Global Economic Meltdown

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merger as a solution to the global economic meltdown

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Global Economic Meltdown

  1. 1. Global economic meltdown • IS taking its toll on the world • Cost cutting to achieve Economies of scale is the need of the hour. • While taking cost cutting steps companies cannot ignore the sentiments of the market as well the people • Though these are normal corporate procedures it could portray the company in bad shape
  2. 2. • Thus for the current scenario companies need to device methods • Which not only expand business but also provide for economies of scale • Therefore a bright solution for the current scenerio would be CORPORATE MERGERS & ACQUSITIONS
  3. 3. WHAT IS A MERGER? • An arrangement whereby assets of two companies become vested in • or under the control of one company • Shareholders of both companies exchange their shares for shares of the new company • Or shareholders of a weaker company surrender their shares for new shares
  4. 4. To know what is merger we need to know its synonym Amalgamation though used together they have a thin line of difference • Amalgamation • Merger • It is blending of 2 or • Joining together of 2 more existing companies to form a undertaking into one third company undertaking • Only the company • Both the companies which blends with the cease to exist after a other ceases to exist MERGER
  5. 5. Benefits of corporate mergers • Helps to achieve economies of scale in operation • Helps to reduce gestation period for new business which would be complementary to existing business • To be a Global player • To use liquidity available with the new company for achieving growth through diversification • To acquire and minimise the available managerial skill to increase the profitability • To take advantage of concession given to tax laws
  6. 6. WAYS TO MERGE a) Horizontal Mergers • 2 or more companies which are producing or rendering essentialy the same products or services and compete with each other directly like sugar artificial sweeteners • Benefits • Eliminates duplication • Broadens productline • Reduction in finance for working capital • Reduces unhealthy competition • Widens market area
  7. 7. b) Vertical mergers • Companies which supply basic inputs for manufacture of final product • The latter company merges with former • Benefits • Assured of supplies , able to control quality of production company achieves economies and improves profitability of final product • For instance a global infrastructure company acquires a domestic cement company to reap the benefits c) Conglomerate mergers • 2 or more companies carrying different business are acquired and merged to diversify products marketed • Company may not be related to each other horizontally • No relation in production marketing research
  8. 8. • Benefits • Achieves stability through diversification of business • To utilize spare resources whether management or capital • Pooling of staff and allocating them to needy sectors • To provide outlet for ambitions of management where anti monolpoly laws make further acquisition in companies own field impracticable Now why should a company go for a merger?
  9. 9. Why H & co should wish to acquire control of, or to merge with S & co • H & co can aquire shares of S & co at a discount through merger rather than open market operation which will be costly • As S & co was unaware of the true value of assets and not utilized it to the max • Shares have a poor market rating for some irrational reason • Ineficient capital structure • Profits earned by H & co will be at a lower multiple owing to acquisition of shares at a discount thus earning increase • Bringing 2 companies together will result in the combined enterprise producing greater or more earnings than the sum of 2 companies thereby accelerating learning processand ensuring economies of scale • Takeover may also be on the desire of S & co for tax reasons to provide a proprietor with capital gains on his profit after tax
  10. 10. A glimpse of the recent successful HCL-AXON merger • Country's fifth largest software exporter HCL Technologies completed the acquisition of UK-based firm Axon in a 441 million- pound deal and the new entity would pursue deals worth 1.2 billion dollars • HCL Axon will be the SAP services division of HCL Technologies and has been formed by the reverse merger of HCL’s SAP practice and Axon Group • The combined entity will have 4,500 consultants, with the estimated revenues of about $500-600 million. • The acquisition catapults HCL among the top 10 SAP services players globally • The acquisition brings HCL Axon’s expertise in designing, implementing and supporting solutions for companies using SAP as their enterprise platform. From an 11% contribution to revenues, EAS will now account for 25% of HCL revenues

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