PRESENTATION ON Mergers & Acquisitions, Joint Ventures

Prepared by: Vishal H Patel Ankit B Patel Enrl No.:107550592018 Enrl No.:107550592024 MBA-II (2010-2012) MBA-II (2010-2012)

Submitted to:
SARDAR PATEL COLLEGE OF ADMINISTRATION & MANAGEMENT (SPCAM-MBA) AFFILIATED WITH GUJARAT TECHNOLOGIACAL UNIVERSITY, AHMEDABAD
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Roadmap
M&As: Meaning Inbound & Outbound M&As Modes of Acquisitions Types of Mergers M&As: Advantages & Failures Case study 1: Ranbaxy & Daichii Joint Ventures: Meaning, Benefits & Issues Case Study 2: Maruti & Suzuki Case Study 3: Hero & Honda

Mergers & Acquisitions

M&As are a type of inorganic growth paths Merger:In the pure sense of the term, a merger happens when two firms 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, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created. Acquisition:When one company takes over another and clearly establishes 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.
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Inbound & Outbound M&As

Inbound M&A Inbound M&A are mergers or acquisitions where a foreign company merges with or acquires an Indian company Eg: Daichii acquiring Ranbaxy

Outbound M&A Outbound M&A are mergers or acquisitions where an Indian company merges with or acquires an foreign company Eg: Tata steel acquiring Corus

Mode of Acquisitions
Management Buyouts A management buyout (MBO) is a form of acquisition where a company's existing management acquire a large part or all of the company Eg: in Sep07 the UK arm of Virgin Megastores was to be sold off as part of a management buyout, and from Nov07, was known by a new name, Zaavi Hostile Takeovers : A hostile takeover allows a suitor to take over a target company's management unwilling to agree to a merger or takeover. Eg Oracle Peoplesoft India Cement- Raasi Cement
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Mode of Acquisitions
Leveraged Buyouts: A leveraged buyout occurs when an investor, typically financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage (borrowing) Eg: Tata Corus

TYPES OF MERGERS
Based on Business Structures
Horizontal:- Two companies that are in direct competition and share the same product lines and markets. Vertical:- A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker. Conglomerate:- Two companies that have no common business areas. Market-extension merger:-Two companies that sell the same products in different markets. Product-extension merger:- Two companies selling different but related products in the same market.
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TYPES OF MERGERS
Based of method of Financing Purchase Mergers - This kind of merger occurs when one company purchases another. The purchase is made with cash or through the issue of some kind of debt instrument; the sale is taxable. Consolidation Mergers - With this merger, a brand new company is formed and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.
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Advantages of M&A
Economy of scale Economy of scope Increased revenue or market share Cross selling Synergy Taxation Geographical or other diversification Resource transfer Vertical integration Absorption of similar businesses under single management
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Why M & As fail..

Research has conclusively shown that most of the mergers fail to achieve their stated goals. Some of the reasons identified are:
Corporate Culture Clash Lack of Communication Loss of Key people and talent HR issues Lack of proper training Clashes between management Loss of customers due to apprehensions Failure to adhere to plans
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Case study 1: Ranbaxy Daichi

Ranbaxy Overview

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The DEAL

Daiichi got to acquire a controlling stake .51.62% in Ranbaxy for $ 3.4-4.6 billion Singh family promoters of Ranbaxy sold entire stake 34.8% for Rs 10000 crs ($2.4 bio) at Rs 737/Daiichi had to make an open offer to acquire 20% more from other shareholders. Japanese company was to acquire another 4.9% through preferential of share warrants Ranbaxy was to get $1bn via preferential allotment, funds were to be used to 12 retire debt

The DEAL

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Reasons for Takeover

Daiichi
A complementary business combination An expanded global reach Strong growth potential Cost competitiveness by optimizing usage of R&D and manufacturing facilities

Ranbaxy
The R&D pipeline was not delivering enough products, the generic market was not generating adequate returns. Ranbaxy had three choices It could spend lot of money in acquiring a big generic company to grow inorganically Merge with a global player Sell-out The sell out option was most profitable
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Conclusion

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Joint Ventures (JV)

JV is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Sony Ericsson joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement. Project Based JV: These are Joint Ventures entered into by companies in order to accomplish a specific project. Functional JV: These are Joint Ventures wherein, companies agree to share their functions and facilities such as production, distribution, marketing, etc. to achieve mutual benefit
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JV- Goals, Benefits

Goals Synergies Transfer of technology/skills Diversification Benefits Complementary Benefits Acquiring and Sharing Expertise New Business / Product Development Capacity Expansion
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JV- Issues
Issues in Joint Ventures Due Diligence Business Strategy Development of HR Strategies Implementation

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Case Study 2: Maruti Suzuki Joint Venture

HISTORY

Maruti Udyog Ltd was established in February 1981 Actual Production commenced in 1983 with Maruti 800 Project Maruti started by Indira Gandhi & Sanjay Gandhi Indian experts started search for collaborators Negotiated with Toyota, Nissan, Honda & Suzuki After rounds of negotiation Suzuki was selected Joint venture of Govt of India & Japanese Company Suzuki Motors Corp Previously Govt of India owned 80% equity & Suzuki had 20% Now Indian Financial Institute has 18.28%, Suzuki has 54.24% & 25% equity is public offering
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SWOT Analysis
STRENGTHS Goodwill of Suzuki Brand Contemporary Technology Market Share & reliability

WEAKNESS Japan for technical support OPPORTUNITIES Infrastructure Innovation THREATS Govts Policies, taxes etc
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BENEFITS OF JOINT VENTURE

For Maruti Suzuki Motor Corporation, the parent company, is a global leader in mini and compact cars for three decades Suzukis technical superior Lightweight engine that is clean and fuel efficient Nearly 75000 people are employed directly by Maruti Suzuki and its partners For Suzuki Large Indian Market Monopolistic trade in the Indian automobile market Availability of resources
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Case Study 3: Hero Honda Joint Venture

The Market before JV

The license raj that existed prior to economic liberalization (1940s-1980s) in India did not allow foreign companies to enter the market. In the mid-80s when the Indian government started permitting foreign companies to enter the Indian market through minority joint ventures.

The entry of these new foreign companies transformed the very essence of competition from the supply side to the demand side. 22

The Deal Is Done.(June 1984)

Honda agreed to provide tech. know-how to HHM and setting up manufacturing facilities. This included the future R & D efforts. Honda agreed for a lump sum fee of $500,000 & 4% royalty on SP. Both Partners held 26% of the equity with other 26% sold to the public and the rest held to financial institutions.
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Success Story
HHM had grown consistently, earning the title of the worlds largest motorcycle manufacturer Worlds largest two-wheeler manufacturer with annual sales volume of over 2 million motorcycles. Owns worlds biggest selling motorcycle brand Hero Honda Splendor.

Over 9 million motorcycles on Indian roads.

Deep market penetration with 5000 outlets.
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Reasons for success

The deep penetration network of hero largely benefited the sales. Absence of major competitors in initial years. Sound and proven technical capabilities of Honda and the reliability of Hero.

Increased market for motorcycles

Better Fuel efficiency. Change in peoples perception. Decrease in price difference with scooters.
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THANK YOU

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