M&A Notes

By:- Prof. Varun Aggarwal. Email id. varun23o t!gmail. om P" # $2%2&$'(2).
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Overview on CR, M&A 1) Introduction 2) Difference between Merger and Acquisition 3) Mergers a C!assification of Mergers ") Acquisitions a C!assification of Acquisitions #) Motives $e%ind Acquisitions and Mergers a &cono'ies of (ca!e b ()nerg) c *ast +rowt% d ,a- $enefits e Diversification f (a!es &n%ance'ent g I'.roved Manage'ent % Infor'ation &ffect i /ea!t% ,ransfer 0 1ubris 1).ot%esis 2 Resource ,ransfer ! Manage'ent3s 4ersona! Agenda Manager3s Co'.ensation n 5ertica! Integration 6) *inancia! *ra'ewor2 a Deter'ining t%e *ir'3s 5a!ue i $oo2 5a!ue ii A..raisa! 5a!ue iii Mar2et 5a!ue iv &arnings .er (%are b *inancing ,ec%niques in Merger i Cas% ii Ordinar) (%are *inancing iii Debt and 4reference (%are *inancing iv Deferred 4a)'ent 4!an v ,ender Offer c Ana!)sis of t%e Merger as a Ca.ita! $udgeting Decision i ,%e DC* A..roac%

Deter'ination of incre'enta! .ro0ected *ree Cas% *!ows to t%e *ir' 7*C**) 2 Deter'ination of ,er'ina! 5a!ue 3 Deter'ination of a..ro.riate Discount Rate " Deter'ination of 4resent 5a!ue of *C** # Deter'ination of Cost of Acquisition ii ,%e A54 A..roac% 8) ,a-ation As.ects a ,a- Concessions to A'a!ga'ated Co'.an) i Carr) *orward and (et off of $usiness 9osses and :nabsorbed De.reciation ii &-.enditure on (cientific Researc% iii &-.enditure on Acquisition of 4atent Rig%ts or Co.) Rig%ts iv &-.enditure on ;now<%ow v &-.enditure for Obtaining 9icense to O.erate ,e!eco''unication (ervices vi 4re!i'inar) &-.enses vii &-.enditure on 4ros.ecting of Certain Minera!s viii Ca.ita! &-.enditure on *a'i!) 4!anning i- $ad Debts b ,a- Concessions to A'a!ga'ating Co'.an) i *ree of Ca.ita! +ains ,aii *ree of +ift ,ac ,a- Concessions to (%are%o!ders of A'a!ga'ating Co'.an) =) 9ega! and 4rocedura! As.ects a (c%e'e of Merger > A'a!ga'ation i &ssentia! *eatures of t%e (c%e'e of A'a!ga'ation b (c%e'e of Acquisitions > ,a2eovers i ,%e (&$I (ubstantia! Acquisition of (%ares and ,a2eover Code 7(&$I ,a2eover Code) 1 Disc!osure of (%are%o!ding and Contro! in a 9isted Co'.an) a Continua! Disc!osure b 4ower to ca!! for Infor'ation 2 (ubstantia! Acquisition of (%ares > 5oting Rig%ts >Contro! Over a 9i'ited Co'.an) a 4ower to Re'ove Difficu!ties b Acquisition of 1#? or 'ore (%ares > 5oting Rig%ts c Acquisition of Contro! d A..oint'ent of Merc%ant $an2er e 4ub!ic Announce'ent of t%e Offer f Contents of t%e 4ub!ic Announce'ent of t%e Offer g (ub'ission of 9etter of Offer to t%e (&$I % Offer 4rice i Offer 4rice under Cree.ing Acquisition 0 Co'.etitive $id

2 ! ' 3 a b c d e "

:.ward Revision of Offer /it%drawa! of Offer 4rovision of &scrow $ai! Out ,a2eovers Manner of Acquisition of (%ares Manner of &va!uation of $ids 4erson Acquiring (%ares to Ma2e an Offer and a 4ub!ic Announce'ent Co'.etitive $id &-e'.tion Investigation and Action b) t%e (&$I a Ob!igations b Directions b) t%e (&$I c 4ena!ties for @on<Co'.!iance ii (trategies for 1osti!e ,a2eovers and Co'.an) Resistance 1 ,a2eover (trategies 2 Co'.an) Resistance and Defensive (trategies A) Merger and Acquisition Mar2et.!ace Difficu!ties 1B) Ot%er *or's of Cor.orate Restructuring a De'ergers > Divestitures i Reasons > Motives $e%ind De'ergers > Divestitures ii *inancia! &va!uation of De'ergers iii ,a-ation As.ects 1 ,a- Concessions to t%e Resu!ting Co'.an) 2 ,a- Concessions to t%e De'erged Co'.an) 3 ,a- Concessions to t%e (%are%o!ders iv Met%ods of De'ergers > Divestitures 1 (e!! Offs 2 (.in Offs 3 (.!it<:.s " &quit) Carve<Outs +oing 4rivate and $u)outs Motivations for +oing 4rivate 9everaged $u)outs 1 C%aracteristics of Desirab!e 9$O Candidates c 9everaged Reca.ita!iCations i 5a!uation I'.!ications d Reverse Mergers i ,%e 4rocess ii $enefits iii Drawbac2s e *inancia! Restructuring 7Interna! Reconstruction) i Restructuring (c%e'e i ii

11)(o'e Cases of Cor.orate Restructurings *ro' ,%e Rea! /or!d a ,%e +reat Merger Move'ent, 1=A#<1AB# i (%ort<Run *actors ii 9ong<Run *actors b Merger of Re!iance 4etroc%e'ica!s 9td 7R49) /it% Re!iance Industries 9td 7RI9), 1AA2 c De'erger of DCM 9td, 1AAB d Acquisition of Ranba-) 9aboratories 9td b) Daiic%i (an2)o, 2BB= e $ai! Out Merger of I,C C!assic *inancia! 9td /it% ICICI 9td, 1AA8<A= f Acquisition of Corus b) ,ata (tee!, 2BB8 g Acquisition of 1utc%inson &ssar b) 5odafone, 2BB8 % Reverse Merger Of ICICI 9td /it% ICICI $an2 9td, 2BB2 i Acquisition Of Daguar And 9and Rover $) ,ata Motors, 2BB= 0 ,%e 9everaged $u)out of Ra)ovac b) ,%o'as 1 9ee, 1AA6 Conc!usion and Discussions A..endices A..endi- 1 E Accounting treat'ent of 'ergers, acquisitions or ot%er for's of Restructuring A..endi- 2 E Cor.orate 5oting and Contro! A..endi- 3 E Distress Restructuring

Overview
,%ese notes ai' at ana!)Cing t%e needs, for's, various as.ects, effects, advantages and disadvantages of cor.orate restructuring Activities re!ated to e-.ansion or contraction of a fir'3s o.erations or c%anges in its assets or financia! or owners%i. structure are referred to as cor.orate reconstructing ,%e 'ost co''on for' of cor.orate restructuring are 'ergers>a'a!ga'ations, acquisitions>ta2eovers, financia! restructuring, divestitures>de'ergers and bu)outs 4rofitab!e growt% constitutes one of t%e .ri'e ob0ectives of 'ost of t%e business fir's It can be ac%ieved Finterna!!)3 b) e-.anding>en!arging t%e ca.acit) of e-isting .roduct7s) A!ternative!) t%e growt% factor can be faci!itated Fe-terna!!)3 b) acquisitions of e-isting business fir's ,%e acquisitions 'a) be in t%e for' of mergers, acquisitions, amalgamations, takeovers, absorption, and consolidation and so on Acquisitions>'ergers obviates, in 'ost of t%e situations, financing .rob!e' as substantia!>fu!! .a)'ents are nor'a!!) 'ade in t%e for' of s%ares of t%e .urc%asing co'.an) *urt%er, it a!so e-.edites t%e .ace of growt% as t%e acquired fir' a!read) %as t%e faci!ities or .roducts 7acce.tab!e to t%e 'ar2et) and t%erefore, obvious!), saves t%e ti'e ot%erwise required in bui!ding u. t%e new faci!ities fro' scratc% in t%e case of interna! e-.ansion .rogra' ,%us, a fir' wi!! o.t for 'erger if it adds to t%e wea!t% of s%are%o!ders, ot%erwise 'erger wi!! not be financia!!) viab!e .ro.osition 1owever, 'erger suffers fro' certain wea2nesses *irst a 'erger 'a) not turn out to be a financia!!) .rofitab!e .re.osition in view of non<rea!iCation of .otentia! econo'ies in ter's of cost reduction (econd t%e 'anage'ent of t%e two co'.anies 'a) not go a!ong because of friction ,%ird, dissenting 'inorit) s%are%o!ders 'a) cause .rob!e's *ina!!), it 'a) attract govern'ent antitrust action in ter's of t%e Co'.etition Act ,%ere are a!so so'e ot%er 'ar2et.!ace difficu!ties, w%ic% t%e co'.anies face due to restructuring .rocesses /e s%a!! a!so discuss t%e ,a-ation, 9ega!, and 4rocedura! as.ects of cor.orate restructurings ,%e ot%er for's of cor.orate restructuring suc% as de'ergers, bu)outs and interna! reconstructions are a!so .racticed b) co'.anies and t%ese a!so tend to be successfu! de.ending on t%e goa!s of t%e co'.an) and t%e e-isting business scenario ,%is discussion is su..orted b) so'e cases of do'estic and internationa! ta2eovers and cor.orate restructuring fro' t%e rea! wor!d, ana!)Cing t%e effects and i'.acts of restructuring in rea! ter's /e!! 2nown cases !i2e t%e 'erger of Re!iance 4etro!eu' wit% Re!iance Industries 9i'ited, 1AA2, acquisition of 1utc% b) 5odafone, 2BB8, t%e g!oba! e-.ansion of ,ata in t%e .ast few )ears su..ort t%e case

CORPORATE RESTUCTURING
,%e na'e GCor.orate RestructuringH can be constructed as a!'ost an) c%ange in ca.ita! structure, in o.erations, or in owners%i. t%at is outside t%e ordinar) course of business Cor.orate restructuring is a broad u'bre!!a t%at covers 'an) t%ings ,%e 'ost co''on t%ing is t%e 'ergers and ta2eovers In addition to 'ergers, ta2eovers, and contests for cor.orate contro!, t%ere are ot%er t).es of cor.orate restructuringI divestitures, rearrange'ents, and owners%i. refor'u!ations In ot%er words, cor.orate restructuring i'.!ies activities re!ated to e-.ansion > contraction of a fir'3s o.erations or c%anges in its assets or financia! or owners%i. structure Cor.orate restructuring transactions fa!! into broad categories of divestiture, owners%i. restructuring, and distress restructuring :nder t%ese notes, we s%a!! discuss t%e various as.ects of 'ergers and acquisitions 7M&A), divestitures, s.in<offs, se!!<offs, equit) carve<outs, !everaged bu)outs and !everaged reca.ita!iCations (toc2 re.urc%ase is a!so often a .art of an overa!! cor.orate restructuring .!an ,%e restructuring of a co'.an) in financia! distress differs fro' t%e above 1ere t%e .ressure is e-terna!, fro' creditors ,%ere are defined !ega! re'edies, and in an) restructuring t%ese 'ust be observed (ti!! 'anage'ent often is ab!e to inf!uence t%e outco'e, as we s%a!! see A 'erger is a too! used b) co'.anies for t%e .ur.ose of e-.anding t%eir o.erations often ai'ing at an increase of t%eir !ong<ter' .rofitabi!it) :sua!!) 'ergers occur in a consensua! 7occurring b) 'utua! consent) setting w%ere e-ecutives fro' t%e target co'.an) %e!. t%ose fro' t%e .urc%aser in a due di!igence .rocess to ensure t%at t%e dea! is beneficia! to bot% .arties Acquisitions can a!so %a..en t%roug% a %osti!e ta2eover b) .urc%asing t%e 'a0orit) of outstanding s%ares of a co'.an) in t%e o.en 'ar2et against t%e wis%es of t%e targetJs board An acquisition, a!so 2nown as a ta2eover, is t%e bu)ing of one co'.an) 7t%e Ftarget3) b) anot%er An acquisition 'a) be frien !" or #osti!e In t%e for'er case, t%e co'.anies coo.erate in negotiationsK in t%e !atter case, t%e ta2eover target is unwi!!ing to be boug%t or t%e targetJs board %as no .rior 2now!edge of t%e offer Acquisition usua!!) refers to a .urc%ase of a s'a!!er fir' b) a !arger one (o'eti'es, %owever, a s'a!!er fir' wi!! acquire 'anage'ent contro! of a !arger or !onger estab!is%ed co'.an) and 2ee. its na'e for t%e co'bined entit) ,%is is 2nown as a reverse takeover.

In business or econo'ics a $er%er is a co'bination of two co'.anies into one !arger co'.an) (uc% actions are co''on!) vo!untar) and invo!ve stoc2 swa. or cas% .a)'ent to t%e target A 'erger can rese'b!e a ta2eover but resu!t in a new co'.an) na'e 7often co'bining t%e na'es of t%e origina! co'.anies) and in new brandingK in so'e cases, ter'ing t%e co'bination a L'ergerL rat%er t%an an acquisition is done .ure!) for .o!itica! or 'ar2eting reasons

&ifference between 'er%er an Acquisition

A!t%oug% t%e) are often uttered in t%e sa'e breat% and used as t%oug% t%e) were s)non)'ous, t%e ter's $er%er and acquisition 'ean s!ig%t!) different t%ings /%en one co'.an) ta2es over anot%er and c!ear!) estab!is%ed itse!f as t%e new owner, t%e .urc%ase is ca!!ed an acquisition *ro' a !ega! .oint of view, t%e target co'.an) ceases to e-ist, t%e bu)er Lswa!!owsL t%e business and t%e bu)erJs stoc2 continues to be traded In t%e .ure sense of t%e ter', a 'erger %a..ens w%en two fir's, often of about t%e sa'e siCe, agree to go forward as a sing!e new co'.an) rat%er t%an re'ain se.arate!) owned and o.erated ,%is 2ind of action is 'ore .recise!) referred to as a L'erger of equa!s L $ot% co'.aniesJ stoc2s are surrendered and new co'.an) stoc2 is issued in its .!ace *or e-a'.!e, bot% Dai'!er<$enC and C%r)s!er ceased to e-ist w%en t%e two fir's 'erged, and a new co'.an), Dai'!erC%r)s!er, was created In .ractice, %owever, actua! 'ergers of equa!s donJt %a..en ver) often :sua!!), one co'.an) wi!! bu) anot%er and, as .art of t%e dea!Js ter's, si'.!) a!!ow t%e acquired fir' to .roc!ai' t%at t%e action is a 'erger of equa!s, even if itJs tec%nica!!) an acquisition $eing boug%t out often carries negative connotations, t%erefore, b) describing t%e dea! as a 'erger, dea! 'a2ers and to. 'anagers tr) to 'a2e t%e ta2eover 'ore .a!atab!e A .urc%ase dea! wi!! a!so be ca!!ed a 'erger w%en bot% C&Os agree t%at 0oining toget%er is in t%e best interest of bot% of t%eir co'.anies $ut w%en t%e dea! is unfriend!) < t%at is, w%en t%e target co'.an) does not want to be .urc%ased < it is a!wa)s regarded as an acquisition (#et#er a )urc#ase is consi ere a $er%er or an acquisition rea!!" e)en s on w#et#er t#e )urc#ase is frien !" or #osti!e an #ow it is announce . In ot#er wor s, t#e rea! ifference !ies in #ow t#e )urc#ase is co$$unicate to an receive b" t#e tar%et co$)an"*s boar of irectors, e$)!o"ees an s#are#o! ers. It is quite nor'a! t%oug% for M&A dea! co''unications to ta2e .!ace in a so ca!!ed Jconfidentia!it) bubb!eJ w%ereb) infor'ation f!ows is restricted due to confidentia!it) agree'ents 71arwood, 2BB6)

'ERGERS
A 'erger is a co'bination of two cor.orations in w%ic% on!) one survives ,%e 'erged cor.orations go out of e-istence Most!) t%e two cor.orations 'erge toget%er under a t%ird na'e, w%ic% is a co'bination of t%e two *or e-a'.!e, t%e two auto'obi!e co'.anies Maruti and (uCu2i 'erged to for' Maruti (uCu2i C!assification of 'er%ers + @otwit%standing ter'ino!ogica! differences 'ergers can be usefu!!) distinguis%ed into four t).es E 1) ,ori-onta! 'er%er + A %oriConta! 'erger ta2es .!ace w%en two or 'ore cor.orate fir's dea!ing in si'i!ar !ines of activit) co'bine toget%er &!i'ination or reduction in co'.etition, .utting an end to .rice<cutting, econo'ies of sca!e in .roduction, researc% and deve!o.'ent, 'ar2eting and 'anage'ent are often 'otives under!)ing suc% 'ergers For example, t%e 'erger of /%ir!.oo! and ;e!vinator of India 71AA6) 2) .ertica! 'er%er + 5ertica! 'erger occurs w%en a fir' acquires fir's u.strea' or downstrea' fro' it ,%us t%e co'bination invo!ves two or 'ore stages of .roduction or distribution t%at are usua!!) se.arate 9ower bu)ing costs of 'ateria!s, !ower distribution costs, assured su..!ies and 'ar2et, increasing or creating barriers to entr) for .otentia! co'.etitors or .!acing t%e' at a cost disadvantage are t%e c%ief gains accruing fro' suc% 'ergers For example, t%e 'erger of A'erica On!ine Inc 7AO9) and ,i'e /arner 72BBB) 3) Con%!o$erate 'er%er + Cong!o'erate 'erger is a co'bination in w%ic% a fir' estab!is%ed in one industr) co'bines wit% a fir' fro' an unre!ated industr) In ot%er words, fir's engaged in two different or unre!ated econo'ic>business activities co'bine toget%er Diversification of ris2 constitutes t%e rationa!e for suc% 'ergers For example, t%e 'erger of Ro)a! Dutc% 4etro!eu' Co wit% (%e!! ,rans.ort & ,rading Co 72BB") ") Con%eneric 'er%er + A Congeneric 'erger occurs w%ere two 'erging fir's are in t%e sa'e genera! industr), but t%e) %ave no 'utua! bu)er>custo'er or su..!ier re!ations%i., suc% as a 'erger between a ban2 and a !easing co'.an) Diversification again beco'es a rationa!e for suc% 'ergers For example, 4rudentia!Js acquisition of $ac%e & Co'.an) #) Reverse 'er%er + A unique t).e of 'erger ca!!ed a reverse 'erger is used as a wa) of going .ub!ic wit%out t%e e-.ense and ti'e required b) an I4O In t%is t).e

of 'erger, a co'.an) 'erges wit% its own subsidiar) Increasing 'ar2et s%are, increased access to funds and decreased cost of .roduction or distribution 'a) act as 'otives be%ind suc% 'ergers For example, t%e 'erger of ICICI 9td wit% ICICI $an2 9td Again, 'ergers 'a) be c!assified on financia! basis, i e on t%e basis of increase or decrease in t%e &arnings .er (%are 7&4() of t%e co'.anies E 1) Accretive $er%ers + Accretive 'ergers are t%ose in w%ic% an acquiring co'.an)Js earnings .er s%are 7&4() increase An a!ternative wa) of ca!cu!ating t%is is if a co'.an) wit% a %ig% .rice to earnings ratio 74>&) acquires one wit% a !ow 4>& 2) &i!utive 'er%ers + Di!utive 'ergers are t%e o..osite of above, w%ereb) a co'.an)Js &4( decreases ,%e co'.an) wi!! be one wit% a !ow 4>& acquiring one wit% a %ig% 4>&

AC/UISITIONS0TA1EO.ERS
,a2eover i'.!ies acquisition of contro!!ing interest in a co'.an) b) anot%er co'.an) It does not !ead to t%e disso!ution of t%e co'.an) w%ose s%ares are being acquired In ot%er words, an acquisition, a!so 2nown as a ta2eover, is t%e bu)ing of one co'.an) 7t%e Ftarget3) b) anot%er grou. C!assification of Acquisitions + On t%e basis of res.onse of t%e ,arget Co'.an), ta2eovers or acquisitions can assu'e t%ree for's E 1) Ne%otiate 0 2rien !" Takeover + (uc% ta2eovers are organiCed b) t%e incu'bent 'anage'ent wit% a view to .arting wit% t%e contro! of t%e 'anage'ent to anot%er grou., t%roug% negotiation ,%e ter's and conditions of t%e ta2eover are 'utua!!) sett!ed b) bot% t%e grou.s 2) ,osti!e 0 O)en 'arket Takeover + 1osti!e ta2eovers are a!so referred to as raid on t%e co'.an) In order to ta2e over t%e 'anage'ent of, or acquire contro!!ing interest in, t%e target co'.an), a .erson > grou. of .ersons acquire s%ares fro' t%e o.en 'ar2et>financia! institutions>'utua! funds>wi!!ing s%are%o!ders at a .rice %ig%er t%an t%e .revai!ing 'ar2et .rice (uc% ta2eovers are %osti!e to t%e e-isting 'anage'ent 3) 3ai! Out Takeover + /%en a .rofit earning co'.an) ta2es over a financia!!) sic2 co'.an) to bai! it out, it is ca!!ed a $ai! out ta2eover @or'a!!), suc% ta2eover are in .ursuance of a sc%e'e of re%abi!itation a..roved b) .ub!ic financia! institutions>sc%edu!ed ban2s ,%e ta2eover bids, in res.ect of .urc%ase .rice, trac2 record of t%e acquirer and %is financia! .osition, are eva!uated b) a !eading financia! institution Again on t%e basis of t%e 'otive of t%e acquirer co'.an), ta2eovers can be c!assified into two E 1) Strate%ic Acquisitions + A strategic acquisition occurs w%en a co'.an) acquires anot%er as .art of its overa!! strateg) 4er%a.s cost advantages resu!t, or it 'a) be t%at t%e target co'.an) .rovides revenue en%ance'ent t%roug% .roduct e-tension or 'ar2et do'inance ,%e 2e) is t%at t%ere is a strategic reason for b!ending t%e two co'.anies toget%er (trategic acquisitions can eit%er be wit% stoc2, w%ere a ratio of e-c%ange occurs, denoting t%e re!ative va!ue weig%tings of t%e two co'.anies wit% res.ect to earnings and to 'ar2et .rices, or a!so wit% cas%

2) 2inancia! Acquisition + A financia! acquisition occurs w%en a financia! .ro'oter, is t%e acquirer ,%e 'otivation is to se!! off assets, cut costs, and o.erate w%atever re'ains 'ore efficient!) t%an before, in t%e %o.e of .roducing va!ue above w%at was .aid ,%e acquisition is not strategic, for t%e co'.an) acquired is o.erated as an inde.endent entit) (uc% an acquisition invariab!) invo!ves cas%, and .a)'ent to t%e se!!ing stoc2%o!ders is funded i'.ortant!) wit% debt *urt%er again, on t%e basis of t%e wa) of acquisition, ta2eovers 'a) be c!assified as two E 1) ,%e bu)er bu)s t%e s%ares, and t%erefore contro!, of t%e target co'.an) being .urc%ased Owners%i. contro! of t%e co'.an) in turn conve)s effective contro! over t%e assets of t%e co'.an), but since t%e co'.an) is acquired intact as a going business, t%is for' of transaction carries wit% it a!! of t%e !iabi!ities accrued b) t%at business over its .ast and a!! of t%e ris2s t%at co'.an) faces in its co''ercia! environ'ent 2) ,%e bu)er bu)s t%e assets of t%e target co'.an) ,%e cas% t%e target receives fro' t%e se!!<off is .aid bac2 to its s%are%o!ders b) dividend or t%roug% !iquidation ,%is t).e of transaction !eaves t%e target co'.an) as an e'.t) s%e!!, if t%e bu)er bu)s out t%e entire assets A bu)er often structures t%e transaction as an asset .urc%ase to Lc%err)<.ic2L t%e assets t%at it wants and !eave out t%e assets and !iabi!ities t%at it does not ,%is can be .articu!ar!) i'.ortant w%ere foreseeab!e !iabi!ities 'a) inc!ude future, unquantified da'age awards suc% as t%ose t%at cou!d arise fro' !itigation over defective .roducts, e'.!o)ee benefits or ter'inations, or environ'enta! da'age A disadvantage of t%is structure is t%e ta- t%at 'an) 0urisdictions, .articu!ar!) outside t%e :nited (tates, i'.ose on transfers of t%e individua! assets, w%ereas stoc2 transactions can frequent!) be structured as !i2e< 2ind e-c%anges or ot%er arrange'ents t%at are ta-<free or ta-<neutra!, bot% to t%e bu)er and to t%e se!!erJs s%are%o!ders

o Acquisitions

On the basis of b response o of target firm

On the t basis of m M otive of acquiring firm

On the basis of way of n acquisition

Negotiated /Friendly

O Hostile/Open Mar et

B Out Bail

!trategi c

Financia a l

Buying of !hare a s

B Buying of Assets

'OTI.ES 3E,IN& AC/UISITIONS AN& 'ERGERS

,%e basic .ur.ose of a 'erger or ta2eover is creation of va!ue ,%ere are so'e reasons w%) we can e-.ect va!ue to be created or rearranged due to a 'erger>acquisition E 1) Econo$ies of Sca!e + ,%e o.erating cost advantage in ter's of econo'ies of sca!e are considered to be .ri'ar) 'otive for 'ergers, es.ecia!!) %oriConta! and vertica! 'ergers ,%e) resu!t in !ower average cost of .roduction and sa!es due to a %ig%er !eve! of o.erations *or instance, over%ead costs can be substantia!!) reduced on account of s%aring centra! services suc% as accounting and finance, office, e-ecutive and to. !eve! 'anage'ent, !ega!, sa!es .ro'otion and advertise'ent, and so on ;outso)iannis c!assifies t%ese econo'ies into two grou.s E a b c d e f Rea! econo$ies + &cono'ies w%ic% arise fro' a reduction in t%e factor in.uts .er unit of out.ut In o.erationa! ter's, rea! econo'ies 'a) arise fro' E ,%e .roduction activit) of t%e fir' ,%e researc% and deve!o.'ent>tec%no!ogica! activities ,%e s)nerg) effects Mar2eting and distribution activities ,rans.ort, storage and inventories Manageria! econo'ies

Pecuniar" econo$ies + &cono'ies t%at are rea!iCed fro' .a)ing !ower .rices for factor in.uts due to bu!2 transactions C%ea.er finance is t%e 'ost vita! ingredient of .ecuniar) econo'ies A .ost 'erger !arge fir' is !i2e!) to raise finance at c%ea.er rates t%an eit%er of t%e .re<'erger fir's cou!d %ave ,%e reason is t%at t%e !arger t%e fir', t%e 'ore secure t%e investors consider t%eir funds $esides, t%e f!oatation costs 7in 'a2ing new issues) .er unit decreases wit% t%e increase in t%e siCe of s%ares and debentures ,%e idea is to concentrate a greater vo!u'e of activit) into a given faci!it), into a given nu'ber of .eo.!e, into a given distribution s)ste', and so fort% In ot%er words, increases in vo!u'e .er'it a 'ore efficient uti!iCation of resources $ut, !i2e an)t%ing e!se, it %as !i'its $e)ond a .oint, increases in vo!u'e 'a) cause 'ore .rob!e's t%an t%e) re'ed), and a co'.an) 'a) actua!!) beco'e !ess efficient &cono'ists describe t%is as an enve!o)e curve wit% econo'ies of sca!e .ossib!e u. to so'e o.ti'a! .oint, after w%ic% disecono'ies occur

2) S"ner%" + ()nerg) 'eans t%at t%e co'bined va!ue of t%e 'erged fir' wi!! be greater t%an t%e su' of t%e va!ues of t%e individua! .re<'erger fir's 7or units) It resu!ts fro' co'.!i'entar) activities *or instance, one fir' 'a) %ave a substantia! a'ount of financia! resources w%i!e t%e ot%er %as .rofitab!e invest'ent o..ortunities (i'i!ar!), one fir' 'a) %ave we!! estab!is%ed brand of its .roducts but !ac2s 'ar2eting organiCation and t%e ot%er fir' 'a) %ave a ver) strong 'ar2eting organiCation 9i2ewise, one fir' 'a) %ave a strong researc% and deve!o.'ent 7R&D) tea' w%ereas t%e ot%er fir' 'a) %ave a ver) efficient!) organiCed .roduction de.art'ent ,%e 'erged business unit in a!! t%ese cases wi!! be 'ore efficient t%an t%e individua! fir's ()'bo!ica!!), Co'bined 5a!ue M (tand a!one va!ue of acquiring fir', 5A N (tand a!one va!ue of acquiring fir', 5, N 5a!ue of ()nerg), 5A, @or'a!!), t%e va!ue of s)nerg) is .ositive and t%is constitutes t%e rationa!e for 'erger In va!uing s)nerg), costs attac%ed wit% acquisitions s%ou!d a!so be ta2en into account ,%ese costs .ri'ari!) consist of costs of integration and .a)'ent 'ade for acquisition of t%e target fir', in e-cess of its va!ue, 5, ,%erefore, t%e net gain fro' t%e 'erger is equa! to t%e difference between t%e va!ue of s)nerg) and costs @et +ain M 5a!ue of ()nerg), 5A, E Costs

3) 2ast Growt# + A 'erger often enab!es t%e a'a!ga'ating fir' to grow at a rate faster t%an is .ossib!e under t%e interna! e-.ansion route, because t%e acquiring co'.an) enters a new 'ar2et quic2!), avoiding t%e de!a) associated wit% bui!ding a new .!ant and estab!is%ing a new !ine of .roducts Interna! growt% is ti'e consu'ing, requiring researc% and deve!o.'ent, organiCation of t%e .roduct, 'ar2et .enetration, and in genera!, a s'oot%!) wor2ing organiCation Above a!!, t%ere 'a) so'eti'es be an added .rob!e' of raising adequate funds to e-ecute t%e required ca.ita! budgeting .ro0ects A 'erger ob!iviates a!! t%ese obstac!es and, t%us, ste.s u. t%e .ace of cor.orate growt% ") Ta4 3enefits + A 'otivation in so'e 'ergers is ta- ,%ese conditions re!ate to t%e ta- !aws a!!owing set off and carr) forward of !osses In t%e case of a ta-<!oss carr) forward, a co'.an) wit% cu'u!ative ta-<!osses 'a) %ave !itt!e .ros.ect of earning enoug% in t%e future to uti!iCe fu!!) its ta-<!oss carr) forward $) 'erging wit% a .rofitab!e co'.an), it 'a) be .ossib!e for t%e surviving co'.an) to uti!iCe t%e carr) forward 'ore effective!) ,%e argu'ent is t%at t%is ta-<!oss carr) forward wi!!

reduce t%e ta-ab!e inco'e of t%e new!) 'erged fir', wit% its obvious i'.act on t%e reduction of ta- !iabi!it) In o.erationa! ter's, t%e !osses of t%e target fir' wi!! be a!!owed to be set off against t%e .rofits of t%e acquiring fir' 1owever, t%ere are restrictions t%at !i'it its uti!iCation to a .ercentage of t%e fair 'ar2et va!ue of t%e acquired co'.an) (ti!!, t%ere can be an econo'ic gain, at t%e e-.ense of t%e govern'ent, t%at cannot be rea!iCed b) eit%er co'.an) se.arate!) ,%e ,a- Refor' Act, 1A=6, s%ar.!) reduced ta-<'otivated 'ergers ,%e tec%nica! ta- advantages t%at re'ain .rovide !itt!e in t%e wa) of va!ue #) &iversification + Diversification is )et anot%er 'a0or advantage, es.ecia!!) in a cong!o'erate 'erger ,%e argu'ent is t%at a 'erger between two unre!ated fir's wou!d tend to reduce business ris2, and, t%us, increase t%e 'ar2et va!ue A!so, b) acquiring a fir' in different !ine of business, a co'.an) 'a) be ab!e to reduce c)c!ica! instabi!it) in earnings In ot%er words, suc% 'ergers %e!. stabi!iCe or s'oot%en overa!! cor.orate inco'e, w%ic% wou!d ot%erwise f!uctuate due to seasona! or econo'ic c)c!es In o.erationa! ter's, t%e greater t%e co'bination of statistica!!) inde.endent, or negative!) corre!ated inco'e strea's of t%e 'erged co'.anies, t%e %ig%er wi!! be t%e reduction in t%e business ris2 factor and t%e greater wi!! be t%e benefit of diversification or vice versa 1owever, suc% diversification can a!so be attained b) individua! s%are%o!ders b) diversif)ing t%eir individua! invest'ent .ortfo!io ,%erefore, t%e financia! 'anagers s%ou!d ensure t%at t%e 'erger s%ou!d not be at a cost %ig%er t%an t%e one at w%ic% s%are%o!ders wou!d %ave attained on t%eir ownK cor.orate diversification s%ou!d be !ess e-.ensive t%an .ersona! diversification 6) Sa!es En#ance$ent + An i'.ortant reason for so'e acquisitions is t%e en%ance'ent of sa!es $) gaining 'ar2et s%are, ever<increasing sa!es 'a) be .ossib!e t%roug% 'ar2et do'inance Or it 'a) be t%at it wi!! fi!! a ga. in t%e .roduct !ine, t%ereb) en%ancing sa!es t%roug%out ,o be a t%ing of va!ue, suc% sa!es en%ance'ents 'ust be cost effective 8) I$)rove 'ana%e$ent + (o'e co'.anies are inefficient!) 'anaged wit% t%e resu!t t%e .rofitabi!it) is !ower t%an it 'ig%t be ,o t%e e-tent t%e acquirer can .rovide better 'anage'ent an acquisition 'a) 'a2e sense for t%is reason a!one /%i!e a co'.an) can c%ange 'anage'ent itse!f, t%e .ractica! rea!ities of entrenc%'ent 'a) be suc% t%at an e-terna! acquisition is required for an)t%ing to %a..en ,%e idea is t%at t%e e-terna! financia! 'ar2ets disci.!ine 'anage'ent 56 Infor$ation Effect + 5a!ue a!so cou!d occur if new infor'ation is conve)ed as a resu!t of t%e 'erger negotiation or ta2eover atte'.t ,%is notion i'.!ies as)''etric infor'ation between 'anage'ent 7or t%e acquiring fir') and t%e genera! 'ar2et for t%e stoc2 ,o t%e e-tent of stoc2 is be!ieved to be underva!ued,

a .ositive signa! 'a) occur via t%e 'erger announce'ent w%ic% causes s%are .rice to rise ,%e idea is t%at t%e 'erger>ta2eover .rovides infor'ation on under!)ing .rofitabi!it) t%at ot%erwise cannot be convincing!) conve)ed In a nuts%e!!, it is t%at s.ecific actions s.ea2 !ouder t%an words 76 (ea!t# Transfer + 1owever, t%ere 'a) be wea!t% transfer fro' equit) %o!ders to debt %o!ders, via diversification, w%en a 'erger occurs ,o t%e e-tent t%e co'bination !owers t%e re!ative variabi!it) of cas% f!ows, debt<%o!ders benefit fro' %aving a 'ore creditwort%) c!ai' As a resu!t t%e 'ar2et va!ue of t%eir c!ai' s%ou!d increase, a!! ot%er t%ings re'aining t%e sa'e In effect, it is a Cero<su' ga'e, and one .art) can gain on!) at t%e e-.ense of t%e ot%er 896,ubris ,")ot#esis + Ro!! argues t%at ta2eovers are 'otivated b) bidders w%o get caug%t u. in be!ieving t%e) can do no wrong and t%at t%eir foresig%t is .erfect ,ubris refers to an ani'a! !i2e s.irit of arrogant .ride and se!f<confidence (uc% individua!s are said not to %ave t%e rationa! be%avior necessar) to refrain fro' bidding As a resu!t, bidders too 'uc% for t%eir targets In ot%er words, 'anagerJs overconfidence about e-.ected s)nergies fro' M&A w%ic% resu!ts in over.a)'ent for t%e target co'.an) ,%e %ubris %).ot%esis suggests t%at t%e e-cess .re'iu' .aid for t%e target co'.an) benefits t%ose stoc2%o!ders, but t%at stoc2%o!ders of t%e acquiring co'.an) suffer a di'inution in wea!t% 886Resource Transfer + Resources are uneven!) distributed across fir's 7$arne), 1AA1) and t%e interaction of target and acquiring fir' resources can create va!ue t%roug% eit%er overco'ing infor'ation as)''etr) or b) co'bining scarce resources 8:6 'ana%e$ent;s Persona! A%en a + Rat%er t%an %ubris, it 'a) be t%at t%e acquiring co'.an) over.a)s because 'anage'ent .ursues .ersona! as o..osed to cor.orate wea!t% 'a-i'iCing goa!s (o'eti'es, 'anage'ent c%ases growt% $eing !arger 'a) bring .restige, in w%ose g!ow 'anage'ent bas2s Managers %ave !arger co'.anies to 'anage and %ence 'ore .ower ,%e goa! 'a) be diversification, because wit% unre!ated businesses and ris2 s.read out, 'anage'ent 0obs 'a) be 'ore secure 8<6 'ana%er;s Co$)ensation + In t%e .ast, certain e-ecutive 'anage'ent tea's %ad t%eir .a)out based on t%e tota! a'ount of .rofit of t%e co'.an), instead of t%e .rofit .er s%are, w%ic% wou!d give t%e tea' a .erverse incentive to bu) co'.anies to increase t%e tota! .rofit w%i!e decreasing t%e .rofit .er s%are 7w%ic% %urts t%e owners of t%e co'.an), t%e s%are%o!ders)K a!t%oug% so'e e'.irica! studies s%ow t%at co'.ensation is !in2ed to .rofitabi!it) rat%er t%an 'ere .rofits of t%e co'.an)

8=6.ertica! inte%ration + Co'.anies acquire .art of a su..!) c%ain and benefit fro' t%e resources 1owever, t%is does not add an) va!ue since a!t%oug% one end of t%e su..!) c%ain 'a) receive a .roduct at a c%ea.er costK t%e ot%er end now %as !ower revenue In addition, t%e su..!ier 'a) find 'ore difficu!t) in su..!)ing to co'.etitors of its acquirer because t%e co'.etition wou!d not want to su..ort t%e new cong!o'erate

2INANCIA> 2RA'E(OR1
:nder t%is section, we wi!! discuss t%e financia! fra'ewor2 of a 'erger decision It covers t%ree inter<re!ated as.ects E 1) Deter'ining t%e fir'3s va!ue, 2) *inancing tec%niques in 'erger, and 3) Ana!)sis of t%e 'erger as a ca.ita! budgeting decision 1) &eter$inin% t#e fir$;s va!ue + ,%e first ste. towards ana!)Cing a .otentia! 'erger invo!ves deter'ining t%e va!ue of t%e acquired fir' ,%e va!ue of a fir' de.ends not on!) u.on its earnings but a!so u.on t%e o.erating and financia! c%aracteristics of t%e acquiring fir' ,%erefore, a sing!e va!ue cannot be .!aced for t%e acquired fir' 1ence, a range of va!ues is deter'ined and t%e fina! va!ue, wit%in t%is range, is negotiated b) t%e two fir's 1owever, .!acing a va!ue on qua!itative factors, suc% as 'anageria! ta!ent, strong sa!es de.art'ent, and so on is difficu!t ,%erefore, 'ore e'.%asis is given on quantitative factors E t%e va!ue of t%e assets, and t%e earnings of t%e fir' $ased on t%ese factors, t%e quantitative variab!es inc!ude E a6 3ook .a!ue + ,%e boo2 va!ue of a fir' is based on t%e ba!ance s%eet va!ue of owner3s equit) It is deter'ined b) dividing net wort% b) t%e nu'ber of equit) s%ares outstanding 1owever, t%e boo2 va!ue, as a basis of deter'ining a fir'3s va!ue, suffers fro' a !i'itation t%at it is based on t%e %istorica! costs of t%e assets of t%e fir' @evert%e!ess, it is re!evant to t%e deter'ination of a fir'3s va!ue due to t%e fo!!owing reasons E i) It can be used as a starting .oint to be co'.ared and co'.!e'ented b) ot%er ana!)ses

ii) In industries w%ere t%e abi!it) to generate earnings requires !arge invest'ents in fi-ed assets, t%e boo2 va!ue cou!d be a critica! factor w%ere es.ecia!!) .!ant and equi.'ent are re!ative!) new iii) A stud) of t%e fir'3s wor2ing ca.ita! is .articu!ar!) a..ro.riate and necessar) in 'ergers invo!ving businesses consisting .ri'ari!) of !iquid assets, !i2e financia! institutions b6 A))raisa! .a!ue + ,%e a..raisa! va!ue of a fir' is acquired fro' an inde.endent a..raisa! agenc) ,%is va!ue is nor'a!!) based on t%e re.!ace'ent cost of assets ,%e 'erits of t%e a..raisa! va!ue are E i) It is an i'.ortant factor in s.ecia! situations suc% as in financia! co'.anies, natura! resource enter.rises or organiCations t%at %ave been o.erating at a !oss ii) A..raisa! b) inde.endent a..raisers 'a) .er'it reduction in accounting goodwi!! b) increasing t%e recogniCed wort% of s.ecific assets iii) A..raisa! b) an inde.endent agenc) .rovides a test of reasonab!eness of resu!t obtained t%roug% 'et%ods based u.on t%e going concern conce.t iv) ,%e a..raiser 'a) identif) strengt%s and wea2nesses t%at ot%erwise 'a) not be recogniCab!e *or e-a'.!e in va!uation of .atents and .artia!!) co'.!eted researc% and deve!o.'ent e-.enditure On t%e ot%er %and, t%is 'et%od of deter'ination of a fir'3s va!ue is not adequate b) itse!f as individua! va!ues of assets 'a) %ave !itt!e re!ation to t%e fir'3s overa!! abi!it) to generate earnings, and t%us, t%e going concern va!ue of t%e fir' In brief, t%e a..raisa! va!ue .rocedure is usefu! if carried out in con0unction wit% ot%er eva!uation .rocesses c6 'arket .a!ue + ,%e 'ar2et va!ue, as ref!ected in stoc2 'ar2et o.erations, co'.rises )et anot%er a..roac% for esti'ating t%e va!ue of a business It is t%e 'ost wide!) used a..roac% in deter'ining va!ue es.ecia!!) of !arge !isted fir's ,%e 'ar2et va!ue of a fir' is deter'ined b) invest'ent as we!! as s.ecu!ative factors ,%is va!ue can c%ange abru.t!) as a resu!t of c%ange not on!) in ana!)tica! factors but a!so due to .ure!) s.ecu!ative inf!uences and is sub0ect to 'ar2et senti'ents and .ersona! decisions In actua! .ractice, a certain .ercentage .re'iu' above t%e 'ar2et .rice is often offered as an induce'ent for t%e current owners to se!! t%eir s%ares O.erationa!!), a ratio of e-c%ange occurs for t%e s%are%o!ders of t%e acquired co'.an)

*or e-a'.!e, if t%e 'ar2et .rice of t%e s%ares of t%e acquiring co'.an) is Rs 6B .er s%are and t%at of acquired co'.an) is Rs 3B .er s%are, and t%e acquiring offers a %a!f s%are of its stoc2 for eac% s%are of t%e acquired co'.an) 1owever, t%e co'.an) being acquired finds a !itt!e entice'ent to acce.t a one to one 'ar2et va!ue ratio of e-c%ange ,%e acquiring co'.an) 'ust offer a .rice in e-cess of current 'ar2et .rice .er s%are of t%e co'.an) it wis%es to acquire Acquiring co'.an) 'a) %ave to offer B 668 s%ares, or Rs "B a s%are in current 'ar2et va!ue 3ootstra))in% Earnin%s )er S#are + In t%e absence of s)nergis', i'.roved 'anage'ent, or t%e under<.ricing of boug%t co'.an)3s stoc2 in an inefficient 'ar2et, it is not in t%e interest of t%e acquiring stoc2%o!ders to offer a .rice in e-cess of t%e boug%t co'.an)3s current 'ar2et .rice Acquiring stoc2%o!ders cou!d be better off if t%eir co'.an)3s .rice>earning ratio were %ig%er t%an t%e boug%t co'.an)3s and if so'e%ow t%e surviving co'.an) were ab!e to 2ee. t%at sa'e %ig%er .rice>earning ratio after t%e 'erger Assu'e t%e fo!!owing financia! infor'ation E Co'.an) A Rs 2BBBBBBB 6BBBBBB Rs 3 33 Rs 6B BB 1=Co'.an) $ Rs 6BBBBBB 2BBBBBB Rs 3 BB Rs 3B BB 1B-

4resent &arnings @o of (%ares &arnings .er (%are Mar2et 4rice .er (%are 4rice>&arning Ratio

/it% an offer of B 668 s%are of Acquiring Co'.an) for eac% s%are of boug%t co'.an), or Rs "B a s%are in va!ue Obvious!), t%e stoc2%o!ders of t%e acquired co'.an) are benefited as t%e) are being offered 'ore t%an t%eir stoc2 is wort% (toc2%o!ders of acquiring co'.an) a!so stand to benefit, if t%e .rice>earning ratio of t%e surviving co'.an) sta)s at 1= ,%e 'ar2et .rice .er s%are of t%e surviving co'.an), after t%e acquisition, a!! ot%er t%ings %e!d constant wou!d be

,ota! &arnings @o of (%ares &arnings .er (%are 4rice>&arning Ratio Mar2et 4rice .er (%are

(urviving Co'.an) Rs 26BBBBBB 8333333 Rs 3 ## 1=Rs 63 AB

,%e reason for increase in t%e 'ar2et .rice .er s%are w%ereb) t%e stoc2%o!ders of bot% co'.anies benefit is t%e difference in t%e .rice>earnings ratios 1owever, in reasonab!) efficient ca.ita! 'ar2ets, it is un!i2e!) t%at t%e 'ar2et wi!! %o!d constant t%e .rice>earning ratio of a co'.an) t%at cannot de'onstrate growt% .otentia! in wa)s ot%er t%an acquiring co'.anies wit% !ower .rice>earning ratios ,%us, t%e acquiring co'.an) 'ust a!!ow for t%e .rice>earning ratio c%anging wit% an acquisition If t%e 'ar2et is re!ative!) free fro' i'.erfection and if s)nergis' and>or i'.roved 'anage'ent is not antici.ated, t%e .rice>earning ratio of t%e surviving fir' is e-.ected to a..roac% a weig%ted average of t%e two .revious .rice>earning ratios 6 Earnin%s )er S#are + According to t%is a..roac%, t%e va!ue of a .ros.ective acquisition is considered to be a function of t%e i'.act of t%e 'erger on t%e earnings .er s%are 7&4() In ot%er words, t%e ana!)sis cou!d focus on w%et%er t%e acquisition wi!! %ave a .ositive i'.act on t%e &4( after t%e 'erger 7Accretive 'erger) or if it wi!! %ave t%e effect of di!uting t%e &4( 7Di!utive 'erger) ,%e future &4( wi!! affect t%e fir'3s s%are .rices, w%ic% is a function of .rice>earnings 74>&) ratio and &4( ,%us, w%en t%e s%are e-c%ange ratio is in .ro.ortion to t%e &4(, t%ere is no effect on t%e &4( of t%e acquiring>surviving co'.an) as we!! as on t%e acquired fir' $ut w%en t%e s%are e-c%ange ratio is different, it 'a) cause accretion in t%e &4( of t%e acquired fir' and di!ution in t%e &4( of t%e surviving fir', or vice<versa *or 'anage'ent of a fir' considering acquiring anot%er fir', a 'erger t%at resu!ts in di!ution in &4( s%ou!d be avoided 1owever, t%e fact t%at t%e 'erger i''ediate!) di!utes a fir'3s current &4( need not necessari!) 'a2e t%e transaction undesirab!e (uc% a criterion .!aces undue e'.%asis u.on t%e i''ediate effect of t%e .ros.ective 'erger on t%e &4( In e-a'ining t%e consequences of t%e 'erger u.on t%e surviving concern3s &4(, t%e ana!)sis s%ou!d be e-tended into future .eriods and t%e effect of t%e future growt% rate in earnings s%ou!d a!so be inc!uded in t%e ana!)sis

,%e gra.% be!ow s%ows t%is for a %).ot%etica! 'erger E

,%e gra.% te!!s us %ow !ong it wi!! ta2e for t%e di!ution in earnings .er s%are to be e!i'inated and for an accretion to ta2e .!ace ,%e greater t%e duration of di!ution is t%e !ess desirab!e t%e acquisition is said to be fro' t%e stand.oint of t%e acquiring co'.an) (o'e co'.anies set a cei!ing on t%e nu'ber of )ears di!ution wi!! be to!erated Accurate business va!uation is one of t%e 'ost i'.ortant as.ects of M&A as va!uations !i2e t%ese wi!! %ave a 'a0or i'.act on t%e .rice t%at a business wi!! be so!d for Most often t%is infor'ation is e-.ressed in a 9etter of O.inion of 5a!ue 79O5) w%en t%e business is being eva!uated for interestJs sa2e ,%ere are ot%er, 'ore detai!ed wa)s of e-.ressing t%e va!ue of a business ,%ese re.orts genera!!) get 'ore detai!ed and e-.ensive as t%e siCe of a co'.an) increasesK %owever, t%is is not a!wa)s t%e case as t%ere are 'an) co'.!icated industries w%ic% require 'ore attention to detai!, regard!ess of siCe 2) 2inancin% tec#niques in $er%er + After t%e va!ue of t%e fir' %as been deter'ined, t%e ne-t ste. is t%e c%oice of t%e 'et%od of .a)'ent of t%e acquired fir' ,%e c%oice of financia! instru'ents and tec%niques of acquiring a fir' usua!!)

%ave an effect on t%e .urc%asing agree'ent ,%e .a)'ent 'a) ta2e t%e for' of eit%er cas% or securities, t%at is, ordinar) s%ares, convertib!e securities, deferred .a)'ent .!ans and tender offers Mergers are genera!!) differentiated fro' acquisitions .art!) b) t%e wa) in w%ic% t%e) are financed and .art!) b) t%e re!ative siCe of t%e co'.anies a) Cas# + 1ere .a)'ent is 'ade b) cas% (uc% transactions are usua!!) ter'ed acquisitions rat%er t%an 'ergers because t%e s%are%o!ders of t%e target co'.an) are re'oved fro' t%e .icture and t%e target co'es under t%e 7indirect) contro! of t%e bidderJs s%are%o!ders a!one A cas% dea! wou!d 'a2e 'ore sense during a downward trend in t%e interest rates Anot%er advantage of using cas% for an acquisition is t%at t%ere tends to !esser c%ances of &4( di!ution for t%e acquiring co'.an) $ut a caution in using cas% is t%at it .!aces constraints on t%e cas% f!ow of t%e co'.an) b) Or inar" S#are 2inancin% + /%en a co'.an) is considering t%e use of co''on 7ordinar)) s%ares to finance a 'erger, t%e re!ative .rice>earnings ratio 74>&) ratios of t%e two fir's is an i'.ortant consideration *or instance, for a fir' wit% %ig% 4>& ratio, ordinar) s%ares re.resent an idea! 'et%od for financing 'ergers and acquisitions (i'i!ar!), ordinar) s%ares are 'ore advantageous for bot% co'.anies w%en t%e fir' to be acquired %as a !ow 4>& ratio ,%is is i!!ustrated in t%e tab!e be!ow E a6 Pre$er%er Situation + i) &arnings After ,a-es 7Rs) ii) @u'ber of s%ares outstanding iii) &4( 7i O ii) 7Rs) iv) 4rice Eearnings Ratio 7,i'es) v) Mar2et 4rice .er (%are, M4( 7iii P iv) 7Rs) Tota! 'arket .a!ue of t#e 2ir$ ?ii @ v6 b6 PostA$er%er Situation +
Assu'ing s%are e-c%ange ratio as

*ir' A #BBBBB 1BBBBB # 1B #B #BBBBBB

*ir' $ 2#BBBB #BBBB # " 2B 1BBBBBB

i)

&arnings After ,a-es of t%e co'bined fir' 7Rs) ii) @u'ber of s%ares outstanding after additiona! s%ares issued iii) &arnings 4er (%are of co'bined fir' 7i O ii) 7Rs)

1I2# 8#BBBB 12BBBB 6 2#

1I1 8#BBBB 1#BBBB # BB

iv) 4rice Eearnings Ratio of co'bined fir' 7,i'es) v) Mar2et 4rice .er (%are, M4(, of co'bined fir' 7iii P iv) 7Rs) Tota! 'arket .a!ue of t#e 2ir$ ?ii @ v6

1B 62 #B 8#BBBBB

1B #B 8#BBBBB

,%e e-c%ange ratio 1I2 # is based on t%e current 'ar2et .rices of t%e s%ares of t%e two fir's 72BI#B) ,%is ratio i'.!ies t%at *ir' A wi!! issue 1 s%are for ever) 2 # s%ares of $ ,%e fina! e-c%ange ratio is deter'ined b) negotiation between t%e two fir's on t%e basis of accrua! of t%e 'erger gains to t%e stoc2%o!ders of eac% co'.an) It wou!d de.end on t%e re!ative bargaining .rocess of t%e two fir's and t%e 'ar2et reaction of t%e 'erger 'ove c6 &ebt An Preference S#ares 2inancin% + /%en so'e fir's %ave a re!ative!) !ower 4>& ratio, as a!so t%e require'ent of so'e investors 'ig%t be different, t%e use of ordinar) s%ares on!) for financing 'a) not be advantageous In suc% cases, ot%er t).es of securities, in con0unction wit% or in !ieu of equit) s%ares, 'a) be used for t%e .ur.ose ,%e fi-ed inco'e securities are co'.atib!e wit% t%e needs and .ur.oses of 'ergers and acquisitions ,%e need for c%anging t%e financing !everage and t%e need for a variet) of securities is .art!) reso!ved b) t%e use of senior securities In an atte'.t to s%a.e a securit) to t%e require'ents of investors w%o see2 dividend > interest inco'e in contrast to ca.ita! a..reciation, convertib!e debentures and .reference s%ares 'ig%t be used to finance 'ergers ,%e use of suc% sources of financing %as severa! advantages E i) 4otentia! earning di!ution 'a) be .artia!!) 'ini'iCed b) issuing a convertib!e securit) (uc% an issue, if not restored to in .!ace of equit) s%ares, cou!d u!ti'ate!) resu!t in reducing t%e di!ution in t%e &4( ii) A convertib!e issue 'ig%t serve t%e inco'e ob0ectives of t%e s%are%o!ders of t%e target fir' wit%out c%anging t%e dividend .o!ic) of t%e acquiring fir' iii) Convertib!e securit) re.resents a .ossib!e wa) of !owering t%e voting .ower of t%e target co'.an) iv) Convertib!e securit) 'a) a..ear 'ore attractive to t%e acquired fir' as it co'bines t%e .rotection of fi-ed securit) wit% t%e growt% .otentia! of ordinar) s%ares 6 &eferre Pa"$ent P!an + :nder t%is 'et%od, t%e acquiring fir', besides 'a2ing an initia! .a)'ent, a!so underta2es to 'a2e additiona! .a)'ents in t%e future )ears to t%e target fir' in t%e event of t%e for'er being ab!e to increase

earnings consequent to t%e 'erger As t%e future .a)'ent is !in2ed to t%e earnings of t%e fir', t%is .!an is a!so 2nown as earnAout )!an ,%e deferred .!an tec%nique .rovides a usefu! 'eans b) w%ic% t%e acquiring fir' can e!i'inate .art of t%e guesswor2 invo!ved in .urc%asing a fir' Ado.ting suc% a .!an gives severa! advantages to t%e acquiring fir' E i) It e'erges to be an a..ro.riate out!et for ad0usting t%e differences between t%e va!ue of s%ares t%e acquiring fir' is wi!!ing to issue and t%e a'ount t%e target fir' is agreeab!e to acce.t for t%e business ii) ,%e acquiring fir' wi!! be ab!e to s%ow a %ig% .ost<'erger &4( i''ediate!) as a fewer nu'ber of s%ares are to be issued at t%e ti'e of t%e 'erger iii) ,%ere is a bui!t in .rotection to t%e acquiring fir' as t%e tota! .a)'ent is not 'ade at t%e ti'e of acquisition In ot%er words, it gives t%e 'anage'ent of t%e acquiring co'.an) t%e .rivi!ege of %indsig%t $ut at t%e sa'e ti'e, t%ere are certain .rob!e's in t%is 'ode of .a)'ent E i) ,%e target fir' 'ust be ca.ab!e of being o.erated as an autono'ous business entit) so t%at its contribution to t%e tota! .ro0ects 'a) be deter'ined ii) ,%ere 'ust be freedo' of o.eration to t%e 'anage'ent of t%e acquired fir' iii) On t%e .art of t%e 'anage'ent of t%e acquiring for', t%ere 'ust be wi!!ing coo.eration to wor2 towards t%e success and growt% of t%e target fir', rea!iCing t%at on!) b) t%is wa) t%e two fir's can gain fro' t%e 'erger ,%ere can be various t).es of deferred .a)'ent .!ans ,%e arrange'ent eventua!!) agreed u.on t%e 'anage'ents of t%e two fir's ,%e 'ost co''on arrange'ent is ca!!ed t%e base )erio earnAout. :nder t%is .!an, t%e s%are%o!ders of t%e target fir' are to receive additiona! s%ares for a fi-ed nu'ber of )ears if t%e fir' is ab!e to i'.rove its earnings wit% res.ect to t%e earnings of t%e base .eriod 7i e t%e )ear before t%e acquisition) e6 Ten er Offer + A tender offer, as a 'et%od of acquiring a fir', invo!ves a bid b) t%e acquiring for contro!!ing interest in t%e acquired fir' ,%e essence of t%is a..roac% is t%at t%e .urc%aser a..roac%es t%e s%are%o!ders of t%e fir' rat%er

t%an t%e 'anage'ent to encourage t%e' to se!! t%eir s%ares genera!!) at a

.re'iu' over t%e 'ar2et .rice (ince t%e tender offer is a direct a..ea! to t%e s%are%o!ders, .rior a..rova! of t%e 'anage'ent of t%e target fir' is not required ,%e use of tender offer a!!ows t%e acquiring co'.an) to b).ass t%e 'anage'ent of t%e co'.an) it wis%es to acquire and, t%erefore, serves as a t%reat in an) negotiations wit% t%at 'anage'ent ,%e tender offer can be used a!so w%en t%ere are no negotiations but w%en one co'.an) si'.!) wants to acquire anot%er It is not .ossib!e to sur.rise anot%er co'.an), because t%e (ecurities and &-c%ange Co''ission requires rat%er e-tensive disc!osures ,%e .ri'ar) se!!ing too! is t%e .re'iu' t%at is offered over t%e e-isting 'ar2et .rice of t%e stoc2 In addition, bro2ers are often given attractive co''issions for s%ares tendered t%roug% t%e' ,%e tender offer itse!f is usua!!) co''unicated t%roug% financia! news.a.ers Direct 'ai!ings are 'ade to t%e stoc2%o!ders of t%e co'.an) being bid for, if t%e bidder is ab!e to obtain a !ist of stoc2%o!ders A!t%oug%, a co'.an) is !ega!!) ob!igated to .rovide suc% a !ist, it is usua!!) ab!e to de!a) de!iver) !ong enoug% to frustrate t%e bidder As a for' of acquiring fir's, t%e tender offer %as certain advantages and disadvantages ,%e disadvantages are E i) If t%e target fir'3s 'anage'ent atte'.ts to b!oc2 it, t%e cost of e-ecuting t%e offer 'a) increase substantia!!) ii) ,%e .urc%asing co'.an) 'a) fai! to acquire a sufficient nu'ber of s%ares to 'eet t%e ob0ective of contro!!ing t%e fir' ,%e advantages are E i) If t%e offer is not b!oc2ed, sa) in a friend!) ta2eover, it 'a) be !ess e-.ensive t%an t%e nor'a! route of acquiring a co'.an) ,%is is so because it .er'its contro! b) .urc%asing a s'a!!er .ro.ortion of t%e fir'3s s%ares ii) ,%e fairness of t%e .urc%ase .rice is not questionab!e as eac% s%are%o!der individua!!) agrees to .art wit% %is s%ares at t%e negotiated .rice 3) Ana!"sis of t#e 'er%er as a Ca)ita! 3u %etin% &ecision + As a nor'ative financia! fra'ewor2, t%e 'erger s%ou!d be eva!uated as a ca.ita! budgeting decision ,%e target fir' s%ou!d be va!ued in ter's of its .otentia! to generate incre'enta! future cas% inf!ows (uc% cas% f!ows s%ou!d be incre'enta! future free cas% f!ows !i2e!) to accrue due to t%e acquisition of t%e target fir' T#e &irect Cas# 2!ows ?&C26 A))roac# + *ree cas% f!ows, in t%e conte-t of a 'erger, are equa! to after ta- o.erating earnings 7e-.ected fro' acquisition) .!us

non<cas% e-.enses, suc% as de.reciation and a'ortiCation 7a..!icab!e to t%e target fir'), !ess additiona! invest'ents e-.ected to be 'ade in t%e !ong ter' assets and wor2ing ca.ita! of t%e acquired fir' ,%ese cas% f!ows are t%en to be discounted at an a..ro.riate rate t%at ref!ects t%e ris2iness of t%e target fir'3s business 9i2e t%e ca.ita! budgeting decisions, t%e .resent va!ue of t%e e-.ected benefits fro' t%e 'erger to be co'.ared wit% t%e cost of t%e acquisition of t%e target fir' Acquisition costs inc!ude t%e .a)'ent 'ade to t%e target fir'3s s%are%o!ders and debenture %o!ders, t%e .a)'ent to disc%arge t%e e-terna! !iabi!ities, esti'ated va!ue of t%e ob!igations assu'ed, !iquidation e-.enses to be 'et b) t%e acquiring fir' and so on, !ess cas% .roceeds e-.ected to be re!eased b) t%e acquiring fir' fro' t%e sa!e of certain assets of t%e target fir' 7not intended to be used in business subsequent to 'erger) ,%e decision criterion is to .roceed wit% t%e 'erger if t%e @et 4resent 5a!ue, @45, is .ositiveK t%e decision wou!d be against t%e 'erger in t%e event of t%e @45 being negative ,%e fo!!owing ste.s are used to eva!uate t%e 'erger decision as .er t%e ca.ita! budgeting a..roac% E a) &eter$ination of incre$enta! )roBecte 2ree Cas# 2!ows to t#e 2ir$ ?2C226 + ,%ese *C** s%ou!d be attributab!e to t%e acquisition of t%e business of t%e target fir' ,%e constituents of t%ese cas% f!ows are E After ta- o.erating earnings 7N) @on<cas% e-.enses suc% as de.reciation and a'ortiCation 7<) Invest'ent in !ong ter' assets 7<) Invest'ent in @et /or2ing Ca.ita! A!! t%e financia! in.uts s%ou!d be on incre'enta! basis b) &eter$ination of Ter$ina! .a!ue + ,%e fir' is nor'a!!) acquired as a going concern ,%e .ro0ected *C** in suc% situations are 'ade in two seg'ents, na'e!), during t%e e-.!icit forecast .eriod and after t%e forecast .eriod ,er'ina! 5a!ue, ,5, is t%e .resent va!ue of *C**, after t%e forecast .eriod Its va!ue can be deter'ined as .er t%e fo!!owing equations E i) /%en *C** are !i2e!) to be constant ti!! infinit" E ,5 M *C**,N1 > ;B /%ere, *C**,N1 refer to t%e e-.ected *C** in t%e first )ear after t%e e-.!icit forecast .eriod ii) /%en *C** are !i2e!) to %row 7g) at a constant rate E ,5 M *C**, 71 N g) > 7;B E g) iii) /%en *C** are !i2e!) to ec!ine at a constant rate E ,5 M *C**, 71 E g) > 7;B N g)

c) &eter$ination of a))ro)riate &iscount Rate or Cost of Ca)ita! + In t%e event of t%e ris2 co'.!e-ion of t%e target fir' 'atc%ing wit% t%e acquired fir' 7for e-a'.!e, in t%e case of %oriConta! 'erger and fir's %aving virtua!!) identica! debt<equit) ratio), t%e acquiring fir' can use its own weig%ted average cost of ca.ita! 72B) as discount rate In case t%e ris2 co'.!e-ion of t%e acquired fir' is different, t%e a..ro.riate discount rate is to be co'.uting ref!ecting t%e ris2iness of t%e .ro0ected *C** of t%e target fir' d) &eter$ination of Present .a!ue of 2C22 + ,%e .resent va!ue of *C** during t%e e-.!icit forecast .eriod Qas .er ste. 7a)R and of ter'ina! va!ue Qas .er ste. 7b)R is deter'ined b) using t%e a..ro.riate discount rate Qas .er ste. 7c)R e) &eter$ination of cost of acquisition + ,%e cost of acquisition is deter'ined as fo!!ows E 4a)'ent to equit) s%are%o!ders 7@u'ber of equit) s%ares issued in acquiring co'.an) P Mar2et .rice of &quit) (%are) 7N) 4a)'ent to .reference s%are%o!ders 7N) 4a)'ent to debenture %o!ders 7N) 4a)'ent to ot%er e-terna! !iabi!ities 7N) Ob!igations assu'ed to be .aid in future 7N) Disso!ution &-.enses 7to be .aid b) acquiring fir') 7N) :nrecorded>Contingent 9iabi!it) 7<) Cas% .roceeds fro' sa!e of assets of target fir' 7not be used in business after acquisition) T#e A Buste Present .a!ue ?AP.6 A))roac# + ,%e A45 a..roac% is a variant of t%e DC* a..roac% used to va!ue t%e target fir' ,%is a..roac% is ver) a..ro.riate for va!uing co'.anies wit% c%anging ca.ita! structures and for va!uing target co'.anies w%ic% are %aving ca.ita! structures substantia!!) different fro' t%ose of acquiring co'.anies ,%e a..roac% va!ues *C** of target fir' in two co'.onents E i) ,%e va!ue of t%e target fir' if it were entire!) equit) financed ii) 5a!ue t%e i'.act of debt financing bot% in ter's of t%e ta- benefit and ban2ru.tc) costs ,%e A45 based va!uation %as its genesis in t%e Modig!iani<Mi!!er 7MM) .ro.ositions on ca.ita! structure, according to w%ic% in a wor!d of no ta-es, t%e va!uation of t%e fir' 7equit) N debt) is inde.endent of ca.ita! structure 7c%ange in debt>equit) .ro.ortion) In ot%er words, t%e ca.ita! structure can affect t%e va!uation on!) t%roug% ta-es and ot%er 'ar2et i'.erfections and distortions

,%e A45 a..roac% uses t%ese conce.ts of MM to s%ow t%e i'.act of debt financing in ter's of ta4 s#ie! on va!uation ,%e a..roac% first va!ues t%e co'.an) as if it were w%o!!) equit) financed b) discounting future *C** at a discount rate referred to as un!evere cost of equit". (ince interest is a deductib!e ite' of e-.ense to deter'ine ta-ab!e inco'e, it .rovides ta- savings 7assu'ing t%e fir' %as ta-ab!e inco'e) ,%e va!ues of t%ese ta- savings are t%en added *ina!!), to %ave t%e fu!! i'.act of debt financing ref!ected in t%e va!uation of t%e target, ad0ust'ent is required to be 'ade for incre'enta! ban2ru.tc) costsK t%e ad0ust'ent va!ue 'a) be deter'ined sub0ective!) or 'a) be based on so'e suitab!e financia! surrogate ,%e discount rate to va!ue t%e ta- s%ie!d wi!! de.end on t%e circu'stances of eac% case /%en t%e fir' %as a !ow target debt ratio and business .ros.ects are ver) .ro'ising, t%ere is a greater .robabi!it) of rea!iCing ta- s%ie!ds in t%e future ,%erefore, in suc% a situation, t%e cost of debt can be used as t%e discount rate On t%e ot%er %and, if t%e target debt ratio of t%e fir' as we!! as its business ris2 is %ig%, t%ere is obvious!) a greater uncertaint) in rea!iCing .otentia! ta- s%ie!ds and, %ence, t%e) s%ou!d be sub0ect to a %ig%er discount rate *ina!!), t%e finance 'anager 'a) a!so consider a discount rate !)ing so'ew%ere between t%e cost of debt and t%e weig%ted average cost of ca.ita! or un!evered cost of equit)

TA@ATION ASPECTS
,%is section su''ariCes t%e re!evant and i'.ortant ta- .rovisions a..!icab!e to a'a!ga'ations, 'ergers and acquisitions A'a!ga'ation for t%e .ur.oses of inco'e ta- is recogniCed on!) if t%e conditions given under (ection 2 71$) of t%e Inco'e ,a- Act, 1A61 7I,A) are fu!fi!!ed According to (ection 2 71$) Fa'a!ga'ation3, in re!ation to co'.anies, 'eans t%e 'erger of one or 'ore co'.anies wit% anot%er co'.an) or t%e 'erger of two or 'ore co'.anies to for' one co'.an) 7t%e co'.an) or co'.anies t%at so 'erge are referred to as t%e a'a!ga'ating co'.an) or co'.anies and t%e co'.an) wit% w%ic% t%e) 'erge or w%ic% is for'ed as a resu!t of t%e 'erger is t%e a'a!ga'ated co'.an)) in suc% a 'anner t%at E 1) A!! t%e .ro.ert)>!iabi!ities of t%e a'a!ga'ating co'.an) i''ediate!) before t%e a'a!ga'ation, beco'es t%e .ro.ert)>!iabi!ities of t%e a'a!ga'ated co'.an) b) virtue of t%e a'a!ga'ation

2) (%are%o!ders %o!ding not !ess t%an t%ree<fourt%s 7in va!ue) of t%e s%ares in t%e a'a!ga'ating co'.an) beco'e s%are%o!ders of t%e a'a!ga'ated co'.an) b) virtue of t%e a'a!ga'ation Ta4 concessions to t#e A$a!%a$ate Co$)an" + ,%e a'a!ga'ated co'.an) en0o)s t%e fo!!owing ta- benefits E 1) Carr" 2orwar an Set off of 3usiness >osses an Unabsorbe &e)reciation + According to (ection 82 A, t%e a'a!ga'ated co'.an) is entit!ed to carr) forward accu'u!ated !osses as we!! as unabsorbed de.reciation of t%e a'a!ga'ating co'.an), .rovided t%e fo!!owing conditions are fu!fi!!ed E a6 ,%e a'a!ga'ated co'.an) continuous!) %o!ds, for a 'ini'u' .eriod of # )ears, fro' t%e a'a!ga'ation at !east t%ree fourt%s of t%e above va!ue of fi-ed assets of t%e a'a!ga'ating co'.an), acquired in t%e sc%e'e of a'a!ga'ation b6 ,%e a'a!ga'ated co'.an) continues t%e business of t%e a'a!ga'ating co'.an) for a 'ini'u' .eriod of # )ears fro' t%e date of a'a!ga'ation c6 ,%e a'a!ga'ated co'.an) fu!fi!s suc% ot%er conditions as 'a) be .rescribed to ensure t%e reviva! of t%e business of t%e a'a!ga'ating co'.an) or to ensure t%at t%e a'a!ga'ation is for genuine business .ur.oses 6 ,%e a'a!ga'ation s%ou!d be of a co'.an) owning an industria! underta2ing or s%i. Industria! underta2ing, in t%e conte-t, 'eans an underta2ing t%at is engaged in E i) ,%e 'anufacture or .rocessing of goodsK or ii) ,%e 'anufacture of co'.uter softwareK or iii) ,%e business of generation or distribution of e!ectricit) or an) ot%er for' of .owerK or iv) ,%e business of .roviding te!eco''unication services, w%et%er basic or ce!!u!ar, inc!uding radio .aging, do'estic sate!!ite service, networ2 of trun2ing, broadband networ2 and Internet servicesK or v) MiningK or vi) ,%e construction of s%i.s, aircrafts or rai! s)ste's In case w%ere an) of t%ese conditions are not co'.!ied wit%, t%e set off of !oss or a!!owance of de.reciation 'ade in an) .revious )ears of boo2s of t%e a'a!ga'ated co'.an) wou!d be dee'ed to be t%e inco'e of t%e a'a!ga'ated co'.an) and c%argeab!e to ta- for t%e )ear in w%ic% suc% conditions are not co'.!ied wit%

2) E4)en iture on Scientific Researc# + /%ere an a'a!ga'ating co'.an) transfers an) asset re.resented b) ca.ita! e-.enditure on scientific researc% to t%e a'a!ga'ated Indian co'.an), unabsorbed ca.ita! e-.enditure in t%e boo2s of t%e a'a!ga'ating co'.an) wou!d be e!igib!e to be carried forward and set off in t%e %ands of t%e a'a!ga'ated co'.an) 3) E4)en iture on Acquisition of Patent Ri%#ts or Co)" Ri%#ts + ,%e e-.enditure on .atents and co.)rig%ts not )et written off in t%e boo2s of a'a!ga'ating co'.an) wou!d be a!!owed to be written off b) t%e a'a!ga'ated co'.an) in t%e sa'e nu'ber of ba!ance insta!!'ents /%ere suc% rig%ts are !ater so!d off b) t%e a'a!ga'ated co'.an), t%e .rofit>!oss on suc% sa!es wou!d be treated in t%e %ands of a'a!ga'ated co'.an), in t%e sa'e 'anner as it wou!d %ave been a!!owed to be treated b) t%e a'a!ga'ating co'.an) ") E4)en iture on 1nowA#ow + Regarding t%e e-.enditure incurred on 2now<%ow, t%e a'a!ga'ated co'.an) wou!d be entit!ed to c!ai' deduction wit% res.ect to t%e transferred underta2ing, to t%e sa'e e-tent and for t%e sa'e residua! .eriod as ot%erwise wou!d %ave been a!!owed to t%e a'a!ga'ating co'.an), %ad suc% an a'a!ga'ation not ta2en .!ace #) E4)en iture for Obtainin% >icense to O)erate Te!eco$$unication Services + /%en an a'a!ga'ating co'.an) transfers !icense to t%e Indian a'a!ga'ated co'.an), t%e e-.enditure on acquisition of !icense, not )et written off, is a!!owed to t%e a'a!ga'ated co'.an) in t%e sa'e nu'ber of ba!ance insta!!'ents /%en suc% !icense is so!d b) t%e a'a!ga'ated co'.an), t%e sur.!us>deficienc) wou!d be t%e sa'e as wou!d %ave been in t%e case of t%e a'a!ga'ating co'.an) 6) Pre!i$inar" e4)enses + Deduction of .re!i'inar) e-.enses 7to t%e e-tent not a'ortiCed) wou!d be 'ade in t%e boo2s of t%e a'a!ga'ated co'.an) in t%e sa'e co'.an) as wou!d %ave been a!!owed to t%e a'a!ga'ating co'.an) 8) E4)en iture on Pros)ectin% of Certain 'inera!s + /%ere an a'a!ga'ating co'.an) 'ergers wit% t%e a'a!ga'ated co'.an), t%e a'ount of e-.enditure on .ros.ecting, etc , of certain 'inera!s of t%e a'a!ga'ating co'.an) t%at are not )et written off, wou!d be a!!owed in t%e sa'e 'anner as wou!d %ave been a!!owed to t%e a'a!ga'ating co'.an) =) Ca)ita! E4)en iture on 2a$i!" P!annin% + ,%e ca.ita! e-.enditure on fa'i!) .!anning not )et written off wou!d be a!!owed to t%e a'a!ga'ated co'.an) in t%e sa'e nu'ber of ba!ance insta!!'ents

A) 3a &ebts + /%en t%e debts of a'a!ga'ating co'.an) %ave been ta2en over b) t%e a'a!ga'ated co'.an) and subsequent!) suc% debt or .art beco'es bad, t%e) wou!d be a!!owed as a deduction to t%e a'a!ga'ated co'.an) in t%e sa'e 'anner as wou!d %ave been a!!owed to t%e a'a!ga'ating co'.an) In s%ort, t%e Inco'e ,a- Act for a!! t).es of business reorganiCations > a'a!ga'ations > 'ergers %as beco'e fu!!" ta4 neutra!. 5irtua!!), a!! fisca! concessions > incentives > deductions t%at wou!d ot%erwise %ave been avai!ab!e to t%e a'a!ga'ating co'.an) are 'ade avai!ab!e to t%e a'a!ga'ated co'.an) as we!! In ot%er words, t%e unwritten off a'ount, wit% res.ect to a!! t%ese ite's, is treated in t%e %ands of t%e a'a!ga'ated co'.an) in t%e sa'e 'anner as wou!d %ave been treated in t%e %ands of t%e a'a!ga'ating co'.an) ,%us, t%e a'a!ga'ated co'.an) is not .ut to an) disadvantage as far as t%e inco'e ta- concessions and incentives are concerned ,%e .resent generous>favorab!e fisca! .rovisions are indicative > ref!ective of +overn'ent .o!ic) to faci!itate, .ro'ote and create o..ortunities for 'ore a'a!ga'ations and 'ergers

Ta4 concessions to t#e A$a!%a$atin% Co$)an" + 1) 2ree of Ca)ita! Gains Ta4 + According to (ection "87vi), w%ere t%ere is a transfer of an) ca.ita! asset b) an a'a!ga'ating co'.an) to an) Indian a'a!ga'ated co'.an), suc% transfer wi!! not be considered as a transfer for t%e .ur.ose of ca.ita! gain 2) 2ree of Gift Ta4 + According to (ection "#7b) of t%e +ift ,a- Act, w%ere t%ere is a transfer of an) asset b) an Indian a'a!ga'ating co'.an), gift ta- wi!! not be attracted Ta4 concessions to t#e S#are#o! ers of t#e A$a!%a$atin% Co$)an" + According to (ection "87vii), w%ere a s%are%o!der of an Indian A'a!ga'ating co'.an) transfers %is s%ares, suc% transaction wi!! be disregarded for ca.ita! gain .ur.oses, .rovided t%e transfer of s%ares is 'ade in consideration of t%e a!!ot'ent of an) s%are to %i' or s%ares in t%e a'a!ga'ated co'.an) *urt%er, for co'.uting t%e .eriod of %o!ding of suc% s%ares, t%e .eriod for w%ic% suc% s%ares were %e!d in t%e a'a!ga'ating co'.an) wou!d a!so be inc!uded so t%at t%e s%are%o!ders of t%e a'a!ga'ating co'.an) are not .ut to disadvantage

>EGA> AN& PROCE&URA> ASPECTS

After t%e econo'ic refor's in India in t%e .ost<1AA1 .eriod, t%ere is an a..arent trend a'ong .ro'oters and estab!is%ed cor.orate grou.s towards conso!idation of 'ar2et s%are and diversification into new areas t%roug% acquisitions of co'.anies, and in a 'ore .ronounced 'anner t%roug% 'ergers or a'a!ga'ation A!t%oug% t%e financia! eva!uation and t%e econo'ic considerations, in ter's of 'otive and effect, of t%e above 'entioned are si'i!ar, t%e !ega! and .rocedures invo!ved are different ,%e 'erger and a'a!ga'ation of cor.orate constitutes t%e sub0ect 'atter of t%e Co$)anies Act, t%e courts and !aw and t%ere are we!! !aid down .rocedures for va!uation of s%ares and rig%ts of investors ,%e acquisition>ta2eover bids fa!! under t%e .urview of t%e SE3I.

Sc#e$e of 'er%er 0 A$a!%a$ation

/%enever two or 'ore co'.anies agree to 'erge wit% eac% ot%er, t%e) %ave to .re.are a sc%e'e of a'a!ga'ation ,%e acquiring co'.an) s%ou!d .re.are t%e sc%e'e in consu!tation wit% its 'erc%ant ban2er7s) > financia! consu!tants ,%e 'ain contents of a 'ode! sc%e'e, inter<a!ia, are !isted be!ow E a) Descri.tion of t%e transfer, t%e transferee co'.an) and t%e business of t%e transferor b) ,%eir aut%oriCed, issued and subscribed and .aid<u. ca.ita! c) $asis of t%e sc%e'e E Main ter's of t%e sc%e'e, in se!f<contained .aragra.%s, on t%e reco''endations of t%e va!uation re.ort, covering transfer of assets and !iabi!ities, transfer date, reduction or conso!idation of ca.ita!, a..!ication to financia! institution for .er'ission and so on d) C%ange of na'e, ob0ect c!ause and accounting )ear e) 4rotection of e'.!o)'ent f) Dividend .osition and .ros.ects g) Manage'ent E $oard of directors, t%eir nu'ber and .artici.ation of t%e transferee co'.an)3s directors on t%e board %) A..!ication under sections 3A1 and 3A" of t%e Co'.anies Act, 1A#6 to obtain 1ig% Court a..rova! i) &-.enses of a'a!ga'ation 0) Conditions of t%e sc%e'e to beco'e effective and o.erative, effective date of a'a!ga'ation

,%e basis of 'erger>a'a!ga'ation in t%e sc%e'e s%ou!d be t%e re.orts of t%e va!uers of assets of bot% t%e 'erger .artner co'.anies ,%e sc%e'e s%ou!d be .re.ares on t%e basis of t%e va!uer3s re.ort, re.ort of c%artered accountants engaged for financia! ana!)sis and fi-ation of e-c%ange ratio and t%e re.ort of t%e auditors and audited accounts of bot% t%e co'.anies .re.ared u. to t%e a..ointed date It s%ou!d be ensured t%at t%e sc%e'e is 0ust and equitab!e to t%e s%are%o!ders and e'.!o)ees of eac% of t%e a'a!ga'ating co'.an) and to t%e .ub!ic A))rova!s for t#e sc#e$e + ,%e sc%e'e of 'erger is governed b) t%e .rovisions of (ections 3A1<3A" of t%e Co'.anies Act ,%e !ega! .rocess requires a..rova! to t%e sc%e'es, as !isted be!ow E 1) A))rova! fro$ S#are#o! ers + In ter's of (ection 3A1, s%are%o!ders of bot% t%e co'.anies s%ou!d %o!d t%eir res.ective 'eetings under t%e directions of t%e res.ective %ig% courts and consider t%e sc%e'e of a'a!ga'ation A se.arate 'eeting of bot% .reference and equit) s%are%o!ders s%ou!d be convened for t%is .ur.ose *urt%er, in ter's of (ection =171A), t%e s%are%o!ders of t%e a'a!ga'ated co'.an) are required to .ass a s.ecia! reso!ution for t%e issue of s%ares to t%e s%are%o!ders of t%e a'a!ga'ating co'.an) 2) A))rova! fro$ Cre itors 0 2inancia! Institutions 0 3anks + A..rova!s are required fro' t%e creditors, ban2s and financia! institutions to t%e sc%e'e of a'a!ga'ation in ter's of t%eir res.ective agree'ents>arrange'ents wit% eac% of t%e a'a!ga'ating and t%e a'a!ga'ated co'.anies as a!so u>s 3A1 3) A))rova!s fro$ res)ective ,i%# Courts + A..rova! of t%e res.ective %ig% courts sc%e'e are required to confir' t%e a'a!ga'ation ,%e courts issues orders for disso!ving t%e a'a!ga'ating co'.an), wit%out winding u., on recei.t of re.orts fro' t%e officia! !iquidator and t%e regiona! director, Co'.an) 9aw $oard, stating t%at t%e affairs of t%e a'a!ga'ating co'.an) %ave not been conducted in a 'anner .re0udicia! to interests of its 'e'bers or to .ub!ic interests Essentia! 2eatures of t#e Sc#e$e of A$a!%a$ation + 1) &eter$ination of Transfer &ate ?A))ointe &ate6 + ,%is invo!ves fi-ing of t%e cut<off date fro' w%ic% a!! .ro.erties, 'ovab!e as we!! as i''ovab!e, and rig%ts attac%ed t%ereto, are soug%t to be transferred fro' t%e a'a!ga'ating co'.an) to t%e a'a!ga'ated co'.an) ,%is date is 2nown as t%e transfer date or t%e a..ointed date and is nor'a!!) t%e first da) of t%e financia! )ear .receding t%e financia! )ear for w%ic% t%e audited accounts are avai!ab!e wit% t%e co'.an)

2) &eter$ination of Effective &ate + ,%e effective date is t%e date w%en a!! t%e required a..rova!s under various statues, viC , t%e Co'.anies Act, Co'.anies 7Courts) Ru!es and Inco'e ,a- Act, 1A61, wou!d be obtained and t%e transfer and underta2ing of t%e a'a!ga'ating co'.an) wit% t%e a'a!ga'ated co'.an) wou!d ta2e effect A sc%e'e of a'a!ga'ation s%ou!d a!so nor'a!!) contain conditions to be satisfied for t%e sc%e'e to beco'e effective ,%e effective date is i'.ortant for inco'e ta- .ur.oses ,%e effect of t%e require'ent is t%at a 'ere order for t%e transfer of t%e .ro.erties>assets and !iabi!ities to t%e transferee co'.an) wou!d cause t%e vesting on!) fro' t%e date of t%at order *or ta- considerations, a 'ention of t%e date of vesting in t%e order is of 'ateria! consequence 3) ,%e sc%e'e s%ou!d c!ear!) state t%e arrange'ents wit% secured and unsecured creditors, inc!uding t%e debenture %o!ders ") It s%ou!d a!so state t%e e-c%ange ratio at w%ic% t%e s%are%o!ders of t%e a'a!ga'ating co'.an) wou!d be offered s%ares in t%e a'a!ga'ated co'.an) ,%e ratio %as to be wor2ed out based on t%e va!uation of s%ares of t%e res.ective co'.anies as .er t%e acce.ted 'et%ods of va!uation, guide!ines and t%e audited accounts of t%e co'.an) #) In cases w%ere t%e s%ares of t%e a'a!ga'ating co'.an) are %e!d b) t%e a'a!ga'ated co'.an) or its subsidiaries, t%e sc%e'e 'ust .rovide for t%e reduction in t%e s%are ca.ita! to t%at e-tent and t%e 'anner in w%ic% t%e co'.ensation for s%ares %e!d in t%e a'a!ga'ating co'.an) s%ou!d be given 6) ,%e sc%e'e s%ou!d a!so .rovide for transfer of t%e w%o!e or .art of t%e underta2ing to t%e a'a!ga'ated co'.an), continuation of !eve! .roceedings between t%e a'a!ga'ating and a'a!ga'ated co'.anies, absor.tion of e'.!o)ees of t%e a'a!ga'ating co'.an), obtaining t%e consent of dissenting s%are%o!ders and so on

Sc#e$e of Acquisitions0Takeovers
Cor.orate ta2eovers in t%e countr) are governed b) t%e !isting agree'ent wit% stoc2 e-c%anges and t%e (&$I (ubstantia! Acquisition of (%ares and ,a2eover Code 7(&$I Code) ,%e 'ain e!e'ents of t%e regu!ator) fra'ewor2 for ta2eovers are E

>istin% A%ree$ent + ,%e ta2eover of co'.anies !isted on t%e stoc2 e-c%anges is regu!ated b) C!ause "B<A and "B<$ of t%e !isting agree'ent /%i!e C!ause "B<A dea!s wit% 'ini'u' !eve! of .ub!ic s%are%o!ding, C!ause "B<$ contains t%e require'ents to be 'et w%en a ta2eover offer is 'ade 1) 'ini$u$ >eve! of Pub!ic S#are#o! in% + In order to ensure avai!abi!it) of f!oating stoc2, ever) !isted co'.an) s%ou!d 'aintain, on a continuous basis, .ub!ic s%are%o!ding of at !east 2# .ercent of t%e tota! nu'ber of issued s%ares of a c!ass>2ind of its !isted s%ares 4ub!ic s%are%o!ding e-c!udes s%ares %e!d b) E a) 4ro'oters > .ro'oter grou. b) Custodians against w%ic% de.ositor) recei.ts are issued overseas ,%e 'ini'u' !eve! of .ub!ic s%are%o!ding in a co'.an) w%ic%, a) Offers > %ad offered in t%e .ast a .articu!ar c!ass > 2ind of s%ares to t%e .ub!ic under Ru!e 1A72)7b) of t%e (ecurities Contracts 7Regu!ation) Ru!es, or b) 1as at !east two crore s%ares outstanding wit% a 'ar2et ca.ita!iCation of at !east Rs 1BBB crore, (%ou!d be at !east 1B .ercent of t%e tota! nu'ber of s%ares issued

2) Takeover Offer + ,%e Co'.an) a!so agrees t%at it is a condition for continuous !isting t%at w%enever t%e ta2eover offer is 'ade or t%ere is an) c%ange in contro! of 'anage'ent of t%e co'.an), t%e .erson w%o secures t%e contro! and t%e co'.an) w%ose s%ares %ave been acquired wou!d co'.!) wit% t%e re!evant .rovisions of t%e (&$I ,a2eover Code T#e SE3I Substantia! Acquisition of S#ares an Takeover Co e ?SE3I Takeover Co e6 A ta2eover bid is genera!!) understood to i'.!) t%e acquisition of s%ares carr)ing voting rig%ts in a co'.an), in a direct or indirect 'anner, wit% a view to gaining contro! over t%e 'anage'ent of t%e co'.an) (uc% ta2eovers cou!d ta2e .!ace t%roug% a .rocess of friend!) negotiation or in a %osti!e 'anner $ot% t%e substantia! acquisition of s%ares and c%ange in contro! of a !isted co'.an) are covered b) ta2eover bids ,%e 'ain e!e'ents of (&$I Code are E 1) 2) 3) ") Disc!osure of (%are%o!ding and Contro! in a 9isted Co'.an) (ubstantia! Acquisition of (%ares > 5oting Rig%ts > Contro! $ai! Out ,a2eovers Investigation > Action b) t%e (&$I

86 &isc!osure of S#are#o! in% an Contro! in a >iste Co$)an" + An acquirer of s%ares>voting rig%ts wit% a tota! of e-isting %o!dings in e-cess of #? > 1B? > 1"? > #"? > 8"? in a co'.an), in an) 'anner, is required to disc!ose at ever) stage, to t%e concerned co'.an), t%e aggregate of its s%are%o!ding>voting rig%ts, wit%in two wor2ing da)s of t%e recei.t of inti'ation of a!!ot'ent>acquisition of s%ares>voting rig%ts (i'i!ar!), an acquirer w%o acquires s%ares>voting rig%ts of a co'.an) under t%e .rovisions re!ating to t%e conso!idation of %o!dings s%ou!d disc!ose .urc%ases>sa!es aggregating 2 .er cent or 'ore of t%e s%are ca.ita! of t%e target co'.an) to t%e target co'.an) and t%e concerned stoc2 e-c%anges, wit%in two da)s, a!ong wit% t%e aggregate s%are%o!ding after suc% acquisition > sa!e ,%e stoc2 e-c%ange s%ou!d i''ediate!) dis.!a) t%e infor'ation on t%e trading screen > notice board > its website ,%e ter' contro! inc!udes t%e rig%t to a..oint a 'a0orit) of t%e directors or to contro! t%e 'anage'ent or .o!ic) decisions e-ercisab!e b) a .erson acting individua!!) or in concert, direct!) or indirect!), inc!uding b) virtue of t%eir s%are%o!ding or 'anage'ent rig%ts or s%are%o!ders>voting agree'ents or in an) ot%er 'anner Persons Actin% in Concert co'.rises .ersons w%o, .ursuant for an agree'ent > understanding 7for'a!>infor'a!), direct!) > indirect!), coo.erate for a co''on ob0ective > .ur.ose of substantia! acquisition of s%ares > voting rig%ts > gaining contro! over t%e target co'.an) :n!ess t%e contrar) is estab!is%ed, t%e fo!!owing are dee'ed to be .ersons acting in concert wit% ot%er .ersons in t%e sa'e categor) E a) A co'.an), its %o!ding>subsidiar) co'.an), co'.an) under t%e sa'e 'anage'ent, eit%er individua!!) or toget%er wit% eac% ot%erK b) A co'.an) wit% an) of its directors> an) .erson entrusted wit% t%e 'anage'ent of t%e funds of t%e co'.an)K c) Directors and t%eir associates Qi e , an) re!ative > fa'i!) trusts and 1indu :ndivided *a'i!ies 71:*s)RK d) Mutua! funds wit% s.onsors and>or trustee and>or asset 'anage'ent co'.an)K e) *IIs wit% sub<accountsK f) Merc%ant ban2ers wit% t%eir c!ient7s) as acquirerK g) 4ortfo!io 'anagers wit% t%eir c!ient7s) as acquirerK %) 5enture ca.ita! funds wit% s.onsorsK i) $an2s wit% financia! advisors, stoc2 bro2ers of t%e acquirer or an) %o!ding > subsidiar) > re!ative of t%e acquirerK 0) An) invest'ent co'.an), in cases w%ere suc% co'.anies are used as ve%ic!es to 'a2e substantia! acquisition of s%ares > voting rig%ts in a

co'.an), wit% an) .erson w%o %as an interest as director > fund 'anager > trustee > s%are%o!der, %aving not !ess t%an 2? of t%e .aid u. ca.ita! of t%e co'.an) Continua! &isc!osure + A!! .ersons %o!ding 'ore t%an 1#? s%ares>voting rig%ts %ave to disc!ose wit%in 21 da)s for' t%e end of eac% financia! )ear, wit% res.ect to t%eir %o!dings, as on Marc% 31, to t%e co'.an) concerned /it%in 3B da)s fro' t%e end of t%e financia! )ear ending Marc% 31 as we!! as t%e record date of t%e co'.an), for t%e .ur.ose of dec!aration of dividend, a!! !isted co'.anies %ave to 'a2e )ear!) disc!osures of c%anges in res.ect of t%e %o!dings of suc% .ersons>.ro'oters to t%e concerned stoc2 e-c%ange &ver) !isted co'.an) s%ou!d 'aintain a register in t%e s.ecified for'at to record infor'ation received fro' i) 4ersons acquiring 'ore t%an or equa! to #? s%ares>voting rig%ts, and ii) 4ro'oters > an) .erson %aving contro! over a co'.an) Power to ca!! for infor$ation + ,%e stoc2 e-c%ange and t%e concerned co'.anies wou!d %ave to furnis% infor'ation regarding disc!osure of s%are%o!ding and contro! as and w%en required to t%e (&$I

2) Substantia! Acquisition of S#ares 0 .otin% Ri%#ts 0 Contro! Over a >i$ite Co$)an" + ,%e (&$I Code is a..!icab!e to E a) Acquisition of 1#? of s%ares>voting rig%ts of an) co'.an) b) Conso!idation of %o!dings c) Acquisition of contro! over a co'.an) 1owever, t%e code is ina..!icab!e in t%e fo!!owing cases E a) A!!ot'ent in a .ub!ic issue *ir' a!!ot'ent in a .ub!ic issue wou!d be e-e'.t on!) if fu!! disc!osure about t%e identit) of t%e acquirer acquiring s%ares, t%e .ur.ose of acquisition, consequentia! c%anges in t%e $oard of directors of t%e co'.an) or c%ange in contro! over t%e co'.an) > voting rig%ts and s%are%o!ding .attern of t%e co'.an), are given in t%e .ros.ectus b) A!!ot'ent in rig%ts issues 7i) to t%e e-tent of s%are%o!der entit!e'ent and 7ii) additiona! a!!ot'ent wit%in t%e !i'it of t%e acquisition .er'itted b) t%e regu!ations, in an) .eriod of 12 'ont%s, for conso!idation of %o!dings ,%e !i'it s.ecified in 7ii) does not a..!) to an) .erson .resent!) in contro! of t%e co'.an) and w%o %as, in t%e rig%ts !etter of offer, 'ade disc!osures t%at t%e) intend to acquire additiona! s%ares, be)ond entit!e'ent, if t%e

c) d)

e)

f) g) %)

i)

issue is undersubscribed 1owever, t%is e-e'.tion wou!d not be avai!ab!e in case t%e acquisition resu!ts in t%e c%ange of contro! of 'anage'ent A!!ot'ent to underwriters in .ursuance of an) underwriting arrange'ent Inter se transfer of s%ares a'ongst E i) +rou. co'.anies, wit%in t%e definition of a grou. in t%e MR,4 Act, w%ere .ersons constituting suc% grou.s %ave been s%own as grou. in t%e !ast .ub!is%ed annua! re.ort of t%e target co'.an)K ii) Re!ativesK iii) Sua!if)ing .ro'oters E a Sua!if)ing Indian .ro'oters and foreign co!!aborators w%o are s%are%o!ders, and b Sua!if)ing .ro'oters, .rovided t%e transferor7s) as we!! as t%e transferee7s) %ave been %o!ding !ess s%ares in t%e target co'.an) for a .eriod of at!east 3 )ears .rior to t%e .ro.osed acquisition iv) ,%e acquirer > .erson acting in concert wit% %i' w%ere suc% transfer of s%ares ta2es .!ace t%ree )ears after t%e c!osure of .ub!ic offer b) t%e' under t%ese regu!ations ,%e e-e'.tion under iii) and iv) wou!d not be avai!ab!e if t%e inter se transfer of s%ares is at a .rice %ig%er t%an 2#? of t%e .rice as deter'ined in ter's of t%e regu!ation re!ating to t%e offer .rice Acquisition of s%ares in t%e ordinar) course of business b) E i) A registered stoc2bro2er, on be%a!f of %is c!ientsK ii) A registered 'ar2et 'a2er, during t%e course of 'ar2et 'a2ingK iii) A .ub!ic financia! institution, on its own accountK iv) $an2s and .ub!ic financia! institution, as .!edgesK v) ,%e Internationa! *inance Cor.oration, Asian Deve!o.'ent $an2, I$RD, Co''onwea!t% Deve!o.'ent Cor.oration and ot%er internationa! financia! institutionsK vi) A 'erc%ant ban2er > .ro'oter of a target co'.an), .ursuant to a safet) net sc%e'e under t%e .rovision of (&$I DI4 +uide!ines, in e-cess of t%e !i'it s.ecified for conso!idation of %o!dings Acquisition b) a .erson in e-c%ange of s%ares received under a .ub!ic offer 'ade under t%ese regu!ations Acquisition of s%ares b) wa) of trans'ission on succession or in%eritance Acquisition of s%ares b) govern'ent co'.anies and statutor) cor.orations ,%e e-e'.tion is not a..!icab!e if a govern'ent co'.an) acquires s%ares > voting rig%ts > contro! of 4(:s t%roug% t%e co'.etitive bidding .rocess of t%e Centra! > state govern'ent 'eant for t%e .ur.ose of disinvest'ent ,ransfer of s%ares fro' state !eve! financia! institutions, inc!uding t%eir subsidiaries, to a co<.ro'oter of t%e co'.an) or %is successor > assignee

or an acquirer w%o %ad substituted an erstw%i!e .ro'oter, .ursuant to an agree'ent between t%e' i) ,ransfer of s%ares fro' t%e (&$I registered 5C*s > *5CIs to .ro'oters of an un!isted 5C:, w%ic% subsequent!) got !isted, .ursuant to an agree'ent between t%e' 0) 4ursuant to a sc%e'e 7i) fra'ed under (ic2 Industria! Co'.anies Act, 7ii) of arrange'ent > a'a!ga'ation > 'erger > de'erger under an) !aw > regu!ation, Indian or foreign i) C%ange in contro! b) ta2eover of 'anage'ent or b) t%e restoration of 'anage'ent of t%e borrower target co'.an) b) t%e secure creditors in ter's of (ecuritiCation and Reconstruction of *inancia! Assets and &nforce'ents of (ecurit) Interest Act 2) Acquisition of s%ares in un!isted co'.anies .rovided suc% acquisition > c%ange of contro! of an un!isted co'.an), w%et%er in India or abroad, wou!d not resu!t in t%e acquisition of s%ares > voting rig%ts > contro! over a !isted co'.an) i) Acquisition of s%ares in ter's of guide!ines > regu!ations regarding de!isting of securities s.ecified > fra'ed b) (&$I !) Ot%er cases as 'a) be e-e'.ted b) t%e (&$I ,%e acquirer wou!d %ave to a..!) su..orted b) a du!) sworn affidavit toget%er wit% a fee of Rs 2#BBB detai!ing t%e .ro.osed acquisition and t%e grounds for see2ing e-e'.tion /it%in five da)s of t%e recei.t of t%e a..!ication, t%e (&$I wou!d refer it to a ,a2eover 4ane! constituted for t%e .ur.ose, consisting of its own officers and 'a0orit) re.resentation of inde.endent .ersons ,%e .ane! wou!d 'a2e reco''endations, wit%in 1# da)s, on t%e basis of w%ic% t%e (&$I wou!d .ass an a..ro.riate order wit%in 3B da)s

Power to re$ove ifficu!ties + In order to re'ove an) difficu!ties in t%e inter.retation > a..!ication of t%e .rovisions of t%e (&$I Code, t%e (&$I %as t%e .ower to issue directions t%roug% guidance notes > circu!ars, w%ic% wou!d be binding on t%e acquirers, target co'.anies, s%are%o!ders, and 'erc%ant ban2ers Acquisition of 8CD or $ore S#ares 0 .otin% Ri%#ts + An acquirer acquiring s%ares > voting rig%ts t%at, toget%er wit% e-isting %o!dings b) %i' > .erson wor2ing in concert wit% %i' entit!e %i', to e-ercise 1#? or 'ore of t%e voting rig%ts in a co'.an), %as to 'a2e a )ub!ic announce$ent to t%at effect Acquisition of Contro! +@o .erson can acquire contro! over t%e target co'.an) wit%out 'a2ing a .ub!ic announce'ent, irres.ective of w%et%er or not t%ere %as been an) acquisition of s%ares > voting rig%ts

A c%ange in contro! in .ursuance to a s.ecia! reso!ution of t%e s%are%o!ders .assed in t%e genera! 'eeting is e-e'.t fro' t%is require'ent *or .assing t%e s.ecia! reso!ution, t%e faci!it) of voting t%roug% a ba!!ot bo- s%ou!d a!so be .rovided Acquisition wou!d inc!ude direct > indirect acquisition of contro! of t%e target co'.an) b) virtue of acquisition of co'.anies, w%et%er !isted > un!isted and w%et%er in India or abroad A))oint$ent of a 'erc#ant 3anker + $efore 'a2ing an) .ub!ic announce'ent of t%e offer, t%e acquirer %as to a..oint a Categor) I 'erc%ant ban2er registered wit% t%e (&$I, w%o is not a grou. co'.an) > associate of t%e acquirer or t%e target co'.an) Pub!ic Announce$ent of t#e Offer + ,%e 'erc%ant ban2er s%ou!d announce t%e offer .ub!ic!) not !ater t%an four wor2ing da)s of t%e agree'ent or t%e decision to acquire s%ares > voting rig%ts in e-cess of t%e s.ecified .ercentages ,%e .ub!ic announce'ent s%ou!d be 'ade in a!! editions of one &ng!is% nationa! dai!) wit% wide circu!ation, one 1indi nationa! dai!) wit% wide circu!ation and a regiona! !anguage dai!) %aving circu!ation at t%e .!ace of t%e registered office of t%e target co'.an) and t%e stoc2 e-c%ange w%ere t%e s%ares are 'ost frequent!) traded (i'u!taneous!), a co.) s%ou!d be E i) (ub'itted to t%e (&$I t%roug% t%e 'erc%ant ban2er ii) (ent to a!! stoc2 e-c%anges on w%ic% t%e s%ares are !isted for being notified on t%e notice board iii) (ent to t%e target co'.an) for being .!aced before its $oard of Directors Contents of t#e Pub!ic Announce$ent Offer + ,%e .ub!ic announce'ent offer s%ou!d contain t%e fo!!owing E a) ,%e .aid<u. s%are ca.ita! of t%e target co'.an), t%e nu'ber of fu!!) .aid u. and .art!) .aid<u. s%aresK b) ,%e tota! nu'ber and .ercentage of s%ares .ro.osed to be acquired fro' t%e .ub!ic, sub0ect to t%e s.ecified 'ini'u'K c) ,%e 'ini'u' offer .rice for eac% fu!!) .aid<u. or .art!) .aid<u. s%areK d) Mode of .a)'ent of considerationK e) ,%e identit) of t%e acquirer7s), and in case t%e acquirer is a co'.an) or co'.anies, t%e identit) of t%e .ro'oters and or t%e .ersons %aving contro! over suc% co'.an)7ies) and t%e grou., if an), to w%ic% t%e co'.an)7ies) be!ongK f) ,%e e-isting %o!ding, if an), of t%e acquirer in t%e s%ares of t%e target co'.an), inc!uding %o!dings of .ersons acting concert wit% %i'K

a &-isting s%are%o!ding, if an), of t%e 'erc%ant ban2er in t%e target co'.an)K g) (a!ient features of t%e agree'ent, if an), suc% as t%e date, t%e na'e of t%e se!!er, t%e .rice at w%ic% t%e s%ares are being acquired, t%e 'anner of .a)'ent of t%e consideration, and t%e nu'ber and .ercentage of s%ares in res.ect of w%ic% t%e acquirer %as entered into agree'ent to acquire t%e s%ares or t%e consideration, 'onetar) or ot%erwise, for t%e acquisition of contro! over t%e target co'.an), as t%e case 'a) beK %) ,%e %ig%est and average .rice .aid b) t%e acquirer or t%e .ersons acting in concert wit% %i', for acquisition, if an), of s%ares of t%e target co'.an) 'ade b) %i' during t%e 12 'ont%s .eriod .rior to t%e date of .ub!ic announce'entK i) Ob0ect and .ur.ose of acquisition of t%e s%aresK t%e future .!ans of acquirer, if an), for t%e target co'.an), inc!uding t%e disc!osure w%et%er %e .ro.oses to dis.ose off or ot%erwise encu'ber an) of t%e assets of t%e target co'.an) in t%e succeeding two )ears, e-ce.t in t%e ordinar) course of business of t%e target co'.an)K a An underta2ing t%at t%e acquirer wou!d not ca!! > dis.ose off > ot%erwise encu'ber an) substantia! asset of t%e target co'.an) wit%out t%e .rior a..rova! of s%are%o!dersK 0) ,%e s.ecified dateK 2) ,%e date b) w%ic% individua! !etters of offer wou!d be .osted to t%e s%are%o!dersK !) ,%e date of o.ening and c!osure of t%e offer and t%e 'anner in w%ic% and t%e date b) w%ic% t%e acce.tance or re0ection of t%e offer s%ou!d be co''unicated to t%e s%are%o!dersK ') ,%e date b) w%ic% t%e s%ares, in res.ect of w%ic% t%e offer is acce.ted, wou!d be acquired against .a)'ent of considerationK n) Disc!osure to t%e effect t%at a fir' arrange'ent for t%e financia! resources required to i'.!e'ent t%e offer is a!read) in .!ace, inc!uding t%e detai!s regarding t%e source of funds E w%et%er do'estic or foreignK o) 4rovision for acce.tance of t%e offer b) .erson7s) w%o own t%e s%ares but are not t%e registered %o!ders of suc% s%aresK .) ,%e statutor) a..rova!s, if an), required to be obtained for t%e .ur.ose of acquiring t%e s%ares under t%e Co'.anies Act, t%e Mono.o!ies and Restrictive ,rade 4ractices Act, 1A6A, t%e *oreign &-c%ange Manage'ent Act 7*&MA) and>or an) ot%er a..!icab!e !awsK q) A..rova! of ban2s, and financia! institutions required, if an)K r) /%et%er t%e offer is sub0ect to a 'ini'u' !eve! of acce.tance fro' s%are%o!dersK s) (uc% ot%er infor'ation as is essentia! for t%e s%are%o!ders to 'a2e an infor'ed decision wit% regard to t%e offer

Sub$ission of >etter of Offer to t#e SE3I + ,%e acquirer s%ou!d t%roug% its 'erc%ant ban2er fi!e wit% t%e (&$I send a draft of t%e !etter of offer containing t%e (&$I s.ecified disc!osures toget%er wit% a fee of Rs #BBBB, wit%in 1" da)s fro' t%e date of .ub!ic announce'ent Offer Price + ,%e offer s%ou!d be .a)ab!e in fo!!owing wa)s E a) In cas%K b) $) issue > e-c%ange > transfer of s%ares of acquirer co'.an) if t%e acquirer is a !isted bod) cor.orateK c) $) issue > e-c%ange > transfer of secured instru'ents of t%e acquirer co'.an) wit% a 'ini'u' A grade rating fro' (&$I registered rating agenc)K d) A co'bination of t%e t%ree ,%e offer .rice s%ou!d be t%e %ig%est of E a) ,%e negotiated .rice under t%e agree'entK b) 4rice .aid b) t%e acquirer > .erson7s) acting in concert wit% %i' for acquisition, if an), inc!uding b) wa) of a!!ot'ent in .ub!ic > rig%ts > .referentia! issue during t%e 26 wee2s .rior to t%e date of announce'ent, w%ic%ever is %ig%erK c) ,%e average of wee2!) %ig% and !ow of t%e c!osing .rices of s%ares of t%e target co'.an), as quoted in t%e stoc2 e-c%ange w%ere t%e) are 'ost frequent!) traded during t%e 26 wee2s, or, t%e average of t%e dai!) %ig% and !ow of t%e c!osing .rices of s%ares of t%e target co'.an), as quoted in t%e stoc2 e-c%ange w%ere t%e) are 'ost frequent!) traded during t%e two wee2s .receding t%e date of announce'ent, w%ic%ever is %ig%er Offer Price un er Cree)in% Acquisition + An acquirer 'a2ing a .ub!ic offer and see2ing to acquire furt%er s%ares for conso!idation of %o!dings cannot acquire t%e' during t%e .eriod of si- 'ont%s fro' t%e date of c!osure of t%e .ub!ic offer, at a .rice %ig%er t%an t%e offer .rice 1owever, t%ese restrictions wou!d not be a..!icab!e to acquisitions 'ade t%roug% t%e stoc2 e-c%ange7s)

Co$)etitive 3i + An) .erson 7ot%er t%an t%e acquirer, 'a2ing t%e first .ub!ic announce'ent) w%o is desirous of 'a2ing an) offer, s%ou!d, 'a2e a .ub!ic announce'ent of %is offer for t%e acquisition of t%e s%ares of t%e sa'e target co'.an), wit%in a .eriod of 21 da)s of t%e .ub!ic announce'ent of t%e first offer (uc% an offer is dee'ed to be a Co$)etitive 3i .

An) co'.etitive bid>offer s%ou!d be for suc% nu'ber of s%ares t%at w%en ta2en toget%er wit% t%e s%ares a!read) %e!d b) %i' > .erson7s) acting in concert wit% %i' wou!d at!east equa! t%e %o!ding of t%e first bidder, inc!uding t%e nu'ber of s%ares for w%ic% t%e .resent offer b) t%e first bidder %as been 'ade /%ere t%ere is a co'.etitive bid, t%e date of c!osure of t%e origina! bid, as we!! as of a!! t%e co'.etitive bids, wou!d be t%e date of c!osure of t%e .ub!ic offer under t%e !ast subsisting co'.etitive bid and t%e .ub!ic offer under a!! t%e subsisting bids wou!d c!ose on t%e sa'e date ,%e o.tion of 'a2ing an u.ward revision of t%e offer, wit% res.ect to t%e .rice and nu'ber of s%ares to be acquired, is avai!ab!e to t%e bidders of t%e origina! bid as we!! as t%at of a!! t%e subsequent co'.etitive bids, is avai!ab!e at an) ti'e u. to 8 wor2ing da)s .rior to t%e date of c!osure of t%e offer 1owever, t%e acquirer wou!d not %ave t%e o.tion to c%ange an) ot%er ter's and conditions of t%eir offer e-ce.t t%e 'ode of .a)'ent, fo!!owing an u.ward revision in t%e offer

U)war Revision of Offer + Irres.ective of w%et%er or not t%ere is a co'.etitive bid, t%e acquirer w%o %as 'ade t%e .ub!ic announce'ent of t%e offer, 'a) 'a2e an u.ward revision of t%e offer, wit% res.ect to t%e .rice and nu'ber of s%ares to be acquired an) ti'e u. to 8 wor2ing da)s .rior to t%e date of c!osure of t%e offer $ut an) suc% u.ward revision of offer can be 'ade on!) u.on t%e acquirer E a) Ma2ing a .ub!ic announce'ent wit% res.ect to suc% c%anges or a'end'ents in a!! t%e news.a.ers in w%ic% t%e origina! .ub!ic announce'ent was 'adeK b) (i'u!taneous!) wit% t%e issue of suc% .ub!ic announce'ent, infor'ing t%e (&$I, a!! stoc2 e-c%anges on w%ic% t%e s%ares of t%e co'.an) are !isted, and t%e target co'.an), at its registered officeK c) Increasing t%e va!ue of escrow account

(it# rawa! of Offer + A .ub!ic offer, once 'ade, can be wit%drawn on!) under t%e fo!!owing circu'stances E a) ,%e statutor) a..rova!7s) required %ave been refusedK b) ,%e so!e acquirer, being a natura! .erson, %as diedK c) (uc% circu'stances as an) in t%e o.inion of t%e (&$I, 'erit wit%drawa! In t%e event of wit%drawa!, t%e 'erc%ant ban2er %as to E a) Ma2e a .ub!ic announce'ent in t%e sa'e news.a.ers in w%ic% t%e .ub!ic announce'ent of t%e offer was .ub!is%ed, stating t%e reasons for wit%drawa! of t%e offerK

b) (i'u!taneous!) wit% t%e issue of suc% .ub!ic announce'ent, infor' t%e (&$I, a!! stoc2 e-c%anges on w%ic% t%e s%ares of t%e co'.an) are !isted, and t%e target co'.an), at its registered office Provision of Escrow + ,%e acquirer s%ou!d as and b) wa) of securit) of .erfor'ance of %is ob!igations de.osit at!east 2# .ercent of t%e tota! consideration .a)ab!e in t%e .ub!ic offer u. to and inc!uding Rs 1BB crore and 1B .ercent of t%e consideration in e-cess of Rs 1BB crore in an escrow account ,%e tota! consideration .a)ab!e under t%e .ub!ic offer s%ou!d be ca!cu!ated assu'ing fu!! acce.tances and at t%e %ig%est .rice if t%e offer is sub0ect to differentia! .ricing, irres.ective of w%et%er t%e consideration for t%e offer is .a)ab!e in cas% or ot%erwise ,%e escrow account s%ou!d consist of E a) Cas% de.osit wit% a sc%edu!ed co''ercia! ban2K b) $an2 guarantee in favor of t%e 'erc%ant ban2erK c) De.osit of acce.tab!e securities wit% a..ro.riate 'argin, wit% t%e 'erc%ant ban2er ,%e acquirer s%ou!d e'.ower t%e 'erc%ant ban2er, w%i!st o.ening t%e account, to o.erate t%e account and issue .a)'ents or rea!iCe t%e securities, for at!east a .eriod u.to 2B da)s after t%e c!osure of t%e offer In case of non<fu!fi!!'ent of t%e ob!igations b) t%e acquirer, t%e (&$I %as t%e .ower to forfeit t%e escrow account, eit%er in fu!! or in .art In case of fai!ure b) t%e acquirer to obtain t%e a..rova! of t%e s%are%o!ders for issue of securities as consideration wit%in 21 da)s fro' date of c!osure of t%e offer, t%e a'ount in t%e escrow account 'a) a!so be forfeited

3) 3ai! Out Takeovers + A substantia! acquisition of s%ares in a financia!!) wea2 co'.an), not being a sic2 industria! co'.an), in .ursuance to a sc%e'e of re%abi!itation a..roved b) a .ub!ic financia! institution or a sc%edu!ed ban2 7!ead institution), is referred to as a $ai! out ,a2eover A financia!!" weak co$)an" 'eans a co'.an) t%at %as at t%e end of t%e .revious financia! )ear accu'u!ated !osses, w%ic% %ave resu!ted in t%e erosion of 'ore t%an #B? but !ess t%an 1BB? of its net wort% at t%e beginning of t%e .revious financia! )ear ,%e !ead institution wou!d be res.onsib!e for ensuring co'.!iance wit% t%e (&$I ,a2eover Code It wou!d a..raise t%e financia!!) wea2 co'.an), ta2ing into account t%e financia! viabi!it) and assess t%e require'ent of funds for reviva! and t%en draw u. t%e re%abi!itation .ac2age on t%e .rinci.!e of .rotection of t%e interests of t%e 'inorit) s%are%o!ders, good 'anage'ent, effective reviva! and

trans.arenc) ,%e re%abi!itation sc%e'e %as a!so to s.ecif) t%e detai!s of an) c%ange in 'anage'ent 'anner of Acquisition of S#ares + $efore giving effect to an) sc%e'e of re%abi!itation, t%e !ead institution s%ou!d invite offers for t%e acquisition of s%ares fro' at!east t%ree .arties ,%e !ead institution wou!d .rovide t%e necessar) infor'ation, to an) .erson intending to 'a2e an offer to acquire s%ares, about t%e financia!!) wea2 co'.an) and .articu!ar!) in re!ation to its .resent 'anage'ent, tec%no!og), range of .roducts 'anufactured, s%are%o!ding .attern, financia! %o!ding and .erfor'ance and assets and !iabi!ities of suc% a co'.an) for a .eriod covering five )ears fro' t%e date of t%e offer 'anner of Eva!uation of 3i s + ,%e !ead institution s%ou!d eva!uate t%e bids received wit% res.ect to t%e .urc%ase .rice or e-c%ange of s%ares, trac2 record, financia! resources, t%e 'anage'ent re.utation of t%e .erson acquiring t%e s%ares, and ensure fairness and trans.arenc) in t%e .rocess $ased on t%e eva!uation, t%e offers received s%ou!d be ran2ed in order of .reference and after consu!tation wit% t%e 'anage'ent of t%e financia!!) wea2 co'.an)K one of t%e bids s%ou!d be acce.ted Person Acquirin% S#ares to 'ake an Offer an a Pub!ic Announce$ent + ,%e .erson acquiring s%ares identified b) t%e !ead institution s%ou!d on recei.t of a co''unication in t%is be%a!f fro' t%e !ead institution, 'a2e a for'a! offer to acquire s%ares fro' t%e .ro'oters of t%e financia!!) wea2 co'.an), financia! institutions and a!so ot%er s%are%o!ders of t%e co'.an), at a .rice deter'ined b) 'utua! negotiation between t%e acquirer and t%e !ead institution ,%e .erson acquiring s%ares fro' t%e .ro'oters of t%e financia!!) wea2 co'.an) 'ust a!so 'a2e a .ub!ic announce'ent of %is intention to acquire s%ares fro' t%e s%are%o!ders of t%e co'.an), containing a!! re!evant detai!s and .articu!ars as 'a) be required b) t%e (&$I If t%e above offer resu!ts in t%e .ub!ic s%are%o!ding being reduced to 1B? or be!ow of t%e voting ca.ita! of t%e co'.an), t%e acquirer s%ou!d E a) /it%in a .eriod of t%ree 'ont%s fro' t%e date of c!osure of t%e .ub!ic offer, 'a2e an offer to bu) out t%e outstanding s%ares re'aining wit% t%e s%are%o!ders at t%e sa'e offer .rice, w%ic% 'a) %ave t%e effect of de!isting t%e target co'.an)K or b) :nderta2e to disinvest t%roug% an offer for sa!e or b) a fres% issue of ca.ita! to t%e .ub!ic E w%ic% wou!d o.en wit%in a .eriod of si- 'ont%s fro' t%e date of c!osure of t%e .ub!ic offer E create suc% nu'ber of s%ares as wou!d bring t%e .ub!ic s%are%o!ding to a 'ini'u' of 2#? or

'ore of t%e voting ca.ita! of t%e target co'.an) so as to satisf) t%e !isting require'ents Co$)etitive 3i + A .erson is not a!!owed to 'a2e a co'.etitive bid for acquisition of s%ares of a financia!!) wea2 co'.an), once t%e !ead institution %as eva!uated and acce.ted t%e bid of t%e acquirer w%o %as 'ade t%e .ub!ic announce'ent of offer for acquisition of s%ares fro' s%are%o!ders ot%er t%an t%e .ro'oters of t%e said co'.an) E4e$)tion + Offers 'ade in .ursuance of bai! out ta2eovers can be e-e'.ted b) t%e (&$I fro' t%e .rovisions of substantia! acquisition of s%ares $ut t%e !ead institution or t%e acquirer, as far as 'a) be .ossib!e, s%ou!d ad%ere to t%e ti'e !i'its s.ecified for various activities of .ub!ic offers in case of substantia! acquisition of s%ares

") Investi%ation an Action b" t#e SE3I + ,%e (&$I 'a) a..oint one or 'ore .ersons as investigating officer to underta2e investigation for an) of t%e fo!!owing .ur.oses E a Co'.!aints received fro' t%e investors, t%e inter'ediates or an) ot%er .erson or an) 'atter %aving a bearing on t%e a!!egations of substantia! acquisition of s%ares and ta2eoversK b ,o investigate suo-moto u.on its own 2now!edge or infor'ation, in t%e interest of securities 'ar2et or investors interests, for an) breac% of t%e regu!ationsK c ,o ascertain w%et%er t%e .rovisions of t%e (&$I Act and t%e regu!ations are being co'.!ied wit% or for an) breac% of t%ese regu!ations $efore ordering suc% an investigation, it %as to give not !ess t%an 1B da)s notice to t%e acquirer, t%e se!!er, t%e target co'.an), or t%e 'erc%ant ban2er, as t%e case 'a) be 1owever, if it is satisfied t%at in t%e interest of t%e investors, no suc% notice s%ou!d be given, it 'a), b) written order direct t%at suc% an investigation be ta2en u. wit%out notice Ob!i%ations + it wou!d be t%e dut) of t%e acquirer, t%e se!!er, t%e target co'.an), or t%e 'erc%ant ban2er, w%ose affairs are being investigated, and of ever) director, officer and e'.!o)ee to .roduce suc% boo2s, securities, accounts, records and ot%er docu'ents in its custod) or contro!, to t%e investigating office, and furnis% %i' wit% suc% state'ents and infor'ation, re!ated to its activities, re!ated to %is activities, a!!ow %i' reasonab!e access to .re'ises occu.ied b) t%e' or .erson7s) acting in concert wit% t%e', as t%e investigating officer 'a) require

,%e investigating officer, on co'.!etion of t%e investigation, wou!d sub'it a re.ort to t%e (&$I After consideration of t%e investigation re.ort, t%e (&$I wou!d co''unicate t%e findings of t%e investigating officer to t%e acquirer, t%e se!!er, t%e target co'.an), or t%e 'erc%ant ban2er, as t%e case 'a) be, and give %i' a c%ance of being %eard On recei.t of t%e re.!), if an), it 'a) ca!! u.on t%e' to ta2e suc% 'easures as it 'a) dee' fit in t%e interest of t%e securities 'ar2et and for due co'.!iance wit% t%e .rovisions of t%e (&$I Act and regu!ations &irections b" t#e SE3I + In t%e interest of securities 'ar2et or .rotection of t%e investor interest, in addition to its rig%t to initiate action inc!uding cri'ina! .rosecution under C%a.ter 5I<A and section 2" of t%e (&$I Act, t%e (&$I can issue suc% directions, as it dee's fit, inc!uding E a6 A..oint'ent of a 'erc%ant ban2er for t%e .ur.ose of causing disinvest'ent of s%ares acquired in breac% of regu!ations re!ating to E a Acquisition of 1#? or 'ore s%ares>voting rig%ts of an) co'.an)K b Conso!idation of %o!dingsK c Acquisition of contro! over a co'.an), eit%er t%roug% a .ub!ic auction or 'ar2et 'ec%anis', in its entiret) > in s'a!! !ots, or t%roug% an offer for sa!eK b6 ,ransfer of an) .roceeds>securities to t%e Investors 4rotection *und of a recogniCed stoc2 e-c%angeK c6 Cance!!ation of s%ares b) t%e target co'.an) > de.ositor) w%ere an acquisition of s%ares, .ursuant to an a!!ot'ent, is in breac% of regu!ation in 7a) aboveK 6 ,arget co'.an) > de.ositor) not to give effect to transfer > furt%er freeCe t%e transfer of an) suc% s%ares and not to .er'it t%e acquirer > an) no'inee > an) .ro-) to e-ercise an) voting rig%ts attac%ed to s%ares acquired in vio!ation of regu!ations as seen in 7a) aboveK e6 Debar an) .erson concerned fro' accessing t%e ca.ita! 'ar2et > dea!ing in securities for suc% .eriod as 'a) be deter'ined b) itK f6 ,%e .erson concerned to 'a2e a .ub!ic offer to t%e s%are%o!ders of t%e target co'.an), to acquire suc% no of s%ares, at suc% offer .rice as deter'ined b) itK %6 Disinvest'ent of suc% s%ares as are in e-cess of t%e .ercentage of t%e s%are%o!ding > voting rig%ts s.ecified for disc!osure require'ents under t%e regu!ations re!ating to E a 1o!ding > acquisition of #? and 'ore s%ares > voting rig%tsK b Continua! disc!osuresK #6 ,%e .erson concerned s%ou!d not dis.ose off assets of t%e target co'.an) contrar) to t%e underta2ing given in t%e !etter of offerK

i6 ,%e .erson concerned, w%o %as fai!ed to 'a2e > de!a)ed a .ub!ic offer %as to .a) t%e s%are%o!ders, w%ose s%ares %ave been acce.ted I t%e .ub!ic offer 'ade after t%e de!a), t%e consideration a'ount a!ong wit% interest at rates not !ess t%an t%e a..!icab!e rate .a)ab!e b) ban2s on fi-ed de.osits Pena!ties for NonACo$)!iance + An) .erson fai!ing to 'a2e disc!osures, as required, wou!d be !iab!e to action in as .er ter's of t%e regu!ations and t%e (&$I Act a6 *ai!ure to carr) out t%e ob!igations, under t%e regu!ations, b) t%e acquirer or an) .erson7s) acting in concert wit% %i' wou!d !ead to forfeiture of t%e entire or a .art of t%e su' de.osited wit% t%e ban2 in t%e escrow account and a!so action as .er t%e ter's of t%e regu!ations and t%e (&$I Act b6 In case t%e $oard of Directors of t%e target co'.an) fai! to carr) out t%eir ob!igations t%e) wou!d be !iab!e for .ena! action c6 In case of fai!ure in carr)ing out t%e require'ents of t%e regu!ations b) an inter'ediar), t%e (&$I 'a) initiate action for sus.ension or cance!!ation of %is registration, according to t%e .rocedure s.ecified in t%e regu!ations a..!icab!e to suc% inter'ediar) 6 *or an) 'isstate'ent > concea!'ent of 'ateria! infor'ation to be disc!osed to t%e s%are%o!ders > directors, w%ere t%e acquirer is a bod) cor.orate > directors of t%e target co'.an), t%e 'erc%ant ban2er to t%e .ub!ic offer and t%e 'erc%ant ban2er engaged b) t%e target co'.an) for inde.endent advice wou!d be !iab!e for .ena! action ,%e .ena!ties 'a) inc!ude E a Cri'ina! .rosecution, b Monetar) .ena!ties, c Directions under t%e (&$I Act, d Cease and desist order in .roceedings, and e Ad0udication .roceedings An) .erson aggrieved b) an) order of t%e (&$I 'a) o.t to a..ea! to t%e (ecurities A..a!!ate ,ribuna! 7(A,)

Strate%ies for ,osti!e Takeovers an Co$)an" Resistance Takeover Strate%ies + ,%e acquirer co'.an) can use an) of t%e fo!!owing tec%niques ai'ed at ta2ing over t%e target co'.an) E

1) Street Swee) + ,%is tec%nique requires t%at t%e acquirer s%ou!d accu'u!ate !arge a'ounts of stoc2 in a co'.an) before 'a2ing an o.en offer ,%e advantage is t%at t%e target fir' is !eft wit% no c%oice but to give in 2) 3ear ,u% + In t%is case, t%e acquirer .uts .ressure on t%e 'anage'ent of t%e target co'.an) b) t%reatening to 'a2e an o.en offer ,%e board ca.itu!ates straig%tawa) and agrees to a sett!e'ent wit% t%e acquirer for c%ange of contro! 3) Strate%ic A!!iance + ,%is strateg) invo!ves disar'ing t%e o..osing b) offering a .artners%i. rat%er t%an a bu)out ,%e acquirer s%ou!d assert contro! fro' wit%in and ta2eover t%e target co'.an) ") 3ran Power + ,%is i'.!ies entering into an a!!iance wit% .owerfu! brands to dis.!ace t%e .artner3s brand and, as a resu!t, bu) out t%e wea2ened co'.an)

Co$)an" Resistance an &efensive Strate%ies + ,%e Co'.an) being bid for can use a nu'ber of defensive tactics Manage'ent 'a) tr) to .ersuade stoc2%o!ders t%at t%e offer is not in t%eir best interests :sua!!), t%e argu'ent is t%at t%e bid is too !ow in re!ation to t%e true, !ong run va!ue of t%e fir' ,%e target co'.an) can a!so use one of t%e fo!!owing strategies to defend itse!f against t%e attac2 'ounted b) t%e acquiring co'.an) in its bid for o.en 'ar2et ta2eover E 86 Poison Pi!! + ,%is strateg) invo!ves issue of !ow .rice .referentia! s%ares to e-isting s%are%o!ders to en!arge t%e ca.ita! base ,%is wou!d 'a2e %osti!e ta2eover too e-.ensive ,%e distribution of rig%ts to e-isting s%are%o!ders a!!ows t%e' to .urc%ase a new securit), often a convertib!e .referred stoc2, on favorab!e ter's $) favorab!e ter's, t%e subscri.tion .rice 'ig%t be "B? of t%e true 'ar2et va!ue 1owever, t%e securit) offering is triggered on!) if an outside .art) acquires so'e .ercentage, frequent!) 2B?, of t%e co'.an)3s stoc2 ,%is trigger is 2nown as t%e f!i.<in feature ,%e idea is to %ave avai!ab!e a securit) offering t%at is un.a!atab!e to t%e acquirer ,%is can be res.ect to a bargain subscri.tion .rice, or it can be wit% res.ect to voting rig%ts or wit% res.ect to .rec!uding a c%ange in contro! un!ess a substantia! .re'iu' is .aid :6 Poison Put + In t%is case, t%e target co'.an) can issue bonds t%at encourage %o!ders to cas% in at %ig% .rices ,%e resu!tant cas% drainage wou!d 'a2e t%e target unattractive

<6 Green$ai! + In t%is strateg), t%e target co'.an) s%ou!d re.urc%ase t%e s%ares cornered b) t%e raider ,%e .rofits 'ade b) t%e raider are after a!! a2in to b!ac2'ai! and t%is wou!d 2ee. t%e raider at a distance fro' t%e target =6 PacA$an &efense + ,%is strateg) ai's at t%e target co'.an) 'a2ing a counter bid for t%e raider3s co'.an) ,%is wou!d force t%e raider to defend %i'<se!f and consequent!) ca!! off %is raid C6 (#ite 1ni%#t + In order to re.e! t%e 'ove of t%e raider, t%e target co'.an) can 'a2e an a..ea! to a friend!) co'.an) to bu) t%e w%o!e, or .art, of t%e co'.an) ,%e understanding is t%at t%e friend!) bu)er .ro'ises not to dis!odge t%e 'anage'ent of t%e target co'.an) E6 (#ite Squire + ,%e strateg) is essentia!!) t%e sa'e as /%ite ;nig%t and invo!ves se!! out of t%e s%ares to a co'.an) t%at is not interested in t%e ta2eover As a consequence, t%e 'anage'ent of t%e target co'.an) retains contro! over t%e co'.an) *or co'.!eted acquisitions, Robert Co''ent and + /i!!ia' (c%wert found t%at t%e .re'iu' .aid is %ig% w%en a .oison .i!! or ot%er anti<ta2eover device is in .!ace /%ere a ta2eover atte'.t fai!s, 'anage'ent of t%e targeted co'.an) often underta2es actions t%at increase efficienc) and s%are%o!der wea!t% Asse' (afieddine and (%eridan ,it'an found t%at t%e targeted co'.anies t%at !everage disci.!ine t%e'se!ves to 'a2e i'.rove'ents &fficiencies invo!ved inc!ude cutting so'e ca.ita! e-.enditures, se!!ing assets, reducing e'.!o)'ent, and increasing focus As a resu!t, cas% f!ows and s%are .rice .erfor'ance are better on average t%an benc%'ar2s in about # )ears fo!!owing t%e fai!ed ta2eover atte'.t

'ERGER AN& AC/UISITION 'AR1ETP>ACE &I22ICU>TIES

@o 'ar2et.!ace current!) e-ists for t%e 'ergers and acquisitions of .rivate!) owned s'a!! to 'id<siCed co'.anies Mar2et .artici.ants often wis% to 'aintain a !eve! of secrec) about t%eir efforts to bu) or se!! suc% co'.anies ,%eir concern for secrec) usua!!) arises fro' t%e .ossib!e negative reactions a co'.an)Js e'.!o)ees, ban2ers, su..!iers, custo'ers and ot%ers 'ig%t %ave if t%e effort or interest to see2 a transaction were to beco'e 2nown ,%is need for secrec) %as t%us far t%warted t%e e'ergence of a .ub!ic foru' or 'ar2et.!ace to serve as a c!earing%ouse for t%is !arge vo!u'e of business At .resent, t%e .rocess b) w%ic% a co'.an) is boug%t or so!d can .rove difficu!t, s!ow and e-.ensive A transaction t).ica!!) requires si- to nine 'ont%s and invo!ves 'an) ste.s 9ocating .arties wit% w%o' to conduct a transaction for's one ste. in t%e overa!!

.rocess and .er%a.s t%e 'ost difficu!t one Sua!ified and interested bu)ers of 'u!ti'i!!ion do!!ar cor.orations are %ard to find &ven 'ore difficu!ties attend bringing a nu'ber of .otentia! bu)ers forward si'u!taneous!) during negotiations 4otentia! acquirers in an industr) si'.!) cannot effective!) L'onitorL t%e econo') at !arge for acquisition o..ortunities even t%oug% so'e 'a) fit we!! wit%in t%eir co'.an)Js o.erations or .!ans An industr) of .rofessiona! L'idd!e'enL 72nown various!) as inter'ediaries, business bro2ers, and invest'ent ban2ers) e-ists to faci!itate M&A transactions ,%ese .rofessiona!s do not .rovide t%eir services c%ea.!) and genera!!) resort to .revious!)< estab!is%ed .ersona! contacts, direct<ca!!ing ca'.aigns, and .!acing advertise'ents in various 'edia In servicing t%eir c!ients t%e) atte'.t to create a one<ti'e 'ar2et for a one<ti'e transaction Certain t).es of 'erger and acquisitions transactions invo!ve securities and 'a) require t%at t%ese L'idd!e'enL be securities !icensed in order to be co'.ensated Man), but not a!!, transactions use inter'ediaries on one or bot% sides Des.ite best intentions, inter'ediaries can o.erate inefficient!) because of t%e s!ow and !i'iting nature of %aving to re!) %eavi!) on te!e.%one co''unications Man) .%one ca!!s fai! to contact wit% t%e intended .art) $us) e-ecutives tend to be i'.atient w%en dea!ing wit% sa!es ca!!s concerning o..ortunities in w%ic% t%e) %ave no interest ,%ese 'ar2eting .rob!e's t).if) an) .rivate negotiated 'ar2ets Due to t%ese .rob!e's and ot%er .rob!e's !i2e t%ese, bro2ers w%o dea! wit% s'a!! to 'id<siCed co'.anies often dea! wit% 'uc% 'ore strenuous conditions t%an ot%er business bro2ers Mid<siCed business bro2ers %ave an average !ife<s.an of on!) 12<1= 'ont%s and usua!!) never grow be)ond 1 or 2 e'.!o)ees &-ce.tions to t%is are few and far between (o'e of t%ese e-ce.tions inc!ude T#e Sun ia! Grou), Geneva 3usiness Services an Robbine4. ,%e 'ar2et inefficiencies can .rove detri'enta! for t%is i'.ortant sector of t%e econo') $e)ond t%e inter'ediariesJ %ig% fees, t%e current .rocess for 'ergers and acquisitions %as t%e effect of causing .rivate co'.anies to initia!!) se!! t%eir s%ares at a significant discount re!ative to w%at t%e sa'e co'.an) 'ig%t se!! for w%ere it a!read) .ub!ic!) traded An i'.ortant and !arge sector of t%e entire econo') is %e!d bac2 b) t%e difficu!t) in conducting cor.orate M&A 7and a!so in raising equit) or debt ca.ita!) *urt%er'ore, it is !i2e!) t%at since .rivate!) %e!d co'.anies are so difficu!t to se!! t%e) are not so!d as often as t%e) 'ig%t or s%ou!d be 4revious atte'.ts to strea'!ine t%e M&A .rocess t%roug% co'.uters %ave fai!ed to succeed on a !arge sca!e because t%e) %ave .rovided 'ere Lbu!!etin boardsL < static infor'ation t%at advertises one fir'Js o..ortunities :sers 'ust sti!! see2 ot%er sources for o..ortunities 0ust as if t%e bu!!etin board was not e!ectronic A 'u!ti.!e !istings service conce.t was .revious!) not used due to t%e need for confidentia!it) but t%ere are current!) severa! !istings in o.eration ,%e 'ost significant of t%ese are run b) t%e Ca!ifornia Association of $usiness $ro2ers 7CA33) and t%e Internationa! $usiness $ro2ers Association 7I33A) t%ese organiCations %ave effective!) created a t).e of virtua! 'ar2et wit%out co'.ro'ising t%e confidentia!it) of .arties invo!ved and wit%out t%e unaut%oriCed re!ease of infor'ation

One .art of t%e M&A .rocess w%ic% can be i'.roved significant!) using networ2ed co'.uters is t%e i'.roved access to Ldata roo'sL during t%e due di!igence .rocess %owever on!) for !arger transactions *or t%e .ur.oses of s'a!!<'ediu' siCed business, t%ese data roo's serve no .ur.ose and are genera!!) not used

OT,ER 2OR'S O2 CORPORATE RESTRUCTURING

&E'ERGERS 0 &I.ESTITURES
A divestiture > de'erger invo!ves, un!i2e a 'erger or a'a!ga'ation in w%ic% a!! assets are so!d, se!!ing of so'e of t%e assets ,%ese assets 'a) be in t%e for' of a .!ant, division, .roduct !ine, subsidiar) and so on Divestitures can be invo!untar) or vo!untar) An invo!untar) divestiture usua!!) is t%e resu!t of an antitrust ru!ing b) t%e govern'ent A vo!untar) divestiture is a wi!!fu! decision b) 'anage'ent to divest 4ursuant to a sc%e'e of arrange'ent under (ections 3A1 to 3A" of t%e Co'.anies Act, a de'erger 'eans t%e transfer, b) t%e de'erged co'.an), of one or 'ore of its underta2ings to an) resu!ting co'.an) in suc% 'anner t%at E 1) A!! t%e .ro.ert) > !iabi!ities of t%e underta2ing, being transferred b) t%e de'erged co'.an), i''ediate!) before t%e de'erger beco'es t%e .ro.ert) > !iabi!ities of t%e resu!ting co'.an) b) t%e virtue of t%e de'ergerK 2) ,%e .ro.ert) > !iabi!ities of t%e underta2ing, being transferred b) t%e de'erged co'.an), i''ediate!) before t%e de'ergers are transferred at va!ues a..earing in its boo2s of accountK 3) ,%e resu!ting co'.an) issues, in consideration of t%e de'erger, its s%ares on a .ro.ortionate basis to t%e s%are%o!ders of t%e de'erged co'.an)K ") (%are%o!ders %o!ding not !ess t%an t%ree<fourt%s in va!ue of t%e s%ares in t%e de'erged co'.an) 7ot%er t%an s%ares a!read) %e!d t%erein i''ediate!) before t%e de'erger, or b) a no'inee for t%e resu!ting co'.an) or, its subsidiar)) beco'e s%are%o!ders of t%e resu!ting co'.an) or co'.anies b) t%e virtue of t%e de'ergerK #) ,%e transfer of t%e underta2ing is on a going concern basisK

6) ,%e de'erger is in accordance wit% t%e conditions, if an), notified in t%is be%a!f under section 82 A 7#) b) t%e Centra! +overn'ent

Reasons 0 $otives be#in &ivestitures 0 &e$er%ers 1) Efficienc" Gains an Refocus + A!t%oug% divestiture or de'erger causes contraction fro' t%e view.oint of t%e se!!ing fir', it 'a) not, %owever, entai! decrease in its .rofits On t%e contrar), it is be!ieved b) t%e se!!ing fir' t%at its va!ue wi!! be en%anced b) .arting > divesting > de'erging so'e of its assets > divisions > o.erating units $) se!!ing suc% un.roductive>under.erfor'ing assets and uti!iCing cas% .roceeds in e-.anding > re0uvenating ot%er !eftover assets > o.erating units, t%e fir' is !i2e!) to aug'ent t%e .rofits of t%e de'erged fir' As Git$an a.t!) states, the motives for divestiture is to generate cash for the other product lines, to get rid of a poorly performing operation, to streamline the corporate form, or to restructure the companys business consistent with its strategic goals In ot%er words, it i'.!ies t%at t%e o.erating units are wort% 'uc% 'ore to ot%er fir's t%an to t%e fir' itse!f In tec%nica! ter's, it is referred to as reverse s"ner%", ie "E2M3 2) Infor$ation Effect + Anot%er reason for divestiture invo!ves t%e infor'ation it conve)s to investors If t%ere is as)''etric infor'ation not 2nown b) investors, t%e announce'ent of a divestiture 'a) be inter.reted as a c%ange in t%e invest'ent strateg) or in o.erating efficienc) 3) (ea!t# Transfers + If a co'.an) divests a..ortion of t%e enter.rise and distributes t%e .roceeds to stoc2%o!ders, t%ere wi!! be a wea!t% transfer fro' debt %o!ders to stoc2%o!ders ,%e transaction reduces t%e .robabi!it) t%at debt wi!! be .aid, and it wi!! %ave a !esser va!ue, a!! ot%er t%ings t%e sa'e ") Ta4 Reasons + As in 'ergers, so'eti'es ta- reasons enter into a reason to divest If a co'.an) !oses 'one) and is unab!e to use a ta-<!oss carr)<forward, divestiture in w%o!e or in .art 'a) be t%e on!) wa) to rea!iCe t%e ta- benefit :nder so'e circu'stances, an &'.!o)ee (toc2 Owners%i. 4!an 7&(O4) is taadvantageous Ot%er, 'ore tec%nica! ta- issues a!so co'e into .!a)

2inancia! Eva!uation of &ivestitures *or t%e .ur.ose of financia! eva!uation, t%e divestiture > de'erger decision can be considered a2in to reverse ca)ita! bu %etin% decision in t%at t%e se!!ing fir' receives cas% b) divesting an asset, sa) a division of t%e fir', and t%ese cas% inf!ows received are t%en co'.ared wit% t%e .resent va!ue of t%e C*A, 7cas% Inf!ows After ,a-es) sacrificed on account of .arting of a division > asset +iven t%e basic conce.tua! fra'ewor2 of ca.ita! budgeting, t%e fo!!owing for'at contains t%e ste.s invo!ved in assessing w%et%er t%e divestiture decision is .rofitab!e for t%e se!!ing fir' or not a) Decrease in C*A, due to sa!e of division 7for )ears 1, 2, nT) b) Mu!ti.!) b) a..ro.riate cost of ca.ita! re!evant to division 7given its ris2 !eve!) c) Decrease in .resent va!ue of t%e se!!ing fir' 7a P b) d) 7<) 4resent va!ue of ob!igations re!ated to t%e !iabi!ities of t%e decision e) 4resent va!ue !ost due to sa!e of division 7c E d)

Ta4ation As)ects Dust !i2e in 'ergers, in de'erger a!so, t%e associated .arties en0o) so'e ta- benefits ,%e) can be !isted as be!ow E Ta4 Concessions to Resu!tin% Co$)an" + ,%e resu!ting co'.an) is entit!ed virtua!!) to a!! t%e ta- concessions as are avai!ab!e to t%e a'a!ga'ated co'.an) ,%ese are E 1) Carr" 2orwar an Set off of 3usiness >osses an Unabsorbe &e)reciation of t#e &e$er%e Co$)an" + ,%e accu'u!ated !osses and unabsorbed de.reciation Fin a de'erger3 s%ou!d be a!!owed to be carried forward b) t%e resu!ting co'.an), if t%ese are direct!) re!ated to t%e underta2ing .ro.osed to be transferred /%ere it is not .!ausib!e to re!ate t%ese to t%e underta2ing, suc% !oss and de.reciation wou!d be a..ortioned between t%e de'erged co'.an) and t%e resu!ting co'.an) in .ro.ortion of t%e assets co'ing to t%e s%are of eac% as a resu!t of t%e de'erger 2) E4)en iture on Acquisition of Patent Ri%#ts or Co)"ri%#ts + /%ere t%e .atent or co.)rig%ts acquired b) t%e de'erged co'.an) is transferred to t%e resu!ting Indian co'.an), t%e e-.enditure on .atents or co.)rig%ts not written off wou!d be a!!owed to be written off in t%e %ands of t%e resu!ting co'.an) in t%e sa'e nu'ber

of ba!ance insta!!'ents On t%eir subsequent sa!es, t%e treat'ent of deficienc) > sur.!us in t%e resu!ting co'.an) wou!d be t%e sa'e as wou!d %ave been in t%e case of t%e de'erged co'.an) 3) E4)en iture on 1now ,ow ") E4)en iture for Obtainin% >icense to O)erate Te!eco$$unication Services #) E4)en iture on Pros)ectin%, etc of Certain 'inera!s + /%ere t%ere is a transfer of ite's !isted 73 to #) above b) t%e de'erged co'.an) to t%e resu!ting Indian co'.an), t%e a'ount of e-.enditure not )et written off wou!d be a!!owed to be written off in t%e %ands of t%e resu!ting co'.an) in t%e sa'e nu'ber of ba!ance insta!!'ents On t%eir subsequent sa!es, t%e treat'ent of deficienc) > sur.!us in t%e resu!ting co'.an) wou!d be t%e sa'e as wou!d %ave been in t%e case of t%e de'erged co'.an) 6) Pre!i$inar" E4)enses + /%ere t%e underta2ing of an Indian co'.an) is transferred before t%e e-.ir) of 1B># )ears, to anot%er co'.an), t%e .re!i'inar) e-.enses of suc% an underta2ing t%at are not )et written off wou!d be a!!owed as deduction in t%e sa'e 'anner as wou!d %ave been a!!owed to t%e de'erged co'.an) 8) 3a &ebts + /%ere due to de'erger, t%e debts of t%e de'erged co'.an) %ave been ta2en over b) t%e resu!ting co'.an) and subsequent!) suc% debt or .art t%ereof beco'es bad, suc% bad debts wou!d be a!!owed as a deduction to t%e resu!ting co'.an) =) E4)en iture Re!ate to &e$er%er + In t%e case of e-.enditures t%at are incurred after t%e A.ri! 1, 1AAA, w%o!!) and e-c!usive!) for t%e .ur.ose of t%e de'erger of an underta2ing, t%e resu!ting Indian co'.an) incurring suc% an e-.enditure wou!d be a!!owed a deduction of an a'ount equa! to one<fift% of suc% e-.enditure for five successive .revious )ears beginning wit% t%e .revious )ear in w%ic% t%e de'erger ta2es .!ace Ta4 Concessions to &e$er%e Co$)an" + ,%e concession for t%e de'erged co'.an) are E 1) 2ree of Ca)ita! Gains Ta4 + /%ere t%ere is a transfer of an) ca.ita! asset in a de'erger, suc% transfer wou!d not be regarded as a transfer for t%e .ur.ose of ca.ita! gain

2) Reserves for S#i))in% 3usiness + /%ere a s%i. acquired out of t%e reserve is transferred even wit%in t%e .eriod of eig%t )ears of acquisition, t%ere wou!d be no dee'ed .rofits to t%e de'erged co'.an) Ta4 Concessions to t#e S#are#o! ers + An) transfer or issue of s%ares b) t%e resu!ting co'.an) to t%e s%are%o!ders of t%e de'erged co'.an) wou!d not be regarded as transfer if t%e transfer or issue is 'ade in consideration of t%e de'erger of t%e underta2ing In case of de'erger, t%e e-isting s%are%o!ders of t%e de'erged co'.an) wou!d %o!d s%ares in t%e resu!ting co'.an) as we!! as s%ares in t%e de'erged co'.an) *urt%er, for co'.uting t%e .eriod of %o!ding of suc% s%ares in t%e resu!ting co'.an), t%e .eriod for w%ic% suc% s%ares were %e!d in t%e de'erged co'.an) wou!d a!so be inc!uded 'et#o s of &e$er%ers 0 &ivestitures A de'erger can be carried out in severa! wa)s ,%e 'ost co''on of t%e' are E 1) Se!! Offs + ,%e sa!e of assets can consist of t%e entire co'.an) or of so'e business unit, suc% as a subsidiar), a s'a!!er business unit, or a .roduct !ine a >iqui atin% t#e Overa!! 2ir$ + ,%e decision to se!! a fir' in its entiret) s%ou!d be rooted in va!ue creation for t%e stoc2%o!ders Assu'ing t%e situation does not invo!ve financia! fai!ure, t%e idea is t%at t%e assets 'a) %ave a %ig%er va!ue in !iquidation t%an t%e .resent va!ue of t%e e-.ected cas% f!ow strea' e'anating fro' t%e' /it% a co'.!ete !iquidation, t%e debt of t%e co'.an) 'ust be .aid off at its face va!ue If t%e 'ar2et va!ue of t%e debt was .revious!) be!ow t%is, debt %o!ders rea!iCe a wea!t% gain, w%ic% u!ti'ate!) is at t%e e-.ense of t%e equit) %o!ders b Partia! Se!! offs + In t%e case of a se!!<off, on!) .art of t%e co'.an) is so!d /%en a business unit is so!d, .a)'ent genera!!) is in t%e for' of cas% or securities ,%e decision s%ou!d resu!t in so'e .ositive net .resent va!ue to t%e se!!ing co'.an) ,%e 2e) is w%et%er t%e va!ue received is 'ore t%an t%e .resent va!ue of t%e strea' of e-.ected future cas% f!ows if t%e o.eration were to be continued 2) S)in Offs + A s.in off invo!ves a decision to divest a business unit suc% as a standa!one subsidiar) or division In a s.in<off, t%e business unit is not so!d for cas% or

securities Rat%er, co''on stoc2 in t%e unit is distributed to t%e stoc2%o!ders of t%e co'.an) on a pro rata basis, after w%ic% t%e o.eration beco'es a co'.!ete!) se.arate co'.an) wit% its own traded stoc2 (uc% a distribution enab!es t%e e-isting s%are%o!ders to 'aintain t%e sa'e .ro.ortion of owners%i. in t%e new!) created fir' as t%e) %ad in t%e origina! fir' ,%e new!) created entit) beco'es an inde.endent co'.an), ta2ing its own decisions and deve!o.ing its own .o!icies and strategies w%ic% need not necessari!) be t%e sa'e as t%ose of t%e .arent co'.an) 1owever, s.in<off, !i2e a se!!<off, does not bring an) cas% to t%e .arent co'.an) 'otives for a s)inAoff + a A 'otive for a s.in off 'a) reduce infor'ation as)''etr) about a co'.an)3s individua! business units ,%is 'a) argue for %ig%!) diversified fir's engaging in 'ore s.in<offs t%an !ess diversified fir's b It 'a) be .ossib!e wit% a s.in<off to obtain greater f!e-ibi!it) in contracting t%ings suc% as !abor, debt, ta-es and regu!ations +reater contracting f!e-ibi!it), in turn, s%ou!d !ead to i'.roved .roductivit) c *ina!!), t%e s.in<off 'a) 'a2e t%e financia! 'ar2ets 'ore co'.!ete /it% a .ub!ic!) traded stoc2, t%e o..ortunit) set of securities avai!ab!e to investors is e-.anded

3) S)!it U)s + A variation of s.in<off is t%e s.!it u. In broad ter's, t%e s.!it u. invo!ves t%e brea2ing u. of t%e entire fir' in a series of s.in<offs 7in ter's of new!) created se.arate !ega! entities) so t%at t%e .arent fir' no !onger e-ists and on!) t%e new offs.ring survive (ince de'erged units are re!ative!) s'a!!er in siCe, t%e) are !ogistica!!) 'ore convenient!) 'anaged ,%erefore, it is e-.ected t%at s.!it<u.s and s.in<offs are !i2e!) to en%ance efficienc) and 'a) .rove instru'enta! in ac%ieving better .erfor'ance ") Equit" Carve Outs + An equit) carve<out is si'i!ar in so'e wa)s to t%e two .revious for's of divestiture 1owever, co''on stoc2 in t%e business unit is so!d to t%e .ub!ic ,%e initia! .ub!ic offering of t%e subsidiar)3s stoc2 usua!!) invo!ves on!) a s'a!! .art of it ,).ica!!), t%e .arent continues to %ave an equit) sta2e in t%e subsidiar) and does not re!inquis% i''ediate contro! A 'inorit) interest, usua!!) !ess t%an 2B?, is so!d in an I4O

,%e difference between t%e equit) carve<out and t%e .arent se!!ing stoc2 under its own na'e is t%at t%e c!ai' is on t%e subsidiar)3s cas% f!ows and assets *or t%e first ti'e, t%e va!ue of t%e subsidiar) beco'es observab!e in t%e 'ar2et.!ace (o'e equit) carve<outs are !ater fo!!owed b) a s.in<off of t%e re'aining s%ares to t%e .arent3s stoc2%o!ders 'otives for a CarveAout + a One 'otivation for an equit) carve<out is t%at wit% a se.arate stoc2 .rice and .ub!ic trading, 'anagers 'a) %ave 'ore incentive to .erfor' we!! *or one t%ing, t%e siCe of o.erations is suc% t%at t%eir efforts wi!! not go unnoticed, as t%e) so'eti'es do in a 'u!ti<business co'.an) b /it% se.arate stoc2 o.tions, it 'a) be .ossib!e to attract and retain better 'anagers and to 'otivate t%e' c An equit) carve<out is a!so a favorab!e 'eans for financing growt% /%en t%e subsidiar) is in !eading<edge tec%no!og) but not .articu!ar!) .rofitab!e, t%e equit) carve<out 'a) be a 'ore effective ve%ic!e for financing t%an financing t%roug% t%e .arent

d Anot%er 'otivation 'a) be a be!ief b) 'anage'ent t%at t%oug% t%e .arent3s stoc2 is underva!ued, a subsidiar) wou!d not be underva!ued and 'a) be even overva!ued b) t%e 'ar2et e A!so, wit% a se.arate!) traded subsidiar), t%e 'ar2et 'a) beco'e 'ore co'.!ete because investors are ab!e to obtain a F.ure<.!a)3 invest'ent

GOING PRI.ATE AN& 3UFOUTS

+oing .rivate si'.!) 'eans transfor'ing a co'.an) w%ose stoc2 is .ub!ic!) %e!d into a .rivate one ,%e .rivate!) %e!d stoc2 is owned b) a s'a!! grou. of investors, wit% incu'bent 'anage'ent usua!!) %aving a !arge equit) sta2e In t%is owners%i. reorganiCation, a variet) of ve%ic!es are used to bu) out t%e .ub!ic stoc2%o!ders (uc% a bu)out is genera!!) 2nown as a 'ana%e$ent 3u"out ?'3O6. In t%e cor.orate wor!d, M$Os are t%e 'ore usua! 'odes of acquisition ,%e 'anage'ent to w%ic% t%e fir' is so!d need not necessari!) be fro' t%e sa'e fir' ,%e 'anage'ent 'a) be fro' t%e sa'e fir' or 'a) be for' outside 7entre.reneurs) or 'a) assu'e a %)brid for' 7i e t%e 'anage'ent 'a) be of t%e e-isting fir' as we!! as fro' outside)

,%e 'ost co''on wa) of going .rivate is cas%ing t%e stoc2%o!ders out and 'erging t%e co'.an) into a s%e!! cor.oration owned so!e!) b) t%e .rivate investor > 'anage'ent grou. Rat%er t%an a 'erger, t%e transaction 'a) be treated as an asset sa!e to t%e .rivate grou. ,%e resu!t is t%at t%e co'.an) ceases to e-ist as a .ub!ic!) %e!d entit) and t%e stoc2%o!ders receive a va!uab!e consideration for t%eir s%ares ,%oug% 'ost transactions invo!ve cas%, so'eti'es non<cas% co'.ensations, suc% as notes, are e'.!o)ed ,%e stoc2%o!ders 'ust agree to a co'.an) going .rivate, and t%e incentive .aid to t%e' is t%e .re'iu' in .rice .aid &ven w%en t%e 'a0orit) vote is in favor, ot%er stoc2%o!ders can sue, c!ai'ing t%e .rice is not %ig% enoug% 'otivations for Goin% Private ,%ere are a nu'ber of factors t%at 'a) 'otivate t%e 'anage'ent to ta2e a co'.an) .rivate (o'e of t%e' are E a) ,%ere are costs to being a .ub!ic!) %e!d co'.an) ,%e stoc2 'ust be registered, stoc2%o!ders 'ust be serviced, t%ere are ad'inistrative e-.enses in .a)ing dividends and sending out 'ateria!s, and t%ere are !ega! and ad'inistrative e-.enses in fi!ing re.orts wit% t%e (ecurities and &-c%ange Co''ission and ot%er regu!ators In addition, t%ere are annua! 'eetings and 'eetings wit% securit) ana!)sts !eading to e'barrassing questions t%at 'ost C&Os wou!d rat%er do wit%out A!! t%ese can be avoided b) being a .rivate co'.an) b) /it% a .ub!ic!) %e!d co'.an), so'e fee! t%ere is a fi-ation on quarter!) accounting earnings as o..osed to !ong<run econo'ic earnings ,o t%e e-tent t%ese decisions are directed 'ore toward bui!ding econo'ic va!ue, going .rivate 'a) i'.rove resource a!!ocation decisions and t%ereb) en%ance va!ue c) Anot%er 'otivation is to rea!ign and i'.rove 'anage'ent incentives /it% increase equit) owners%i. b) 'anage'ent, t%ere 'a) be an incentive to wor2 'ore efficient!) and !onger ,%e rewards are !in2ed 'ore c!ose!) to t%eir decisions ,%e greater t%e .erfor'ance and .rofitabi!it), t%e greater t%e reward In a .ub!ic!) %e!d co'.an), t%e co'.ensation !eve! is not so direct!) !in2ed, .articu!ar!) for decisions t%at .roduce %ig% .rofitabi!it) /%en co'.ensation is %ig% in a .ub!ic!) %e!d co'.an), t%ere are a!wa)s questions fro' securit) ana!)sts, stoc2%o!ders and t%e .ress

>E.ERAGE& 3UFOUTS +oing .rivate can be a straig%t transaction or it can be a !evera%e bu"out ?>3O6, w%ere t%ere are t%ird< or so'eti'es fourt%<.art) investors In genera!, w%en t%e .otentia! acquiring 'anage'ent 'a) not > does not %ave adequate financia! resources of its own to .a) t%e acquisition .rice, it see2s financia! su..ort fro' ot%er sources, sa), investors, venture funds, ban2s and so on /%en finance is arranged b) outside investors, it is nor'a! for t%e' to secure re.resentation on t%e board of t%e cor.orate According to E$er" and 2innert", a !everaged bu)out is an acquisition t%at is financed .rinci.a!!), so'eti'es 'ore t%an AB .ercent, b) borrowing on a secured basis (o'eti'es ca!!ed asset<based financing, t%e debt is secured b) t%e assets of t%e enter.rise invo!ved Anot%er distinctive feature is t%at !everaged bu)outs are cas% .urc%ases, as o..osed to stoc2 .urc%ases A!so, t%e business unit invo!ved invariab!) beco'es a .rivate!) %e!d, as o..osed to a .ub!ic!) %e!d co'.an) C#aracteristics of &esirab!e >3O Can i ates a) (ince 9$Os cause substantia! financia! ris2, it is desired t%at 9$O acquisitions > fir's s%ou!d %ave a re!ative!) !ow degree of o.erating > business ris2 9$Os wi!! not be a suitab!e for' of cor.orate restructuring if t%e acquired fir' a!read) %as a %ig% degree of business ris2 b) *requent!), t%e co'.an) %as a severa!<)ear window of o..ortunit) w%ere 'a0or e-.enditures can be deferred Often, it is a co'.an) t%at %as gone t%roug% a %eav) ca.ita! e-.enditures .rogra', and w%ose .!ant is 'odern Co'.anies wit% %ig% R&D require'ents, !i2e drug co'.anies, are not good 9$O candidates *or t%e first severa! )ears, cas% f!ows 'ust be dedicated to debt service Ca.ita! e-.enditures, advertising, R&D, and .ersonne! deve!o.'ent ta2e a bac2 seat If t%e co'.an) %as subsidiar) assets t%at can be so!d wit%out adverse!) i'.acting t%e core business, t%is 'a) be attractive (uc% asset sa!es .rovide cas% for debt service in t%e ear!) )ears c) (tab!e, .redictab!e o.erating cas% f!ows are .riCed In t%is regard, consu'er< branded .roducts do'inate Gco''odit) t).e businesses 4roven %istorica! .erfor'ance wit% an estab!is%ed 'ar2et .osition 'eans a !ot A!so, t%e !ess c)c!ica! t%e business, t%e better it is d) As a ru!e, t%e assets 'ust be .%)sica! assets or brand na'es Manage'ent, %owever, is i'.ortant ,%e e-.erience and qua!it) of senior 'anage'ent are critica! to success /%en suc% 'anage'ent is not in .!ace, outsiders 'ust be broug%t in

e) *ina!!), t%e absence of .re<e-isting !everage is desirab!e

>E.ERAGE& RECAPITA>IGATIONS
,%e 9$O 'ust be distinguis%ed fro' a 9everaged Reca.ita!iCation, or >evera%e Reca) as it is 2nown /it% a 9$O, .ub!ic stoc2%o!ders are boug%t out and t%e co'.an) or t%e business unit beco'es .rivate /it% a !everaged reca., a .ub!ic!) traded co'.an) raises cas% t%roug% increased !everage, usua!!) 'assive !everage ,%e cas% t%en is distributed to stoc2%o!ders, often b) 'eans of a %uge dividend In contrast to a 9$O, t%e stoc2%o!ders continue to %o!d s%ares in t%e co'.an) ,%e fir' re'ains a .ub!ic cor.oration wit% a traded stoc2 ,%ese s%ares are 2nown as GstubH s%ares Obvious!), t%e) are wort% a !ot !ess .er s%are, owing to t%e %uge cas% .a)out /%i!e a cas% .a)out is 'ore co''on, stoc2%o!ders cou!d receive debt securities or even .referred stoc2 In t%e transaction, 'anage'ent and ot%er insiders do not .artici.ate in t%e .a)out but ta2e additiona! s%ares instead As a resu!t, t%eir .ro.ortiona! owners%i. of t%e cor.oration increases considerab!) ,%us, 'anage'ent obtains a !arge equit) sta2e in t%e co'.an), but un!i2e an 9$O, t%is sta2e is re.resented b) .ub!ic!) traded stoc2 ,%e !everaged reca. does not !end itse!f to a business unit, as does an 9$OK it 'ust invo!ve t%e co'.an) as a w%o!e Often, !everaged reca.s occur in res.onse to a %osti!e ta2eover t%reat or to 'anage'ent3s .erce.tion t%at t%e co'.an) is vu!nerab!e t%oug% not direct!) under attac2 A !everaged reca. can occur wit%out .utting t%e co'.an) u. for sa!e, as is required b) a 9$O .a!uation I$)!ications ,%oug% t%e !everaged reca. is a defensive tactic and suc% devices usua!!) wor2 to t%e disadvantage of stoc2%o!ders, t%is is different a) As a case, !everage and increased equit) sta2e 'a) give 'anage'ent 'ore incentive to 'anage efficient!) and to reduce wastefu! e-.enditures b) ,%ere is a!so t%e ta- s%ie!d t%at acco'.anies t%e use of debt c) $) t%e virtue of absorbing free cas% f!ows, !everage 'a) %ave a .roductive effect on 'anage'ent efficienc)

d) A!so, under t%e disci.!ine of debt, interna! organiCation c%anges 'a) now be .ossib!e t%at !ead to i'.rove'ents in o.erating .erfor'ance ,%oug% t%ere are ot%er dar2er sides to t%is too E a) /it% t%e %ig% degree of !everage, t%ere is !itt!e 'argin for error @ot sur.rising!), a nu'ber of !everaged reca.s do not 'a2e it b) O.erating difficu!ties, often due to industr) wide .rob!e's, be)ond t%e contro! of t%e co'.an), are 'agnified b) t%e financia! !everage c) Anot%er disadvantage, re!ative to an 9$O, is t%at as a .ub!ic co'.an), s%are%o!der servicing costs and securit) regu!ations and disc!osures re'ain

RE.ERSE 'ERGERS
One of t%e o.tions avai!ab!e to s'a!!< to 'ediu'<siCed .rivate!) %e!d co'.anies t%at are !oo2ing to raise additiona! ca.ita! or to 'a2e acquisitions is t%e reverse 'erger A reverse ta2eover occurs w%en a .ub!ic!)<traded s'a!!er co'.an) acquires owners%i. of a !arger co'.an) It t).ica!!) requires reorganiCation of ca.ita!iCation of t%e acquiring co'.an) In t%e event t%e !arger co'.an) is not .ub!ic!) traded, t%e reverse ta2eover resu!ts in a .rivate!) %e!d co'.an) beco'ing a .ub!ic!) %e!d co'.an) b) circu'venting t%e traditiona! .rocess of fi!ing a .ros.ectus and underta2ing an initia! .ub!ic offering 7I4O) It is acco'.!is%ed b) t%e s%are%o!ders of t%e .rivate co'.an) se!!ing t%eir s%ares in t%e .rivate co'.an) to t%e .ub!ic co'.an) in e-c%ange for s%ares of t%e .ub!ic co'.an) Reverse 'erger financia! transactions are beco'ing increasing!) .o.u!ar and acce.ted It is an a!ternative 'eans for .rivate co'.anies to go .ub!ic ,%e reverse 'erger originated as an a!ternative to t%e traditiona! initia! .ub!ic offering 7I4O) .rocess for co'.anies t%at want t%e benefits of being a .ub!ic co'.an) wit%out t%e e-.ense and co'.!e-ities of t%e traditiona! I4O ,%e reverse 'erger is often suggested as t%e best o.tion to .rovide greater access to t%e ca.ita! 'ar2ets, increase t%e co'.an)3s visibi!it) in t%e invest'ent co''unit), and offer t%e o..ortunit) to uti!iCe its stoc2 to 'a2e acquisitions ,%e traditiona! I4O .rocess is difficu!t for a reason It is .art of t%e vetting .rocess for 2ee.ing co'.anies t%at are not read) for t%e %ars% s.ot!ig%t of t%e .ub!ic 'ar2ets out of t%e .ub!ic 'ar2ets A stud) of co'.anies c%oosing t%e reverse 'erger route over t%e .ast two )ears indicates t%at t%e 'a0orit) of t%e' end u. beco'ing effective!) G.ub!ic!) traded .rivate co'.aniesH wit% s'a!! 'ar2et ca.ita!iCations, sing!e digit 7or !ower) stoc2 .rices, and !itt!e to no visibi!it) in t%e invest'ent co''unit)

T#e Process In a reverse 'erger a .rivate co'.an) 'erges wit% a .ub!ic!) !isted co'.an) t%at doesn3t %ave an) assets or !iabi!ities ,%e .ub!ic!) traded cor.oration is ca!!ed a Gs%e!!H since a!! t%at re'ains of t%e origina! co'.an) is t%e cor.orate s%e!! structure $) 'erging into suc% an entit) t%e .rivate co'.an) beco'es .ub!ic After t%e .rivate co'.an) obtains a 'a0orit) of t%e .ub!ic co'.an)3s stoc2 and co'.!etes t%e 'erger, it a..oints new 'anage'ent and e!ects a new $oard of Directors (%e!! co'.anies used in reverse 'ergers are genera!!) one of two t).es ,%e first is a fai!ed .ub!ic co'.an) t%at re'ains to be so!d in order to recou. so'e of t%e costs of t%e fai!ed business ,%ese s%e!!s %ave t%e .otentia! for un2nown !iabi!ities, !awsuits, dissatisfied s%are%o!ders, and ot%er .otentia! Gs2e!etons in t%e c!oset H ,%e second are created for t%e s.ecific .ur.ose of being so!d as a s%e!! in a reverse 'erger transaction ,%ese t).ica!!) carr) !ess ris2 of %aving un2nown !iabi!ities 3enefits + 1) ,%e advantages of .ub!ic trading status inc!ude t%e .ossibi!it) of co''anding a %ig%er .rice for a !ater offering of t%e co'.an)Js securities +oing .ub!ic t%roug% a reverse ta2eover a!!ows a .rivate!) %e!d co'.an) to beco'e .ub!ic!) %e!d at a !esser cost, and wit% !ess stoc2 di!ution t%an t%roug% an initia! .ub!ic offering 7I4O) /%i!e t%e .rocess of going .ub!ic and raising ca.ita! is co'bined in an I4O, in a reverse ta2eover, t%ese two functions are se.arate A co'.an) can go .ub!ic wit%out raising additiona! ca.ita! (e.arating t%ese two functions great!) si'.!ifies t%e .rocess 2) In addition, a reverse ta2eover is !ess susce.tib!e to 'ar2et conditions Conventiona! I4Os are ris2) for co'.anies to underta2e because t%e dea! re!ies on 'ar2et conditions, over w%ic% senior 'anage'ent %as !itt!e contro! If t%e 'ar2et is off, t%e underwriter 'a) .u!! t%e offering ,%e 'ar2et a!so does not need to .!unge w%o!esa!e If a co'.an) in registration .artici.ates in an industr) t%atJs 'a2ing unfavorab!e %ead!ines, investors 'a) s%) awa) fro' t%e dea! In a reverse ta2eover, since t%e dea! rests so!e!) between t%ose contro!!ing t%e .ub!ic and .rivate co'.anies, 'ar2et conditions %ave !itt!e bearing on t%e situation 3) ,%e .rocess for a conventiona! I4O can !ast for a )ear or 'ore /%en a co'.an) transitions fro' an entre.reneuria! venture to a .ub!ic co'.an) fit for outside owners%i., %ow ti'e is s.ent b) strategic 'anagers can be beneficia! or detri'enta! ,i'e s.ent in 'eetings and drafting sessions re!ated to an I4O can %ave a disastrous effect on t%e growt% u.on w%ic% t%e offering is .redicated, and

") Additiona!!), 'an) s%e!! co'.anies carr) forward w%at is 2nown as a ta-<!oss ,%is 'eans t%at a !oss incurred in .revious )ears can be a..!ied to inco'e in future )ears ,%is s%e!ters future inco'e fro' inco'e ta-es (ince 'ost active .ub!ic co'.anies beco'e dor'ant .ub!ic co'.anies after a string of !osses, or at !east one !arge one, it is 'ore !i2e!) t%at a s%e!! co'.an) wi!! offer t%is ta- s%e!ter #) It is %ig%!) unusua! to .reserve an) benefit fro' t%e ta- !oss carr) forward in a s%e!! co'.an) ,%e ta- regu!ations nor'a!!) reduce t%e !oss carr) forward b) t%e .ercentage of t%e c%ange in contro! In a we!! structured reverse 'erger, t%e .rivate co'.an) s%ou!d end u. wit% A#? or 'ore of t%e stoc2 after t%e 'erger, t%us reducing t%e ta- !oss carr)<forward b) t%is a'ount &rawbacks + 1) ,%ese %ave an i!!iquid, !ow .riced stoc2, a !ow va!uation, and !itt!e to no institutiona! fo!!owing ,%e new!) .ub!ic co'.an) is effective!) worse off after co'.!eting t%e reverse 'erger t%an it was .rior to !eaving t%e .rivate do'ain 2) Ot%er .rob!e's awaiting co'.anies t%at e'erge fro' t%e .rivate arena inc!ude issues surrounding t%e disc!osures required b) a .ub!ic fir' and t%e regu!ator) require'ents t%at t%e (&C de'ands 4ub!ic co'.anies are required to fi!e regu!ar quarter!) and annua! re.orts, 'eet stringent accounting standards, and 'a2e t%e' avai!ab!e to t%eir .ub!ic investors ('a!! to 'ediu' siCe .rivate co'.anies often !ac2 t%e infrastructure and bac2 office ca.abi!ities to su..ort t%e require'ents of a .ub!ic co'.an) ,%is requires additiona! ca.ita! e-.enditures in order to 'eet t%e regu!ator) and financia! burdens of a .ub!ic!) traded co'.an)

2INANCIA> RESTRUCTURING ?INTERNA> RECONSTRUCTION6

*inancia! restructuring is carried out interna!!) in t%e fir' wit% t%e consent of its various sta2e%o!ders ,%is for' of reconstruction is re!ative!) easier to .ut to ground *inancia! restructuring is a suitab!e 'ode of restructuring of cor.orate fir's t%at %ave incurred accu'u!ated siCab!e !osses over a nu'ber of )ears As a resu!t, t%e s%are ca.ita! of suc% fir's, in 'an) cases, gets substantia!!) !ost > eroded In fact, in so'e

cases, t%e accu'u!ated !osses 'a) even be %ig%er t%an t%e s%are ca.ita!, causing negative net wort% +iven suc% dis'a! state of financia! affairs, suc% fir's are !i2e!) to %ave a dubious .otentia! for !iquidation *inancia! restructuring or interna! reconstruction is one 'easure of reviva! of on!) t%ose fir's t%at %o!d .ro'ise > .ros.ects for better financia! .erfor'ance in t%e future )ears ,o ac%ieve t%e desired ob0ective, suc% fir's warrant > 'erit a restart wit% a fres% ba!ance s%eet, w%ic% does not contain t%e .ast accu'u!ated !osses and fictitious assets and s%ows s%are ca.ita! at its rea! wort% Restructurin% Sc#e$e *inancia! restructuring is ac%ieved b) for'u!ating an a..ro.riate restructuring sc%e'e invo!ving a nu'ber of !ega! for'a!ities, inc!uding consent of t%e court and t%e consent of t%e affected sta2e%o!ders, sa), creditors, !enders, and s%are%o!ders It is nor'a! for equit) s%are%o!ders to 'a2e t%e 'a-i'u' sacrifice, fo!!owed b) .reference s%are%o!ders and debenture %o!ders, !enders and creditors res.ective!) ,%e sacrifice 'a) be E a) In ter's of waiver of a .art of t%e su' .a)ab!e to various !iabi!it) %o!dersK b) In ter's of acce.tance of new securities wit% a !ower cou.on rate, wit% a view to reduce t%e future financia! burden on t%e fir'K c) ,%e arrange'ent 'a) a!so ta2e t%e for' of conversion of debt into equit)K so'eti'es, creditors, a.art fro' reducing t%eir c!ai', 'a) a!so agree to convert t%eir dues in to securities to avert .ressure of .a)'ent As a resu!t of a!! t%ese 'easures, t%e fir' 'a) %ave better !iquidit) to wor2 wit% ,%us financia! restructuring i'.!ies a significant c%ange in t%e financia! > ca.ita! structure of fir's, !eading to a c%ange in t%e .a)'ent of fi-ed financia! c%arges and c%ange in t%e .attern of owners%i. and contro! In ot%er words, financia! restructuring, or interna! reconstruction, ai's at reducing t%e debt > .a)'ent burden of t%e fir' ,%e aggregate su' resu!ting fro' E a) ,%e reduction > waiver in t%e c!ai's fro' various !iabi!it) %o!ders, and b) 4rofit accruing fro' t%e a..reciation of assets suc% as !and and bui!dings,

Is t%en uti!iCed to write off accu'u!ated !osses and fictitious assets, suc% as .re!i'inar) e-.enses, and create .rovision for bad and doubtfu! debts and downward reva!uation of certain assets, suc% as .!ant and 'ac%iner), if t%e) are overva!ued In .ractice, t%e restructuring sc%e'e is drawn in suc% a wa) so t%at a!! t%e above require'ents of write off are du!) 'et In brief, financia! restructuring is unique in nature and is co'.an) s.ecific It is carried out, in .ractice, w%en a!! t%e sta2e%o!ders are .re.ared to sacrifice and are convinced t%at t%e restructured fir', ref!ecting true va!ue of assets, ca.ita! and ot%er significant financia! .ara'eters, can now be .ut bac2 on t%e .rofit trac2 ,%is t).e of restructuring %e!.s in t%e reviva! of fir's t%at ot%erwise wou!d %ave faced c!osure or !iquidation

SO'E CASES O2 CORPORATE RESTRUCTURINGS 2RO' T,E REA> (OR>&

In t%e :nited (tates, t%e first 'erger wave occurred between 1=AB and 1AB" and t%e second began at t%e end of /or!d /ar I and continued t%roug% t%e 1A2Bs ,%e t%ird 'erger wave co''enced in t%e !atter .art of /or!d /ar II and continues to t%e .resent da) About two<t%irds of t%e !arge .ub!ic cor.orations in t%e :(A %ave 'erger or a'a!ga'ations in t%eir %istor) In India, about 11=B .ro.osa!s for a'a!ga'ation of cor.orate bodies invo!ving about 2"BB co'.anies were fi!ed wit% t%e 1ig% Courts during 1A86<1A=6 ,%ese for'ed 6 ? of t%e "B6BB co'.anies at wor2 at t%e beginning of 1A86 Mergers and acquisitions, t%e wa) in w%ic% t%e) are understood in t%e western countries %ave started ta2ing .!ace in India in t%e recent )ears A nu'ber of 'ega 'ergers and %osti!e ta2eovers cou!d be witnessed in India now

T,E GREAT 'ERGER 'O.E'ENT ?857CA879C6

,%e +reat Merger Move'ent was a .redo'inant!) : ( business .%eno'enon t%at %a..ened fro' 1=A# to 1AB# During t%is ti'e, s'a!! fir's wit% !itt!e 'ar2et s%are conso!idated wit% si'i!ar fir's to for' !arge, .owerfu! institutions t%at do'inated t%eir 'ar2ets It is esti'ated t%at 'ore t%an 1,=BB of t%ese fir's disa..eared into conso!idations, 'an) of w%ic% acquired substantia! s%ares of t%e 'ar2ets in w%ic% t%e) o.erated ,%e ve%ic!es used were so<ca!!ed trusts ,o tru!) understand %ow !arge t%is 'ove'ent wasUin 1ABB t%e va!ue of fir's acquired in 'ergers was 2B? of +D4 In 1AAB t%e va!ue was on!) 3? and fro' 1AA=E2BBB was around 1BE11? of +D4 OrganiCations t%at co''anded t%e greatest s%are of t%e 'ar2et in 1AB# saw t%at co''and disintegrate b) 1A2A as s'a!!er co'.etitors 0oined forces wit% eac% ot%er 1owever, t%ere were co'.anies t%at 'erged during t%is ti'e suc% as Du4ont, @abisco, :( (tee!, and +enera! &!ectric t%at %ave been ab!e to 2ee. t%eir do'inance in t%eir res.ected sectors toda) due to growing tec%no!ogica! advances of t%eir .roducts, .atents, and brand recognition b) t%eir custo'ers ,%ese co'.anies t%at 'erged were consistent!) 'ass .roducers of %o'ogeneous goods t%at cou!d e-.!oit t%e efficiencies of !arge vo!u'e .roduction ,%e co'.anies w%ic% %ad s.ecific fine .roducts, suc% as fine writing .a.er, too2 no .art in t%e +reat Merger Move'ent as t%e) earned t%eir .rofits on %ig% 'argin rat%er t%an vo!u'e S#ort run 2actors One of t%e 'a0or s%ort run factors t%at s.ar2ed in ,%e +reat Merger Move'ent was t%e desire to 2ee. .rices %ig% ,%at is, wit% 'an) fir's in a 'ar2et, su..!) of t%e

.roduct re'ains %ig% During t%e .anic of 1=A3, t%e de'and dec!ined /%en de'and for t%e good fa!!s, as i!!ustrated b) t%e c!assic su..!) and de'and 'ode!, .rices are driven down ,o avoid t%is dec!ine in .rices, fir's found it .rofitab!e to co!!ude and 'ani.u!ate su..!) to counter an) c%anges in de'and for t%e good ,%is t).e of coo.eration !ed to wides.read %oriConta! integration a'ongst fir's of t%e era *ocusing on 'ass .roduction a!!owed fir's to reduce unit costs to a 'uc% !ower rate ,%ese fir's usua!!) were ca.ita!<intensive and %ad %ig% fi-ed costs Due to t%e fact t%at new 'ac%ines were 'ost!) financed t%roug% bonds, interest .a)'ents on bonds were %ig% fo!!owed b) t%e .anic of 1=A3, )et no fir' was wi!!ing to acce.t quantit) reduction during t%is .eriod >on% run 2actors In t%e !ong run, due to t%e desire to 2ee. costs !ow, it was advantageous for fir's to 'erge and reduce t%eir trans.ortation costs t%us .roducing and trans.orting fro' one !ocation rat%er t%an various sites of different co'.anies as in t%e .ast ,%is resu!ted in s%i.'ent direct!) to 'ar2et fro' t%is one !ocation In addition, tec%no!ogica! c%anges .rior to t%e 'erger 'ove'ent wit%in co'.anies increased t%e efficient siCe of .!ants wit% ca.ita! intensive asse'b!) !ines a!!owing for econo'ies of sca!e ,%us i'.roved tec%no!og) and trans.ortation were forerunners to t%e +reat Merger Move'ent In .art due to co'.etitors as 'entioned above, and in .art due to t%e govern'ent, %owever, 'an) of t%ese initia!!) successfu! 'ergers were eventua!!) dis'ant!ed ,%e : ( govern'ent .assed t%e (%er'an Act in 1=AB, setting ru!es against .rice fi-ing and 'ono.o!ies (tarting in t%e 1=ABs wit% suc% cases as U ! versus "ddyston #ipe and !teel $o , t%e courts attac2ed !arge co'.anies for strategiCing wit% ot%ers or wit%in t%eir own co'.anies to 'a-i'iCe .rofits 4rice fi-ing wit% co'.etitors created a greater incentive for co'.anies to unite and 'erge under a sing!e na'e so t%at t%e) were not co'.etitors an)'ore and tec%nica!!) not .rice fi-ing

'ERGER O2 RE>IANCE PETROC,E'ICA>S >T& ?RP>6 (IT, RE>IANCE IN&USTRIES >T& ?RI>6, 877:
,%e 'erger of R49 wit% RI9 in Marc% 1AA2 was t%e biggest 'erger ti!! date and resu!ted in t%e creation of t%e !argest Indian cor.orate RI9 was engaged in t%e 'anufacture and sa!e of te-ti!e, fiber and fiber inter'ediates and .etroc%e'ica!s In .articu!ar, it was engaged in t%e 'anufacture of .o!)ester sta.!e fiber 74(*), .o!)ester tera.%ta!ic acid 74,A), !inear

a!2)! benCene 79A$) and ot%er .roducts Its .aid u. ca.ita! 7Rs 1#8 A" crore) consisted of E i) &quit) s%are ca.ita!, Rs 1#2 1" crore 71# 21 crore s%ares of Rs 1B eac%), ii) 11 .ercent cu'u!ative redee'ab!e .reference s%ares of Rs 1BB eac%, Rs 3B !a2%, iii) 1# .ercent cu'u!ative redee'ab!e .reference s%ares of Rs 1BB eac%, Rs # # crore ,%e R49 was incor.orated in @ove'ber 1A== wit% t%e 'ain ob0ective of 'anufacturing .o!)<vin)! c%!oride 745C), 'ono et%)!ene g!)co! 7M&+) and %ig% densit) .o!) et%)!ene 71D4&) It3s .aid u. ca.ita! stood at Rs 8"A 3B crore consisting of 8" A3 crore s%ares of Rs 1B eac% In ter's of a sc%e'e of a'a!ga'ation a..roved b) t%e s%are%o!ders of t%e two co'.anies and t%e Mu'bai and +u0arat 1ig% Courts in Du!)>August 1AA2, t%e R49 was 'erged wit% RI9 w e f Marc% 2, 1AA2 ,%e 'erger was ai'ed to en%ance s%are%o!ders3 va!ue b) rea!iCing significant s)nergies of bot% t%e co'.anies 9ibera!iCation of govern'ent .o!ic) and t%e acco'.an)ing econo'ic refor's created t%is o..ortunit) for t%e s%are%o!ders of RI9 As .er t%e sc%e'e of a'a!ga'ation, t%e e-.ected benefits of 'erger to t%e a'a!ga'ated entit), inter-alia, were E i) $enefit fro' diversification as t%e ris2s invo!ved in t%e o.eration of different units wou!d be 'ini'iCed ii) $usiness s)nerg) due to econo'ies of sca!e and integrated o.erations iii) 1ig%er retained earnings !eading to en%anced intrinsic va!ues of s%are%o!ding to investors ,%e ca.ita! require'ent wou!d a!so be at 'anageab!e !eve!s iv) (trong funda'enta!s w%ic% wou!d en%ance its credit rating and resource raising abi!it) in financia! 'ar2ets, bot% nationa! and internationa! ,%e e-c%ange ratio was one equit) s%are of Rs 1B eac% in RI9 for ever) 1B equit) s%ares of R49 wit% a .ar va!ue of Rs 1B eac% ,%e e-c%ange ratio was based on t%e e-.ert va!uation 'ade b) t%ree re.uted fir's of c%artered accountants, na'e!), ( $ $i!!i'oria & Co, C%o2si & Co, and 1erib%a2t%i & Co 4ursuant to t%e above, 8"A26"2= equit) s%ares of Rs 1B eac% were issued as fu!!) .aid u. to t%e s%are%o!ders of RI9 wit%out .a)'ent being received in cas% A!! assets, !iabi!ities and ob!igations of R49 were ta2en over b) t%e 'erged entit) E RI9 ,%e e-cess of assets over !iabi!ities ta2en over b) RI9 consequent on t%e a'a!ga'ation !ess t%e face va!ue of t%e equit) s%ares issued to t%e s%are%o!ders of

t%e R49 re.resented a'a!ga'ation reserve A!! t%e e'.!o)ees of R49 on t%e date i''ediate!) .receding t%e effective date beca'e t%e e'.!o)ees of t%e RI9 ,%e .ost 'erger scenario of t%e RI9 is ref!ected in t%e increase in its ca.ita!, turnover, net .rofit and equit) dividend Co'.ared to t%e .re<'erger ca.ita! of 1#8 A" crore, t%e .ost<'erger ca.ita! rose to 3#= 8" crore ,%e turnover increased fro' Rs 22A= crore in 1AA1<A2 to Rs 8B1A crore in 1AA"<A# @et .rofit of RI9 stood at Rs 1B6#1 crore in 1AA"<A# co'.ared to Rs 163 crore in 1AA1<A2 ,%e equit) dividend rose .%eno'ena!!) to ## .ercent in 1AA"<A# fro' 3B .ercent in 1AA1<A2 ,%e RI9 e'erged .ost<'erger as a 'ega cor.oration and beca'e a g!oba! .!a)er Its foreign earnings in 1AA"<A# aggregated Rs 18" crore

&E'ERGER O2 &C' >T&, 8779

DCM 9td, .ro'oted b) 9ate (%ri Ra' in 1==A beca'e a cong!o'erate of 13 units wit% 'u!tifarious 'anufacturing activities in sugar, te-ti!e, c%e'ica!s, ra)on t)re cord, ferti!iCers, and so on ,%ese units on t%eir own being of t%e siCe of inde.endent co'.anies, t%e directors fe!t t%at greater focus on t%e o.eration of t%e various units of t%e co'.an) wou!d resu!t in substantia! i'.rove'ent in t%e resu!ts of t%eir o.erations ,%e .ost<reorganiCation s!ogan was E HT#e Tri$$er we are, t#e 2aster we areI ,o ac%ieve t%e ob0ective of carr)ing t%e business of DCM 9td 'ore s'oot%!) and .rofitab!), DCM 9td was reorganiCed b) dividing its business a'ong four co'.anies %aving s%are%o!ders wit% t%e sa'e interest inter-se in DCM but to be 'anaged and o.erated inde.endent!) ,%e co'.anies resu!ting fro' t%is division were E 1) &C' >t + co'.rising DCM Mi!!s 7DCM &state), DCM &ngineering 4roducts, DCM Data 4roducts, 1issar ,e-ti!e Mi!!s, (%ri Ra' *ibers 9td, and DCM ,o)ota 9td 2) &C' S#ri Ra$ In ustries >t + co'.rising (%ri Ra' Ra)on3s, Daura!a (ugar /or2s, and 1indon River Mi!!s 3) &C' S#ri Ra$ In ustries >t + co'.rising (%ri Ra' *erti!iCers and C%e'ica!s Industries 9td, (%ri Ra' Ce'ent /or2s 9td, (watantra $%arat Mi!!s 9td, and DCM (i!2 Mi!!s 9td ") S#ri Ra$ In ustria! Enter)rises >t + co'.rising (%ri Ra' *ood and *erti!iCers 9td, and Mawana (ugar /or2s 9td ,%e division of DCM 9td too2 .!ace t%roug% t%e sc%e'e of arrange'ent a..roved b) t%e De!%i 1ig% Court on A.ri! 16, 1AAB according to w%ic% t%ree new co'.anies were for'ed ,%e sc%e'e of arrange'ent beca'e effective fro' A.ri! 1, 1AAB ,%e four

co'.anies t%ereafter started o.erating inde.endent!), eac% wit% t%eir res.ective $oard of Directors (o'e of t%e notab!e features of t%e sc%e'e of reorganiCation of t%e erstw%i!e DCM 9td in to t%e four co'.anies were E i) ,%e tota! .aid<u. ca.ita! of Rs 23 crore was divided equa!!) ii) ,%e a!!ocation of various assets and !iabi!ities a'ong t%e' was done as under E
DCM (%ri Ra' Industries 9td DCM (%ri Ra' Conso!idated 9td (%ri Ra' Industria! &nter.rises 9td

DCM 9td

*i-ed De.osits Debentures Co''on assets > !iabi!ities > inco'e > benefit &-.enses and cost of arrange'ent (.ecific Assets

16? 16? 16 66? 16 66?

33? 12? 16 66? 16 66?

36? 36? 33 33? 33 33?

1#? 36? 33 33? 33 33?

7A!! at boo2 va!ue as on 1 " 1AAB unit<wise)

iii) ,%oug% t%e !iabi!it) of for debentures was divided, t%e debentures were .%)sica!!) retained in DCM 9td ,%e 'ortgage of assets of various units a!read) created wit% t%e trustees for debenture<%o!ders were 'odified to t%e effect t%at eac% grou.3s assets wou!d stand c%arged on!) for t%e !iabi!it) a!!ocated to it iv) *or .a)'ent of interest and .rinci.a! a'ount to debenture %o!ders, Indian $an2, w%ic% was t%e debenture trustees was a..ointed a Registrar b) a!! t%e four co'.anies and t%e) re'itted t%eir s%are of !iabi!ities to t%e Registrar on due dates for onward .a)'ent to debenture<%o!ders ,%e cost of Registrar wou!d be s%ared b) a!! t%e co'.anies v) ,%e fi-ed de.osit recei.ts were s.!it into four new recei.ts in t%e .ro.ortion in w%ic% t%e fi-ed de.osits a..eared in t%e boo2s of account as on t%e effective date vi) :.on transfer of underta2ings to t%e', t%e new co'.anies a!!otted one equit) s%are eac% to t%e %o!ders of four equit) s%ares in DCM 9td ,%e .aid<u. va!ue of DCM equit) was reduced t%ereu.on fro Rs 1B .er s%are to Rs 2 # .er s%are ,%ereafter, t%e DCM equit) s%ares were conso!idated into equit) s%ares of t%e face va!ue of Rs 1B eac% An) fraction arising on a!!ot'ent > conso!idation of s%ares was dis.osed off and sa!es .roceeds distributed pro rata to t%e e!igib!e s%are%o!ders vii) ,%e equit) s%ares of t%e four co'.anies were subsequent!) !isted in t%e stoc2 e-c%anges viii)Dis.utes wit% res.ect to t%e .rovisions of t%e sc%e'e of arrange'ent were to be sett!ed b) two arbitrators and an u'.ire a..ointed b) t%e arbitrators

,%us, t%e de'erger of DCM 9td was co'.!eted wit% !ots of innovation and .ractica! so!utions to t%e co'.!e- .rob!e' of reorganiCing a centur)<o!d co'.an) After t%e de'erger, a!! t%e DCM +rou. co'.anies %ave grown tre'endous!) *ro' a non<dividend .osition .rior to t%e de'erger, a!! t%e co'.anies %ave grown 'anifo!d adding va!ue bot% to t%e s%ares as we!! as to t%e new entities

AC/UISITION O2 RAN3A@F >A3ORATORIES >T& 3F &AIIC,I SAN1FO, :995

Ranba-) 9aboratories 9i'ited, IndiaJs !argest .%ar'aceutica! co'.an), is an integrated, researc% based, internationa! .%ar'aceutica! co'.an), .roducing a wide range of qua!it), affordab!e generic 'edicines, trusted b) %ea!t%care .rofessiona!s and .atients across geogra.%ies ,%e Co'.an) is ran2ed a'ongst t%e to. ten g!oba! generic co'.anies and %as a .resence in 23 of t%e to. 2# .%ar'ac) 'ar2ets of t%e wor!d Ranba-) was incor.orated in 1A61 and went .ub!ic in 1A83 *or t%e )ear 2BB8, t%e Co'.an)Js +!oba! (a!es at :(V 1,61A 'i!!ion ref!ected a growt% of 21? ,%e co'.an) %as a tota! .aid u. ca.ita! of Rs 2=,B22 12 'i!!ion and a!so %as a substantia! a'ount of reserves and sur.!us Daiic%i (an2)o Co , 9td was created t%roug% t%e 'erger of two of Da.an3s o!dest .%ar'aceutica! co'.anies E (an2)o Co , 9td and Daiic%i 4%ar'aceutica! Co , 9td Its 'anufacturing o.erations in Da.an, w%ere it %as nine factories, are %and!ed .ri'ari!) b) Daiic%i (an2)o 4ro.%ar'a Co, 9td ,%ere are five 'a0or .!ants overseas E one eac% in &uro.e, ,aiwan and $raCi! and two in C%ina ,oget%er, t%ese faci!ities for' a g!oba! su..!) c%ain networ2 A!! %ave estab!is%ed qua!it) assurance s)ste's based on and co'.!iant wit% t%e +ood Manufacturing 4ractice 7+M4), w%ic% defines 'anufacturing and qua!it) 'anage'ent require'ents for .%ar'aceutica!s Daiic%i (an2)o3s net sa!es, a!t%oug% affected b) t%e s.in<off of non<.%ar'aceutica! businesses fro' t%e +rou., increased b) B "? )ear on )ear to W A2A # bi!!ion It %as a .aid u. s%are ca.ita! of :( V 1,#2",238,BBB ,%e Da.anese drug 'a2er, Daiic%i (an2)o recent!) announced t%e acquisition of an Indian .%ar'aceutica! co'.an), agreeing to bu) out t%e .ro'oters in a dea! tota!!) va!ued at V3 "<" 6 bi!!ion

Daiic%i (an2)o3s o.en offer for u. to 2B .er cent sta2e in Ranba-) 9aboratories wi!! o.en on August =, as announced in t%e .ub!ic announce'ent 'ade on Dune 16, 2BB= ,%e Da.anese co'.an) %as agreed to acquire 3" =1 .er cent of t%e sta2e of t%e co'.an) fro' t%e .ro'oters Mr Ma!vinder (ing% and fa'i!) ,%e o.en offer for u. to 2B .er cent at Rs 838 a s%are wou!d increase Daiic%i (an2)o3s sta2e in t%e co'.an) to a 'a-i'u' of #= BA .er cent ,%e .urc%ase .rice of Rs 838 b) Daiic%i (an2)o re.resents a .re'iu' of #3 # .er cent to Ranba-)3s average dai!) c!osing .rice on @(& for t%e t%ree 'ont%s ending Dune 1B, 2BB= ,%e !etter of o.en offer wi!! be sent to t%ose w%o are t%e co'.an)3s s%are%o!ders as on as on Dune 28, Daiic%i (an2)o said in t%e .ub!ic announce'ent ,%e c!osing date of t%e offer is August 28, 2BB= ,%e !ast date for a co'.etitive bid 7if an)bod) wants to 'a2e a counter bid to t%at of Daiic%i (an2)o) for Ranba-) is Du!) 8, as stated in t%e .ub!ic announce'ent Once t%e dea! is co'.!eted, t%e (ing% fa'i!) wi!! cease to %ave an) sta2e in t%e co'.an) t%oug% Mr Ma!vinder (ing% wi!! continue to !ead t%e .%ar'aceutica! 'a0or as its C%ief &-ecutive Officer and Managing Director 4ost acquisition, Ranba-) wou!d beco'e a debt<free fir' ,%e two fir's said t%e) .!an to 2ee. Ranba-) a !isted entit) in India even as it retained t%e identit) and brand ,%e co'bined 'ar2et ca.ita!iCation of bot% co'.anies wou!d be around V3B bi!!ion 'a2ing it t%e wor!d3s 1#t% !argest .%ar'aceutica! co'.an) ,%e transaction is e-.ected to be co'.!eted b) t%e end of Marc% 2BBA ,%e co'.an) %as a!so decided not to .ursue t%e .ro.osed de'erger of its @ew Drug Discover) Researc% 7@DDR) in a bid to s)nergiCe t%e R&D unit wit% Daiic%i (an2)o3s researc% ca.abi!ities

3AI> OUT 'ERGER O2 ITC C>ASSIC 2INANCIA> >T& (IT, ICICI >T&, 877JA75
,%e C!assic 9easing and *inancia! (ervices 9td was 'erged into ,%e (age Invest'ents, (u''it Invest'ents and 4innac!e Invest'ents of t%e I,C grou. and rena'ed as I,C C!assic *inancia! 9td in 1A=6 Its 'ain business was !easing, %ire< .urc%ase, ca.ita! 'ar2et o.erations, invest'ents and 'erc%ant ban2ing ,%e co'.an) suffered a !oss of Rs 2=# crores in 1AA6<A8 and Rs 8" crore during t%e first %a!f of 1AA8<A= ,%e I,C C!assic was a'a!ga'ated wit% t%e ICICI 9td on and fro' A.ri! 21, 1AA= wit% effect fro' A.ri! 1, 1AA8 in ter's of t%e sc%e'e of t%e sc%e'e of 'erger sanctioned b) t%e Mu'bai and ;o!2ata 1ig% Courts According!), t%e underta2ing and t%e entire business, a!! t%e .ro.erties, assets, rig%ts and .owers of I,C were transferred to and vested in, t%e

ICICI 9td A!! t%e debts, !iabi!ities and ob!igations were a!so transferred ,%e 'erger resu!ted in t%e transfer of assets, !iabi!ities and reserves and t%e issue of s%ares as consideration t%erefore of t%e fo!!owing su''ariCed va!ues E 4articu!ars Assets 9iabi!ities Reserves and (ur.!uses Consideration for a'a!ga'ation 7e-c%ange ratio) E 1 equit) s%are of Rs 1B eac% in ICICI 9td for ever) 1# equit) s%ares in I,C of Rs 1B eac% Ad0ust'ent of cance!!ation of ICICI3s %o!dings in I,C E A'a!ga'ation reserves arising out of 'erger A'ount 7in Rs Crore) 131A 132# 7"1) 3 33

,%e benefits of 'erger of I,C C!assic envisaged b) t%e ICICI were E i) Its .!an to e-.and retai! b) ta..ing I,C C!assic3s fi-ed de.osit base ii) ,%e retai! distribution infrastructure of I,C C!assic consisting of 1B branc%es and 12 franc%ises iii) &-isting retai! investors base of I,C C!assic of over 8BBBBB iv) Additiona! ca.ita! infusion in t%e for' of .reference ca.ita! b) I,C to %e!. in !everaging t%e o.erations ,%e ter's of t%e sc%e'e of 'erger, .reference s%ares of t%e aggregate va!ue of Rs 3#B crore were issued on t%e effective date b) ad0ust'ent of advance of Rs 3#B crore received towards t%e issue ,%e I,C subscribed Rs 3#B crore b) wa) of .reference s%ares in ICICI 9td ,%ese s%ares %as a face va!ue of Rs 1 crore eac%, wit% dividend of Rs 1BB .er annua! .er s%are redee'ab!e at .ar after 2B )ears fro' t%e effective date of a!!ot'ent ,%e 1"? cu'u!ative redee'ab!e .reference s%ares of Rs 1BB eac% of t%e I,C C!assic aggregating Rs 21 = crore were re.aid b) t%e ICICI 9td after t%e effective date of 'erger ,%e ta- set<off and t%e !ow cost of funds were t%e 'a0or benefits of t%e 'erger of t%e I,C C!assic wit% t%e ICICI 9td *or instance, t%e ICICI 9td 'ade tota! .rovisions of Rs "A# crores against bad and doubtfu! debts 7Rs 311 crore) and against substandard assets 7Rs 1=" crore) on account of t%e I,C C!assic 4rovision against bad and doubtfu! debts of Rs 311 crore inc!uded Rs 26" crore being .rovision and write off 'ade against assets vested u.on 'erger of t%e I,C C!assic ,%e assets .rovided against inc!ude t%ose w%ic% wou!d %ave been c!assified as a non<.erfor'ing asset based on guide!ines a..!icab!e to financia! institutions and assets t%at were e-.ected b) t%e 'anage'ent to carr) !i'ited .ossibi!it) for rea!iCation of a'ounts !ent and t%e

ba!ance .rinci.a! va!ue of t%e !eased assets and stoc2 on %ire ,%ese .rovisions were 'ade b) t%e a..ro.riations of E i) Rs # crore fro' Reserves for !oan !oss ii) Rs 21 crore fro' a!!ocation in ter's of (ection 3671) 7vii<a) of t%e Inco'e ,aAct iii) Rs 1=A crore fro' (.ecia! Reserves in ter's of (ection 3671) 7viii) of t%e Inco'e ,a- Act iv) Rs 2=B crore transferred to +enera! Reserves out of (.ecia! Reserves created in ter's of (ection 3671) 7viii) of t%e Inco'e ,a- Act As a resu!t of t%e .rovisioning for @4A > wit%drawa! fro' reserves to avai!ing of tadeductions for bad debts, t%e effective ta- rate of ICICI 9td dec!ined to = "? in 1AA8<A= fro' 12 1"? in 1AA6<A8 ,%e 'erger sc%e'e was s.ecifica!!) conditiona! u.on and sub0ect to E 1) Infusion of funds b) I,C itse!f or t%roug% affi!iates Rs 3#B crore as interest free advance before @ove'ber<Dece'ber 1AA8K 2) ,%e disc%arge before t%e agreed sa!es of a!! secured creditors and re!ease of a!! c%argesK 3) (atisf)ing t%e ICICI t%at t%ere were no c%argesK ") ,%e .urc%ase b) I,C +rou. of a!! outside invest'ents %e!d b) I,C C!assic for an aggregate consideration of Rs 2"1 croreK #) ,%e transfer to I,C C!assic, of Rs 8 12 crore in disc%arge of ob!igations b) anot%er co'.an)K 6) ,%e .urc%ase b) I,C +rou. of assets !eased b) I,C C!assic at a net va!ue of Rs 31 1 croreK 8) Rede'.tion of s%ares of I,C C!assicK =) Disc%arge of intercor.orate debt of I,C of Rs == croreK A) &nsuring vacant, !awfu! .ossession of a!! i''ovab!e .ro.erties of I,C C!assicK 1B)Ma2ing of cas% contribution of I,C of !osses in e-cess of Rs 3B croreK 11)4a)'ent of co''it'ent c%arges b) I,C to I,C C!assic of Rs 1# crore

AC/UISITION O2 CORUS 3F TATA STEE>, :99J

,%e 9ondon<based Corus +rou. is one of t%e wor!dJs !argest .roducers of stee! and a!u'inu' Corus was for'ed in 1AAA fo!!owing t%e 'erger of Dutc% grou. ;onin2!i02e 1oogovens @ 5 wit% t%e :;Js $ritis% (tee! 4!c on October 6, 1AAA It e'.!o)s "8,3BB .eo.!e wor!dwide and 2",BBB .eo.!e in t%e

:nited ;ingdo' It is !isted on t%e 9ondon (toc2 &-c%ange, &urone-t A'sterda' and t%e @ew Xor2 (toc2 &-c%ange Corus %as four divisions E stri. .roducts division, !ong .roducts division, distribution and bui!ding s)ste's division, and a!u'inu' division Corus %as an annua! turnover of V1= bi!!ion Corus is a custo'er focused, innovative va!ue<driven co'.an), w%ic% 'anufacturesK .rocesses and distributes stee! .roducts and services to custo'ers wor!dwide Corus is &uro.eJs second !argest stee! .roducer wit% annua! revenues of around Y12 bi!!ion and a crude stee! .roduction of over 2B 'i!!ion tonnes Corus su..!ies a variet) of innovative so!utions to a broad range of 'ar2ets inc!uding auto'otive, construction, &nerg) and 4ower, Rai!, &ngineering and business services, consu'er .roducts etc *ounded in t%e 'id<1At% centur), t%e ,ata +rou. now %as A6 co'.anies in sectors ranging fro' services to energ) to consu'er .roducts ,%e +rou., w%ic% !ast )ear saw revenues of V21 A bi!!ion, e'.!o)s around 2B2,8BB .eo.!e It %as a 'ar2et ca.ita!iCation of V"A 2 bi!!ion ,ata %as .!ent) of e-.erience in M&As In 2BB2, its tea division boug%t a contro!!ing sta2e in : ; fir' ,et!e) for V"B8 'i!!ion In 2BB", ,ata (tee! acquired (inga.orean fir' @at(tee! for V"=6 'i!!ion In 2BB#, 5ides% (anc%ar @iga' 9i'ited acquired : ( fir' ,e!eg!obe, a .rovider of voice, data and 'obi!e signa!ing services, for V23A 'i!!ion ,%is )ear, ,ata ,ea boug%t a sta2e in t%e : ( water 'anufacturer +!aceau for V688 'i!!ion, and ,ata Coffee acquired &ig%t O3c!oc2 Coffee of t%e : ( for V22B 'i!!ion ,ata (tee!, w%ic% was set u. in 1AB8, .rides itse!f on being one of t%e !owest cost .roducers of stee! in t%e wor!d Co'.an) C&O $ Mut%ura'an said t%e co'.an) .roduces stee! at V16B a ton Corus 'a2es it at V#"B a ton, 'ain!) because of %ig% raw 'ateria! costs In 2BB#, ,ata (tee! was on!) t%e wor!dJs #6 biggest stee! .roducer and its ta2eover of Corus re.resents its first e-.ansion outside Asia After t%e ta2eover, t%e fir' wi!! t% beco'e t%e wor!d3s # !argest .roducer of stee! Initia!!), ,ata (tee! 'ade an offer for Corus at "## .ence .er s%are, va!uing t%e fir' at about :(V 8 6 bi!!ion ,%en after a co'.etitive bid b) Co'.an%ia (iderurgica @aciona! 7LC(@L) of 6B3 .ence in cas% .er Corus (%are, it revised it offer at 6B= .ence .er s%are va!uing it about 12 16 bi!!ion do!!ars or a..ro-i'ate!) Y 6 2 bi!!ion
t%

Ter$s of t#e Revise Acquisition :nder t%e ter's of t%e Revised Acquisition, Corus (%are%o!ders were entit!ed to receive 6B= .ence in cas% for eac% Corus (%are 7t%e LRevised 4riceL) ,%is re.resents a .rice of 1216 .ence in cas% for eac% Corus AD( ,%e ter's of t%e Revised Acquisition va!ue t%e entire e-isting issued and to be issued s%are ca.ita! of Corus at a..ro-i'ate!) Y6 2 bi!!ion and t%e Revised 4rice re.resents E i) An increase of a..ro-i'ate!) 33 6 .er cent co'.ared to "## .ence, being t%e 4rice under t%e origina! ter's of t%e AcquisitionK ii) On an enter.rise va!ue basis, a 'u!ti.!e of a..ro-i'ate!) 8 B ti'es &$I,DA fro' continuing o.erations for t%e )ear ended 31 Dece'ber 2BB# and a 'u!ti.!e of a..ro-i'ate!) A B ti'es &$I,DA fro' continuing o.erations for t%e twe!ve 'ont%s to 3B (e.te'ber 2BB6 7e-c!uding t%e non<recurring .ension credit of YA6 'i!!ion)K iii) A .re'iu' of a..ro-i'ate!) 6= 8 .er cent to t%e average c!osing 'id<'ar2et .rice of 36B # .ence .er Corus (%are for t%e twe!ve 'ont%s ended " October 2BB6, being t%e !ast $usiness Da) .rior to t%e announce'ent b) ,ata (tee! t%at it was eva!uating various o..ortunities inc!uding CorusK iv) A .re'iu' of a..ro-i'ate!) "A 2 .er cent to t%e c!osing 'id<'ar2et .rice of "B8 # .ence .er Corus (%are on " October 2BB6, being t%e !ast $usiness Da) .rior to t%e announce'ent b) ,ata (tee! t%at it was eva!uating various o..ortunities inc!uding CorusK and v) A .re'iu' of a..ro-i'ate!) 21 6 .er cent to t%e revised acquisition announced b) ,ata (tee! on 1B Dece'ber 2BB6 at a .rice of #BB .ence .er Corus (%are *inancing E ,%e additiona! finance required under t%e .ro.osed ter's of t%e Revised Acquisition was funded b) wa) of a co'bination of additiona! credit faci!ities and a cas% contribution b) ,ata (tee! to ,ata (tee! :; A$@ AMRO and Deutsc%e $an2, as 0oint financia! advisers to ,ata (tee! and ,ata (tee! :;, ensured t%e avai!abi!it) of sufficient resources to satisf) in fu!! t%e consideration .a)ab!e to Corus (%are%o!ders under t%e .ro.osed ter's of t%e Revised Acquisition ,%e acquisition was co'.!eted on Danuar) 31, 2BB8 ,%e .ost<ta2eover resu!t of t%e stee! giant %as been astounding ,%e co'.an) 'ade a net .rofit of Rs 12,321 86 crore for t%e )ear ended Marc% 31, 2BB= as co'.ared to Rs ",16# 61 crore in financia! )ear 2BB8 Conso!idated tota! inco'e increased fro' Rs

2#,6#B "# crore for t%e )ear ended Marc% 31, 2BB8 to Rs 13211B BA crore for fisca! 2BB= ,%e fu!!<)ear .rofit, e-c!uding contributions fro' Corus +rou. 4!c, rose 11?, aided b) %ig%er .roduct .rices @et .rofit rose to Rs ",6=8 crore in t%e )ear ended Marc% 31, co'.ared wit% Rs ",222 crore a )ear ago @et sa!es rose 12? to Rs 1A,6AB crore fro' a )ear ear!ier ,%e ,ata (tee! stoc2 was u. 1 AB? to c!ose at Rs 8#8 1B on t%e $o'ba) (toc2 &-c%ange ,%e stoc2 is down 1A? t%is )ear co'.ared wit% a 2A? dro. in India3s benc%'ar2 sensitive indeA g!oba! s%ortage of stee! %e!.ed ,ata increase .roduct .rices for bui!ders and auto co'.anies, 'ore t%an covering record raw 'ateria! costs ,oda), ,ata (tee! se!!s 'ore t%an two<t%ird of its out.ut in &uro.e

AC/UISITION O2 ,UTC,INSON ESSAR 3F .O&A2ONE, :99J

5odafone +rou. 4!c is t%e wor!dJs !eading 'obi!e te!eco''unications co'.an), wit% a significant .resence in &uro.e, t%e Midd!e &ast, Africa, Asia 4acific and t%e :nited (tates t%roug% t%e Co'.an)Js subsidiar) underta2ings, 0oint ventures, associated underta2ings and invest'ents ,%e +rou.Js 'obi!e subsidiaries o.erate under t%e brand na'e J5odafoneJ In t%e :nited (tates t%e +rou.Js associated underta2ing o.erates as 5eriCon /ire!ess During t%e !ast two financia! )ears, t%e +rou. %as a!so entered into arrange'ents wit% networ2 o.erators in countries w%ere t%e +rou. does not %o!d an equit) sta2e :nder t%e ter's of t%ese 4artner @etwor2 Agree'ents, t%e +rou. and its .artner networ2s co<o.erate in t%e deve!o.'ent and 'ar2eting of g!oba! services under dua! brand !ogos st At 31 Marc% 2BB=, based on t%e registered custo'ers of 'obi!e te!eco''unications ventures in w%ic% it %ad owners%i. interests at t%at date, t%e +rou. %ad 26B 'i!!ion custo'ers, e-c!uding .aging custo'ers, ca!cu!ated on a .ro.ortionate basis in accordance wit% t%e Co'.an)Js .ercentage interest in t%ese ventures ,%e Co'.an)Js ordinar) s%ares are !isted on t%e 9ondon (toc2 &-c%ange and t%e Co'.an)Js A'erican De.ositar) (%ares 7JAD(sJ) are !isted on t%e @ew Xor2 (toc2 &-c%ange ,%e Co'.an) %ad a tota! 'ar2et ca.ita!iCation of a..ro-i'ate!) YAA bi!!ion at 31 Dece'ber 2BB8 5odafone +rou. 4!c is a .ub!ic !i'ited co'.an) incor.orated in &ng!and under registered nu'ber 1=3368A Its registered office is 5odafone 1ouse, ,%e Connection, @ewbur), $er2s%ire, R+1" 2*@, &ng!and

1utc% or 1utc%i son &ssar is a !eading te!eco' o.erator in India, contro!!ed b) t%e 1utc%inson<&ssar +rou., consisting of 1utc%ison ,e!eco' Internationa! and &ssar It .rovides .re.aid and .ost.aid ce!!u!ar services in about 8#? of t%e tota! geogra.%ica! Indian e-.anse ,%e co'.an) %as a tota! of about 1 2 'i!!ion subscribers a!! over India and %as recent!) been one of t%e 'ost successfu! 'obi!e o.erators in t%e Indian subcontinent In t%e race of acquiring 1utc%, 5odafone %as beaten .!a)ers !i2e Re!iance Co''unications, t%e 1indu0as 7a!ong wit% Russia3s A!ti'o and Satar ,e!eco'), and &ssar itse!f 5odafone %as acquired t%e 68 .er cent sta2e of 1utc%ison ,e!eco' Internationa! in Indian 'obi!e co'.an) 1utc%ison &ssar ,%e enter.rise va!ue of 1utc% &ssar was va!ued at V1= = bi!!ion (o 5odafone .aid V11 1 bi!!ion to 1,I9 for t%e 68 .er cent sta2e 5odafone assu'ed net debt of a..ro-i'ate!) V2 B bi!!ion As of now, it !oo2s !i2e &ssar wi!! re'ain t%e 'inorit) .artner wit% 33 .er cent 5odafone, %owever, said t%at it wou!d 'a2e an offer to bu) &ssar3s sta2e at t%e equiva!ent .rice .er s%are it %as agreed wit% 1,I9 5odafone a!so said in a state'ent t%at it wi!! se!! # 6 .er cent sta2e in Indian ,e!co $%arti Airte! bac2 to .ro'oters for V1 6 bi!!ion It wi!! retain t%e re'aining " " .er cent sta2e as financi ! invest'ent More i'.ortant!), 5odafone and $%arti %ave reac%ed an infrastructure s%aring agree'ent ,%e transaction c!osed in t%e second quarter of ca!endar )ear 2BB8 After t%e acquisition, 5odafone %as rena'ed 1utc% as under t%e $rand na'e of 5odafone and %as a!so s%own reasonab!e growt% b) .roviding attractive services to custo'ers 5odafone %as got access to a greater 'ar2et wit% increasing .otentia!s and strives to co'.ete in t%e growing co'.etition

RE.ERSE 'ERGER O2 ICICI >T& (IT, ICICI 3AN1 >T&, :99:

,%e ICICI 9td was one of t%e !eading deve!o.'ent > .ub!ic financia! institutions 7D>4 *Is) It %ad s.onsored a !arge nu'ber of subsidiaries inc!uding ICICI $an2 9td In 2BB2, t%e R$I .er'itted D>4 *Is to transfor' t%e'se!ves into ban2s As a ban2, ICICI 9td wou!d %ave access to !ow<cost 7de'and) de.osits and cou!d offer a wide range of .roducts

and services and greater o..ortunities for earning non<fund based inco'e in t%e for' of fee > co''ission ,%e ICICI $an2 9td a!so considered various strategic a!ternatives in t%e conte-t of e'erging co'.etitive scenario in Indian ban2ing It identified a !arge ca.ita! base and siCe and sca!e of o.erations as 2e) success factors ,%e ICICI 9td and its two ot%er subsidiaries, na'e!), ICICI Ca.ita! (ervices 9td 7ICICI Ca.ita!) and ICICI 4ersona! *inancia! (ervices 9td 7ICICI 4*s) a'a!ga'ated in reverse 'erger wit% t%e ICICI $an2 in view of its significant s%are%o!ding and t%e strong business s)nergies between t%e' As a financia! institution, ICICI 9td was offering a wide range of .roducts and services to cor.orate and retai! custo'ers in India t%roug% a nu'ber of business o.erations, subsidiaries and affi!iates ,%e ICICI 4*s, a subsidiar) of ICICI, was acting as a foca! .oint for 'ar2eting, distribution and servicing t%e retai! .roduct .ortfo!io of ICICI inc!uding auto>co''ercia! ve%ic!e !oans, credit cards, consu'er !oans and so on ,%e ICICI Ca.ita! was engaged in sa!e and distribution of various financia! and invest'ent .roducts !i2e bonds, fi-ed de.osits, De'at services, 'utua! funds and so on ,%e a..ointed dare for t%e 'erger was Marc% 3B, 2BB2 ,%e effective date was Ma) 3, 2BB2 ,%e 7reverse) 'erger of ICICI 9td and two of its subsidiaries wit% ICICI $an2 %as co'bined two organiCations wit% co'.!e'entar) strengt%s and .roducts and si'i!ar .rocesses and o.erating structure ,%e 'erger %as co'bined t%e !arge ca.ita! base of ICICI 9td wit% strong de.osit raising ca.acit) of ICICI $an2, giving ICICI $an2 i'.roved abi!it) to increase its 'ar2et s%are in ban2ing fee and co''ission w%i!e !owering t%e overa!! cost of funding t%roug% access to !ower<cost retai! de.osits ,%e ICICI $an2 wou!d now be ab!e to fu!!) !everage t%e strong cor.orate re!ations%i. t%at ICICI %as bui!t sea'!ess!), .roviding t%e w%o!e range of financia! .roducts and services to cor.orate c!ients ,%e 'erger %as a!so resu!ted in t%e integration of t%e retai! financia! o.erations of t%e ICICI and its two 'erging subsidiaries and ICICI $an2s into one entit), creating an o.ti'u' structure for t%e retai! business and a!!owing t%e fu!! range of assets and !iabi!it) .roducts to be offered to retai! custo'ers As .er t%e sc%e'e of a'a!ga'ation 7reverse 'erger) a..roved b) t%e 1ig% Court of +u0arat and 1ig% Court of Mu'bai in Marc% > A.ri! 2BB2, t%e e-c%ange ratio 7consideration) of t%e 'erger was one fu!!) .aid u. equit) s%are of Rs 1B of ICICI $an2 for 2 fu!!) .aid u. equit) s%ares of t%e ICICI 9td of t%e face va!ue of Rs 1B eac% @o s%ares were issued .ursuant to t%e a'a!ga'ation of ICICI 4*s and ICICI Ca.ita! ,%e e-c%ange ratio was deter'ined on t%e basis of a co'.re%ensive va!uation .rocess incor.orating internationa! best .ractices, carried out b) two se.arate financia! advisors

7DM Morgan (tan!e) and D(4 Merri!! 9)nc%) and an inde.endent accounting fir' 7De!oite, 1as2ins and (e!!s) ,%e equit) s%ares of t%e ICICI $an2 %e!d b) ICICI 9td were transferred to a trust, to be divested b) a..ro.riate .!ace'ent ,%e .roceeds of suc% divest'ent wou!d accrue to t%e 'erged entit) ,%e ICICI $an2 %as issued to t%e %o!ders of .reference s%ares of Rs 1 crore eac% of ICICI, one .reference s%are of Rs 1 crore fu!!) .aid u. on t%e sa'e ter's and conditions As bot% ICICI 9td and ICICI $an2 were !isted in India and : ( 'ar2ets, effective co''unication to a wide range of investors was a critica! .art of t%e 'erger .rocess It was equa!!) i'.ortant to co''unicate t%e rationa!e of t%e 'erger to do'estic and internationa! institutiona! !enders and to rating industries ,%e 'erger .rocess was required to satisf) !ega! and regu!ator) .rocedures in India, as we!! as to co'.!) wit% t%e : ( (ecurities and &-c%ange Co''ission require'ents under : ( securit) !aws ,%e 'erger a!so invo!ved significant accounting co'.!e-ities In accordance wit% t%e best .ractices in accounting, t%e 'erger %as been accounted for under t%e .urc%ase 'et%od of accounting under t%e Indian +AA4s Consequent!), ICICI3s assets %ave been fair<va!ued for t%eir incor.oration in t%e boo2s of accounts ,%e fair va!ue of ICICI3s !oan .ortfo!io was deter'ined b) an inde.endent va!uer w%i!e its equit) and re!ated invest'ent .ortfo!io was fair<va!ued b) deter'ining its 'ar2<to<'ar2et va!ue ,%e tota! additiona! .rovisions and write<offs required to ref!ect t%e fair va!ue of t%e ICICI3s assets %ave de<ris2ed t%e !oan and invest'ent .ortfo!ios and created a significant cus%ion in t%e ba!ance s%eet w%i!e 'aintaining %ea!t%) !eve!s of ca.ita! adequac) ,%e 'erger was a..roved b) t%e s%are%o!ders of bot% co'.anies in Danuar) 2BB2 and b) t%e +u0arat and Mu'bai 1ig% Courts in Marc% > A.ri! 2BB2

AC/UISITION O2 KAGUAR AN& >AN& RO.ER 3F TATA 'OTORS, :995

Daguar is a brand t%at %as e.ito'iCed !u-ur) in $ritis% cars, 0ust as $ritis% racing %as been identified wit% Aston Martin ,%e brandJs L$ritis%nessL can be deter'ined fro' t%e interesting fact t%at it is one of t%e few trade'ar2s to %o!d Ro)a! /arrants of

A..oint'ent fro' bot% Sueen &!iCabet% and 4rince C%ar!es (uc% warrants %ave been issued for centuries to t%ose w%o su..!) goods to t%e $ritis% ro)a! fa'i!), and enab!e t%e su..!iers to advertise t%is fact, !ending t%e' an air of .restige and e-c!usivit) ,%is i!!ustrious brand %ad its %u'b!e beginnings in 1A22 as t%e (wa!!ow (idecar Co'.an) founded b) two 'otorc)c!e ent%usiasts, /i!!ia' 9)ons and /i!!ia' /a!'s!e) ,%e co'.an) was origina!!) !ocated in $!ac2.oo! but 'oved to Coventr) in 1A2= w%en de'and for t%e .o.u!ar Austin (wa!!ow overs%ot t%e factor)Js ca.acit) ,oda), Daguars are asse'b!ed at Cast!e $ro'wic% in $ir'ing%a' and 1a!ewood in 9iver.oo! after t%e %istoric $rowns 9ane .!ant c!osed in 2BB# ,%e Daguar na'e first a..eared in one of t%e co'.an)Js .roducts in 1A3# < a 2 #9 sedan na'ed t%e (( Daguar, w%ere L((L stood for L(wa!!ow (idecarL After /or!d /ar II, t%e co'.an) was force to abandon t%e L((L na'e because of t%e unfortunate connotation wit% t%e @aCi secret .o!ice, t%e (c%utCstaffe! 1ence, it ado.ted t%e LDaguarL na'e in 1A"# Daguar went t%roug% a !ot of 'ergers and de<'ergers over t%e ne-t few decades It boug%t t%e Dai'!er Motor Co'.an), w%ic% %ad acquired t%e rig%t to use t%e LDai'!erL na'e in +reat $ritain fro' +ott!ieb Dai'!er %i'se!f, in 1A6B ,%is co'.an) was different fro' t%e 'ore<fa'ous Dai'!er<$enC of +er'an), and was a .art of $ir'ing%a' ('a!! Ar's Co'.an) fro' 1A1B unti! its acquisition b) Daguar, w%o t%en used t%e brand for its .re'iu' 'ode!s Daguar 'erged wit% t%e $ritis% Motor Cor.oration 7$MC) to for' $ritis% Motor 1o!dings 7$M1) in 1A66 $MC %ad ear!ier been created b) t%e 'erger of t%e Austin Motor Co'.an) and t%e @uffie!d OrganiCation 7.arent of t%e Morris car co'.an), M+, Ri!e) and /o!se!e)) in 1A#2 ,%en was t%e 'erger wit% 9e)!and in 1A6=, w%ic% %ad a!read) acquired Rover and (tandard ,riu'.% ,%e resu!tant entit) was na'ed t%e $ritis% 9e)!and Motor Cor.oration 7$9MC) 1owever, $9MC ca'e under severe financia! difficu!ties, w%ic% resu!ted in t%e R)der Re.ort of t%e :;Js @ationa! &nter.rise $oard reco''ending govern'ent su..ort, and effective nationa!iCation in 1A8# w%en t%e co'.an) was rena'ed as $ritis% 9e)!and 9td 7!ater si'.!) $9 .!c) In t%e 1A8Bs t%e Daguar and Dai'!er Marques for'ed .art of $9Js s.ecia!ist car division or Daguar Rover ,riu'.% 9td unti! a restructuring in t%e ear!) 1A=BJs saw 'ost of t%e car 'anufacturing side of $9 beco'ing t%e Austin Rover +rou. fro' w%ic% Daguar and Dai'!er were e-c!uded Daguar was f!oated on t%e 9ondon (toc2 &-c%ange in 1A=" b) t%e ,%atc%er govern'ent and subsequent!) .urc%ased b) t%e *ord Motor Co'.an) in 1AAB for V2 # bi!!ion In 1AAA it beca'e .art of *ordJs new 4re'ier Auto'otive +rou. of foreign auto'a2ers, a!ong wit% Aston Martin, 5o!vo Cars and, fro' 2BBB, 9and RoverK Aston Martin was subsequent!) so!d off in 2BB8 Daguar was one of t%e first entrants to t%e t%en<nascent wor!d of co'.etitive racing, and registered victories t%roug%out t%e 1A#Bs in t%e grue!ing 9e Mans 2" 1ours endurance race Daguar dro..ed out of t%e event after t%ese initia! successes but

returned triu'.%ant!) in t%e 1A=Bs as an engine 'anufacturer for t%e ,o' /a!2ins%aw Racing tea' Over t%e )ears, *ord s.ent c!ose to a tota! of V1B bi!!ion on t%e brand but fai!ed to return a .rofit After incurring %eav) !osses for two consecutive )ears in 2BB6 and 2BB8, *ord decided to cut its !osses and fina!!) so!d off t%e brand in Marc% 2BB= ,%e stor) of t%e 9and Rover began wit% t%e !aunc% of a .ioneering civi!ian a!!<terrain uti!it) ve%ic!e at t%e A'sterda' Motor (%ow on 3B A.ri! 1A"= @ow, t%e na'e is a co''on brand for severa! distinct 'ode!s, a!! four< w%ee! drive It %as %ad a succession of owners over t%e !ast si- decades, starting fro' its .arent Rover, to $ritis% 9e)!and, $ritis% Aeros.ace, $M/ and *ord @ow, it for's .art of ,ata Motors w%o acquired t%is brand a!ong wit% its sister 'arque Daguar fro' *ord Motors 9ong before t%e Mitsubis%i 4a0eros and t%e ,o)ota 9and Cruisers and t%e 1u'vees, s.orts uti!it) ve%ic!es 7(:5) and a!!<terrain ve%ic!es 7A,5) 'eant on!) two na'es < Dee. and 9and Rover In fact, Dee. and 9and Rover are t%e two o!dest (:5 na'es in auto'otive %istor) ,%e first 9and Rover was designed in 1A"8 w%en it was sti!! .art of t%e Rover grou. ,%e !atter beca'e .art of t%e 9e)!and Motor Cor.oration 79MC) in 1A68, w%ic% was subsequent!) 'erged wit% $ritis% Motor 1o!dings 7$M1) ne-t )ear to beco'e $ritis% 9e)!and Motor Cor.oration 7$9MC) ,%is is w%ere t%e fates of Daguar and 9and Rover converged, as t%e for'er was a!read) .art of $M1 $9MC, rena'ed as $ritis% 9e)!and 9td 7!ater si'.!) $9 .!c), underwent a 'a0or restructuring in t%e !ate 1A8Bs and ear!) 1A=Bs w%ere t%e 'ass<'ar2et car section was %ived off as t%e Austin Rover +rou. in 1A=2 Daguar and Dai'!er were not .art of t%is grou. ,%is was after nationa!iCation in 1A8# and a 'a0or cross<%o!ding arrange'ent wit% 1onda in 1A8A ,%e Austin Rover +rou. was ta2en over b) +er'an auto'obi!e 'a0or $M/ in 1AA", w%o so!d off t%e co'.an) in 2BBB after s.!itting it into t%ree .arts ,%e Mini 'arque was retained b) $M/K 9and Rover was so!d to *ord Motors for an esti'ated su' of V3 bi!!ion 7a!t%oug% $M/ retained t%e Rover trade'ar2) *ord Motors %ad a!read) boug%t Daguar in 1AAA, !eading to a co''on %o'e for t%e Daguar and 9and Rover brands As we %ave said ear!ier, t%e first 9and Rover was designed in 1A"8 and unvei!ed in 1A"= ,%e ear!) ins.iration was t%e iconic Dee. of /or!d /ar II A distinctive feature was t%eir bodies, constructed of a !ig%tweig%t rust.roof .ro.rietar) a!!o) of a!u'inu' and 'agnesiu' ca!!ed $ir'abrig%t ,%is was born out of necessit) owing to t%e s%ortage of stee! after war and abundance of aircraft a!u'inu' ,%is corrosion<resistant 'eta! a!!o) %e!.ed bui!d t%e 9and RoverJs !egendar) re.utation of toug%ness and durabi!it) ,%is es.ecia!!) endeared 9and Rover ve%ic!es to t%e $ritis% Ar') and t%e far'ing co''unit) A!t%oug% it did !ose so'e ground to Da.anese

i'.orts in t%e 1A8Bs and 1A=Bs, it regained its standing wit% i'.rove'ents in engine and c%assis In 1A8B, 9and Rover %ad introduced t%e !u-ur) (:5 Range Rover t%at %as en0o)ed considerab!e .o.u!arit) over t%e )ears In its !atest avatar as t%e Range Rover (.ort since 2BB#, it is of t%e 'ost off<road ca.ab!e ve%ic!e on t%e road toda) In fact, in t%e acc!ai'ed 'otoring s%ow ,o. +ear on $$C, %ost Dere') C!ar2son %ad .itted it against a C%a!!enger tan2 9and RoverJs /o!f is a!so fa'ous for being t%e .ri'ar) uti!it) ve%ic!e of t%e $ritis% Ar') ,%e 8#t% Ranger Regi'ent of t%e :nited (tates Ar') a!so ada.ted twe!ve versions of t%e 9and Rover t%at were officia!!) designated t%e R(O5 7Ranger (.ecia! O.erations 5e%ic!e) $ot% 9and Rover and out<of<%ouse contractors %ave offered a %uge range of conversions and ada.tations to t%e basic ve%ic!e, suc% as fire engines, e-cavators, Jc%err) .ic2erJ %)drau!ic .!atfor's, a'bu!ances, snow.!oug%s, and 6<w%ee! drive versions, as we!! as one<off s.ecia! bui!ds inc!uding a'.%ibious 9and Rovers and ve%ic!es fitted wit% trac2s instead of w%ee!s ,ata Motors is IndiaJs !argest auto'obi!e co'.an), wit% revenues of :(V = = bi!!ion in 2BB8<B= /it% over " 'i!!ion ,ata ve%ic!es .!)ing in India, it is t%e !eader in co''ercia! ve%ic!es and a'ong t%e to. t%ree in .assenger ve%ic!es It is a!so t%e wor!dJs fourt% !argest truc2 'anufacturer and t%e second !argest bus 'anufacturer ,ata cars, buses and truc2s are being 'ar2eted in severa! countries in &uro.e, Africa, t%e Midd!e &ast, (out% Asia, (out% &ast Asia and (out% A'erica ,%roug% subsidiaries and associate co'.anies, ,ata Motors %as o.erations in (out% ;orea, ,%ai!and and (.ain It a!so %as a strategic a!!iance wit% *iat ,ata Motors acquired t%e Daguar 9and Rover businesses fro' *ord Motor Co'.an) for a net consideration of :( V2 3 bi!!ion, as announced on Marc% 26, in an a!!<cas% transaction on Dune 2, 2BB= *ord %as contributed about :( V6BB 'i!!ion to t%e Daguar 9and Rover .ension .!ans Mr David ('it%, t%e acting C%ief &-ecutive Officer of Daguar 9and Rover, wou!d be t%e new C&O of t%e business Mr ('it% %as 2# )ears of e-.erience wit% Daguar 9and Rover and *ord $efore recent!) returning to Daguar 9and Rover as its C%ief *inancia! Officer, %e was Director *inance and $usiness (trateg) for 4A+ and *ord of &uro.e Daguar 9and Rover %as been acquired at a cost of :(V 2 3 bi!!ion on a cas% free, debt< free basis ,%e .urc%ase consideration inc!udes t%e owners%i. b) Daguar and 9and Rover or .er.etua! ro)a!t)<free !icenses of a!! necessar) Inte!!ectua! 4ro.ert) Rig%ts, 'anufacturing .!ants, two advanced design centers in t%e :;, and wor!dwide networ2

of @ationa! (a!es Co'.anies 9ong ter' agree'ents %ave been entered into for su..!) of engines, sta'.ings and ot%er co'.onents to Daguar 9and Rover Ot%er areas of transition su..ort fro' *ord inc!ude I,, accounting and access to test faci!ities ,%e two co'.anies wi!! continue to coo.erate in areas suc% as design and deve!o.'ent t%roug% s%aring of .!atfor's and 0oint deve!o.'ent of %)brid tec%no!ogies and .ower train engineering ,%e *ord Motor Credit Co'.an) wi!! continue to .rovide financing for Daguar 9and Rover dea!ers and custo'ers for a transition .eriod ,ata Motors is in an advanced stage of negotiations wit% !eading auto finance .roviders to su..ort t%e Daguar 9and Rover business in t%e :;, &uro.e and t%e :(, and is e-.ected to se!ect financia! services .artners s%ort!) ,%e cas% .urc%ase, .art of .!ans b) IndiaJs to. ve%ic!e 'a2er to e-.and its reac% be)ond Asia, ca..ed 'ont%s of ta!2s wit% *ord Motor Co , w%ic% is se!!ing t%e .restige brands to focus on turning around its @ort% A'erican o.erations after !osing 1# 3 bi!!ion do!!ars over t%e .ast two )ears ,ata Motors .!ans to acquire t%e brands t%roug% a 'i- of e-isting cas% reserves and new debt It recent!) announced .!ans to raise u.to one bi!!ion do!!ars to fund its do'estic and g!oba! e-.ansion It is re.orted!) .!anning to !aunc% an additiona! t%ree<bi!!ion<do!!ar s)ndicated !oan, 'uc% of it bridge financing, to cover its wor2ing ca.ita! needs for t%e .urc%ase ,%e dea! is e-.ected to c!ose b) t%e end of t%e Dune quarter, sub0ect to regu!ator) a..rova!s, t%e co'.anies said /it% t%e .urc%ase, ,ata Motors is in t%e unusua! .osition of 'a2ing t%e c%ea.est car in t%e wor!d as we!! as so'e of t%e cost!iest, wit% t%e s!ee2 Daguar P; se!!ing for around =BBBB do!!ars ,ata s%owcased its 1<!a2% 7about 2#BB do!!ars) car in t%e 2BB= @ew De!%i Auto &-.o t%is Danuar) and is a!! read) to ro!! out t%e @ano3s in Indian s%owroo's

T,E >E.ERAGE& 3UFOUT O2 RAFO.AC 3F T,O'AS ,. >EE, 877E

*ounded in 1AB6 as t%e *renc% $atter) Co'.an), Ra)ovac is t%e t%ird !argest 'anufacturer and 'ar2eter of batteries in t%e :nited (tates ,%e co'.an) is %eadquartered in Madison, /isconsin, and as of Du!) 1AA6, Ra)ovac e'.!o)ed 2"=B e'.!o)ees In 1AA6, ,%o'as 4)!e, c%air'an and C&O of t%e co'.an), toget%er wit% %is fa'i!), owned A1 3? of t%e Ra)ovac3s ca.ita! stoc2 ,%e re'ainder was owned b) t%e officers of t%e co'.an) /it%in t%e genera! batter) 'ar2et, t%e co'.an) is t%e !eader in a nu'ber of areas, inc!uding E

1) ,%e %ouse%o!d rec%argeab!e and %eav) dut) batter) seg'ents, 2) 1earing aid batteries, 3) 9antern batteries, and ") 9it%iu' batteries for .ersona! co'.uter 'e'or) bac2u. In addition, Ra)ovac is one of t%e !eading 'ar2eters of f!as%!ig%ts and ot%er batter)< .owered !ig%ting .roducts in t%e : ( 'ar2et ,%e co'.an) 'ar2ets and se!!s its .roducts in t%e :nited (tates, &uro.e, Canada and *ar &ast t%roug% a variet) of distribution c%anne!s, inc!uding retai!, industria!, .rofessiona!, and O&Ms $) .ositioning its .roducts as a va!ue brand in t%e ear!) 1A=Bs, t%e co'.an) beca'e t%e !eader in t%e 'ass 'erc%andise retai! c%anne!, a ra.id!) growing retai! seg'ent in t%e :nited (tates and Canada Ra)ovac offers batteries of substantia!!) t%e sa'e qua!it) and .erfor'ance, but at a !ower .rice t%an t%ose of its co'.etitors Ra)ovac3s financia! .erfor'ance de.ends on a nu'ber of factors, inc!uding genera! retai!ing trends, t%e co'.an)3s .roduct 'i-, and t%e co'.an)3s re!ative 'ar2et .osition, w%ic% is affected b) t%e be%avior of its co'.etitors At t%e end of financia! )ear 1AA#<A6, t%e co'.an) %ad a net .rofit of V 1" 3 'i!!ion In !ate 1AA#, Ra)ovac3s .rinci.a! owner and C&O, ,%o'as 4)!e, contacted Merri!! 9)nc% to discuss t%e co'.an)3s strategic a!ternatives As Mr 4)!e edged c!oser to retire'ent, %e wis%ed to consider t%e .ossibi!it) of !iquidating a!! or .art of %is invest'ent in t%e co'.an) ,%e) narrowed t%eir searc% to two a!ternatives E a .rivate sa!e to financia! bu)er or a sa!e to a co'.etitor, suc% as Durace!! or energiCer As t%e Merri!! 9)nc% descri.tive 'e'orandu' 'ade its wa) into t%e %ands of a nu'ber of .otentia! suitors, few bids were offered Des.ite t%e fact t%at t%e dea! %ad begun to see' Fe-cessive!) s%o..ed3, ,%o'as 1 9ee 7,19) decided it was wort% carefu! consideration ,193s interest was driven b) a nu'ber of factors E 1) ,%e overa!! growt% of t%e batter) 'ar2et %ad grown at an average of #? over t%e .ast # )ears and was e-.ected to continue to grow at or above t%is rate over t%e s%ort ter' 2) Ra)ovac %ad su.erior .ositions in %earing aid, rec%argeab!e, and !it%iu' batter) 'ar2ets over its co'.etitors 3) Ra)ovac %ad invested considerab!) over t%e .ast 3 )ears to 'oderniCe its .roduction faci!ities ") ,%e e-isting 'anage'ent tea' offered strong e-.erience in t%e batter) 'ar2et #) ,%e co'.an) generated strong and stead) cas% f!ow 6) ,%ere was .otentia! for significant cost savings ,19 a!so %ad a nu'ber of concerns ,%e business %ad dec!ined during t%e ti'e t%e co'.an) was u. for sa!e In addition, Mr 4)!e %ad it c!ear t%at %e .!anned to ste. aside under an) dea! scenario As a resu!t t%e to. .riorit) for ,19 was finding t%e rig%t 'anage'ent tea' to ta2e over in event t%e) were successfu! in t%e bid

,19 recruited Mr David Dones to 'anage t%e co'.an) 4rior to t%e Ra)ovac o..ortunit), Dones was COO, C&O and c%air'an of ,%er'oscan Inc , a 'anufacturer and 'ar2eter of infrared ear t%er'o'eters, a!so contro!!ed b) ,19 Dones %ad over 2# )ears of wor2 e-.erience, invo!ving .ositions in o.erations, 'anufacturing and 'ar2eting Mer!in ,o'!in and Randa!! (teward were a!so invited to !eave ,%er'oscan and 0oin Dones as senior vice .resident of sa!es and senior vice .resident and C*O, res.ective!) On (e.te'ber 12, 1AA6, ,19 ca'e to ter's wit% Mr 4)!e on a dea! to bu) a 'a0orit) of Ra)ovac3s co''on stoc2 ,%e transaction va!ued Ra)ovac at V 326 'i!!ion or a..ro-i'ate!) 8 #- trai!ing 12 'ont%s &$I,DA, a s%ar. discount to t%e 1# B- 'u!ti.!e +i!!ette %ad .aid for Durace!! 0ust wee2s ear!ier In addition, it re.resented a dee. discount fro' t%e V #BB 'i!!ion va!uation t%at Ra)ovac and Merri!! 9)nc% %ad considered at t%e start of t%e .rocess (i'u!taneous wit% t%e acquisition of t%e co'.an), ,19 reca.ita!iCed Ra)ovac As a resu!t of reca.ita!iCation, ,19, toget%er wit% David Dones, owned =B 2?K 4)!e owned A A? and e-isting 'anage'ent A A? of Ra)ovac3s co''on stoc2 ,%e sources and uses of funds in connection wit% t%e reca.ita!iCation are given be!ow E (O:RC&( Revo!ving Credit *aci!it) ,er' 9oan *aci!it) $ridge @otes &quit) Invest'ent b) ,19 Continuing (%are%o!ders3 &quit) Invest'ent *oreign Debt and Ca.ita! 9eases ,ota! sources :(&( Retire'ent of Ra)ovac Co''on (toc2 4urc%ase of @ew!) Issued Co''on (toc2 b) ,19 Continuing (%are%o!ders3 &quit) Invest'ent Re.a)'ent of &-isting Debt *ees and &-.enses Re!ated to t%e Reca.ita!iCation *oreign Debt and Ca.ita! 9eases ,ota! :ses V 128 " 82 B 1= B =# 2 1= " ## V 326 # V 26 B 1B# B 1BB B 82 B 1= B ## V 326 #

After t%e !everaged bu)out, t%e new 'anage'ent tea' i''ediate!) went to wor2 i'.!e'enting t%e .!an to reduce costs and grow revenues for'u!ated during t%e di!igence .eriod ,%e .!an focused on t%e fo!!owing E 1) Reinvigorating t%e Ra)ovac brand na'e t%roug% increased advertiCingK 2) +rowing 'ar2et s%are b) e-.anding Ra)ovac3s .resence in underre.resented retai! c%anne!s, suc% as food stores, drug stores, and ware%ousesK 3) Reducing costs b) rationa!iCing 'anufacturing and distribution, i'.roving .!ant uti!iCation, and reducing over%eadsK and ") Increasing wor2er .roductivit) t%roug% insta!!ation of new infor'ation s)ste's and training In tota!, Dones3s near<ter' targets were 1B? to. !ine growt% and 2B? &$I, growt% .er annu' Dones and %is 'anage'ent tea' wor2ed %ard to .us% decision 'a2ing !ower into t%e organiCation and e-.ected e'.!o)ees to acce.t res.onsibi!it) ,%is initiative was aided b) t%e introduction of a new incentive structure t%at encouraged co''unication across divisions, ris2 ta2ing, and continuous i'.rove'ent A!t%oug% 'an) Ra)ovac e'.!o)ees .ros.ered in t%e new .erfor'ance<based environ'ent, t%e co'.an) !ost 3B to "B .ercent of its cor.orate staff in t%e first )ear after t%e bu)out At an ear!) stage, t%e .!an began to s%ow resu!ts ,%e cost reduction .!an resu!ted in cas% cost savings of V 6 3 'i!!ion for fisca! 1AA8 and was .ro0ected to )ie!d V = 6 'i!!ion in savings on an ongoing basis Ra)ovac3s gross 'argins increased fro' "3 1? in 1AA6 to "# =? in 1AA8, ref!ecting not on!) its cost reduction but a!so its 'ar2eting efforts and greater focus on %ig% 'argin .roducts In ter's of 'ar2et s%are, Ra)ovac continued its do'ination of t%e rec%argeab!e and %earing aid batter) seg'ents, in addition to ac%ieving gains in t%e a!2a!ine batter) sa!es

Conc!usions an &iscussions +
,%us we see t%at t%e 'ar2et for cor.orate contro! is one w%ere various 'anage'ent tea's co'.ete to gain contro! of cor.orate resources, %o.ing to .ut t%e' to 'ore .roductive uses ,%oug% t%ere are severa! difficu!ties and barriers to t%e success of a restructuring sc%e'e, t%e 'ar2et for t%e sa'e is constant!) increasing On an average about eig%t to ten restructurings are .ro.osed ever) wor2ing da) a!! over t%e wor!d ,%oug% 'ost of t%e' are successfu!, so'e fai! Mergers and acquisition re'ain t%e 'ost .o.u!ar for' of restructuring and constitute 'ore t%an =B .ercent of t%e tota! .ro.osed restructurings ,%e successfu! restructurings, as discussed in t%e case studies, ca'e out to be ver) advantageous for t%e concerned .arties If t%e .ro.osed restructuring sc%e'e is ana!)Ced 2ee.ing in view t%e circu'stances, t%e various as.ects and t%e .ossib!e outco'es, t%en t%e restructuring is sure to be beneficia! for t%e co'.anies invo!ved, create va!ue for t%e' and en%ance s%are%o!der wea!t% @ow a da)s, co'.anies3 e-.ansion .!ans co'.rise essentia!!) and 'ost!) of .ro.ositions of acquisitions and 'ergers, wit%in t%e countr) or cross<border ,%e 'ost fa'ous e-a'.!e for t%is is t%e ,A,A grou., %eaded b) Ratan ,ata ,%e co'.an) %as acquired nu'erous co'.anies fro' a!! over t%e wor!d under its e-.ansion sc%e'e over t%e !ast few )ears inc!uding 18 in 2BB#, = in 2BB6, = in 2BB8 7inc!uding t%e euro stee! giant Corus), and # in 2BB= 7ti!! A.ri! t% 1B ) A!! t%ese e-.ansions %ave %e!.ed ,ata to en%ance its s%are%o!der3s va!ue considerab!) and %ave s%own 'agnificent financia! resu!ts over t%e .ast )ears 1owever, in .ursuing t%ese acquisitions, t%e co'.an) %as a!so raised significant a'ount of !everage ,%is 'a) a .oint of concern for t%e 'anage'ent ,%us t%e too! of acquisitions and 'ergers, if a..!ied carefu!!), .resents a unique and ver) attractive wa) of e-.ansion as we!! as ot%er benefits !i2e ta- benefits, 'ar2et do'ination etc as discussed ear!ier

A))en ices +

A))en i4 8 + Accountin% treat$ent of $er%ers, acquisitions or ot#er for$s of

restructurin% &ar!ier, t%ere were two 'et%ods of accounting for acquisitions E .urc%ase or .oo!ing< of<interests E governed b) so'et%ing ca!!ed A4$ 16 During t%e !ate 1A=Bs and t%roug%out t%e 1AABs, t%e A'erican accounting .rofession %ad !engt%) and s.irited discussions on t%e issue of accounting for business co'binations As a resu!t of t%ose discussions, t%e *inancia! Accounting (tandards $oard 7*A($) issued *A( 1"1 < $usiness Co'binations, and *A( 1"2 < +oodwi!! and Ot%er Intangib!e Assets :nder *A( 1"1, a!! business co'binations are accounted for under ru!es ca!!ed Lt%e acquisition 'et%od L Recent!) t%e *A($ %as issued a 236 .age e-.osure draft of a new state'ent as .art of a 0oint effort wit% t%e Internationa! Accounting (tandards $oard 7IA($) Lto i'.rove financia! re.orting w%i!e .ro'oting t%e internationa! convergence of accounting standardsL ,%e new state'ent wou!d re.!ace *A( 1"1 /%i!e .ro.osed state'ent 'a2es a nu'ber of c%anges, t%e resu!t is sti!! t%at a!! business co'binations are accounted for under t%e acquisition 'et%od

A))en i4 : + Cor)orate .otin% an Contro!

In as 'uc% as t%e co''on stoc2%o!ders of a co'.an) are its owners, t%e) are entit!ed to e!ect a board of directors ,%e board in turn se!ects t%e 'anage'ent, w%ic% actua!!) contro!s t%e o.erations of t%e co'.an) De.ending u.on t%e cor.orate c%aracter, t%e board of directors is e!ected eit%er under a $aBorit" votin% s"ste$, in w%ic% eac% s%are%o!der casts one vote .er s%are %e!d for eac% director .osition o.en, or under a cu$u!ative votin% s"ste$, under w%ic% a s%are%o!der is ab!e to accu'u!ate votes and cast t%e' for !ess t%an t%e tota! nu'ber of directors being e!ected ,%e tota! nu'ber of votes is t%e nu'ber of s%ares %e!d ti'es t%e nu'ber of directors being e!ected Pro4ies an Pro4" Contests + 5oting 'a) be eit%er in .erson at t%e stoc2%o!der3s annua! 'eeting or b) .ro-) A .ro-) is a for' a stoc2%o!der signs giving %is or %er rig%t to vote to anot%er .erson or .ersons ,%e (ecurities and &-c%ange Co''ission 7(&C) regu!ates t%e so!icitation of .ro-ies and a!so requires co'.anies to disse'inate infor'ation to its stoc2%o!ders t%roug% .ro-) 'ai!ings $ecause of t%e fact t%at 'anage'ent is

ab!e to 'ai! infor'ation to stoc2%o!ders at t%e co'.an)3s e-.ense and t%e .ro-) s)ste', t%e 'anage'ent %as a distinct advantage in t%e voting .rocess $ut outsiders can a!so seiCe contro! of a co'.an) t%roug% a )ro4" contest. /%en an outsider underta2es a .ro-) raid, it is required to register its .ro-) state'ent wit% t%e (&C to .revent t%e .resentation of 'is!eading or fa!se infor'ation In a .ro-) contest, t%e odds favor t%e 'anage'ent to win as it %as bot% t%e organiCation and t%e use of co'.an)3s resources to carr) on t%e .ro-) fig%t

A))en i4 < + &istress Restructurin%

Co'.anies e-.eriencing financia! difficu!t) are often restructured /%i!e so'e of t%e cor.orate restructuring devices i!!ustrated in t%ese notes 'a) be a..!icab!e, t%is usua!!) is not t%e case Instead different strategies are in order for 'anage'ent, for equit) %o!ders, and for creditors As w%at can be done is rooted in ban2ru.tc) !aw, t%ere are so'e re'edies avai!ab!e to a fai!ing co'.an) ,%ese var) in %ars%ness according to t%e degree of financia! difficu!t) ,%ese re'edies inc!ude E 9 .o!untar" sett!e$ents an workouts w%ere t%e co'.an) negotiates wit% its !enders or creditors for an e-tension of 'aturit) .eriod or .ro rata sett!e'ent in cas% and>or .ro'issor) notes, infor'a!!), out of t%e courts ,%oug% !aw)ers 'a) be invo!ved 9 .o!untar" !iqui ation re.resents an order!) .rivate !iquidation of a co'.an) a.art fro' t%e ban2ru.tc) courts It is !i2e!) to be 'ore efficient and t%e creditors a!so receive a %ig%er sett!e'ent as 'an) of t%e costs of ban2ru.tc) are avoided 9 >iqui ation + If t%ere is no %o.e for t%e successfu! o.eration of t%e co'.an), !iquidation under t%e ban2ru.tc) !aw is t%e on!) feasib!e a!ternative :.on .etition of ban2ru.tc), t%e debtor obtains te'.orar) re!ief fro' creditors unti! a decision is reac%ed b) t%e ban2ru.tc) court ,%e court a..oints an interi' trustee to ta2e over t%e o.eration of t%e co'.an), wit% t%e res.onsibi!it) of !iquidating t%e .ro.ert) of t%e co'.an) and distributing !iquidating dividends to creditors 9 Reor%ani-ation + Conce.tua!!), a fir' s%ou!d be reorganiCed if it3s reorganiCed wort% as an o.erating entit) is greater t%an its !iquidating va!ue ReorganiCation is an effort to 2ee. a co'.an) a!ive b) c%anging its ca.ita! structure As !ong as t%e cor.oration %as so'e o.tion va!ue, t%e) 'a) benefit in t%e future, w%ereas wit% !iquidation t%e) usua!!) receive not%ing ,%e fact t%at a %ig% .ro.ortion of co'.anies t%at reorganiCe !ater 'ust be !iquidated ca!!s into question t%e tendenc) to .reserve co'.anies

9 Pre)acka%e bankru)tc" + (o'eti'es, 'anage'ent wi!! arrange a .re.ac2aged ban2ru.tc), w%ic% fa!!s so'ew%ere between a wor2out and a for'a!, e-tended ban2ru.tc) At t%e ti'e of fi!ing a ban2ru.tc) .etition, t%e distressed co'.an) a!so fi!es a reorganiCation .!an Manage'ent %as .revious!) struc2 an agree'ent wit% 'ost creditors as to t%e ter's of t%e .!an ,%e advantage of .re.ac2aged ban2ru.tc) is t%at it reduces t%e ti'e in reorganiCation and t%e costs A!so, as o..osed to an infor'a! wor2out, .er'its 'ore f!e-ib!e use of net o.erating !oss carr)< forwards for ta- .ur.oses ,%is is a cas% f!ow advantage to t%e fir'

**** End of Notes ****