION PRICING MODEL

M&A INTEGRATION CRITICAL SUCCEESS FACTORS

DO NOT FALL IN LOVE WITH A M&A CANDIDATE INADEQUATE DUE DILIGENCE UNREALISTIC EXPECTATION FAILURE TO INTEGRATE EXPEDITIOUSLY LACK OF SHARED VISION CONFLICTING CULTURE INSUFFICIENT RESOURCE COMMITTED FOR INTEGRATION NEGLECTING TO INSTITUTE A MEASUREMENT & REWARD SYSTEM

REASONS FOR FAILED MERGER

POOR STRATEGIC FIT CULTURAL AND SOCIAL DIFFERENCES INCOMPLETE AND INADEQUATE DUE DILIGENCE POORLY MANAGED INTEGRATION PAYING TOO MUCH OVERLY OPTIMISTIC

REASONS FOR FAILED MERGER

POOR SYNERGY REALIZATION INCREASED MANAGERIAL COMPLEXITY IN TERMS OF ACUIRED INTELLECTUAL PROPERTY, CULTURAL DIVERSITY ,TECHNOLOGY PLATFORMS, SUPPLY CHAIN MANAGEMENT, PRODUCT/SERVICE DELIVERY CHANNELS, ETC. INCREASE SPAN OF CONTROL DUPLICATION OF PEOPLE, PROCESSES AND TECHNOLOGY

STRATEGIC REASONS FOR M&A

POSITIONING : ALIGN WITH CHANGING MARKETPLACE. GAP FILLING : COMBINING FILLS-IN STRATEGIC GAPS ORGANIZATIONAL COMPETENCIES : ACQUIRING HUMAN RESOURCES AND INTELLECTUAL CAPITAL CAN HELP IMPROVE INNOVATIVE THINKING AND DEVELOPMENT MARKET ACCESS : ACCESS TO UNTAPPED MARKETS. BARGAIN PURCHASE : CHEAPER TO ACQUIRE THAN TO CREATE DIVERSIFICATION :NECESSARY TO SMOOTH-OUT EARNINGS SHORT TERM GROWTH : TACKLE SLUGGISH GROWTH CYCLE UNDERVALUED TARGET :FUTURE CASH IN OPPOTUNITY

STRATEGIC MANAGEMENT PROCESS

STRATEGIC MANAGEMENT IS AN ONGOING PROCESS THAT EVALUATES AND CONTROLS THE BUSINESS AND THE INDUSTRIES IN WHICH THE COMPANY IS INVOLVED; ASSESSES ITS COMPETITORS AND SETS GOALS AND STRATEGIES TO MEET ALL EXISTING AND POTENTIAL COMPETITORS; AND THEN REASSESSES EACH STRATEGY ANNUALLY OR QUARTERLY [I.E. REGULARLY] TO DETERMINE HOW IT HAS BEEN IMPLEMENTED AND WHETHER IT HAS SUCCEEDED OR NEEDS REPLACEMENT BY A NEW STRATEGY TO MEET CHANGED CIRCUMSTANCES, NEW TECHNOLOGY, NEW COMPETITORS, A NEW ECONOMIC ENVIRONMENT., OR A NEW SOCIAL, FINANCIAL, OR POLITICAL ENVIRONMENT. (LAMB, 1984)

M&A AS AN INTEGRAL PART OF STRATEGIC MANAGEMENT PROCESS

A SCHEME
Mission Objectives
External Analysis Strategic Choice

Strategy Implementation

Competitive Advantage

Internal Analysis Corporate Level Strategy

Which Businesses to Enter?

Vertical Integration Diversification

Mode of Entry? Strategic Alliances Mergers & Acquisitions

CREATION OF SYNERGY MOTIVE FOR M&AS

SYNERGY IS THE ADDITIONAL VALUE CREATED (V) :

V VAT -(VA VT )

WHERE:
VT = THE PRE-MERGER VALUE OF THE TARGET FIRM VA - T = VALUE OF THE POST MERGER FIRM VA = VALUE OF THE PRE-MERGER ACQUIRING FIRM

VALUE CREATION MOTIVATIONS FOR M&A(OPERATING SYNERGIES)

OPERATING SYNERGIES
1. ECONOMIES OF SCALE
REDUCING CAPACITY (CONSOLIDATION IN THE NUMBER OF FIRMS IN THE INDUSTRY) SPREADING FIXED COSTS (INCREASE SIZE OF FIRM SO FIXED COSTS PER UNIT ARE DECREASED) GEOGRAPHIC SYNERGIES (CONSOLIDATION IN REGIONAL DISPARATE OPERATIONS TO OPERATE ON A NATIONAL OR INTERNATIONAL BASIS) COMBINATION OF TWO ACTIVITIES REDUCES COSTS

2. 3.

ECONOMIES OF SCOPE

COMPLEMENTARY STRENGTHS
COMBINING THE DIFFERENT RELATIVE STRENGTHS OF THE TWO FIRMS CREATES A FIRM WITH BOTH STRENGTHS THAT ARE COMPLEMENTARY TO ONE ANOTHER.

VALUE CREATION MOTIVATIONS FOR M&A(FINANCIAL SYNERGY)

EFFICIENCY INCREASES
NEW MANAGEMENT TEAM WILL BE MORE EFFICIENT AND ADD MORE VALUE THAN THE TARGET NOW . THE COMBINED FIRM CAN MAKE USE OF UNUSED PRODUCTION/SALES/MARKETING CHANNEL CAPACITY

FINANCING SYNERGY
REDUCED CASH FLOW VARIABILITY INCREASE IN DEBT CAPACITY REDUCTION IN AVERAGE ISSUING COSTS FEWER INFORMATION PROBLEMS

VALUE CREATION MOTIVATIONS FOR M&A

TAX BENEFITS AND STRATEGIC REALIGNMENTS
TAX BENEFITS MAKE BETTER USE OF TAX DEDUCTIONS AND CREDITS USE THEM BEFORE THEY LAPSE OR EXPIRE (LOSS CARRY-BACK, CARRY-FORWARD PROVISIONS) USE OF DEDUCTION IN A HIGHER TAX BRACKET TO OBTAIN A LARGE TAX SHIELD USE OF DEDUCTIONS TO OFFSET TAXABLE INCOME (NON- OPERATING CAPITAL LOSSES OFFSETTING TAXABLE CAPITAL GAINS THAT THE TARGET FIRM WAS UNABLE TO USE) NEW FIRM WILL HAVE OPERATING INCOME TO MAKE FULL USE OF AVAILABLE CCA.

STRATEGIC REALIGNMENTS
PERMITS NEW STRATEGIES NEW MANAGEMENT SKILLS, CONNECTIONS TO MARKETS OR PEOPLE, AND NEW PRODUCTS/SERVICES.

M&A VALUE PROPOSITION

PROPOSITION 1: THE SYNERGY ROUTE M&A LEADS TO COST FALLS (SCALES OR SCOPE ECONOMIES) OR PRICE RISES (MARKET POWER) LESS RISKY THAN INTERNAL GROWTH PROPOSITION 2: THE EFFICIENT ROUTE FIRMS INEFFICIENT (BAD LUCK/JUDGMENT, WEAK MGT,MANAGERS PURSUING OWN INTERESTS) M&A LEADS TO IMPROVEMENT OF EFFICIENCY OF ACQUIRED FIRM (HANSON) BUT CANNOT OCCUR IF SHAREHOLDERS BEHAVE RATIONALLY!

M&A VALUE PROPOSITION

PROPOSITION 3: OPPORTUNISTIC ROUTE
IF STOCK MARKET NOT EFFICIENT AT VALUING FIRMS, SOME FIRMS OVER/UNDERVALUED (DISCRIPENCY MUST BE UNSYSTEMATIC) TEMPORARY OVERVALUED FIRM CAN PURCHASE TEMPORARY UNDERVALUED ONE CHEAPLY AND DIVEST IT WHEN VALUE HAS INCREASED (AOL TIME WARNER) CONDITIONS:
IDENTIFYING UNDERVALUED ASSETS LACK OF COMPETITION

M&A VALUE PROPOSITION

PROPOSITION 4: POOR FIRMS OVERVALUED ACCIDENTALLY => NOT VULNERABLE TO TAKE OVER WELL RUN FIRMS UNDERVALUED => VULNERABLE M&A COULD DO AS MUCH HARM THAN GOOD

CHANGES IN OWNERSHIP STRUCTURE

LEVERAGED BUYOUT : MANAGERS OF THE FIRM FORMS A PRIVATE COMPANY WHICH ISSUES BOND TO RAISE FUND TO BUY OUT THE ENTIRE EQUITY OF THE FIRM. ALSO CALLED A MANAGEMENT BUY OUT. GOING PRIVATE : IT INVOLVES PURCHASE OF THE ENTIRE EQUITY OF THE CORPORATION BY A GROUP OF INVESTORS

CHANGES IN OWNERSHIP STRUCTURE(CONTD)

ESOP : THE COMPANY MAKES TAX DEDUCTIBLE CONTRIBUTIONS OF CASH OR STOCK INTO A TRUST OF ITS EMPLOYEES. IT CAN BE USED AS A FINACIAL VEHICLE FOR EITHER FUTURE ACQUISITION OR AS AN ANTI TAKEOVER DEFENSE THROUGH LEVERAGED BUY OUT MLPs : A MASTER LIMITED PARTNERSHIP IS A TYPE OF LIMITED PARTNERSHIP WHERE THE PARNERSHIP INTERESTS ARE DEVIDED INTO UNITS WHICH ARE PUBLICLY TRADED. IN ADDITION TO TRADABILITY, THE LIABILITY OF THE PARTNERS ARE LIMITED. NOT YET PREVALENT IN INDIA IN ABSENCE OF SUITABLE GUIDELINES

DUE DILIGENCE : RESTATEMENT OF ACCOUNTS

UNDERSTATEMENT OF LIABILITIES LOW QUALITY ASSETS CONTINGENT/HIDDEN LIABILITES HIDDEN LIABILITIES OVERSTATED RECEIVABLES OVERSTATED INVENTORIES VALUATION OF SECURITIES INTANGIBLES

MYTHS OF VALUATION
VALUATION IS OBJECTIVE A WELL RESEARCHED VALUATION IS TIMELESS A GOOD VALUATION ESTIMATES ACCURATELY. MORE QUANTITATIVE A MODEL BETTER VALUATION THE MARKET IS GENERALLY WRONG VALUE IS WHAT MATTERS NOT THE PROCESS OF VALUATION

STEPS IN VALUATION OF TARGET COMPANY DISCONTED CASH FLOW MODEL

ANALYZE HISTORICAL PERFORMANCE. FORECAST FREECASH FLOWS TO EQUITY & TARGET FIRM CONSIDERING BENEFITS OF SYNERGY & ESTIMATING GROWTH PROSPECT. ESTIMATE THE WEIGHTED AVERAGE COST OF CAPITAL ESTIMATE THE CONTINUING VALUE CALCULATE EQUITY AND FIRM VALUE CARRY OUT A SENSITIVITY ANALYSIS INTERPRET THE RESULTS FOR DECISION

STEPS IN VALUATION OF TARGET COMPANY : COMPARABLE COMPANIES MODEL

SELECT GROUP OF COMPANIES COMPARABLE WITH RESPECT TO SIZE ,PRODUCTS, RECENT TRENDS & FUTURE PROSPECTS. COMPUTE RESPECTIVE PRICE/EARNING, PRICE/BOOK VALUE , PRICE/SALES , PRICE/CASH FLOW , PRICE/DIVIDEND & MARKET VALUE/REPLACEMENT VALUE RATIOS. KEY RATIOS ARE AVERAGED FOR GROUP. AVERAGE RATIOS ARE APPLIED TO ABSOLUTE DATA FOR TARGET COMPANY OF INTEREST. INDICATED MARKET VALUES OBTAINED FROM EACH RATIO VALUATION JUDGMENTS ARE MADE.

FINANCING A MERGER
CASH OFFER

SHARE SWAP/EXCHANGE
COMBINAION OF CASH & SHARES OF ACQUIRED COMPANY

THE TAKEOVER BID PROCESS

20% SHARE ACQUISITION TRIGGERS TAKEOVER BID PROCESS
TAKEOVER CIRCULAR SENT TO ALL SHAREHOLDERS. TARGET COMPANY HAS 15 DAYS TO CIRCULATE LETTER TO SHAREHOLDERS WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS TO ACCEPT/REJECT THE OFFER. BID MUST BE OPEN FOR 35 DAYS FOLLOWING PUBLIC ANNOUNCEMENT. SHAREHOLDERS TENDER TO THE OFFER BY SIGNING AUTHORIZATIONS. A COMPETING BID AUTOMATICALLY INCREASES THE TAKEOVER WINDOW BY 10 DAYS AND SHAREHOLDERS DURING THIS TIME CAN WITHDRAW AUTHORIZATION AND ACCEPT THE COMPETING OFFER.

THE TAKEOVER BID PROCESS

PRORATED SETTLEMENT AND PRICE

TAKEOVER BID DOES NOT HAVE TO BE FOR 100 % OF THE SHARES. TENDER OFFER PRICE CANNOT BE FOR LESS THAN THE AVERAGE PRICE THAT THE ACQUIRER BOUGHT SHARES IN THE PREVIOUS 90 DAYS. (PROHIBITS COERCIVE BIDS) IF MORE SHARES ARE TENDERED THAN REQUIRED UNDER THE TENDER, EVERYONE WHO TENDERED SHARES WILL GET A PRORATED NUMBER PURCHASED.

BROAD MILESTONES IN FRIENDLY ACQUISITION

INFORMATION MEMORANDUM

CONFIDENTIALITY AGREEMENT

MAIN DUE DILIGENCE

RATIFIED

SIGN LETTER OF INTENT

FINAL SALE AGREEMENT

APPROACH TARGET

ADVANTAGE OF FRIENDLY TAKEOVERS

IN FRIENDLY TAKEOVERS, BOTH PARTIES HAVE THE OPPORTUNITY TO STRUCTURE THE DEAL TO THEIR MUTUAL SATISFACTION INCLUDING:
1. TAXATION ISSUES CASH FOR SHARE PURCHASES TRIGGER CAPITAL GAINS SO SHARE EXCHANGES MAY BE A VIABLE ALTERNATIVE 2. ASSET PURCHASES RATHER SHARE PURCHASES THAT MAY:
GIVE THE TARGET FIRM CASH TO RETIRE DEBT AND RESTRUCTURE FINANCING ACQUIRING FIRM WILL HAVE A NEW ASSET BASE TO MAXIMIZE CCA DEDUCTIONS PERMIT ESCAPE FROM SOME CONTINGENT LIABILITIES (USUALLY EXCLUDING CLAIMS RESULTING FROM ENVIRONMENTAL LAWSUITS AND CONTROL ORDERS THAT CANNOT SEVERED FROM THE ASSETS INVOLVED)

3. EARN OUTS WHERE THERE IS AN AGREEMENT FOR AN INITIAL PURCHASE PRICE WITH CONDITIONAL LATER PAYMENTS DEPENDING ON THE PERFORMANCE OF THE TARGET AFTER ACQUISITION.

TYPICAL STEPS FOR HOSTILE TAKEOVERS

THE TYPICAL HOSTILE TAKEOVER PROCESS:
1.
2. 3.

4.

SLOWLY ACQUIRE A TOEHOLD (BEACH HEAD) BY OPEN MARKET PURCHASE OF SHARES AT MARKET PRICES WITHOUT ATTRACTING ATTENTION. FILE STATEMENT WITH OSC AT THE 10% EARLY WARNING STAGE WHILE NOT TRYING TO ATTRACT TOO MUCH ATTENTION. ACCUMULATE 20% OF THE OUTSTANDING SHARES THROUGH OPEN MARKET PURCHASE OVER A LONGER PERIOD OF TIME MAKE A TENDER OFFER TO BRING OWNERSHIP PERCENTAGE TO THE DESIRED LEVEL (EITHER THE CONTROL (50.1%) OR AMALGAMATION LEVEL (67%)) - THIS OFFER CONTAINS A PROVISION THAT IT WILL BE MADE ONLY IF A CERTAIN MINIMUM PERCENTAGE IS OBTAINED.

DURING THIS PROCESS THE ACQUIRER WILL TRY TO MONITOR MANAGEMENT/BOARD REACTION AND FIGHT ATTEMPTS BY THEM TO PUT INTO EFFECT SHAREHOLDER RIGHTS PLANS OR TO LAUNCH OTHER DEFENSIVE TACTICS.

HOSTILE TAKEOVER : TENDER OFFERS

A PUBLIC OFFER TO BUY CURRENT SHAREHOLDERS STOCK AT SPECIFIED TERMS & IS USUALLY COMMUNICATED THROUGH FINANCIAL NEWSPAPERS AND DIRECT MAILINGS. TENDER OFFER ALLOWS THE ACQUIRING COMPANY TO BYPASS THE MANAGEMENT OF THE COMPANY IT WISHES TO ACQUIRE. IT IS NOT POSSIBLE TO SURPRISE THE TARGET COMPANY WITH ITS ACQUISITION BECAUSE SEC REQUIRES EXTENSIVE DISCLOSURE. TO REDUCE THE FREE-RIDER PROBLEM A TWO-TIER OFFER MAY BE MADE WITH THE FIRST TIER RECEIVING MORE FAVORABLE TERMS.

TWO-TIER TENDER OFFER

TWO-TIER TENDER OFFER OCCURS WHEN THE ACQUIRING COMPANY OFFERS A SUPERIOR FIRSTTIER PRICE (E.G., HIGHER AMOUNT OR ALL CASH) FOR A SPECIFIED MAXIMUM NUMBER (OR PERCENT) OF SHARES AND SIMULTANEOUSLY OFFERS TO ACQUIRE THE REMAINING SHARES AT A SECOND-TIER PRICE. THIS INCREASES THE LIKELIHOOD OF SUCCESS IN GAINING CONTROL OF THE TARGET FIRM. BENEFITS THOSE WHO TENDER EARLY.

MARKET CLUES TO HOSTILE TAKEOVERS

1. MARKET PRICE JUMPS ABOVE THE OFFER PRICE A COMPETING OFFER IS LIKELY OR THE BID PRICE IS TOO LOW MARKET PRICE STAYS CLOSE TO THE OFFER PRICE THE OFFER PRICE IS FAIR AND THE DEAL WILL LIKELY GO THROUGH LITTLE TRADING IN THE SHARES A BAD SIGN FOR THE ACQUIRER BECAUSE SHAREHOLDERS ARE RELUCTANT TO SELL. GREAT DEAL OF TRADING IN THE SHARES LARGE NUMBERS OF SHARES BEING SOLD FROM NORMAL INVESTORS TO ARBITRAGEURS (ARBS) WHO ARE, THEMSELVES BUILDING A POSITION TO NEGOTIATE AN EVEN BIGGER PREMIUM FOR THEMSELVES BY COORDINATING A RESPONSE TO THE TENDER OFFER.

2. 3. 4.

EVOLUTION OF ENACTMENTS IN USA AFFECTING MERGER & ACQUISITION

CLAYTON ACT OF 1914 CREATED THE FEDERAL TRADE COMMISSION (FTC) SECTION 5 GIVES FTC POWER TO PREVENT FIRMS FROM ENGAGING IN HARMFUL BUSINESS PRACTICES SECTION 7 ILLEGAL FOR A COMPANY TO ACQUIRE THE STOCK OF ANOTHER COMPANY IF COMPETITION COULD BE ADVERSELY AFFECTED LOOPHOLE COMPANIES CIRCUMVENT BY USING ASSET ACQUISITIONS 1950 AMENDMENT FEDERAL TRADE COMMISSION (FTC) HAS POWER TO BLOCK ASSET PURCHASES AS WELL AS STOCK PURCHASES INCIPIENCY DOCTRINE FTC COULD BLOCK MERGERS IF IT JUDGES THERE IS A TENDENCY TOWARD INCREASED CONCENTRATION HART-SCOTT-RODINO ACT OF 1976 APPLIES TO ACQUIRING FIRMS WITH SALES OR ASSETS OF $100 MILLION OR MORE AND ACQUIRED FIRMS WITH SALES OR ASSETS OF $10 MILLION OR MORE, OR VICE VERSA INFORMATION SUBMITTED TO DOJ AND FTC TO DETERMINE LEGALITY THIRTY-DAY WAITING PERIOD FOR MERGERS AND 15 DAYS FOR TENDER OFFERS EITHER AGENCY MAY REQUEST 20-DAY EXTENSION OF WAITING PERIOD FOR

EVOLUTION OF ENACTMENTS IN USA AFFECTING MERGER & ACQUISITION

SHERMAN ACT OF 1980
SECTION 1 PROHIBITS MERGERS THAT WOULD TEND TO CREATE MONOPOLY OR MARKET CONTROL SECTION 2 DIRECTED AGAINST FIRMS THAT HAVE ALREADY BECOME DOMINANT IN THE VIEW OF THE GOVERNMENT

MAIN REGULATORY BODIES

DEPARTMENT OF JUSTICE (DOJ) FEDERAL TRADE COMMISSION (FTC)

HERFINDAHL-HIRSHMAN INDEX (HHI)

MERGER GUIDELINES OF 1968 MECHANICAL APPLICATION OF CONCENTRATION TESTS ANTITRUST COULD BE TRIGGERED IF SHARE OF THE TOP FOUR FIRMS EXCEEDED 10-20% MERGER GUIDELINES OF 1982 AND LATER YEARS QUANTITATIVE TEST SHIFTED TO HERFINDAHL-HIRSCHMAN INDEX (HHI) CONCENTRATION MEASURE BASED ON THE SUM OF THE SQUARED MARKET SHARES OF EACH FIRM IN THE INDUSTRY CRITICAL CONCENTRATION LEVELS: HHI LESS THAN 1,000 NO CHALLENGE POSTMERGER HHI BETWEEN 1,000 AND 1,800 INVESTIGATION IF HHI INCREASED BY 100 POSTMERGER HHI MORE THAN 1,800 CHALLENGE IF HHI INCREASED BY 50

U.S LEGISLATION ON SHARE ACQUISITION

EXEMPTION FROM TAKEOVER REQUIREMENTS FOR CONTROL BLOCKS

PURCHASE OF SECURITIES FROM 5 OR FEWER SHAREHOLDERS ARE PERMITTED WITHOUT A TENDER OFFER PROVIDED THE PREMIUM OVER THE MARKET PRICE IS LESS THAN 15%

U.S LEGISLATION ON SHARE ACQUISITION

CREEPING TAKEOVERS (THE 5% RULE)

THE 5% RULE NORMAL COURSE TENDER OFFER IS NOT REQUIRED AS LONG AS NO MORE THAN 5% OF THE OUTSTANDING SHARES ARE PURCHASED THROUGH THE EXCHANGE OVER A ONE-YEAR PERIOD OF TIME. THIS ALLOWS CREEPING TAKEOVERS WHERE THE COMPANY ACQUIRES THE TARGET OVER A LONG PERIOD OF TIME.

U.S LEGISLATION ON SHARE ACQUISITION

CRITICAL SHAREHOLDER PERCENTAGES

1. 10%: EARLY WARNING WHEN A SHAREHOLDER HITS THIS POINT A REPORT IS SENT TO OSC THIS REQUIREMENT ALTERS OTHER SHAREHOLDERS THAT A POTENTIAL ACQUISITOR IS ACCUMULATING A POSITION (TOEHOLD) IN THE FIRM. 2. 20%: TAKEOVER BID NOT ALLOWED FURTHER OPEN MARKET PURCHASES BUT MUST MAKE A TENDER OFFER AS PER WILLIAMS ACT THIS ALLOWS ALL SHAREHOLDERS AN EQUAL OPPORTUNITY TO TENDER SHARES AND FORCES EQUAL TREATMENT OF ALL AT THE SAME PRICE. THIS REQUIREMENT ALSO FORCES THE ACQUISITOR INTO DISCLOSING INTENTIONS PUBLICLY BEFORE MOVING TO FULL VOTING CONTROL OF THE FIRM.

U.S LEGISLATION ON SHARE ACQUISITION

CRITICAL SHAREHOLDER PERCENTAGES CONTINUED

3. 50.1%: CONTROL

SHAREHOLDER CONTROLS VOTING DECISIONS UNDER NORMAL VOTING (SIMPLE MAJORITY) CAN REPLACE BOARD AND CONTROL MANAGEMENT THE SINGLE SHAREHOLDER CAN APPROVE AMALGAMATION PROPOSALS REQUIRING A 2/3S MAJORITY VOTE (SUPERMAJORITY)
ONCE THE SHAREHOLDER OWNS 90% OR MORE OF THE OUTSTANDING STOCK MINORITY SHAREHOLDERS CAN BE FORCED TO TENDER THEIR SHARES. THIS PROVISION PREVENTS MINORITY SHAREHOLDERS FROM FRUSTRATING THE WILL OF THE MAJORITY.

4. 66.7%: AMALGAMATION

5. 90%: MINORITY SQUEEZE-OUT

U.S LEGISLATION ON SHARE ACQUISITION

THE TAKEOVER BID PROCESS ( MOVING BEYOND THE 20% THRESHOLD)

TAKEOVER CIRCULAR SENT TO ALL SHAREHOLDERS. TARGET HAS 15 DAYS TO CIRCULATE LETTER TO SHAREHOLDERS WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS TO ACCEPT/REJECT. BID MUST BE OPEN FOR 35 DAYS FOLLOWING PUBLIC ANNOUNCEMENT. SHAREHOLDERS TENDER TO THE OFFER BY SIGNING AUTHORIZATIONS. A COMPETING BID AUTOMATICALLY INCREASES THE TAKEOVER WINDOW BY 10 DAYS AND SHAREHOLDERS DURING THIS TIME CAN WITH DRAWN AUTHORIZATION AND ACCEPT THE COMPETING OFFER.

U.S LEGISLATION ON SHARE ACQUISITION

THE TAKEOVER BID PROCESS(Prorated Settlement and Price)

TAKEOVER BID DOES NOT HAVE TO BE FOR 100 % OF THE SHARES. TENDER OFFER PRICE CANNOT BE FOR LESS THAN THE AVERAGE PRICE THAT THE ACQUIRER BOUGHT SHARES IN THE PREVIOUS 90 DAYS. (PROHIBITS COERCIVE BIDS) IF MORE SHARES ARE TENDERED THAN REQUIRED UNDER THE TENDER, EVERYONE WHO TENDERED SHARES WILL GET A PRORATED NUMBER PURCHASED.

 STRATEGIC DIMENSIONS

CRITICAL SUCCESS FACTORS IN MERGERS & ACQUISITION

MARKET SIMILARITY, MARKET COMPLEMENTARITY PRODUCTION OPERATION SIMILARITY, PRODUCTION OPERATION COMPLEMENTARITY MARKET POWER, PURCHASING POWER

ORGANIZATIONAL DIMENSION :
ACQUISITION EXPERIENCE, RELATIVE SIZE, CULTURAL DIFFERENCES

FINANCIAL DIMENSION:
ACQUISITION PREMIUM, BIDDING PROCESS,

DUE DILIGENCE.

PROMINENT FAILED M&AS

ACQUIRING CO. ACQUIRED YEAR CO. 1994 DEAL VALUE RESULT ($BILLION) 1.7 $ 500 mil. lost on announcement, $ 100 mil. a year later Snapple was spun off 2 years later at 20% of price DECLARED BANKCRUPTCY NEVER RECOUPED COST 2002:LOSS OF $99 BILLION 2003:DROPPED AOL NAME 2008: ONE TIME WRITE OFF$30BILLION & SPRINT STOCK WAS RELEGATED TO JUNK STATUS QUKER OATS SNAPPLE

AnheuserBusch IBM AOL(FUSED) SPRINT

CampbellTaggart LOTUS TIME WARNER NEXTELL

1982

0.56 3.4

2001 2005

165 35

BTR LIMITED BALANCE

1997

BECAME BANKRUPT THE

AN APPRAISAL OF COMPLETED MERGERS AND ACQUISITIONS

SYNERGIES PROJECTED NOT ACHIEVED IN 70% 23% OF ALL M & A'S EARN THEIR COST OF CAP 6 MONTHS PRODUCTIVITY MAY DROP BY 50%. FIRST YR POST MERGER PERFORMANCE POOR POST MERGER EXODUS OF TARGET CO EXECS. POST MERGER SUCCESS RATE OF ONLY 50% EVEN WHEN ACQUIRED CO IS SMALL & IN SIMILAR BUSINESS

SOME NOTABLE M&A WORLD WIDE: 1998 & 1999

Year 1999 1999 1999 1999 1999 1999 1999 1999 1998 1998 1998 1998 1998 1998 Buying Company MCI WorldCom Viacom AT&T Travelers Exxon TotalFina (France) Olivetti (Italy) Vodafone (UK) British Petroleum (UK) Daimler-Benz (Germany) Zeneca (UK) Nationsbank Corp. WorldCom Inc. Norwest Corp. Selling Company Sprint CBS MediaOne Group Citicorp Mobil Elf Aquitaine (France) Telecom Italia (Italy) Air Touc Comm. Amoco Corp. Chrysler Astra (Sweden) BankAmerica Corp. MCI Communications Wells Fargo & Co. Payment ($bil) 115 35 54 83 80 55 58 61 48 38 35 62 42 34

MEGA MERGERS IN FIRST DECADE OF TWENTY FIRST CENTURY(2000-09)

RANK 1 2 3 YEAR 2000 2000 2004 PURCHASER FUSION: AMERICA ONLINE INC. (AOL) GLAXO WELLCOME. ROYAL DUTCH PETROLEUM CO. PURCHASED TIME WARNER SMITHKLINE BEECHAM PLC. SHELL TRANSPORT & TRADING CO BELLSOUTH CORPORATION AT&T BROADBAND & INTERNET SVCS WYETH TRANSACTION VALUE (IN MIL. USD) 164,747 75,961 74,559

4
5 6

2006
2001 2009

AT&T INC
COMCAST CORPORATION PFIZER INC. SPIN-OFF: NORTEL NETWORKS CORPORATION PFIZER INC. JP MORGAN CHASE INBEV INC.

72,671
72,041 68,000

2000

59,974 PHARMACIA CORPORATION BANK ONE CORP ANHEUSER-BUSCH COMPANIES, INC

8 9 10

2002 2004 2008

59,515 58,761 52,000

WORLD WIDE M&A DEALS (JAN-SEPT 2O1O)

WORLD WIDE M&A DEALS (JAN-SEPT 2O1O)

SOURCE : REUTERS

WORLD WIDE M&A DEALS (JAN-SEPT 2O1O)

M&A REGULATORY FRAMEWORK IN INDIA

TRANSACTION STRUCTURE COMPANIES ACT INCOME TAX ACT STAMP ACTS COMPETITION ACT

LISTED COMPANIES SEBI REGULATIONS STOCK EXCHANGE LISTING AGREEMENT

TRANS-BORDER TRANSACTIONS FOREIGN EXCHANGE MANAGEMENT ACT

86

MERGER & DEMERGER PROCESS

PHASE- I DRAFT SCHEME NOTICE TO MEMBERS OF BOARD OF BOTH COMPANIES DETERMINE SWAP RATIO BASED ON VALUATION REPORT BOARD APPROVAL OF BOTH COMPANIES PRIOR NOCS FROM SECURED CREDITORS AND SHAREHOLDERS FOR EXEMPTION FROM MEETING: REDUCE TIME AND COSTS IN ICICI LTD. MERGER WITH ICICI BANK, MEETING OF PREFERENCE SHAREHOLDERS OF ICICI LTD. WAS DISPENSED WITH SINCE SOLE PREFERENCE SHAREHOLDER FURNISHED AN NOC PHASE- II DRAFT APPLICATION UNDER S. 391(1) APPLICATION TO HCS IN RESPECTIVE JURISDICTIONS OF BOTH COMPANIES FOR SANCTION / DIRECTION TO CONDUCT MEETINGS MOVING REGISTERED OFFICE TO ONE JURISDICTION: REDUCE TIME AND COSTS

MERGER & DEMERGER PROCESS

PHASE- III NOTICE OF EGM TO MEMBERS WITH STATEMENT OF TERMS OF MERGER, INTERESTS OF DIRECTORS AND PROXY FORMS: 21 DAYS ADVERTISEMENT NOTICE IN 2 NEWSPAPERS: 21 DAYS AFFIDAVIT CERTIFYING COMPLIANCE WITH HCS DIRECTIONS IN RESPECT OF NOTICE/ ADVERTISEMENT MEETINGS OF CREDITORS AND/ OR SHAREHOLDERS: AGREED TO BY MAJORITY IN NUMBER REPRESENTING OF VALUE PRESENT AND VOTING CHAIRMAN OF MEETINGS TO FILE REPORT WITHIN 7 DAYS OF MEETING RESOLUTIONS AND EXPLANATORY STATEMENTS TO BE FILED WITH ROC
88

MERGER & DEMERGER PROCESS

PHASE- IV (APPROVAL OF THE SCHEME) HC TO BE MOVED WITHIN 7 DAYS OF CHAIRMANS REPORT FOR SECOND MOTION PETITION 10 DAYS NOTICE OF HEARING OF PETITION IN SAME NEWSPAPERS NOTICE TO CENTRAL GOVT. (REGIONAL DIRECTOR), AND OL (IF APPLICABLE): SUBMIT REPORTS OBJECTIONS RAISED IN 391 PROCEEDINGS HC SANCTION CERTIFIED COPY OF HC ORDER TO BE FILED WITH ROC WITHIN 30 DAYS OF ORDER.
89

M&A IN INDIA : SHARE SWAP PROCEDURE

M&A SCENARIO IN INDIA

YEAR
Deals Amount Number (Rs crore) 292 16,071 765 36,963 1,177 32,130 1,045 34,322 838 23,106 834 35,980

M&A DEAL VALUE

$ 40.7BILLION $16.3 BILLION $49.7 BILLION

2008 2009 2010(JAN-JULY)

Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

M&A DEAL DETAIL

RNRL MERGER WITH RPL FORTIS HEALTHCARE'S 25.37 %STAKE SALE IN PARKWAY HOLDINGS JFE STEEL'S PURCHASE OF 14.99% STAKE IN JSW STEEL ABB'S BUYOUT OFFER OF ABB INDIA PIRAMAL DIAGNOSTICS SALE TO SUPER RELIGARE LAB (SRL).

TOP 5 DEAL VALUE IN JULY 2010

$1.56 BILLION $1.12BILLION

$1.03 BILLION $965 MILLION $128 MILLION

TOP 12 M & A DEALS IN INDIA

30/01/2007 11/2/2007 AUGUST 2010 FEBRUARY 2007 JUNE 2008 JUNE 2010 JANUARY 2009 NOVEMBER 2008 FEBRUARY 2008 TATA STEEL- CORUS VODAFONE-HUTCHESSAR VEDANTA- CAIRN INDIA HINDALCO-NOVELIS RANBAXY-DAICHI SANKYO ABBOT LAB-PIRAMAL H.C ONGC-IMPERIAL ENERGY NTT DOCOMO-TATA TELE HDFC-CENTURIAN BANK $12.2 BILLION $11.1 BILLION $9.8BILLION $6 BILLION $4.5 BILLION $3.8 BILLION $2.8 BILLION $2.7 BILLION $2.4 BILLION

MARCH 2008 JUNE 2009

MAY 2007 MARCH2009

TATAMOTORS-JAG LANDR STERLITE-ASARCO

SUZLON-RE POWER RIL-RPL

$2.3 BILLION $1.8 BILLION

$1.7 BILLION $1.68 BILLION

M&A REVENUE OF INVESTMENT BANKERS IN INDIA : JAN - AUG 2010

NAME ROTHSCHILD DEUTSHE BANK MORGAN STANLEY J P MORGAN KOTAK MAHINDRA BARCLAYS CAPITAL ICICI BANK BoA MERRYL LYNCH REVENUE($MILLION) 35 34 32 31 30 29 27 25

CITI BANK UBS

22 21

SOURCE : ECONOMIC TIMES 16/09/10

EXTRA SLIDES

MOTIVATIONS FOR MERGERS AND ACQUISITIONS

CREATION OF SYNERGY MOTIVE FOR M&AS

THE PRIMARY MOTIVE SHOULD BE THE CREATION OF SYNERGY. SYNERGY VALUE IS CREATED FROM ECONOMIES OF INTEGRATING A TARGET AND ACQUIRING COMPANY; THE AMOUNT BY WHICH THE VALUE OF THE COMBINED FIRM EXCEEDS THE SUM OF VALUE OF THE TWO INDIVIDUAL FIRMS.

LOGIC OF CORPORATE LEVEL STRATEGY FOR VALUE CREATION

CORPORATE LEVEL STRATEGY SHOULD CREATE VALUE: 1) SUCH THAT THE VALUE OF THE CORPORATE AS A WHOLE INCREASES 2) SUCH THAT BUSINESSES FORMING THE CORPORATE WHOLE ARE WORTH MORE THAN THEY WOULD BE UNDER INDEPENDENT OWNERSHIP 3) THAT EQUITY HOLDERS CANNOT CREATE THROUGH PORTFOLIO INVESTING

LEVERAGED BUYOUT : TATA TEA ACQUISITION OF TETLEY

STEP 1 : A SPECIAL PURPOSE VEHICLE NAMELY TATATEA(GREAT BRETAIN) RAISED 70M EQUITY (60M:TATA TEA & 10M:TATA TEA INC. USA) STEP 2 : THROUGH INVESTMENT BANKERS A LOAN OF 235M WAS RAISED BY THE SPV COMPRISING OF RABO BANK:185M,PRUDENTIAL MEZZANINE :10M ,SCHRODER VENTURE 10M &INTERMEDIATE CAPITAL GROUP 30M STEP3 : ABOVE 295 M WAS USED FOR TETLY ACQUISITION AT 271M,DEFRAY LEGAL SERVICES & BANK CHARGES OF 9M & BALANCE 25M FOR W/C

LOCATION OF THE WORLD'S LARGEST 50 CORPORATIONS

United States 1960 1970 1980 1990 2000 42 32 23 17 15 Europe 8 14 19 21 16 Japan 0 4 5 10 19 Other 0 0 3 2 0

Source: Bergesen and Fernndez (1995) and Fortune Global 500.

Standard deviation of rates of return (1926-1998)

(in %) Standard deviation T bills 3.2 Government bonds 9.2 Common stocks 20.3

FGS

99

Average rates of return (1926-1998)

(in %) Average return Av. Risk premium T bills 3.80 Government bonds 5.70 1.90 Corporate bonds 6.10 2.30 Common stocks 13.20 9.40

FGS

100

ENACTMENT IN INDIA AFFECTING M&A : SEBI TAKEOVER CODE 1997

WORLD WIDE M&A DEALS (JAN-SEPT 2O1O)

WORLD WIDE M&A DEALS (JAN-SEPT 2O1O)

WORLD WIDE M&A DEALS (JAN-SEPT 2O1O)

WORLD WIDE M&A DEALS (JAN-SEPT 2O1O)

HERFINDAHL-HIRSHMAN INDEX (HHI)

TWENTY-FIVE FIRMS IN AN INDUSTRY EACH HAVE A MARKET SHARE OF 4%. 4-FIRM CONCENTRATION RATIO : 4 + 4 + 4 + 4 = 16% HHI INDEX : 25(4)2 = 400 TWO OF THE FIRMS PROPOSE TO MERGE 4-FIRM CONCENTRATION RATIO : 8 + 4 + 4 + 4 = 20% HHI INDEX : 23(4)2 + 1(8)2 = 432 USING THE 4-FIRM RATIO, ANTITRUST ACTION MIGHT BE TAKEN. USING THE HHI, THE INDUSTRY WOULD STILL BE CLASSIFIED AS UNCONCENTRATED.

HERFINDAHL-HIRSHMAN INDEX (HHI)

AMBER OIL AND TESTCO HAVE DECIDED TO MERGE. WILL THIS MERGER BE VIEWED AS ANTI-COMPETITIVE BASED ON THE HHI

STEP 1 - PRE MERGER HHI:

STEP 2 - POST MERGER HHI:

TRIPLE C OIL 10 X 10 = 100 TRIPLE C 100 AMBER OIL 5 X 5 = 25 AMBER / TESTCO 100 PACIFIC OIL 20 X 20 = 400 PACIFIC OIL 400 AMERICAN 40 X 40 = 1600 AMERICAN 1600 TESTCO 5 X 5 = 25 BCI OIL 400 BCI OIL 20 X 20 = 400 PRE MERGER HHI 2550 POST MERGER HHI 2600 PRE MERGER 4 FIRM RATIO 90 POST MERGER 4 FIRM RATIO 90 STEP 3: CALCULATE CHANGE IN POINTS 2600- 2550 = 50 POINT CHANGE WITHIN THIRD CATEGORY. THE HHI IS ABOVE 1800 POINTS AND THE POINT CHANGE IS RIGHT AT THE THRESHOLD FOR SIGNIFICANT CONCERN. AMBER AND TESTCO SHOULD BE PREPARED TO DEFEND THEIR MERGER AS NOT REDUCING COMPETITION.

MEGA MERGERS DURING LAST DECADE OF TWENTIETH CENTURY

Rank
1 2 3 1999 1999 1998

Year

Purchaser

Purchased

Transaction value (in mil. USD) 183,000 90,000 77,200

Vodafone Airtouch PLC[9] Mannesmann Pfizer[10] Exxon[11][12] Warner-Lambert Mobil

4
5 6 7 8 9 10

1998
1999 1999 1998 1998 1999 1997

Citicorp
SBC Communications Vodafone Group Bell Atlantic[13] BP[14] Qwest Communications Worldcom

Travelers Group
Ameritech Corporation AirTouch Communications GTE Amoco US WEST MCI Communications

73,000
63,000 60,000 53,360 53,000 48,000 42,000

CHARACTERISTICS OF FIFTH MERGER WAVE(1981-1989)

MERGER & ACQUISITION IN BRIC COUNTRIES (2002-2010)

RESTRUCTURING FIRMS THROUGH CONTRACTION

SPINOFFS SPLIT OFFS SPLIT UP SELL-OFFS OR DIVESTITURES JOINT VENTURE EQUITY CARVE-OUTS

FIRST STEP A LETTER OF INTENT

1. How will the acquisition price be determined? 2. What exactly are we acquiring? Is it physical assets, is it a controlling interest in the target, is it intellectual capital, etc.? 3. How will the merger transaction be designed? Will it be an outright purchase of assets? Will it be an exchange of stock? 4. What is the form of payment? Will the acquiring company issue stock, pay cash, issue notes, or use a combination of stock, cash, and/or notes? 5. Will the acquiring company setup an escrow account and deposit part of the purchase price? Will the escrow account cover unrecorded liabilities discovered from due diligence? 6. What is the estimated time frame for the merger? What law firms will be responsible for creating the M & A Agreement? 7. What is the scope of due diligence? What records will be made available for completing due diligence? 8. How much time will the Target Company allow for negotiations? The Letter of Intent will usually prohibit the Target Company from "shopping itself" during negotiations. 9. How much compensation (referred to as bust up fees) will the acquiring company be entitled to in the event that the target is acquired by another company? Once news of the proposed merger leaks out, the Target Company is "in play" and other companies may make a bid to acquire the Target Company. 10. Will there be any operating restrictions imposed on either company during negotiations? For example, the two companies may want to postpone hiring new personnel, investing in new facilities, issuing new stock, etc. until the merger has been finalized. 11. If the two companies are governed by two states or countries, which one will govern the merger transaction? 12. Will there be any adjustment to the final purchase price due to anticipated losses or events prior to the closing of the merger?

HERFINDAHL-HIRSHMAN INDEX (HHI)

Amber Oil and Testco have decided to merge. Will this merger be viewed as anti-competitive based on the HHI Step 1 - Calculate Pre Merger HHI: Step 2 - Calculate Post Merger HHI: Triple C Oil 10 x 10 = 100 Triple C 100 Amber Oil 5 x 5 = 25 Amber / Testco 100 Pacific Oil 20 x 20 = 400 Pacific Oil 400 American 40 x 40 = 1600 American 1600 Testco 5 x 5 = 25 BCI Oil 400 BCI Oil 20 x 20 = 400 Pre Merger HHI 2550 Post Merger HHI 2600 Step 3: Calculate change in points, compare to HHI categories. 2550 - 2660 = 50 point change within third category. The HHI is above 1800 points and the point change is right at the threshold for significant concern. Amber and Testco should be prepared to defend their merger as not reducing competition.

HERFINDAHL-HIRSHMAN INDEX (HHI)

Approaches to Formulating Strategy

BOSTON CONSULTING GROUP APPROACH
EXPERIENCE CURVE PRODUCT LIFE CYCLE PRODUCT PORTFOLIO BALANCE RECENT APPROACHES
IMPACT OF THE INTERNET AND OTHER TECHNOLOGICAL INNOVATIONS PERFORMANCE MEASUREMENTS - CASH FLOW RETURN ON INVESTMENT (CFROI)

 Michael Porter Approach (1980, 1985, 1987)

Select attractive industry Five Forces Diagram (Competitive Advantage, 1985, p. 5) Develop competitive advantage through cost leadership, product differentiation, or focus Develop attractive value chains

2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 116

 Eclectic and Adaptive Processes

Strategy decisions as ill-structured problems
Match resources to investment opportunities under environmental uncertainty Compounded by uncertain actions and reactions of competitors

2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 117

 Iterative solution methodology. Decision steps:

State objectives Define environment Analyze strengths/weaknesses relative to environment Assess potential in environment Compare potential to objectives If gap, search for alternative ways to close gap Select alternatives for analysis Cost/benefit analysis of alternatives Tentative selection formulate plans and actions
2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 118

 Repeat process from several viewpoints (research, production, marketing, financial, etc.) and all over system standpoint Commit resources to implement plan Competitive reactions Follow-up to compare performance to plan Repeat comparison of objectives and potential Goal is effective alignment to changing environments

2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 119

Evaluation of Alternative Approaches to Strategy

All are eclectic in actual practice Computerization ties approaches closer together Results of strategy viewed differently:
Firms can develop and implement strategic planning and diversification strategies to obtain competitive advantage Adaptive process approach competitive advantage not permanent; planning as a continual learning and adjustment process
2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 120

Formulating a Merger Strategy

Requires continuing reassessment
Industry analysis Competitor analysis Supplier analysis Customer analysis Substitute products Complementors Technology changes Societal factors Firm's strengths/weaknesses relative to present/future industry conditions
2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 121

 Matrix analysis
Product-market matrix
Product Present Market Present Low Risk High Risk Related Unrelated

Related High Risk Highest Risk

Unrelated

Competitive-position matrix
Product Differentiation Narrow Focus Cost Leadership

Broad Range of Markets

2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 122

 Growth-share matrix
Market Share High
Market Growth Rate

Low

Star Product Performers

High

Question Marks

Cash Cows

Low

Dogs

Strength-market attractiveness matrix

Industry Attractiveness High Medium Low

High Medium

Business Strengths

Invest / Grow

Harvest / Divest

2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 123

Low

 Global strategy
Country Attractiveness High Medium Low

High Medium

Business Strengths

Invest / Grow

Harvest / Divest

2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 124

Low

 Goal/capability analysis
Are current goals, policies appropriate? Do goals, policies match resources? Does timing of goals/policies reflect ability of firm to change?

Work out strategic alternatives

May not include current strategy Choose best Mergers represent one set of alternatives
2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 125

 Grove (1996)
Firm must adjust to six forces
Existing competitors Potential competitors Complementors Customers Suppliers Industry transformation

Eclectic adaptive processes approach to strategy

2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 126

A JOURNEY
INTO THE

STRATEGIC MANAGEMENT PROCESS

ARINDOM MUKHERJEE

APPROACHES
IT IS A PARADOXICAL BUT PROFOUNDLY TRUE AND IMPORTANT PRINCIPLE OF LIFE THAT THE MOST LIKELY WAY TO REACH A GOAL IS TO BE AIMING NOT AT THAT GOAL ITSELF BUT AT SOME MORE AMBITIOUS GOAL BEYOND IT. - ARNOLD TOYNBEE CONTINUAL IMPROVEMENT IS AN UNENDING JOURNEY - LLOYD DOBENS

ESSENTIALS OF STRATEGIC MANAGEMENT

WHO ARE WE
WHERE ARE WE NOW

WHERE DO WE WANT TO GO
HOW WILL WE GET THERE

SIX TASKS OF STRATEGIC MANAGEMENT

DEVELOP STRATEGIC VISION AND MISSION ESTABLISH CORE VALUES SETTING OBJECTIVES

DEVISING STRATEGIES
IMPLEMENTATION / EXECUTION OF STRATEGY

EVALUATING PERFORMANCE & INITIATING CORRECTIVE ADJUSTMENTS

SPECIFIC QUESTIONS THAT HELP FORM STRATEGIC VISION

WHAT BUSINESS ARE WE IN? WHAT BUSINESS DO WE WANT TO BE IN? WHAT WILL OUR CUSTOMERS WANT IN FUTURE? WHAT ARE EXPECTATIONS OF OUR STAKEHOLDERS? WHO ARE/ WILL BE OUR FUTURE COMPETITORS, SUPPLIERS, PARTNERS? HOW WILL TECHNOLOGY IMPACT OUR INDUSTRY? WHAT ENVIRONMENTAL SCENARIOS ARE POSSIBLE?

DEVELOPING A VISION STATEMENT

UNDERSTANDING : WHAT BUSINESS FIRM IS IN
COMMUNICATING : VISION AND MISSION IN CLEAR

EXCITING AND INSPIRING WAYS

DECIDING : WHEN TO ALTER FIRMS STRATEGIC

COURSE AND CHANGE MISSION?

DEVELOPING A MISSION STATEMENT

WHERE TOP MANAGEMENT INTENDS TO TAKE THE FIRM? MUST BE NARROW ENOUGH TO SPECIFY REAL ARENA OF INTEREST BE SIMPLE AND CONCISE SPEAK LOUDLY AND CLEARLY PROVIDES CLEAR VIEW OF WHAT FIRM IS TRYING TO ACOMPLISH FOR ITS CUSTOMERS? AROUSES STRONG SENSE OF ORGANISATIONAL IDENTITY MOTIVATES AND ENTHUSES THE EMPLOYEES TO REACH A COMMON GOAL

ESTABLISHING CORE VALUES

STATEMENT ON FIRMS CORE VALUES

CLEAR GUIDELINES AS TO HOW BUSINESS WILL BE CONDUCTED

COMMUNICATING THAT VALUES AND NORMS REMAIN THE BEDROCK FOR BEING IN BUSINESS EXPLICIT VALUES PROMOTES STRONG COMPANY IDENTIFICATION VISIBLE REWARDS/ PENALTIES FOR FOLLOWING/ BREACHING THE LAID DOWN VALUES AND NORMS

CHARACTERISTICS OF OBJECTIVES

SPECIFIC
MEASURABLE

ACHIEVABLE
REALISTIC

TIME FRAME

BROAD CLASSIFICATION OF OBJECTIVES

SHORT RUN
LONG RUN FINANCIAL

STRATEGIC

TYPES OF STRATEGIC OBJECTIVES

BIGGER MARKET SHARE

LOWER OVERALL COSTS

PRODUCT DIFFERENTIATION

BETTER CUSTOMER SERVICE

LEADER IN TECHNOLOGY

ABILITY TO COMPETE IN INTERNATIONAL MARKET

HIGHER INDUSTRY RANK

GENERIC COMPETITIVE STRATEGY OF TOP PERFORMERS

BEST PRACTICE
DIFFERENTIATION AND NICHE FOCUS COMPETE BASED UPON VALUE FOCUS ON CLIENT SATISFACTION

COMMENTS
FOCUS ON A LIMITED NUMBER OF NICHES AND DEVELOP AN EXPERTISE IN EACH. COMPETE BY PROVIDING CUSTOMER VALUE, RATHER THAN LOW PRICE. EXCEED CLIENT EXPECTATIONS SEEK TO DELIGHT AND AMAZE THE CUSTOMER.

ATTRACT & DEVELOP THE BEST

ATTRACT THE BEST (RIGHT) TALENT. CULTIVATE AN ENVIRONMENT TO FACILITATE EMPLOYEE DEVELOPMENT.
CONTINUOUSLY STRIVE TO BE THE BEST IN THE NICHES PURSUED. ALIGN MISSION AND STRATEGY TO ACHIEVE CONSISTENT AND COMPATIBLE ACTION.

STRIVE FOR OPERATIONAL EXCELLENCE ALIGN MISSION AND STRATEGY

TESTS FOR COMPREHENSIVENESS OF STRATEGIC PLAN

Characteristic
Continual Assessment is Key Continually Seek Client Feedback

Comment
Continual performance measurement and environmental assessment is essential. Be accessible and seek feedback often from customers - both formally and informally. Understand the clients business and how to improve/expand service along the chain. Selectively identify, evaluate, and pursue strategically important customers. Shape services and approach to win the customer, rather than to beat a competitor. Regularly communicate performance results regarding financial and strategic objectives. Analyze performance by niche and approach for market insight & operational refinement. Solicit employee input & participation on operational initiatives and action plans. Focus on a select group of critical issues (key drivers) to improve performance.

Understand the Clients Value Chain

Systematically Target Clients Know your Customers

Communicate Performance Indicators

Assess Performance by Niche(s) and Operational Approach Seek Employee Assessment of Strategic Initiatives Establish a Few Key Objectives

EXAMPLES OF STRATEGY HSBC HOLDING (RANK # 22)

GROWTH AMBITION IN ALL ITS FOUR BUSINESS SEGMENTS

BENCH MARKING ITS PERFORMANCE BOTH ABSOLUTELY AND IN COMPARISON WITH A PEER GROUP
COMMUNICATING CORE VALUES OF HSBC TO ITS CUSTOMERS, SHAREHOLDERS AND EMPLOYEES REWARD SUCCESS AND REJECT MEDIOCRITY FOCUS ON INVESTING IN ITS DELIVERY PLATFORM, TECHNOLOGY, PEOPLE AND ITS BRAND ESTABLISHING STRONG LINKAGE WITH CORPORATE SOCIAL RESPONSIBILITY, LONG TERM SUCCESS AND VALUE CREATION

EXAMPLES OF STRATEGY T I S C O (RANK AROUND #260)

(AFTER ACQUISITION OF CORUS GROUP)

MANAGE KNOWLEDGE
INCREASE INNOVATION AND ALLOW FREEDOM TO FAIL

EXCEL AT TBEM
UNLEASH PEOPLES POTENTIAL AND CREATE LEADERS WHO WILL BUILD FUTURE

ENSURE SAFETY AND ENVIRONMENT SUSTAINABILITY

INVEST, MERGE AND ACQUIRE

FORCES AFFECTING MERGERS

TECHNOLOGY GLOBALIZATION DEREGULATION EFFICIENCY OF OPERATIONS CHANGES IN INDUSTRY ORGANIZATION ENTREPRENEURSHIP ECONOMIC AND FINANCIAL ENVIRONMENT