Mergers and Acquisitions

MEMBERS KARAN SHETH PALAK PATNI PRATIK DOTIA ASHWINI SHETTY POOJA MEHTA KULDEEP MANDAIVYA

MEANING
Merger
A transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage. The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock Example: Company A+ Company B= Company C.

ACQUISITION
A transaction where one firms buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business It also known as a takeover or a buyout It is the buying of one company by another. In acquisition two companies are combine together to form a new company altogether. Example: Company A+ Company B= Company A.

DIFFERENCE BETWEEN MERGER AND ACQUISITION:

MERGER ACQUISITION

i.

Merging of two organization in to one. ii. It is the mutual decision. iii. Merger is expensive than acquisition(higher legal cost). iv. Through merger shareholders can increase their net worth. v. It is time consuming and the company has to maintain so much legal issues. vi. Dilution of ownership occurs in merger.

i.

Buying one organization by another. ii. It can be friendly takeover or hostile takeover. iii. Acquisition is less expensive than merger. iv. Buyers cannot raise their enough capital. v. It is faster and easier transaction. vi. The acquirer does not experience the dilution of ownership.

MERGER:WHY & WHY NOT

WHY IS IMPORTANT PROBLEM WITH MERGER

i. Increase Market Share. ii. Economies of scale iii. Profit for Research and development. iv. Benefits on account of tax shields like carried forward losses or unclaimed depreciation. v. Reduction of competition.

i. ii. iii.

Clash of corporate cultures Increased business complexity Employees may be resistant to change

ACQUISITION:WHY & WHY NOT

WHY IS IMPORTANT
PROBLEM WITH ACUIQISITION

i. ii. iii.

iv. v.

Increased market share. Increased speed to market Lower risk comparing to develop new products. Increased diversification Avoid excessive competition

i. Inadequate valuation of target. ii. Inability to achieve synergy. iii. Finance by taking huge debt.

TERMINOLOGIES
Asset Stripping Demerger or Spin off Black Knight Carve - out Poison Pill or Suicide Pill Defense Greenmail

Terminologies contd
Dawn Raid Grey Knight Macaroni Defense Management Buy In Hostile Takeover Management Buy Out

EXPERIENCES IN M&A
Learn from mistakes of others Define your objectives clearly Complete strategy to achieve goal. SWOT analysis for the merged business - a must Conservative attitude necessary at evaluation deskstrong arguments to support project Pick holes in strategy to get the best Will merged units be able to work at efficient / ideal level? Acquire expertise to interprete changes

TOP 11 M&A DEALS

1. Tata Steel-Corus: $12.2 billion

January 30, 2007 Largest Indian take-over After the deal TATAS became the 5th largest

STEEL co.
100 % stake in CORUS paying Rs 428/- per share
Image: B Mutharaman, Tata Steel MD; Ratan Tata, Tata chairman; J Leng, Corus chair; and P Varin, Corus CEO.

2. Vodafone-Hutchison Essar: $11.1 billion

TELECOM sector 11th February 2007 2nd largest takeover deal 67 % stake holding in hutch
Image: The then CEO of Vodafone Arun Sarin visits Hutchison Telecommunications head office in Mumbai.

3. Hindalco-Novelis: $6 billion
June 2008 Aluminium and copper sector Hindalco Acquired Novelis Hindalco entered the Fortune-500 listing of world's largest companies by sales revenues
Image: Kumar Mangalam Birla (center), chairman of Aditya Birla Group.

4. Ranbaxy-Daiichi Sankyo: $4.5 b

Pharmaceuticals sector June 2008 Acquisition deal largest-ever deal in the Indian pharma industry Daiichi Sankyo acquired the majority stake of more than 50 % in Ranbaxy for Rs 15,000 crore 15th biggest drugmaker

Image: Malvinder Singh (left), ex-CEO of Ranbaxy, and Takashi Shoda, president and CEO of Daiichi Sankyo.

5. ONGC-Imperial Energy:$2.8billion
January 2009 Acquisition deal Imperial energy is a biggest chinese co. ONGC paid 880 per share to the shareholders of imperial energy ONGC wanted to tap the siberian market
Image: Imperial Oil CEO Bruce March.

6. NTT DoCoMo-Tata Tele: $2.7 b

November 2008 Telecom sector Acquisition deal Japanese telecom giant NTT DoCoMo acquired 26 per cent equity stake in Tata Teleservices for about Rs 13,070 cr.
Image: A man walks past a signboard of Japan's biggest mobile phone operator NTT Docomo Inc. in Tokyo.

7. HDFC Bank-Centurion Bank of Punjab: $2.4 billion

February, 2008 Banking sector Acquisition deal CBoP shareholders got one share of HDFC Bank for every 29 shares held by them. 9,510 crore
Image: Rana Talwar (rear) Centurion Bank of Punjab chairman, Deepak Parekh, HDFC Bank chairman.

8. Tata Motors-Jaguar Land Rover: $2.3 billion

March 2008 (just a year after acquiring Corus) Automobile sector Acquisition deal Gave tuff competition to M&M after signing the deal with ford
Image: A Union flag flies behind a Jaguar car emblem outside a dealership in Manchester, England.

9. Sterlite-Asarco: $1.8 billion

May 2008 Acquisition deal Sector copper

Image: Vedanta Group chairman Anil Agarwal.

10. Suzlon-RePower: $1.7 billion

May 2007 Acquisition deal Energy sector Suzlon is now the largest wind turbine maker in Asia 5th largest in the world.
Image: Tulsi Tanti, chairman & M.D of Suzlon Energy Ltd.

11. RIL-RPL merger: $1.68 billion

March 2009 Merger deal amalgamation of its subsidiary Reliance Petroleum with the parent company Reliance industries ltd. Rs 8,500 crore RIL-RPL merger swap ratio was at 16:1

Image: Reliance Industries' chairman Mukesh Ambani.

Why India?
Dynamic government policies Corporate investments in industry Economic stability Ready to experiment attitude of Indian industrialists

Deals in India for first financial quarter 2010

Sector
Telecom Pharmaceutical BFSI Metal and Mining Energy Other sectors

Value in USD Share in per No. of Deals million cent

3 4 6 4 4 39 22732.26 3958.29 2651.54 1483.15 1320 1919.00 67.19 11.02 7.84 4.38 3.90 5.67

PROCESS OF MERGER & ACQUISITION IN INDIA:

The process of merger and acquisition has the following steps:

i. Approval of Board of Directors ii. Information to the stock exchange iii. Application in the High Court iv. Shareholders and Creditors meetings v. Sanction by the High Court vi. Filing of the court order vii. Transfer of assets or liabilities viii. Payment by cash and securities
Maximum Waiting period:210 days from the filing of notice(or the order of the commission - whichever earlier).

Impact of Mergers and Acquisitions

Management Public

Competition

Employees

Impact

Shareholders

Why Mergers and Acquisitions Fail?

Cultural Difference Flawed Intention No guiding principles No ground rules

No detailed investigating
Poor stake holder outreach

How to Prevent the Failure

Continuous communication employees, stakeholders, customers, suppliers and government leaders. Transparency in managers operations Capacity to meet new culture higher management professionals must be ready to greet a new or modified culture. Talent management by the management

RECENT M&A HAPPENINGS

India Inc runs up an M&A bill of Rs 1.8 lakh cr in H1 M&A deals touch $14 billion in June Value of telecom M&A deals touched USD 23 billion in Q1: Assocham. Godrej acquires Argentine firm Oil India eyes shale gas acquisition overseas RIL acquires Pioneer stake for $1.32 bn Indian hunger for new technology fuels foreign acquisitions

contd
Dabur completes merger of Fem Care Ebay India ties up with Adidas for FIFA World Cup. Abbott buys Piramal unit, tops table Eurocopter signs two joint ventures with Pawan Hans Mahindra to buy out Renaults stake in India, revive Logan sales.

Amongst BRIC Nations, India second most targeted country for Mergers & Acquisitions(2010):

MERGER & ACQUISITION(2009-10) :

33

ICICI BANK & BANK OF RAJASTHAN(19th MAY,2010):

ADVANTAGES FROM THIS MERGER:

This amalgamation would substantially enhance ICICI Bank's branch network (23 % increase apprx). Strengthen ICICI banks presence in northern and western India. ICICI has now moved to a branch-led business model. The acquisition will help ICICI increase CASA (current and savings account) flows, as also help in cross-selling products. Both banks working on the same platform, integration will also be less taxing.

SUCCESS & FAILURE RATE(2009-10):

36