MERGERS

AND
ACQUISITIONS
 MERGER
A merger is when you integrate the business with
another and share control of the combined
businesses with other owner. A merger involves the
mutual decision of two companies to combine and
become one entity. i.e. a + b = c

Merger: 2 firms combine all Assets and Liabilities

Acquirer Target
Usually take a new name
 Types of Mergers

• Horizontal Merger
Combination of two or more firms operating in the
same stage of production.
Example: The merger of ACC with Damodar Cements.
• Vertical Merger
Combination of two firms that operate in different
stages of production.
Example: Cement manufacturing company acquires a
company engaged in civil construction.
 Types of Mergers

• Conglomerate Merger
Merger of firms in unrelated lines of business
that are neither competitors nor potential or
actual customers or suppliers of each other.
Example: General Electric buying NBC
television.
 Types of Mergers

• Product Extension Merger

It is executed among companies which sell
different products of a related category.

• Market Extension Merger

It occurs between two companies that sell
identical products in different markets.
 Vodafone-Hutchison Essar: $11.1 billion

On February 11, 2007, Vodafone agreed to buy out the

controlling interest of 67% held by Li Ka Shin

Holdings in Hutch-Essar for $11.1 billion.

This is the second-largest M&A deal ever involving

an Indian company.

Vodafone Essar is owned by Vodafone 52%, Essar

Group 33% and other Indian nationals 15%.
 ACQUISITION

Acquisition may be defined as an act of

acquiring effective control over assets or
management of a company by another
company without any combination of
businesses or companies. i.e. a + b = a
 Types of Acquisition

• Friendly Acquisition

• Hostile Acquisition
 Parties in the Acquisition

• Holding company– It is a company that

holds more than half of the nominal value of
the equity capital of another company, or
controls the composition of its Board of
Directors.

• Subsidiary company – The company with

the lesser number of share is called subsidiary
company.
 Distinction between mergers and
acquisitions
Mergers Acquisitions
• Both firms share the • One firm acquires the
liabilities. liabilities of the other
firm completely
• Both firms together • Business continues
create a new firm under under the buyer firm
a new name. name.
• Both firms have a say in • The target firm has no
the transactions of the say in the transaction
new firm
The major M&A deal
undertaken abroad
Tata Steel buys Corus Plc USD 12.1
billion

Hindalco acquired Novelis Inc. USD 6

billion

Tata buys Jaguar and Land USD 2.3

Rover billion

Essar Steel acquired Algoma USD 1.58

Steel billion
Tata Steel-Corus: $12.2 billion

On January 30, 2007, Tata Steel purchased a

100% stake in the Corus Group at 608 pence per
share in an all cash deal, cumulatively valued at
$12.2 billion.

The deal is the largest Indian takeover of a

foreign company till date and made Tata Steel
the world's fifth-largest steel group.
 Financing M&A

• Cash: Payment by cash. Such transactions are usually

termed acquisitions rather than mergers

• Financing: Financing capital may be borrowed from a

bank, or raised by an issue of bonds. Alternatively, the
acquirer's stock may be offered as consideration.

• Hybrids: An acquisition can involve a combination of

cash and debt or of cash and stock of the purchasing
entity.
 Motives & Benefits of M&A

Economies of large scale

Increased Revenue/ Increased Market Share
Synergy
Taxes
Expansion and Growth
Surplus Resources
Wider customer base and increase in market share
Product , services and business diversification
Reducing competition
 Reasons for M&A

# Accessing new markets

# maintaining growth momentum
# acquiring visibility and international brands
# buying cutting edge technology rather than
importing it
# taking on global competition
# improving operating margins and efficiencies
# developing new product mixes
Google bought YouTube ($1.65B in 2006)
Why?
• Google bought a rival.
• YouTube had four times as many hits as Google
Video
• YouTube streamed nine times as many clips as
Google Video.
• Google’s choice to buy rather than build marked
a big strategic change.
• YouTube = 53% of video users in the
world.
 Problems of M&A

• Integration Difficulties: Differing financial

and control systems can make integration of
firms difficult.

• Inadequate Evaluation of Target: Acquirer

to overpay for firm.

• Large or Extraordinary Debt: Costly debt

can create burden on cash outflows.
• Inability to Achieve Synergy: Justifying
acquisition can increase estimate of expected
benefits.

• Overly Diversified: Acquirer doesn’t have

expertise required to manage unrelated businesses.

• Managers Overly Focused on Acquisition:

Managers may fail to objectively assess the value of
outcome achieved through the firm’s acquisition
strategy.

• Too Large: Large bureaucracy reduces innovation

 Regulations governing Merger
and Acquisition in India
• The provision of the Companies
Act,1956.
• The Competition Act ,2002
• The Foreign Exchange Management
Act,1999.
• SEBI Take over Code , 1994
• The Income Tax Act,1961 and
 Legal procedures

• Permission for merger: The amalgamation of two

companies should be permitted under their
memorandum of association. The acquiring company
should have the permission in its object clause to carry
on the business of the acquired company.

• Information to the stock exchange: The acquiring and

the acquired companies should inform the stock
exchanges (where they are listed) about the merger.
• Approval of board of directors: The board of directors of the
individual companies should approve the draft proposal.
• Application in the High Court: The draft proposal approved
by the board of directors should be made to the high court.
• Shareholders' and creditors' meetings: The individual
companies should hold separate meetings of their
shareholders and creditors for approving the amalgamation
scheme.
• Sanction by the High Court: The amalgamation is sanctioned
after it is satisfied that the scheme is fair and by the high
court.
Filing of the Court order: After the Court order, its
certified true copies will be filed with the Registrar
of Companies.

Transfer of assets and liabilities: The assets and

liabilities of the acquired company will be
transferred to the acquiring company.

Payment by cash or securities: As per the

proposal, the acquiring company will exchange
shares and debentures and/or cash for the shares and
debentures of the acquired company.
 Some M&A in India
• India Aluminium and copper giant Hindalco
Industries purchased Canada-based firm Novelis Inc
in November 2007
• In November 2008 NTT DoCoMo acquired 26% stake
in Tata Teleservices for USD 2.7 billion.
• 2009 saw the acquisition Asarco LLC by Sterlite
Industries Ltd's for $1.8 billion
• In May 2007, Suzlon Energy obtained the Germany-
based wind turbine producer Repower.
By : Krishan Srivastava
(Asst. Professor)
Jayoti Vidyapeeth Women’s University , Jaipur
Krishan_11031985@yahoo.com