INTRODUCTION

The words Mergers and Acquisitions are often used as an interchangeable term, a
convenient but inaccurate usage. Mergers refer to deals where two or more
companies take virtually equal stakes in each other’s businesses, whereas an
acquisition is the straightforward purchase of a target company by another
company.

What is a Merger?
A "merger" or "merger of equals" is often financed by an all stock deal (a stock
swap). An all stock deal occurs when all of the owners of the outstanding stock of
either company get the same amount (in value) of stock in the new combined
company. The terms "demerger,""spin-off" or "spin-out" are sometimes used to
indicate the effective opposite of a merger, where one company splits into two, the
second often being a separately listed stock company if the parent was a stock
company. Merger is a legal process and one or more of the companies lose their
identity.

What is an Acquisition?
In a layman’s language an “acquisition” is one company acquiring a controlling
interest in another company. An acquisition (of un-equals, one large buying one
small) can involve a cash and debt combination, or just cash, or a combination of
cash and stock of the purchasing entity, or just stock. An acquisition occurs when an
organization acquires sufficient shares to gain control/ownership of another
organization. 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 an acquisition there are clear winners or
losers; power is not negotiable, but is immediately surrendered to the new parent on
completion of the deal. `Those who hold the title also hold the pen to draw the
organisational chart'.
High-yield
In some cases, a company may acquire another company by issuing high-yield debt
(high interest yield, "junk" rated bonds) to raise funds (often referred to as a
leveraged buyout). The reason the debt carry a high yield is the risk involved. The
owner can not or does not want to risk his own money in the deal, but third party
companies are willing to finance the deal for a high cost of capital (a high interest
yield).
The combined company will be the borrower of the high-yield debt and it will be on
its balance sheet. This may result in the combined company having a low
shareholders' equity to loan capital ratio (equity ratio).
Examples
In a 1985 merger between Pantry Pride and Revlon, Pantry Pride had to issue 2.1
billion dollars of high-yield debt to buy Revlon. The target Revlon was worth 5
times the acquirer.

Consolidation
Technically speaking consolidation is the fusion of two existing companies into a
new company in which both the existing companies extinguish.
Merger and Consolidation can be differentiated on the basis that, in a merger one of
the two merged entities retains its identity whereas in the case of consolidation an
entire new company is formed.

Takeovers
A takeover bid is the acquisition of shares carrying voting rights in a company with
a view to gaining control over the management. The takeover process is unilateral
and the offer or company decides the maximum price.
Demerger
It means hiving off or selling off a part of the company. It is a vertical split as a
result of which one company gets split into two or more.

Amalgamation

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Halsbury’s Laws of England describe amalgamation as a blending of two or more
existing undertaking into one undertaking, the shareholders of each blending
company becoming substantially the shareholders in the company which is to carry
on the blended undertaking.

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,

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the real difference lies in how the purchase is communicated to and received by the
target company's board of directors, employees and shareholders.

THE MOTIVE BEHIND MERGERS AND ACQUISITIONS

The strategic Goals of mergers and acquisitions

1 ) Economies of Scale

2 ) Consolidation: -
Media buyers are now consolidating to increase ad rates

3 ) Globalization: -
For Example Kerry Group an Irish milk processor and dairy cooperative has become
a global player after a string of acquisitions in the food and ingredients business.

4 ) Create or gain access to distribution channels: -

A lack of distribution has been one of the main hindrances to growth of the wine
companies. They are overcoming this by a string of acquisitions for example Fosters.

5 ) Gain access to new products and technologies: -

Pooling resources helps pharmaceutical companies to speed up research and
development of new drugs and also to share the risks and place a number of bets on
emerging technologies. In the 1990’s 23 pharmaceutical merger to form the top ten
players.

6 ) Enhance or increase products and/or services: -

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Mergers between large banks specializing in different sectors for example when
Allianz AG acquired Dresdner Bank.

7 ) Increase market share or access to new markets: -

Car manufacturers turn to mergers and acquisition for this reason. For example
when Daimler Benz and Chrysler Group merged, when Ford acquired Jaguar.
8 ) Diversification

9 ) To offset threatened loss of market

1 0 ) To increase the rate of growth

1 1 ) To improve cyclical and seasonal stability

1 2 ) To improve effectiveness of the marketing effort

1 3 ) To employ excess capital

1 4 ) To change from a holding company to a operating company

STAGES OF A MERGER

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Pre-mergers are characteristics by the following stages: -
1) COURTSHIP: -
The respective management teams discuss the possibility of a merger and develop a
shared vision and set of objectives. This can be achieved through a rapid series of
meetings over a few weeks, or through several months of talks and informal
meetings

2) EVALUATION AND NEGOTIATION: -

Once some form of understanding has been reached the purchasing company
conducts “due diligence” a detailed analysis of the target company assets,
liabilities and operations. This leads to a formal announcement of the merger and
an intense round of negotiations, often involving financial intermediaries.
Permission is also sought from trade regulators. The new management team is
agreed at this point, as well as the board structure of the new business.This phase
typically lasts three or four months, but it can take as long as a year if regulators

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 decide to launch an investigation into the deal. “Closure” is a commonly referred
term to describe the point at which the legal transfer of ownership is completed.

3) PLANNING: -
More and more companies use this time before completing a merger to assemble a
senior team to oversee the merger integration and to begin planning the new
management and operational structure.

Post Merger is characterized by the following phases: -

4) THE IMMEDIATE TRANSITION: -

This typically lasts three to six months and often involves intense activity.
Employees receive information about whether and how the merger will affect
their employment terms and conditions. Restructuring begins and may include
site closures, redundancy announcements, divestment of subsidiaries (sometimes
required by trade regulators), new appointments and job transfers.
Communications and human resources strategies are implemented. Various
teams work on detailed plans for integration.

5) THE TRANSITION PERIOD : -

This lasts anywhere between six months to two years. The new organizational
structure is in place and the emphasis is now on fine tuning the business and
ensuring that the envisaged benefits of the mergers are realized. Companies
often consider cultural integration at this point and may embark on a series of
workshops exploring the values, philosophy and work styles of the merged
business.

MAGIC CIRCLE FOR A SUCCESSFUL MERGER

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A company’s integration process can ensure the formation of such a circle. It acts
rather like the Gulf Stream, where the flow of hot and cold water ensures a
continuous cyclical movement. A well designed integration process ensures that the
new entity’s designed strategy reaches deep into the organisation, ensuring a unity
of purpose. Basically everyone understands the purpose and logic of the deal. The
integration process can ensure that the ideas and the creativity can are not
dissipated but are fed into the emergent strategy of the organisation this is achieved
through the day to day job of the encouraging and motivating people and also
creating forums where people can think the impossible. The chart below
demonstrates the relationship between designed and emergent strategy and merger

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integration. It suggests how merging organizations can become learning
organisation; strategy formulation and implementation merges into collective
learning.

Some merger failures can be explained by this model. For example, serious problems
arise when a company relies too heavily on designed strategy. If the management
team is not getting high quality feedback and information from the rest of the
organisation, it runs the risk of becoming cut off. Employees may perceive their
leaders as being out of touch with reality of the merger, leading to a gradual loss of
confidence in senior management’s ability to chart the future of the new entity.
Similarly, the leadership team may not receive timely information about external
threats, brought about perhaps by the predatory actions of competitors or
dissatisfies customers with the result that performance suffers and the new
management is criticized for failing to get grips with the complexities of the
changeover.

However, too much reliance on emergent strategy can lead to the sense of a
leadership vacuum within the combining organizations. The management team may
seem to lack direction or to be moving too slow. This often leads political infighting
and territory building and the departure of many talented people.

Therefore it is very important that a careful balance is struck between designed and
emergent strategy for integration after the merger between two companies is done.

DISADVANTAGES OF MERGERS AND ACQUISITIONS

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 1 ) All liabilities assumed (including potential litigation)
2 ) Two thirds of shareholders (most states) of both firms must approve
3 ) Dissenting shareholders can sue to receive their “fair” value
4 ) Management cooperation needed
5 ) Individual transfer of assets may be costly in legal fees
6 ) Integration difficult without 100% of shares
7 ) Resistance can raise price
8 ) Minority holdouts
9 ) Technology costs - costs of modifying individual organizations systems etc.
1 0 ) Process and organisational change issues – every organisation has its own
culture and business processes
1 1 ) Human Issues – Staff feeling insecure and uncertain.
1 2 ) A very high failure rate (close to 50%).

WHY MERGERS & ACQUISITIONS DO NOT SUCCEED?

Despite the popularity and importance of mergers and acquisitions among large and
small firms, many mergers and acquisitions do not produce the benefits that are
expected or desired by the buying firm. Some of the reasons could be:

1) High cost of financing

A study conducted by Mckinsey shows that 60% of the acquisitions examined failed
to earn returns greater than the annual cost of capital required to finance the
acquisitions.

2) The potential for managerial hubris

This may preclude an adequate analysis of the target firm or may produce
substantial premiums paid for the firm that is acquired. In such a case the
mergers and acquisitions may not be for the benefit of the company. An e.g. is
Sony’s $5 billion takeover of Columbia Studios in which Walter Yetnikoff, the
CEO of Sony paid almost $800 million to acquire two producers from their

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 contract at the Warner Bros. This was a part of the battle with the Warner Bros
CEO, Steven Ross. Yetnikoff convinced his superiors at Sony that the
producers would earn millions of $ for them. Unfortunately both of them set
records for underachievement.

3) Failure to integrate
Diverse cultures, structures and operating systems of the two firms.

4) Failure to do proper due diligence

During the pre-merger or acquisition stage.

5) Bankruptcy of strategy
There is a strong belief that mergers and acquisitions indicate a bankruptcy of
strategy, an inability to innovate. CEO’s in order to defend their merger plans are
often quoted saying “Only the biggest survive”. This rationale is largely
spacious; size does not inoculate a company from rule-busting innovation. Thus
lack of innovation is another reason for mergers floundering.

6) Employees of the organization

1) The sought-after benefits of greater size and efficiency are nullified by
increased losses related to top-heavy organizations which mean that the people
increase as a result the benefits etc provided to the top management also
substantially increase.

2) There are problems of: reduced job security, increased work loads, anxiety
and stress all of which have a negative effect on the morale of the employees
which in turn affects their productivity.

CROSS-BORDER MERGER AND ACQUISITION: INDIA

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Until upto a couple of year’s back, the news that Indian companies having acquired
American-European entities was very rare. However, this scenario has taken a
sudden U turn. Nowadays, news of Indian Companies acquiring foreign
businessesis more common than other way round.

Buoyant Indian Economy, extra cash with Indian corporates, Government policies
and newly found dynamism in Indian businessmen have all contributed to this new
acquisition trend. Indian companies are now aggressively looking at North
American and European markets to spread their wings and become the global
players.

The top 10 acquisitions made by Indian companies worldwide:

Acquirer Target Company Country targeted Deal value ($ ml) Industry

Tata Steel Corus Group plc UK 12,000 Steel

Hindalco Novelis Canada 5,982 Steel

Videocon Daewoo Electronics Corp. Korea 729 Electronics

Dr. Reddy's Betapharm Germany 597 Pharmaceutic

Labs al

Suzlon Hansen Group Belgium 565 Energy

Energy

HPCL Kenya Petroleum Refinery Ltd. Kenya 500 Oil and Gas

Ranbaxy Terapia SA Romania 324 Pharmaceutic

Labs al

Tata Steel Natsteel Singapore 293 Steel

Videocon Thomson SA France 290 Electronics

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VSNL Teleglobe Canada 239 Telecom

TRENDS OF MERGERS & ACQUISITIONS IN AUTOMOBILES

THE INDUSTRY

Recent mergers and acquisitions in the automotive industry are largely driven by a
combination of excess capacity, the increasing costs of innovation and technical
development, and regulatory changes. 1998 turned out to be a record year for M&As
within the automotive industry. In fact, more than 600 deals were undertaken, with
disclosed values exceeding US$80 billion PriceWaterhouseCoopers, 1999a). Of the
total value, more than two-thirds arose from cross-border M&As, dominated by the
“mammoth merger” between Chrysler and Daimler-Benz which alone accounted for
US$39 billion. The rapid restructuring of the automotive industry has attracted a
great deal of attention. The merger between the US company Chrysler and Daimler-
Benz of Germany together with other large-scale deals – Volkswagen’s take-over of
Rolls Royce, Ford’s take-over of Volvo’s car division, and the alliance between
Renault and Nissan – is evidence of an industry consolidating at an accelerating
speed. The merger wave is also affecting all parts of the automotive industry: vehicle
companies, component suppliers and retail sectors, and is to a large extent taking
place across national borders.

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Figure shows the increase in deals in the motor vehicle and parts manufacturing
industry.

Consolidation and internationalisation are far from new to the automotive industry,
and especially to vehicle producer companies. The vehicle market is already highly
concentrated, with some ten leading companies accounting for more than 50% of the
total market. However, the current restructuring trend is taking place in a somewhat
new context: markets have been liberalised and new and different countries have
entered both on the consumer and producer sides.

Data Analysis No.1

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Daimler-Benz and Chrysler

NATIONALITY: - Germany (Daimler-Benz), U.S.A. (Chrysler)

DATE :- November 17, 1998

AFFECTED : - Daimler-Benz AG, Germany, founded 1882

Chrysler Corp., USA, founded 1924

FINANCIALS :- DAIMLER BENZ

Revenue (1998) :- $ 154.61 Billion

Employees (1998) :- 4,41,500

CHRYSLER CORP

Revenue (1998) :- $ 91.9 Billion

Employees (1998) :- 104,000

THE OFFICERS: - DAIMLER CHRYSLER

Co-Chairman and Co-CEO :- Robert Eaton
Co-Chairman and Co-CEO :- Juergen E. Schrempp
Chief Financial Officer :- Manfred Gentz
Sr. VP. Engg. And Tech :- Bernard Robertson
Exec VP Prod Dev and Design :- Thomas C. Gale

Overview of the Merger

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The $37 billion merger of Chrysler corp., the third largest car maker in the U.S., and
Germany’s Daimler – Benz AG in November of 1998 rocked the global automotive
industry. In one fell swoop, Daimler – Benz doubled its size to become the fifth-
largest automaker in the world based on unit sales and the third-largest based on
annual revenue. Employees totalled 434,000. Anticipating $ 1.4 billion in cost
savings in 1999, as well as profits of $ 7.06 billion on sales of $ 155.3 billion, the new
Daimler–Chrysler manufactured its cars in 34 countries and sold them in more than
200 countries.

Market forces driving the Merger

The deal between Chrysler and Daimler-Benz was pit into motion in the early
1990’s, when executives at Daimler Benz realized that the luxury car market they
targeted with the Mercedes line was approaching saturation. Because traditional
markets had matured and consumers in emerging markets were typically unable to
afford higher prices autos, Mercedes began to look for a partner that would both
broaden its appeal and give it the scale it needed to survive industry consolidation.
Eventually, Daimler-Benz settled on Chrysler because it’s broad range of less costly
vehicles and its third place status in the US.

The trend of globalisation had forced Chrysler to take look at foreign market in mid
1990s. With the majority of sales coming from North America, the company was
looking for a way to break into overseas markets. After plans in 1995 to jointly make
and market automobiles in Asia and South America with Daimler-Benz fell apart,
Chrysler devised lone star, a growth plan that called for exporting cars built in
North America instead of spending money on building plants overseas. The plan
faltered because the firm did not have enough managers placed in international
locations to boost sales as quickly as Chrysler wanted.

Daimler-Benz also pursued growth of its own after attempts at an alliance with
Chrysler failed in 1995.the German automaker built a plant in Alabama to
manufacture its M-Class Sports Utility Vehicle and a small A-Class model. Quality

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control problems with both autos plagues he factory in 1996 and 1997. To make his
firm more attractive to suitors, Daimler-Benz CEO Jurgen Schrempp listed it on the
New York Stock Exchange, began using US GAAP guidelines, and reduced the
independence of the Mercedes by removing its separate board of directors. A
merger seemed the company’s only option.

Approach and Engagement

Daimler-Benz CEO Jurgen Schrempp called Chrysler CEO Eaton in January of 1998.
They met briefly at Chrysler’s headquarters during North American International
Auto Show in Detroit. A deal between Daimler-Benz and Chrysler seemed
inevitable until Ford’s Alex Trotman contacted Schrempp about a possible alliance.
Trotman and Schrempp met in London in March to discuss terms. Prior to the
second meeting, however the deal fizzled after Trotman admitted to Schrempp that
the Ford family was unwilling to consider a deal that would reduce its 40% stake of
Ford’s voting stock.

Schrempp and Eaton rekindled their merger negotiations and their merger
negotiations and the $37 billion deal was officially announced on May 7 in London.
According to the terms of the agreement the new firm – named DaimlerChrysler-
would be incorporated in Germany 58% owned by former Daimler-Benz
shareholders, and managed mainly by former Daimler-Benz Executives. Schrempp
would gain full control. After more than 98% of Daimler-Benz shares were
converted into DaimlerChrysler shares, the new firm was officially listed on
worldwide stock exchanges on November 17, 1998.

Products and Services

After the merger, DaimlerChrysler manufactured the following makes of
automobiles: Chrysler, Dodge, Eagle, Jeep, Mercedes-Benz, Plymouth and Smart, a
compact car. Chrysler passenger car made up 41% of total sales; Daimler passenger
accounted for 24%. Other automotive operations, which secured 17% of sales,
included four wheel drive vehicle, commercial vehicles, tucks and busses. Services
accounted for 9%of sales and encompassed financial, insurance brokerage,

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information technology, telecommunications and real estate management.
Aerospace operations made up another 6% of total revenues.

Changes in the Industry

The new DaimlerChrysler moved into the fifth place spot among global automakers
based on the four million vehicles it was estimated to produce in 1999. Anticipated
sales of $155.3 billion positioned the firm as third in the world in terms of revenue.
Analysts heralded the deal as the first in a wave of intense global consolidation
among the industry’s leading players. Accordingly, DC stock continued to
outperform Ford Motor company co., General Motors Corp., Dow Jones Industrial
average in May of 1999. 1 year after the deals formal announcements

FINDINGS
The new firm faced its first hurdle immediately. Standard & Poors chose not to list
DC in the Standard & Poor’s 500 stock index because the firm had become the
German entity Standard & Poors fund managers were forced to sell their Chrysler
shares, and because they were unable to exchange them for DC shares the new firm
lost a wide shareholder base. On a more positive note DC did not face the expense of
spending 5-10 years integrating its Computer Aided Design Systems or its financial
applications because the 2 firms already used the same system.

The success of the merger depends upon how well the 2 disparate teams mesh. For
instance Daimler will handle Fuel-Cell and diesel technology and Chrysler will keep
it for electric-vehicle project. Other decisions are tougher Chrysler invented the
minivan but Daimler was far along in developing its own. So the two are debating
whether to ditch Daimler’s version or offer a separate a luxury model.

To achieve the promised $1.4 billion in savings- the anticipated outcome of the
geographic reach and the product lines, but not of the lay-offs that typify mergers of
this scope-integration efforts began immediately with the financing departments of
both firms first on the list. Most analysts consider purchasing likely to be the second

17
candidate for cost cutting efforts as DC works to leverage its size to garner discounts
for such commodities as steel and services like transportation.

In both Europe and North America Chrysler and Mercedes showroom will remain
separate, although warehousing, logistics, service and technical training will be
combined. Complete integration of purchasing operations is scheduled to take 3-5
years; merging manufacturing functions will take even longer, as might ironing out
anticipated cultural clash between the Germans and the Americans

Data Analysis No. 2

Renault AND VOLVO

NATIONALITY: - France (Renault), Sweden (Volvo)

DATE :- March 31, 1999

AFFECTED :- Renault S.A., France, Founded 1989

AB Volvo, Sweden, Founded 1915

FINANCIALS :- RENAULT

Revenue (1998) :- FFr 195 Billion

Employees (1998) :- 1,38,321

AB VOLVO

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 Revenue (1998) :- SEK 212.9 Billion
Employees (1998) :- 79,820

THE OFFICERS: - RENAULT S.A.

Co-Chairman and Co-CEO :- Louis Schweitzer
Exec. V.P., Worldwide Sales & Marktg :- Patrick Faure
Exec. V.P. :- Carlos Ghosn
Chief Financial Officer :- Christian Dor

AB VOLVO
Chairman :- Hakan Frisinger
President and CEO :- Leif Johansson
Deputy CEO and Exec. V.P. :- Lennart Jeansson
Executive V.P. :- Arne Wittlov
Overview of the Acquisition

The collapse of the between Renault and Volvo brought an end to their three year
engagement. The two companies had formed an alliance in 1990, and in 1993 set
their official merger date as January 1994. Before they could complete the union,
however Volvo’s managers and shareholders voiced their objections to the terms of
the agreement, pressuring Volvo’s president, Soren Gyll, to terminate the deal.

Market forces driving the merger

By 1990 Sweden’s export sales had began to slow. As a result, many of the nation’s
automotive companies were squeezed financially. One such firm, SAAB, reacted by
entering into an alliance with General Motors whereby GM gained an effective
control of the company. Volvo, too looked, for foreign assistance. That year it
entered into a complex arrangement with France-based Renault to share

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increasingly high cost of research and product development. The market declined
continued, however and Volvo recorded a loss of $649 million in 1992.

Moreover, the industry showed no signs of rebounding in the immediate future.

West European car sales dropped 16.5% in the first eight months of 1993 and
increased competition would soon arise from Japanese automakers, as the
limitations on European imports were scheduled to be lifted by the European Union
in 1999.

Hoping to strengthen its position Volvo entered into a merger agreement with
Renault in September 1993. The combined company would be sixth largest car
manufacturer, after General Motors, Ford, Toyota, Volkswagen and Nissan. It hoped
to achieve gains in the sector by reaping the rewards from cross-marketing in luxury
cars, Volvo’s strength, as well as compact cars, Renault’s speciality. Yet the merged
company’s biggest impact would be in commercial vehicles, as the separate
companies had substantial operations in Europe and the U.S. they would rank the
combined firm second in that industry, behind Mercedes-Benz.

Approach to the Engagement

On September 6, 1993, Renault and Volvo announced their merger accord. Renault
was a state owned company that meant that the French government would hold
stake in the combined enterprise. This brought a patriotic tremble to those vested in
Volvo, a Swedish company. And that tremble developed into an outright shudder
when the details of the merger deal were revealed.

On October 6 the Swedish Shareholders Association, an alliance of individual

investors who combined to own 10% of Volvo, voiced its objections to the deal.

Three points in particular that disturbed the association was, first, that deal gave
French government a “Golden Share”, which enabled it to restrict the voting rights
of any investor, including Volvo, to 20%. Secondly, the companies failed to produce

20
compelling benefits arising form the merger that could not be achieved from a
continuation of their partnership. Finally French government was elusive about the
date it planned to privatize Renault, until that time merger’s benefits to the Swedish
Shareholders would be limited.

The companies tried to quell to growing number of oppositionists. Volvo issued

revised statement of the merger’s projected savings, reporting that they would be
$7.4billion, up from the $4.8billion that had been earlier reported. But they dint
explain the source of extra savings. The French government expressed its assurance
that it would not abuse its golden share rights.

The efforts to charm investors and managers proved ineffective, and in November
30 the last straw broke. A leaked financial report indicated that while Volvo’s
monthly earnings increased markedly, Renault’s dropped sharply. Soren Gyll,
Volvo’s CEO, quickly conducted an informal poll of the company’s 25 senior
managers, who overwhelmingly declared that the mergers would not work. Gyll
telephoned Volvo’s chairman, Pehr Gyllenhammer who was in the U.S. at the time,
and informed him of the developments; Gyllenhammer terminated the deal and
resigned the following day.

Products and Services

Renault was divided into two main segments passenger cars included such brands
such as Clio II, Espace, Kangoo, Laguna, Megane, Scenic, Nevada , Safrane, Twingo
and Spider. Commercial Vehicles were comprised of vehicles for long haul goods
transport, distribution transport and passenger transport as well as construction
trucks, public service vehicles and military vehicles.

Volvo operated in five segments Volvo Buses, Volvo Trucks, Volvo Construction
Equipment Group, Volvo Penta Corp. (marine and industrial engines) and Volvo
Aero.

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FINDINGS

The breakup dint just bring about an end to the merger deal, it also terminated their
previous partnership. Volvo and Renault dissolved their joint purchasing and
quality control accords. They also surrendered most of the seats held on the other’s
board; Renault’s chairman Louis Schweitzer, however, retained his seat on Volvo’s
board. Renault reduced its stake in Volvo to 3.45% on February 3, 1994 and Volvo
sold its 11.38% in Renault to the Union Bank of Switzerland on July 31, 1997.

Data Analysis No. 3

FORD AND VOLVO

NATIONALITY: - U.S.A. (Ford), Sweden (Volvo)

DATE :- March 31, 1999

AFFECTED : - Ford Motor Co., U.S.A., Founded 1903

AB Volvo, Sweden, Founded 1915

FINANCIALS :- FORD MOTOR CO.

Revenue (1998) :- $144.4 Billion

Employees (1998) :- 345,175

AB VOLVO

Revenue (1998) :- SEK 212.9 Billion

Employees (1998) :- 79,820

THE OFFICERS: - FORD MOTOR CO.

Chairman :- William C. Ford, Jr.

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President and CEO :- J. A. Nasser
Vice Chairman :- W. Wayne Booker
Vice Chairman and Chief of Staff :- Peter J. Pestillo
Exec. V.C. and C.F.O. :- John M. Devine

AB VOLVO
Chairman :- Hakan Frisinger
President and CEO :- Leif Johansson
Deputy CEO and Exec. V.P. :- Lennart Jeansson
Executive V.P. :- Arne Wittlov

Overview of the Acquisition

Ford motor company secures its rank as the world’s number-two automaker with its
purchase of Volvo car corp., the automotive business of AB Volvo. This $6.45 billion
deal followed the previous years DaimlerChrysler formation and perpetuated the
trend of mega mergers within the global auto industry. It also brought the industry
in step closer to consolidation of players into the last remaining Global six.

Market Forces Driving the Acquisitions

Global automobile industry in the late 1990s was showing signs of a consolidation
trend. Manufacturers throughout the world were feeling the pinch of flat sales,
pricing competition and international overcapacity. In 1998 DaimlerChrysler was
formed by the merger of two automotive giants, and erased all doubt that small
independent companies would survive on their own for much longer.

Analyst and industry players were predicting a shakeout of the industry into the
global six General Motors, Ford, DaimlerChrysler, Toyota, Honda and Volkswagen.
These super giants were expected to achieve their entry in this elite group by
securing the acquisitions of their smaller brethren.

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As one of the relatively smaller companies AB Volvo was actively seeking partner
even though it was far from hurting. It had built a valuable reputation as one of the
safest brands available and had a socially and environmentally responsible
corporate image. Yet in the automotive sector, this Swedish concern was slow to
institute innovations, and lacked the financial resources to enable to pick up the
pace. Part of its reticence to invest heavily in its auto operations, known as Volvo
Car Corp., was that the company’s commercial vehicle business accounted for a
greater share, 60%, of overall revenues. By divesting its auto business, which would
never survive independently anyway, Volvo could focus on increasing its
commercial business.

The addition of the Volvo brand to Ford Motor’s line-up would increase its luxury
car offerings, which at that time consisted of Jaguar, Lincoln and Aston Martin. It
would attract new classes of luxury car customers – females and consumers under
the age of 55. Volvo would also provide Ford with European manufacturing plants,
as well as the potential for the exchange of vehicle platforms, or chassis, between the
combined company’s models.

In the months prior to the announcement of a definite deal, rumours were flying
about potential partners for Volvo. Ford and Volkswagen had been named as
possible suitors, but it was the Italian automaker Fiat SpA that particularly wanted
to acquire Volvo. According to reports, Fiat had offered $7 Billion for the entire
concern, including the commercial vehicles business. Volvo rejected that offer, since
it wanted to maintain and develop those operations itself.

Instead, Volvo formed a [act with Ford. announced on January 28, 1999, the deal
called for the purchase of Volvo brand name on passenger vehicles, including car,
minivans, sports-utility vehicles, including cars, minivans , sports utility vehicles
and light trucks, while Volvo retained the right to use the Volvo name on all
commercial vehicles and non auto products.

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Volvo shareholders approved the deal on March 8, 1999, and the regulatory bodies
did likewise on March 29, 1999. On March 31, 1999, Volvo Car Corp. was transferred
to Ford Motor, Which paid the Swedish corporations $700 million and SEK 10.2
billion was scheduled to be paid within two years.

Products and Services

Ford Motor created the Premier Automotive Group to hold its luxury brands: Volvo,
Aston Martin, Lincoln and Jaguar. Before the addition of Volvo, Ford’s luxury
operations sold 250,000 vehicles by mid 1999. With the newly acquired brand, the
company expected its global sales to reach 750,000 in the year 2000. Ford’s other
automotive brands were Ford and Mercury, as well 33% interest in Mazda.
Additionally, the company operated in Financial Services Sector, consisting of Ford
Credit, Hertz and USL Capital.

After divesting itself to its automotive business AB Volvo in five segments: Volvo
Buses, Volvo Construction Equipment Group, Volvo Penta Corp. (marine and
industrial engines), and Volvo Aero.

Changes to the Industry

Ford secured its second-place position, behind General Motors, among the world’s
automotive companies, acquiring a 16% global market share. Its 11.7% share of the
European market just edged out GM’s 11.5% share, although they trailed far behind
the 18.4% share held by the leader of that market Volkswagen AG.

A June 1999 issue of the Detroit Free Press reported results of a study predicting that
ford would soon overtake GM as the world’s leader in terms of both revenue and
production. According to Autofacts Group, a unit of the PricewaterhouseCoopers,
Ford’s global production was expected to reach 9.15 million cars and light trucks by
2005, while GM would trail slightly behind with 9.1 million.

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FINDINGS
Ford vowed to have minimal impact on the operations and the culture of Volvo Car
Corp. Still, employees of the newly acquired company were somewhat anxious
about being the subordinates of an aggressive American boss, particularly Jacques
Nasser, who worked so hard that he shunned vacations. Swedish companies were
traditionally run by compromise rather than direct order and their bosses
encouraged a healthy balance of work and play.

No layoffs or closures were announced immediately after the deal, but they were
expected to be forthcoming. Additionally Swedish suppliers admitted that they dint
have the large scale capabilities to service Ford, and neither could they ever hope to
compete against Ford’s established suppliers

Conclusion
“We’ve achieved our target”
You can almost hear the sigh of relief from everyone seated in the boardroom.
Months of sleepless nights and hours of work have boiled down to this one-day and
yes they have been victorious.

This line, this scene is the dream of every company that goes in for a merger or an
acquisition. To achieve the set target is a remarkable feat considering the fact that
most mergers don’t succeed.

Over the years there have been millions of mergers, the value of which keeps
increasing as the years go by, but yet no one has been able to come up with a sure
shot formula for success and no one probably ever will.

One of the main reasons for this is that every organization is different from the
other; no two firms have the same work cultures and philosophies, just like no two
people in the world are exactly similar. The requirements for success for each firm
would differ.

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This does not mean that the organization does not strive to achieve success or that it
is out of reach. It is not. The company should work towards their set goals. The
issues that I have discussed in the report should be looked at closely, because if
they’ve done everything right and it still does not work means that they were a
misfit form the beginning.

Before making a final deal they must do a due diligence. This will help them in
uncovering any facts that might not be blatantly visible but can cause a hindrance to
the merger.

The people who have a stake in the firm, be it employees or customers should be
informed about the going-ons in the company. This would assure their full support
to the firm.

The price structure should be studied in detail. The company should be on their
toes all the time making sure that the competitor is not taking advantage of their
vulnerable position when they are in the process of a merger or an acquisition.

The scope of mergers is tremendous because there are so many fragmented players
especially in India, they would not be able to withstand competition from the
multinationals. Today in a lot of sectors there is fierce competition like telecom, this
excessive competition at some point of time will lead to consolidation in the
industry because they cannot keep playing price games, at some point they will
have to stop. Fixed costs are rising, consumers are becoming global, their demands
have to be serviced and mergers are considered to be the simplest way to expand
since you don’t incur the start-up costs.
To conclude I would like to say that this is just the beginning... The best is yet
to come the marriages are going to get bigger and bigger…

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