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Presumptive analysis of the topic:

A merger is a tool used by companies for the purpose of expanding their


operations often aiming at an increase of their long term profitability. Usually
mergers occur in a consensual (occurring by mutual consent) setting where
executives from the target company help those from the purchaser in a due diligence
process to ensure that the deal is beneficial to both parties. Acquisitions can also
happen through a hostile takeover by purchasing the majority of outstanding shares
of a company in the open market against the wishes of the target's board. In the
United States, business laws vary from state to state whereby some companies
have limited protection against hostile takeovers. One form of protection against a
hostile takeover is the shareholder rights plan, otherwise known as the "poison pill".

Historically, mergers have often failed (Straub, 2007) to add significantly to the value
of the acquiring firm's shares (King, et al., 2004). Corporate mergers may be aimed
at reducing market competition, cutting costs (for example, laying off employees,
operating at a more technologically efficient scale, etc.), reducing taxes, removing
management, "empire building" by the acquiring managers, or other purposes which
may or may not be consistent with public policy or public welfare.

M&A : Background & Scenario:


A survey shows that 81% of the companies have considered M&As and 30% have
actually done a transaction in the past 3 years. Over 70% say that they expect to do
a deal in the next 3 years. All this denotes that we are set for an M&A boom in the
years to come. Global M&A volumes of $10bn a day, India’s $18bn for the year 2005
indicates that there is still a long way to go. The trend is clearly on the way up.

M&A in 2006-07 - $ 3.6 Trillion

M&A in 2005-06 - $ 3.55 Trillion (data by Bloomberg)

October 2006 M&A deals - $ 262 Billion


The Asian M&A market saw 5792 deals worth $ 255.07 billion

China alone was the largest market with 1862 deals worth $54.76 billion Corporate
India has gone on an acquisition spree, powered by the urge to go global, strong
market fundamentals and the drive to dish out cost-competitive products.
Acquisitions were not limited to the domestic market, but spread out in the global
arena also.
Though India's public sector took the lead in investing abroad, especially looking for
oil assets, the private sector is now going full speed ahead, driving overseas
investments e.g.

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Introduction of the topic:
In an Indian market economy, the nature of competition is embodied in five
competitive forces:

 The threat of new entrants.


 The threat of substitute products and service.
 The bargaining power of buyer.
 The bargaining power of suppliers.
 The rivalry among the existing competition.

These forces which were subdued so far would start working with vigor and vitality
due to liberalization and consequent globalization. till recently, acquisition of one
company by another wad viewed, in India, as a sign of failure of the former and
violent aggression of the latter. The laws and regulation generally allowed the
takeover of only seek, dying, moribund, impossible, unviable and almost hopeless
units. The acquirer was driven mostly by the tax benefit of the loss carry forward.
There are now more economic reasons and wider choices for take over.

The globalization may entail redundancies and closures of inefficient units as a


consequence of technological up gradation and modernization as it opens the flood
gates of competition between unequal partners. The working units below average
efficiency and in public sector which were hitherto enjoying the protection are likely
to face retrenchment closure of the inefficient units.

Now the Indian industry is finding an “Excel or Exit environment”. If an industrial unit
wants to survive, it has to excel and compete successfully both with domestic and
multinational competitors in internal as well as in international market. If one cannot
do it the market forces would show such lethargic units the exit door of the industrial
arena. All the Indian companies should realize that they have to pay skillfully dice
witch are heavily loaded in favor of multinational companies with vest recourses,
advenced technology and enviable managerial skills.

Merger and acquisition (M&A) and corporate restructuring are a big part of the
corporate finance word. Everyday, Wall Street investment bankers arrange M&A
transaction, which bring separate companies together to form larger one’s. when
they are no creating big companies from smaller one’s, corporate finance deals do
the reserve and breakup companies through spin-offs ,carve-outs of tracking stock.
Not surprisingly, these actions often make the news. Deals can be worth of 100 of
millions, or even billion, of dollars. They can dictate the fortune of the companies
involved for years to come. For a CEO, leading a M&A represent a highlight of whole
career.

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CONCEPTUAL FRAMEWORK:
Definition & Meaning:-

The term relating to M&A are defined as below.

Acquisition:-An acquisition, also known as a takeover, is the buying of one


company (the ‘target’) by another. An acquisition may be friendly or hostile.
Sometimes, however, a smaller firm will acquire management control of a larger
or longer established company and keep its name for the combined entity. This
is known as a reverse takeover.

Merger: - In business or economics a merger is a combination of two


companies into one larger company. Such actions are commonly voluntary and
involve stock swap or cash payment to the target. Stock swap is often used as
it allows the shareholders of the two companies to share the risk involved in the
deal.

Amalgamation:-As a result of a merger, if a new company comes into existence,


it is a process of “Amalgamation”.

Absorption:- If as result of merger , one company survives and others lose there
independent entity, it is case of “Absorption”.

Classifications of mergers:
Horizontal mergers:- Horizontal mergers take place where the two
merging companies produce similar product in the same industry.

Vertical mergers:- Vertical mergers occur when two firms, each working
at different stages in the production of the same good, combine.

Concentric mergers:- Concentric mergers occur where two merging


firms are in the same general industry, but they have no mutual
buyer/customer or supplier relationship, such as a merger between a bank
and a leasing company. Example: Prudential's acquisition of Bache &
Company.

Conglomerate:-Conglomerate mergers take place when the two firms


operate in different industries.

Accretive Mergers:- Accretive mergers are those in which an acquiring


company's earnings per share (EPS) increase. An alternative way of
calculating this is if a company with a high price to earnings ratio (P/E)
acquires one with a low P/E.

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A unique type of merger called a reverse merger is used as a way of
going public without the expense and time required by an IPO.

Dilutive mergers:-Dilutive mergers are the opposite of above, whereby a


company's EPS decreases. The company will be one with a low P/E acquiring
one with a high P/E.

Types of acquisition:
The buyer buys the shares, and therefore control, of the target company being
purchased. Ownership control of the company in turn conveys effective control over
the assets of the company, but since the company is acquired intact as a going
business, this form of transaction carries with it all of the liabilities accrued by that
business over its past and all of the risks that company faces in its commercial
environment.

The buyer buys the assets of the target company. The cash the target receives from
the sell-off is paid back to its shareholders by dividend or through liquidation. This
type of transaction leaves the target company as an empty shell, if the buyer buys
out the entire assets. A buyer often structures the transaction as an asset purchase
to "cherry-pick" the assets that it wants and leave out the assets and liabilities that it
does not.

The terms "demerger", "spin-off" and "spin-out" are sometimes sad to indicate a
situation where one company splits into two, generating a second company
separately listed on a stock exchange.

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Motives behind M&A:
These motives are considered to add shareholder value:

Synergy:- This refers to the fact that the combined company can often
reduce duplicate departments or operations, lowering the costs of the
company relative to the same revenue stream, thus increasing profit.

Increased revenue/Increased Market Share:- This motive assumes that the


company will be absorbing a major competitor and thus increase its power (by
capturing increased market share) to set prices.

Cross selling:- For example, a bank buying a stock broker could then sell its
banking products to the stock broker's customers, while the broker can sign
up the bank's customers for brokerage accounts. Or, a manufacturer can
acquire and sell complementary products.

Economies of Scale:- For example, managerial economies such as the


increased opportunity of managerial specialization. Another example are
purchasing economies due to increased order size and associated bulk-
buying discounts.

Taxes:- A profitable company can buy a loss maker to use the target's loss
as their advantage by reducing their tax liability. In the United States and
many other countries, rules are in place to limit the ability of profitable
companies to "shop" for loss making companies, limiting the tax motive of an
acquiring company.

Geographical or other diversification:- This is designed to smooth the


earnings results of a company, which over the long term smoothens the stock
price of a company, giving conservative investors more confidence in
investing in the company. However, this does not always deliver value to
shareholders (see below).

Resource transfer:- resources are unevenly distributed across firms


(Barney, 1991) and the interaction of target and acquiring firm resources can
create value through either overcoming information asymmetry or by
combining scarce resources.

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These motives are considered to not add
shareholder value:
Diversification:- While this may hedge a company against a downturn in an
individual industry it fails to deliver value, since it is possible for individual
shareholders to achieve the same hedge by diversifying their portfolios at a much
lower cost than those associated with a merger.

Manager's hubris:- manager's overconfidence about expected synergies from


M&A which results in overpayment for the target company.

Empire building:- Managers have larger companies to manage and hence more
power.

Manager's compensation:- In the past, certain executive management teams


had their payout based on the total amount of profit of the company, instead of the
profit per share, which would give the team a perverse incentive to buy companies to
increase the total profit while decreasing the profit per share.

Vertical integration:- Companies acquire part of a supply chain and benefit


from the resources. However, this does not add any value since although one end of
the supply chain may receive a product at a cheaper cost, the other end now has
lower revenue.

METHODS OF PAYMENT IN M&A:


The methods of payment in M&A and its advantage are as follow:

Cash:-where one company purchases the shares or assets of another for


cash, the shareholders of the latter company ceases to have any interest in
the combined business.

From the point of view of the selling shareholders, they take a certain cash
sum and will be liable to capital gains tax on the disposal of the share.

From the point of view of the purchasing company, its cash holding will
decrease. Sometimes the use of cash gives a better chance of success
provided the earning of the company witch is purchases are greater than the
earnings which could be using cash in other ways.

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Loan stock :-in this case the selling shareholders, either directly or
indirectly, exchange share in one company for loan stock in another company.
Hanne an equity investment is exchanged for a fixed interest investment,
which may or may not be an advantage, depending upon the relative values of
the securities and the circumstances of the individual investor. Any liability to
capital gain tax will be deferred until ultimate disposal of the loan share.

From the point of view of the shareholders of the company which is


purchasing the shares or net assets, there may be an advantage with the level
of gearing increased. In addition, interest on the loan stock will be deductible
for corporation tax purposes.

ORDINARY SHARES:-A share for share exchange is often the method used
in combination involving large companies. Here the shareholder merely
exchanges his share in one company for share in another company.

Form the point of view of selling shareholders, this may have benefits,
although the extent to which they exist will depend on the combination and
the r5relite values of the shares. The selling shareholder continues to have an
interest in the combined business with the benefit and not be subject to
capital gains tax on the exchange. Against this the value of the security which
he receives is not certain but will depend upon market reaction to the
combination.

Form the point of the combined companies a share exchange does not affect
there liquidity. The extent to which it is benefit for the existing shareholders of
the company must depend upon the relative value of the share.

Convertible loan stock:- the issue of Convertible loan stock has become
more common and has been used in connection with business combination.
In such a case, shareholder in one company exchange there shares for
convertible loan stock in another company.

Form the point of view of a selling shareholders, he exchange an equity


investment for a fixed interest security, but one which is convertible into an
equity investment at some in the future if he so wishes. Thus if in future share
price move in his favor he will be able to take up his equity interest while, if
they move against him, he will be able to retain his fixed interest investment
again, any liability to capital gains tax is deferred until ultimate disposal of the
convertible stock or equity share issued in exchange.

Form the point of view of the company issuing such securities, the interest on
the loan stock is deductible for taxation purpose and the debt is self-
liquidating if loan holders convert loan stock in to ordinary shares. If loan
holders do \convert, the tax deductibility is, of course, lost and in addition
there is a reduction in gearing and possible dilution of the existing
shareholders interest.

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STEP IN MERGER TRANSACTIONS:
Generally the m transaction includes the following steps:-

SCREENING AND INVESTIGATION OF MERGER PROPOSAL:-


when there is an intention of acquisitions or merger of the business
unit, the primary step is an that of screening and motive needs it be
jagged against three strategic criteria i.e. business fit , management and
financial strength. Once the proposal fit into the strategic motive of the
acquire, then there proposed acquire will be collect all relevant
information relating to the target company about share price movement,
earning, dividend, market share management, shareholding pattern,
gearing, finalcial position, benefit form proposed acquisition etc.

NEGOTIATIIN STAGE:-The negotiation is an important stage in


which the bargain is made in order to secure the highest price by the
seller and acquire keen to limit the price of the bid. Before the
negotiation starts, the seller needs to decide the minimum price
acceptable and the buyer needs to decide the maximum he is prepared
to pay. After the consideration is decided then the payment terms and
exchange ratio is an important factor. In the process of amalgamation.
This has to worked out by valuing the share of both, transfer and
Transfer Company as per norms and methods of valuation of valuation
of share. Approved value or a firm of chartered accountants will
evaluate the share on basis of audit accounts as on the transfer date.

APPROVAL OF SHAREHOLDERS:-As per the provisions of the


companies Act.1956, the shareholders of both seller and acquire
companies hold meeting under the directions of the respective high
court and consider the scheme of amalgamation. A separate meeting
fore both preference and equity shareholders is convened for this
purpose.

APPROVAL OF CREDITORS/ FINANCIAL INSTITUTIONS/


BANKS:- approval firm the constituents for the scheme of m and
acquisition are required to be sought for as per the respective
agreement or arrangement with each of them and there interest is
considered in drawing up the scheme of merger.

APPROVAL OF PROPOSEL BY BOARD OF DIRECTORS:-


deciding upon the consideration of the deal and terms payment, then
the proposal will be put for the Board of director approval.

APPROVAL OF RESPECTIVE HIGH COURT:- approval of the


respective high court of seller and acquirer, conforming the scheme of
amalgamation are required. The court shall issue order fir winding up of

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the amalgamation company without dissolution on the report form the
official liquidator and the regional director that the affairs of the
amalgamation company have not been conducted in a manner
prejudicial to the interest of its member or to public interest.

APPROVAL OF CENTRAL GOVERNMENT:-declaration of the


central government on the recommendation made by the specified
authority under Section 72A of the income Tax Act, if applicable.

INTEGRATION STAGE:- The structural and cultural aspects of the


two organizations, if carefully integrated in the new organization will
lead to the successful m and ensure that expected benefits of the
merger are realized.

TAX BENEFITS OF M&A:


Some of the benefit available under various provisions of the income-Tax Act,
1961 for amalgamating companies is as follows:-

ACCUMULATED LOSSES AND UNABSORBED


DEPRECIATION :-section 72A(1) of the income-Tax Act, 1961 subject
to certain conditions , the benefit of setting off of the accumulated
losses and unabsorbed depreciation of amalgamation company , under
the approval of the scheme of amalgamation by the central government.

INVESTMENT ALLOWANCE:-section 32A of the income-Tax 1961,


provides for the allowances of tax deduction on investment allowance
subject to the conditions contained in the said section. This benefit can
be availed if the amalgamating company has any unabsorbed
investment allowance. The amalgamated company can set-off such
unabsorbed amount against its own profit with in the period off 8 years
commencing with the year in which amalgamating company was also
entitled to invest allowance. Beside this tax benefit, companies can also
avail benefit of development rebate, development allowance and on
capital gains.

DEPRECIATON CLAIM:-when the amalgamating company transfers


depreciable assets to the amalgamated company, then the amalgamated
company can claim depreciation on the written-down value of the
transferred assets in the books of amalgamating company.

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Distinction between Mergers and Acquisitions:
Although they are often uttered in the same breath and used as though they
were synonymous, the terms merger and acquisition mean slightly different
things.

When one company takes over another and clearly established itself as the
new owner, the purchase is called an acquisition. From a legal point of view,
the target company ceases to exist, the buyer "swallows" the business and
the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of
about the same size, agree to go forward as a single new company rather
than remain separately owned and operated. This kind of action is more
precisely referred to as a "merger of equals." Both companies' stocks are
surrendered and new company stock is issued in its place. For example, both
Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a
new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often.


Usually, one company will buy another and, as part of the deal's terms, simply
allow the acquired firm to proclaim that the action is a merger of equals, even
if it's technically an acquisition. Being bought out often carries negative
connotations, therefore, by describing the deal as a merger, deal makers and
top managers try to make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that
joining together is in the best interest of both of their companies. But when the
deal is unfriendly - that is, when the target company does not want to be
purchased - it is always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends


on whether the purchase is friendly or hostile and how it is announced. In
other words, the real difference lies in how the purchase is communicated to
and received by the target company's board of directors, employees and
shareholders. It is quite normal though for M&A deal communications to take
place in a so called 'confidentiality bubble' whereby information flows are
restricted due to confidentiality agreements (Harwood, 2006).

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Business valuation:
The five most common ways to valuate a business are

• asset valuation,
• historical earnings valuation,
• future maintainable earnings valuation,
• relative valuation (comparable company & comparable Transactions),
• discounted cash flow (DCF) valuation

Professionals who valuate businesses generally do not use just one of these
methods but a combination of some of them, as well as possibly others that are not
mentioned above, in order to obtain a more accurate value. These values are
determined for the most part by looking at a company's balance sheet and/or income
statement and withdrawing the appropriate information. The information in the
balance sheet or income statement is obtained by one of three accounting
measures: a Notice to Reader, a Review Engagement or an Audit.

Accurate business valuation is one of the most important aspects of M&A as


valuations like these will have a major impact on the price that a business will be
sold for. Most often this information is expressed in a Letter of Opinion of Value
(LOV) when the business is being valuated for interest's sake. There are other, more
detailed ways of expressing the value of a business. These reports generally get
more detailed and expensive as the size of a company increases, however, this is
not always the case as there are many complicated industries which require more
attention to detail, regardless of size.

M&A marketplace difficulties:


No marketplace currently exists for the mergers and acquisitions of privately owned
small to mid-sized companies. Market participants often wish to maintain a level of
secrecy about their efforts to buy or sell such companies. Their concern for secrecy
usually arises from the possible negative reactions a company's employees,
bankers, suppliers, customers and others might have if the effort or interest to seek
a transaction were to become known. This need for secrecy has thus far thwarted
the emergence of a public forum or marketplace to serve as a clearinghouse for this
large volume of business.

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At present, the process by which a company is bought or sold can prove difficult,
slow and expensive. A transaction typically requires six to nine months and involves
many steps. Locating parties with whom to conduct a transaction forms one step in
the overall process and perhaps the most difficult one. Qualified and interested
buyers of multimillion dollar corporations are hard to find. Even more difficulties
attend bringing a number of potential buyers forward simultaneously during
negotiations. Potential acquirers in an industry simply cannot effectively "monitor"
the economy at large for acquisition opportunities even though some may fit well
within their company's operations or plans.

The market inefficiencies can prove detrimental for this important sector of the
economy. Beyond the intermediaries' high fees, the current process for mergers and
acquisitions has the effect of causing private companies to initially sell their shares
at a significant discount relative to what the same company might sell for were it
already publicly traded. An important and large sector of the entire economy is held
back by the difficulty in conducting corporate M&A (and also in raising equity or debt
capital). Furthermore, it is likely that since privately held companies are so difficult to
sell they are not sold as often as they might or should be.

One part of the M&A process which can be improved significantly using networked
computers is the improved access to "data rooms" during the due diligence process
however only for larger transactions. For the purposes of small-medium sized
business, these data rooms serve no purpose and are generally not used. Reasons
for frequent failure of M&A was analyzed by Thomas Straub in "Reasons for frequent
failure in mergers and acquisitions - a comprehensive analysis", DUV Gabler Edition,
2007.

The Great Merger Movement:


The Great Merger Movement was a predominantly U.S. business
phenomenon that happened from 1895 to 1905. During this time, small firms
with little market share consolidated with similar firms to form large, powerful
institutions that dominated their markets. It is estimated that more than 1,800
of these firms disappeared into consolidations, many of which acquired
substantial shares of the markets in which they operated. The vehicle used
were so-called trusts. To truly understand how large this movement was—in
1900 the value of firms acquired in mergers was 20% of GDP. In 1990 the
value was only 3% and from 1998–2000 is was around 10–11% of GDP.
Organizations that commanded the greatest share of the market in 1905 saw
that command disintegrate by 1929 as smaller competitors joined forces with
each other. However, there were companies that merged during this time
such as DuPont, Nabisco, US Steel, and General Electric that have been able
to keep their dominance in their respected sectors today due to growing
technological advances of their products, patents, and brand recognition by

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their customers. These companies that merged were consistently mass
producers of homogeneous goods that could exploit the efficiencies of large
volume production. Companies which had specific fine products, like fine
writing paper, earned their profits on high margin rather than volume and took
no part in Great Merger Movement.

‘M & A’ Future economic outlook for India:


Foreign Direct Investment by Indian Companies is all set to increase by 15 per cent
per annum over the next five years.

India's share of global outward investment (FDI, mergers and acquisitions) has
trebled over four years and outbound activity in 2006 alone increased by 26 per
cent, 'Global Outbound FDI Potential of Indian Companies 2007' a new study from
Oxford Intelligence points out.

The report forecasts continued growth averaging 15 per cent over the next five years
adding that this year will see growth of 19 per cent on activity on 2006.

North America, in particular, is expected to emerge as a 'hot spot' for Indian outward
investment, with levels of activity trebling over the next five years, it says.

"Although discussion about India today tends to focus on the growing tide of
foreign companies looking to establish operations in the country through
direct investment, joint ventures or through outsourcing, today's Indian
companies have a global vision and are becoming an increasingly important
source of outbound investment," Michel Lemagnen, Director, Oxford
Intelligence research.

The removal in 2005 of key restrictions on Indian companies' ability to expand


internationally triggered a sharp increase in overseas expansion. The
country's top companies are now in an extremely healthy position in terms of
cash, profitability and financing capacity and their potential for international
investment, through both M&As and FDI, for the next few years is extremely
favorable".

Short-run factors:
One of the major short run factors that sparked in The Great Merger Movement was
the desire to keep prices high. That is, with many firms in a market, supply of the
product remains high. During the panic of 1893, the demand declined. When
demand for the good falls, as illustrated by the classic supply and demand model,
prices are driven down. To avoid this decline in prices, firms found it profitable to
collude and manipulate supply to counter any changes in demand for the good. This
type of cooperation led to widespread horizontal integration amongst firms of the

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era. Focusing on mass production allowed firms to reduce unit costs to a much lower
rate. These firms usually were capital-intensive and had high fixed costs. Due to the
fact that new machines were mostly financed through bonds, interest payments on
bonds were high followed by the panic of 1893, yet no firm was willing to accept
quantity reduction during this period.

Long-run factors:
In the long run, due to the desire to keep costs low, it was advantageous for firms to
merge and reduce their transportation costs thus producing and transporting from
one location rather than various sites of different companies as in the past. This
resulted in shipment directly to market from this one location. In addition,
technological changes prior to the merger movement within companies increased
the efficient size of plants with capital intensive assembly lines allowing for
economies of scale. Thus improved technology and transportation were forerunners
to the Great Merger Movement. In part due to competitors as mentioned above, and
in part due to the government, however, many of these initially successful mergers
were eventually dismantled. The U.S. government passed the Sherman Act in 1890,
setting rules against price fixing and monopolies. Starting in the 1890s with such
cases as U.S. versus Addyston Pipe and Steel Co., the courts attacked large
companies for strategizing with others or within their own companies to maximize
profits. Price fixing with competitors created a greater incentive for companies to
unite and merge under one name so that they were not competitors anymore and
technically not price fixing.

Cross-border M&A:
In a study conducted in 2000 by Lehman Brothers, it was found that, on average,
large M&A deals cause the domestic currency of the target corporation to appreciate
by 1% relative to the acquirer's. For every $1-billion deal, the currency of the target
corporation increased in value by 0.5%. More specifically, the report found that in the
period immediately after the deal is announced, there is generally a strong upward
movement in the target corporation's domestic currency (relative to the acquirer's
currency). Fifty days after the announcement, the target currency is then, on
average, 1% stronger.

The rise of globalization has exponentially increased the market for cross border
M&A. In 1996 alone there were over 2000 cross border transactions worth a total of
approximately $256 billion. This rapid increase has taken many M&A firms by
surprise because the majority of them never had to consider acquiring the
capabilities or skills required to effectively handle this kind of transaction. In the past,
the market's lack of significance and a more strictly national mindset prevented the
vast majority of small and mid-sized companies from considering cross border
intermediation as an option which left M&A firms inexperienced in this field. This
same reason also prevented the development of any extensive academic works on
the subject.

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Due to the complicated nature of cross border M&A, the vast majority of cross
border actions have unsuccessful results. Cross border intermediation has many
more levels of complexity to it then regular intermediation seeing as corporate
governance, the power of the average employee, company regulations, political
factors customer expectations, and countries culture are all crucial factors that could
spoil the transaction.

LARGEST MERGER IN THE LAST MELLENIUM:


The datas below give an overview regarding the largest merger that have occurred
in the last mellenium

BUYER SELLER PRICE OFFERED (in


millions)
PFIZER WARNER-LAMBERT $82399.6

EXXON MOBIL $81429.8

SBC COMMUNICATION AMERITECH $75233.5

VODAFONE GROUP AIR TOUCH COMMUNICATION $62768


BRITISH PETROLEAM AMOCO $56482
COMPANY
AT & T MEDIA ONE GROUP $55795

NATIONAL BANK BANK AMERICA $43158

WORLD COM MCI COMMUNICATION $42459.2

TRAVELLERS GROUP CITICORP $36031.6

US WEST $34748
QWEST
COMMUNICATION
INTERNATIONAL
VIACOM CBS $34454
NORWEST NELL FORGO & CO $31660.2
DAIMLER BENZ CHRYSLER $31156
BELL ATLANTIC GTE $52845.8

AT & T TELE COMMUNICATION $52525

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Major M&A in the 1990s:
Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999:

Transaction value (in


Rank Year Purchaser Purchased
mil. USD)

Vodafone Airtouch
Mannesmann 183,000
1 1999 PLC

2 1999 Pfizer Warner-Lambert 90,000

3 1998 Exxon Mobil 77,200

4 1999 Citicorp Travelers Group 73,000

SBC
5 1999 Ameritech Corporation 63,000
Communications

AirTouch
6 1999 Vodafone Group 60,000
Communications

7 1998 Bell Atlantic GTE 53,360

8 1998 BP Amoco 53,000

Qwest
9 1999 US WEST 48,000
Communications

10 1997 Worldcom MCI Communications 42,000

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Major M&A from 2000 to present:
Top 8 M&A deals worldwide by value (in mil. USD) since 2000

Transaction value (in


Rank Year Purchaser Purchased
mil. USD)

Fusion: America Online


Time Warner 164,747
1 2000 Inc. (AOL)

SmithKline Beecham
2 2000 Glaxo Wellcome Plc. 75,961
Plc.

Royal Dutch Petroleum Shell Transport &


3 2004 74,559
Co. Trading Co

4 2006 AT&T Inc. BellSouth Corporation 72,671

AT&T Broadband &


5 2001 Comcast Corporation 72,041
Internet Svcs

6 2004 Sanofi-Synthelabo SA Aventis SA 60,243

Pharmacia
7 2002 Pfizer Inc. 59,515
Corporation

JP Morgan Chase &


8 2004 Bank One Corp 58,761
Co

17
TATA ACQUIRE THE CORUS:

 Why Tata takeover of Corus ?

Indian company Tata Steel has won the battle to buy its Anglo-Dutch rival Corus.
Tata Steel's 608p per share offer, which values Corus at £5.75bn ($11.3bn), beat
that of its takeover rival Brazilian firm CSN. The deal is the largest Indian takeover of
a foreign company, and creates the world's fifth-biggest steel company.

 Why did Tata want Corus?

There is a recognition that for the Indian economy to continue its growth, its
companies must look to compete on a global scale. Tata is currently just the 56th
biggest steel producer globally. Buying Corus leapfrogs it to fifth place in the world
steel-making rankings. The takeover also gives it access to Corus technology as
well as its production sites. The Indian firm says it will be able to make savings on
costs, from marketing to buying materials.

 Why was Corus keen to be taken over?

In order to survive, Corus needs to extend its global reach just as much as Tata
does. A tie-up with Tata gives it, among other things, access to markets in India -
one of the fastest-growing economies in the world - as well as access to low-cost
materials. If Corus had been bought by CSN, the same would have applied
regarding Brazil.

 What impact will this deal have on UK jobs?

Unions have expressed concern over potential job cuts at Corus. Of its 47,300
employees worldwide, 24,000 people work in the UK at sites including Port Talbot,
Scunthorpe and Rotherham. Tata has said there will be no job cuts in the early
stages.

 What about pensions?

18
The Corus pension fund has 166,000 members in the UK - including former British
Steel workers. It is not badly off at present - with one union official describing it as in
surplus and in a "robust" position. Tata has pledged to increase contributions to the
British Steel fund from 10% to 12% by 2009. It will also be making a one-off
payment of £126m to the Corus Engineering Steels Pension Scheme.

 Is the purchase of a company from a developing nation a sign


of the future?

There has been growing evidence of a shift in global business power, with foreign
investment from developing countries now a major factor in the world economy. The
United Nations Conference on Trade and Development (Unctad) has confirmed the
trend - with foreign direct investment from developing countries and transition
economies, such as Russia and the former Soviet Union, rising 5% to $133bn
(£70bn) in 2005. The Tata deal is a further sign that India's economy is a force to
reckoned with. Analysts expect a wave of takeovers by Indian firms to ensue around
the world. Previous Indian deals in Europe include the takeover of German group
Betapharm by pharmaceutical firm Dr Reddy for $570m, as well as energy company
Sulzon's acquisition of Belgian firm Eve Holding for $526m.

 What does the purchase of a big European firm by a small


Indian steel firm say about UK manufacturing?

Corus chief executive Jim Leng said that just as British Steel and Dutch group
Hoogovens merged in 1999 because they felt they could not simply be national
companies, Corus now felt it was "no longer sufficient to be European".
"This is a global industry," he said. "We have got to respond with passion, but with
commercial passion.
"It's not about big companies and small companies, it's a matter of being globally
commercial."

SOURCE: BBC NEWS

19
Tata Steel after Corus Acquisition

Scouting for more acquisition options after corus


Tata Steel has acquired the 5th largest steel producer of the world, Corus, scoring
over Brazil's CSN at $12.15 billion (around Rs 55,000 crore) in cash, making it the
largest acquisition by an Indian company and the second largest in the industry after
Mittal Steel's $38.3 billion acquisition of Arcelor. Tata's bid of 608p per share, which
beat a price from CSN of 603p, was 33.6 per cent higher than its original bid. By
some measures, it exceeded the price paid in other recent industry deals, such as
Mittal Steel's acquisition of Arcelor last year.
In its centenary year of 2007, Tata Steel, a subsidiary of Tata Group, India's largest
private sector company, was aiming to touch the production figure of 7 million tones
but the acquisition would bring the total capacity of the group to around 23 million
tones, making it the fifth largest steel producer in the world. The group was in look
out for big overseas acquisitions as the Indian steel producers have limited-to-no
options to jeopardize their bright future by offering its stake to competitors, it would
be nothing short of firing at ones own toe, especially when the economy is booming
and the potential for steel producers is overwhelming. At 8 per cent of GDP growth,
Indian steel producers are expecting a bright future ahead and hence leaves little
chance for mergers and acquisitions between two giants from within the country. For
2015, the production target is set at 30 million tones. Tata Steel produced about 5
million tones of steel the last financial year ending March 2006.
Sensing the need, Tata Steel started scouting for overseas presence through
Greenfield or Brownfield projects early this century. The company's global journey
began with the announcement of its Greenfield Ferro chrome plant in South Africa in
2003 at Richards Bay as the possible location. The major aim of this plant was to
procure raw material for its India-based stainless steel plant. The plant is set to be
completed in two phases, first of which is to begin commercial production by early
2008. The first phase of the Ferro chrome plant in South Africa would have a
capacity of 0.12 million tones with an investment of Rs 3000 million. The company
has decided to set up two furnaces with a capacity of 60,000 tones. Looking at the
success of L N Mittal through mergers and acquisitions, Tata Steel recently
announced its interest in overseas acquisition especially in Europe and USA. Timely
remark by Corus' officials expressing their interest in China, Brazil and India for
cheaper steel induced Tata Steel to cash in on the opportunity and decided to offer a
bid for Corus. As Corus was also seen interested in setting up a modern steel
distribution network in India, Tata Steel wanted to leave no stone unturned to mark
its European presence.

20
Tata Steel is planning a 50-50 balance between Greenfield facilities and acquisitions
for future growth. To possess the 100- million tonne capacity by 2015, the company
is looking at adding another 29 million tonne through the acquisition route. Tata
Steel's acquisitions all of them overseas add up to 21.4 million tonne, with Corus
accounting for 18.2 million tonne, Natsteel two million tonne and Millennium Steel
1.2 million tonne. The company would focus on its greenfield projects now. The
company has lined up a series of greenfield projects in the country and outside. The
projects will add 6 million tonne in Orissa, 12 million tonne in Jharkhand and 5
million tonne in Chhattisgarh. In the international market, the company recently
received approval for setting up 3 million tonne plant in Iran and there are plans to
set up 2.4 million tonne capacity plant in Bangladesh, which has hit a roadblock.
This is besides the expansions at the existing plant in Jamshedpur. It will not be
possible to expand at Jamshedpur
beyond 10 million tonne. The Corus acquisition would not affect the company's
ongoing expansion plans.

Mittal-Arcelor vs Tata-Corus:-
The combined entity of Tata-Corus will have a tremendous beneficial reach
and scale of 24 million tonne per annum and many synergies, but the market is not
willing to wait for the benefits to come through. Besides, at an EV/EBITDA
(enterprise value/earnings before interest, tax and depreciation) of more than 8
times CY06 financials on consensus estimates and a replacement value of $679 per
tonne, analysts believe the transaction valuation is stretched.
In the Mittal Steel-Arcelor deal, the EV/EBITDA was 6.2 times.In terms of EV/tonne
too, Tata Steel's price, at $700-710 per tonne is higher than what Arcelor
commanded at $586 per tonne. Also, in case of Mittal Steel- Arcelor, the deal
involved a share swap along with cash. Tata Steel will have to shell out hard cash
for Corus. And that means not just more debt on the Tata Steel balance sheet, but
also an equity dilution. The company 's gearing is low at around
0.26:1, so it is in a position to take on debt of around Rs 8,000 crore, without the
debt-equity ratio going for a toss. As for the equity dilution, Tata Steel has issued
warrants to Tata Sons in July 2006, Tata Sons was issued 2.7 crore shares of Rs 10
each at a price of Rs 516 per share aggregating Rs 1,393 crore.
The leading steel groups that follow Arcelor Mittal are quite a distance from owning
50 million tonne capacity each. In an industry with a capacity of nearly 1.3 billion
tonne, the ideal scene would be half the capacity being owned by not more than ten
groups. Tata Steel's audacious, but successful bid for Corus at an enterprise value
of £6.7 million, including debts of £500 million , gives it a capacity of 28 million
tonne, including 8.7 mt of its own. But the immediate stock market reaction to Tata
Steel running away with the trophy in a headto-head bidding with Brazil's CSN was
negative, as market participants thought Corus at 608 pence, representing a
premium of 153 pence on the opening offer, was an expensive buy. Whether the
Tatas are paying a inflated price for Corus will remain a subject of debate for some
time. Ratan Tata is
emphatic that he is not paying anything that is beyond prudence. It may not look so
at this point, but the acquisition cost for the Tatas will be justified, as the valuation of
steel assets around the world will keep on rising. Corus got sold at 9 times its

21
earnings (EBITDA). Some months ago, Mittal muscled his way into Arcelor by
paying 6.2 times the target company's earnings. To put it differently, Corus costs the
Tatas $700 for each tonne of steel against Mittal's payment of $670 a tonne for
Arcelor. But, we know that a recent steel deal in the US was clinched at nearly
$1,000 a tonne.

Beginning of the acquisition journey:-


Success on the international front was simply not possible with greenfield plants and
therefore, Tata Steel's journey for global recognition started in 2004 with the
acquisition of NatSteel Asia, a two-million ton steel firm having facilities across
seven countries for $486.4 million. The fifth largest steel major signed Definitive
Agreements with NatSteel Limited of Singapore to acquire all of NatSteel's steel
business for cash. NatSteel decided to spin off its entire steel business into a wholly
owned subsidiary, NatSteel Asia Pvt Ltd, subsequent to which Tata Steel proposed
to acquire 100 percent of the equity in NatSteel Asia. The enterprise value of the
acquisition was fixed at Singapore $486.4 million. Under the terms of the agreement
the enterprise value was subject to certain adjustments including those for any net
debt, minority interest, and other liabilities and for working capital variance relative to
US$ 225 million.
NatSteel was the dominant steel producer of Singapore and owns steel mills in
China, Thailand, Vietnam, the Philippines and Australia. The business is focused on
long products and has a cumulative capacity to produce about two million tons per
annum of rebars, wire rods, prestressed concrete wires andstrands . The acquisition
also included a 26 per cent equity interest owned by NatSteel in Southern Steel
Berhad, a 1.3 million tonne steelmaker in Malaysia. This acquisition was a significant
step in Tata Steel's globalization initiative which acted as a beachhead investment
for Tata Steel in the high growth geographies of China and South East Asia.
Through this transaction,Tata Steel increased its manufacturing footprint to seven
countries in Asia.

Thai acquisition :-
Tata Steel signed an agreement to buy Thailand's largest steel maker Millennium
Steel for $ 400 million, inclusive of about $225 million debt Millennium owes. The
Thai steel maker has a capacity of 1.7 million ton of steel annually across three
manufacturing facilities. Millennium Steel was formed through a merger of three
operating companies, the Siam Iron and Steel Company, The Siam Construction
Steel Company and NTS Steel Group in 2002 having capacity of producing 1.2
million tonne of steel per annum through the electric arc furnace route and a long
products rolling capacity of 1.7 million ton annually. Presently, Thai steel market
consumes 11-12 million tonnes per year and hence offer huge potential for the
company to set up base in Thailand. "We believe that this acquisition is in line with
company's plans of global acquisitions and its rationale of expansion strategy that
post our acquisition and feeding semi finished and raw steel products to the plant.
Tata Steel would be able to substantially improve the operations and would not rule

22
out the possibility of scaling up operations sometime in the future," Muthuraman had
said at the time of acquisition.

Acquisition move in Europe planned in 2004:-


Tata Steel was eyeing acquisition possibilities since 2004 for its presence in
European markets. Walking on the footsteps of LNM Group, Tata Steel, too, was
scouting for central and eastern European countries to pick up steel mills that might
be up for privatization. State-controlled steel making capacities in countries like
Czech Republic, Poland, Romania, Ukraine, Slovakia or Serbia were slowly being
privatized and Tatas were eyeing penetration into the European market. Scope of
consolidation of steel business in domestic market through the acquisition route was
a distant reality therefore, Tata Steel started considering some serious takeover
options in central and east European countries.

Greenfield plant in bangiadesh:-


A way forward in its global strategy, Tata Steel is planning to set up a 2.4 million ton
steel unit in Bangladesh which would be completed along with other plans including
a urea factory with a one-million ton capacity, a 500-mw coal-fired station and a
1,000-mw gas-fired power plant. The project is scheduled to entail an investment of
$3 billion. A high-level committee, set up by the Dhaka government to study pros
andcons of Tata Steel's proposal, has recently suggested the government to go
ahead with the project. Tatas, India's biggest business conglomerate, had recently
decided to indefinitely suspend work on its investment plan in Bangladesh citing
frustrating delays in getting government approval for its investment plans. But, the
“goahead” signal by the Bangla Committee would surely encourage Tata’s to
commence work on the plant. This is to be the largest ever foreign direct investment
in Bangladesh. The Bangladeshi government was supposed to have signed a final
agreement with the Tata’s in July itself, but now the deal is expected to the finalised
in the near fea.

corus bid:-
After amassing a strong presence in the Asian region, Tata Steel decided to move
beyond Asia with the acquisition proposal of Corus, the 5th largest steel producer in
the world. The company is now set to acquire Corus with an offer of $12.15 billion
(around Rs 34,500 crore) in cash for buying Corus, the UK's largest steel company.
This was the biggest overseas acquisition attempt by an Indian company. The
“indicative, non-binding offer” to acquire 100 per cent stake in Corus at 455 pence a
share came 12 days after Tata Steel announced its interest in the Anglo-Dutch steel
company. There was no time frame within which an offer had to be made. However,

23
Tata Steel had to place the offer documents within 28 days of making a final offer.
According to experts of British takeover rules, if it had not made an offer, the Corus
board could have approached the takeover panel to impose a “put up or shut up”
deadline.
Presently, its total debt and cash balance stood at $3.1 billion and $558 million,
respectively. Last year, it posted pretax profits of nearly $1 billion on a turnover of
$18.16 billion. However, lower selling prices and higher costs hit operations in the
first half of this year.Tata Steel still has the option of selling off Corus' long products
business. German steelmaker Salzgitter and Russian producer Evraz are seen as
potential buyers for this business which is one of the less profitable parts of Corus.
The Tata Steel-Corus combine has now become the fifth largest steel maker in the
world with a capacity of 23 million tons a year. Corus has a capacity of 18 million
tons a year while Tata Steel producing 5 million tons a year. Corus hasno mining
interest while Tata Steel has access to cheap iron ore.

Tata steels overseas acqisitrions so far


Company Capacity Investment

2 Million tons $486.4 million


NatSteel Asia

Millennium Steel 1.7 million tons $ 400 million, inclusive of


about $225 million debt
Millennium owes

Corus 18 million tons $12.15 billion

Tata steel with Rs 6000cr plant in iran:-


Tata Steel's global footprint is spreading at a furious pace. The company has
received approval from the Iranian government to set up a three million tonne steel
project with an investment of over Rs 6,000 crore. Iran has allotted 500 hectares in
the Persian Gulf Special Economic Zone (PGSEZ) at Bandar Abbas for the gas-
based steel plant. The Iranian Mines & Mining Industries Development & Renovation
Organisation (IMIDRO) had issued permission for supplying raw material for
production. The three-milliontonne plant could be scaled up to five million tonne at a
later stage. Once commissioned, it will scale up the combined capacity of Tata
Steel-Corus to 28.5 million tonne. The plant would be commissioned within 36
months from date of start of work, which has not yet being announced. Company
sources said the work would begin upon receipt of all approvals. The proposed

24
greenfield project in Iran is a part of Tata Steel's strategy to have 100 million tonne
capacity by 2015. The company has lined up greenfield projects in Jharkhand,
Chhattisgarh, Orissa and Bangladesh as well. The Iran plant would be an export-
oriented unit and fully owned subsidiary of Tata Steel.

Conclsion:-
Whatever the cost, Corus is in the Tata bag. The important thing to watch out for
now is how well the two cultures will blend so as to be able to deliver on the
promised $350 million rise in profits in the next three years, which could only be
realized with improved efficiency in production across the board, integrated raw
materials procurement and marketing of steel and shipment of low-cost basic steel
from Jamshedpur for finishing and value addition at the Corus mills. In another two
years, Corus, known for value-added, differentiated products, will be seeing delivery
of at least 60 per cent of steel in that form by the 2008-end, a rise of a third over the
delivery in 2003. Corus is also investing a total of £283 million into expansion of its
product range in flats and longs. An industry observer said the “whole economic
model behind the takeover could unravel” in case there was a big retreat in steel
prices. Hopefully, China, which has such a big stake in the industry's well being, will
not play spoilsport by becoming an aggressive seller of steel in the world market.
The US and the European Union are not taking kindly to arrival of volumes of
Chinese steel. In fact, both are planning to take corrective steps to rein in steel
imports from China.
Tata Steel owns enormous volumes of high-quality iron ore and other minerals
needed for steel-making. Captive raw materials linkages have given the modernising
and expanding Jamshedpur mill a competitive edge. Tata Steel is set to build
greenfield mills in iron ore-rich states of Orissa, Jharkhand andChhattisgarh. The
rapid progress of the Indian automobile, engineering and construction industries
means that the country will need more and more high-quality steel. Access to Corus
technology will, in course of time, allow Tata Steel to move up in the value chain.

SOURCE :steelward news

25
Corporate Control and Powerplay in
Merger and Acquisition

INTRODUCTION AND ABSTRACT

Business strategy often fails to take into consideration various figures related
to profitable merger and acquisition. It is often driven by the passion to convert a
dream into reality. It often goes beyond the economic/financial models, cost benefits
analysis and is influenced by the desire to grow, diversify and attain leadership in the
market and gain competitive advantage.
A very good example can be highlighted would be the merger of Mittal steel
with Arcelor to create the world's largest steel company. Eyebrows were raised when
Laxmi Mittal in June paid nearly 40% prices higher than the initial offer in January
which was approximately 25% higher than the prevailing market price. But today
when the analysts look at the deal which has appreciated nearly by 10 %, doubts
raised has been already answered.
Hurdles which came in way of converting this acquisition to reality like price
negotiation, high risk in taking over arcelor ,doubts over strategy adopted etc has
been mitigated and it is felt that the decision to acquire has been the right decision
and the various question raised before the acquisition has been diluted.
With Tatas acquiring Corus, an Anglo Dutch company for a takeover price of
$12.10 billion, and winning the high voltage tussle with Brazil's CSN to acquire
Corus is just a glimpse of the future ahead of the highly competitive environment and
display of the corporate control and power play in merger and acquisition.
With Tatas acquiring Corus, being the hottest news of 2007, and world is now
slowly beginning to realize the strategic intent of the Indian Companies which are
being watched more closely than before.

Abstract -----
The article tries to explore the merger and acquisition as a strategic tool
available in the hands of the management of the company to gain competitive
advantage by exploiting synergies. It further tries to explore the corporate
control and power play involved in merger and acquisition, various tactics that
should be adopted to be successful in Indian Incorporation. An Attempt has
also been made in the paper regarding Tata acquiring Corus and its
justification. 26
In today's global environment where business is becoming more and more
complex companies may have to grow to survive; and one of the best way to grow is
by merging with another company or acquiring other companies''. Renowned
consultant Jacalyn Sherriton, Mr. RobertMcgarvey in an interview to the
'ENTREPRENEUR'.
Truly said, in this era of LPG (Liberalization, Globalization and Privatization)
merger and acquisition has become a buzzword in the Indian corporate world
today .In mathematics 1 + 1 is always equal to 2 but in corporate world it has always
been a endeavor to make 1+1 =3. this is exactly what we define as synergy effect. It
is the very reason why merger and acquisition has become so popular today.
In simple terms merger can be defined as a process involving a transaction in
which one entity combines with another entity to form a new entity .While acquisition
is a process involving a transaction by which one entity with the latter losing its
identity. One of the major difference that can be highlighted in case of merger and
acquisition in that merger generally takes place in friendly environment where the
representative of both the entities sit and discuss the due diligence process which
ensure successful combination of both the entities while acquisition can be defined
as the hostile take over by which one entity purchase the majority of outstanding
shares of another company.
To quote the words of federal bank's chairman and CEO Mr. Venugoplan
"Unless you have the size you cannot survive the cut throat competition" as federal
bank tries entering into wealth management foray and buying stake in Asset
Management Company.
If we take this year 2007 it would be quite surprising to note that around 45
deals of strategic merger and acquisition worth $14.59 Billion were announced by
Indian companies which was 72% of the total strategic M & A that happened the
previous year. i.e. 2006. These 45 deals of strategic M & A has been announced in
January 2007.

BREAK UP OF DOMESTIC DEALS AND CROSS BORDER


DEALS IN JANUARY 2007

Nature of deal No. of deals Value(Billion)


Domestic Deal 22 $.30

Cross Border Deals 23 $14.29

Total 45 $14.59

27
above data just shows a glimpse of the hectic merger and acquisition deals that is
likely to The follow this year. The quantum of strategic M & A is expected to sky
rocket this year with multi billion dollar Hutch deals in its final leg and some big
ticket overseas acquisition on the cards including Ranbaxy and Cipla's interests in
the generic business of Merck this year would definitely see a sharp spike in M & A
by Indian Incorporation.
Often we see small businesses merging or selling out to some other
company. This brings One of the important reasons for merger and acquisition can
be attribute to the fact that such transaction result in two firms involved to be worth
more than one firm. This is exactly what we call synergy effect. It includes combining
the strength of two firms and diluting the weakness that is present in one firm, so as
to potentially use it to gain competitive advantage.
in the concept of harvesting. In this situation, the transaction is intended to release
the value locked up in small business for the benefits of owner and investors. The
impetus for a small business owner to pursue a sale or merger may involve the need
to diversify his/ her investment or an inability to finance independently.
A very good example can be highlighted in that of the merger between ICICI
Ltd and ICICI Bank who merged to create country's first universal Bank, a one stop
shop for financial services with the total assets of Rs 950 Billion only second to the
state owned State Bank of India.
Often we see that merging or acquiring result in the reduction of cost and risk
involved in diversification in unrelated field. The cost involve in diversifying in
unrelated field is lot. By merging or acquiring the company which is in that field may
result in reducing cost as cost involve to diversify in unrelated field may result in
setting up plants etc which may have a lot of impact on fixed cost incurred by the
company. So by merging it has already set up a field where it can provide its
expertise for betterment of that unrelated area to help in achieving of more
profitability.
Often we see that Merger and Acquisitions as a strategy has failed to bring in
the results. It may be due to the fact that optimum strategy were not followed ,poor
focus and issues related to cultural and social differences were not properly taken
care of. It should always be kept in mind that the risk involved in merger Acquisition
is very high .Some of the largest investment bank in the world are involved in the
process of merger and acquisition of the largest MNC in the world .
Often we see that the stock prices falls immediately after the news arrives for
the deal is announced. There is always a question in mind of the investor that
whether the merges can retain the original values of the business and the synergy
involved would be positive to justify the premium paid.
The element of risk involved in merges and Acquisition in different from
ordinary investment decision. Since the merger and Acquisition are so complex it is
very difficult to evaluate transaction, define associate cost and benefit and handle
the resulting tax and legal issues.
Mergers depend upon strategic fits which is also so very difficult to measure.
Replacing the existing management and the issues involved in the corporate control
often increases the complexity of merges. It also affects the value of the firm which
in turn affects the value of the stocks and bonds finally creating an
upward/downward trend in stock exchange.

28
It may be concluded that basically 4 parameters has to be looked into while
evaluating a merger i.e. strategic, tactical, fiscal and human. One has to mitigate the
risk involved and get right decision for success of merger & acquisition.

To quote ----'To win without risk is to triumph without glory'

Analysis of Tata acquiring Corus & its


Justification:
With Tatas acquiring Corus has been a talking point in the industry circle, an
attempts has been made to provide a detail analysis of the deal with its justification.
One of the important advantages for Tata steel acquiring Corus would be
increase its global presence and it will give access to market in Europe& elsewhere.
By paying 608 pence a share to acquiring Corus ,the price paid would be
largely seen to be much higher than the actual value but by acquiring Corus, Tata
Steel have shown how important this acquisition is for them in their strategic vision.
One of the critical viewpoints regarding Tata Acquiring Corus can be analyzed from
the viewpoint Corus's financial strength doesn't have anything special to be boasted
about. Their steel facilities are very old and their cost of production is also fairly high.
Just because of higher steel prices they were getting higher return. By operating in
oligopolistic market where the entire steel member could come together to cut
production whenever needed to save price. If these protections are taken away, then
European market will come under pressure and market may be flooded by cheap
import from Chinese counterpart and Corus may become a liability for Tata.
But if seen in another angle Tata acquiring Corus can be boost for Tata as
they will get the advantage of R &D facilities owned by Corus and the combined
entity will make it as the world's fifth largest steel making company thus improving
Tata steel's bargaining position with both suppliers as well as customers.

Conclusion:

The market in Asia Pacific region sees a robust growth in the year 2007. In
spite of high financing cost. Merger and Acquisition boom have resulted in the
volatility of the prices of the shares in stock market and in turn affecting the credit
policies of the company.
'Deal sizes are increasing continuously over the past few years and this trend
is likely to continue''.
Raj Bal Krishnan, director DSP Merrill lynch said the number may be going
bigger but the main reason being 1) size 2)Newer geography 3) Diversification of
risk.
With recent cases of ICICI Bank to take over Sangli Bank,Iflex in talks to
buy the Asia Pacific Operations of Capco for $ 100 –150 Million shows the

29
increasing trend in merger and acquisition that has become a a strategic tools in the
hands of the managers to counterattack the increased heat of competition.
Some of the biggest merger & acquisition are still on cards with a global mega
asset hunt AV Birla group is said to be eyeing Norwegian Aluminum maker Norsk
Hydro.
Some of the important outbound sector for merger & acquisition includes:
1) Pharmacy 2) metal3) mining.
In India especially with liberalization of FERA, MRTP act and industrial
licensing, corporate are seriously looking into the aspect of merger & acquisition as
an external growth and attain competitive advantage in market.
Thus with globalization of economy and the pace at which technological
changes are accelerating, merger and acquisition remain as the effective tool in the
hands of management to gain competitive advantage and beat competition where
one firm tries to the other.
Thus we can conclude that merger has been cases in which the merger &
acquisition have failed to bring in the optimum result but still the success rate
surpasses the failures rates. With the globalization of economy and the pace at
which the technological changes are accelerating merger and acquisition remains a
effective tool in the hands of the management to gain competitive advantage and
beat competition where one firm tries to outbid the other firm.

30
REFERENCES

BOOKS:

• khan.m.y. ,jain.p.k., 2004,financial management- Text, Problem & cases, 4th


Edition.
• Ravi m. kishore Financial management.
• Management accounting ,ICWAI
• James c. van horne, Fundamentals of Financial Management.

SERCH ENGINES:-
• WWW.google.com
• www.yahoo.com
• www.indiainfoline.com
• www.gisdevelopment.net

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