Under the guidance of our respected
Pranav Jalan 08BS0002278
Pravesh Surana 08BS0002328
Prerna Singhal 08BS0002
Priyanka Bhuwania 08BS0002372
Rahul Chandalia 08BS000
Rahul Jain 08BS0002500
Ravi Somani 08BS0002638
Rohit Kothari 08BS0002751
Date 12th November;09
M & A Process
Reasons and Issues
Strategic Approach to M&A
Takeover Strategies and Defenses
Issues and Defects
Attributes to effective acquisition
P&G and Gillette
Corporate restructuring is the reorganization of corporate entities. The
reorganizing can be within the company itself or with the involvement of other
A strategy to change business or financial structure.
Radical changes in composition
Process of redesigning.
Example ‟ GE witnessed tremendous growth during tenure of Jack Welch
Necessity when the company has grown to the point.
Crucial whenever there is a major shift.
Result - leaner, more efficient, better organized, and better focused .
Financial Restructuring ‟ Includes raising the
finance, decisions regarding mergers, joint
ventures and alliances
Operational Restructuring ‟ Reformulate the
company on basis of change in technology and
Organizational Restructuring ‟ In order to
increase efficiency redefining the organizational
structure or the processes or the systems.
Market Restructuring ‟ Is the addition of a newer
product or shifting one product or segment to
another or enlarge the market for the exiting
Inadequate focus and commitment of top
management towards change program
"What is in it for me" attitude
Mind set/resistance to change
Lack of involvement of employees
Cost and time
Changes in ownership structure..
A MERGER happens when two firms, often about same size,
agree to go forward as a new single company rather than remain
separately owned & operated by pooling all their resources
together, to create a sustainable competitive advantage. For
example,both Daimler-Benz & Chrysler ceased to exist when two
firms merged, and a new company ’Daimler-Chrysler’ was
When a Company takes over another one & clearly becomes the
new owner ,the purchase is called ‘ACQUISITION’. Unlike
mergers, acquisitions can sometimes be unfriendly. i.e., when a
firm tries to takeover another by adopting hostile measures.
Mergers and Acquisitions M&A ,have become very popular
strategy all over the world in last 3 decades.
The value M &A WORLDWIDE increased from $464 Billion
in 1990 to $3.4 trillion in 1999-2000, followed by sharp
decline during 2001 & 2002.It has again shown improvement
from 2003 onwards.
India born Laxmi Nivas Mittal has taken over Arcelor in
Europe , to form a largest Steel making Company in
Europe-”Arcelor-Mittal.”(117 Mtons/Year-Global) .
Tata Steel-Corus(UK) Acquisition by Tata Steel for $12
Billion is very significant and a landmark for the Indian
Corporate World. (28 Mtons/Annum-2006)
M&A means and includes
PURCHASE OF UNIT
Improve management or
replace inefficient one
The 1895-1904 Merger Movement.
The 1922-1929 Merger Movement.
The 1940-1947 Merger Movement.
The 1960s Merger Movement.
Post 1980 Merger Movement.
Majorly of Horizontal mergers.
Merging for Monopoly in order to eliminate
Case: JP Morgan merged with Carnegie Steel.
Ended in 1904 due to severe economic
Majorly of Vertical mergers.
Merging for Oligopoly.
Case: FORD- manufacturing tyres of car from
rubber plantations in Brazil.
Ended in 1929 with stock market crash of
Occurred during booming American economy.
A = Amalgamating Company: Ceases to Exist
B = Amalgamated Company
B receives all of A’s assets and liabilities
Shareholders of A receive shares in B and maybe other
benefits like debentures, cash
Transfer assets and liabilities
A, B and C = Amalgamating Companies: Cease to exist
D = Amalgamated Company: may or may not have
existed before Merger
All assets and liabilities of A, B and C transferred to D
Shareholders in A,B and C get shares in D.
Demergers are one type of spin-offs: under s. 391
A = Demerging Company
B = Resulting Company: may or may not have existed
A transfers undertaking to B
B issues shares to shareholders of A
Transfers undertaking Y
Develop a strategic plan for the business.(Business
Develop an acquisition plan related to the strategic
plan.( Acquisition Plan)
Search companies for acquisitions.(Search)
Screen and prioritize potential companies.(Screen)
Initiate contact with target.
Refine valuation, structure the deal and develop
financial plan.( Negotiation)
Develop plan for integrating the acquired business.
Obtain all necessary approvals and implement
Implement post closing integration.
Conduct a post closing evaluation.
According to Drucker, financial factors provide stimulus for
merger activity. He says that mergers should follow five
rules, in order to be economically viable.
The acquirer must contribute something to the acquired
A common core of unity is required.
The acquirer must respect the business of the acquired
Within a year or so, the acquiring company must be able to
provide top management to the acquired company.
Within the first year of the merger, managements in both
companies should receive promotions across the entities
A horizontal merger involves two firms operating and competing in the same
kind of business activity.
Textiles firm merges raw materials firm.
Exxon - Mobil
Vertical mergers occur between firms in different stages of
- Example: Helene Curtis and Unilever
- Conglomerate mergers involve firms engaged in unrelated types of
- Example: General Electric buying NBC television
- Based on specific management functions where as the conglomerate
mergers are based on general management functions
- Example: Citigroup (principally a bank) buying Salomon Smith
Barney (an investment banker/stock brokerage operation
evaluation of target
Cost of new
compared to developing
focused on acquisitions
Reasons for M & A
Increased Market Power
Acquisition intended to reduce the competitive balance of the
Example: British Petroleum’s acquisition of U.S. Amoco
Overcome Barriers to Entry
Acquisitions overcome costly barriers to entry which may make
“start-ups” economically unattractive
Example: Belgian-Dutch Fortis’ acquisition of American Banker’s
Lower Cost and Risk of New Product Development
Buying established businesses reduces risk of start-up ventures
Example: Watson Pharmaceuticals’ acquisition of TheraTech
Reasons for M & A
Increased Speed to Market
Closely related to Barriers to Entry, allows market entry in a more
Example: Kraft Food’s acquisition of Boca Burger
Quick way to move into businesses when firm currently lacks
experience and depth in industry
Example: CNET’s acquisition of mySimon
Reshaping Competitive Scope
Firms may use acquisitions to restrict its dependence on a single or
a few products or markets
Example: General Electric’s acquisition of NBC
Problems with M & A
Differing financial and control systems can make integration of firms
Example: Intel’s acquisition of DEC’s semiconductor division
Inadequate Evaluation of Target
“Winners Curse” bid causes acquirer to overpay for firm
Example: Marks and Spencer’s acquisition of Brooks Brothers
Large or Extraordinary Debt
Costly debt can create onerous burden on cash outflows
Example: AgriBioTech’s acquisition of dozens of small seed firms
Problems with M & A
Inability to Achieve Synergy
Justifying acquisitions can increase estimate of expected
Example: Quaker Oats and Snapple
Acquirer doesn’t have expertise required to manage
Example: GE--prior to selling businesses and refocusing
Managers Overly Focused on Acquisitions
Managers may fail to objectively assess the value of outcomes
achieved through the firm’s acquisition strategy
Example: Ford and Jaguar
Growing steadily but in a mature market
with limited growth
Acquire a company in a younger
market with higher growth rate
Operating at maximum productive
Acquire a company making
similar products operating
substantially below capacity
Under-utilizing management resources
Acquire a company into which
the talents can be extended
Marketing an incomplete product range ,
or having the potential to sell other
products or services to your existing
Acquire a company with
product range which is
Lacking key clients in a targeted sector
Acquire a company with right
Need to increase market share
Acquire an important
Need to widen capability
Acquire a company with key
talents and/or technology
Need more control of suppliers or
Acquire a company which is, or
which gives access to a
significant customer or supplier
Preparing for floatation but need to
improve balance sheet
Acquire a company with the
right customer profile
Kinds of takeovers:
Negotiated or Friendly Takeover
The existing management of a company decides to give
away the control of the company to another group on terms
and conditions mutually agreed upon by both the parties.
Open market or Hostile Takeover
A group acquires shares of a company from the open market
in order to take control of the company
Eg:Autoriders’ Hostile Takeover Bid for Saurashtra Cement
When a financially sick company is taken over by a profit
earning company in order to bail out the former ,it is called a
General offer made publicly and directly to a firm’s shareholders to
buy their stock at a price well above the current market price.
The acquirer accumulates large amounts of the stocks in the target
company before making the open offer
The acquirer tries to put pressure on the management of the target
firm by threatening to make an open offer
An acquirer offers a partnership rather than a buyout of the target
The acquiring firm enters into an alliance with other powerful
brands to displace the competitor’s brand.
Public Policy Issues
Powers of financial institutions
the Acquirer Company
the Target company
the Shareholders of the Target
the Shareholders of Acquiring
Super majority amendments
Fair price amendments
Authorization of preferred stock
Poison Pill Defense
Targeted Share Repurchase and Standstill
Other Takeover Defences
A fundamental characteristic of merger is
that the acquiring company takes over the
ownership of other companies and combines
their operations with its own operations.
An acquisition may be defined as an act of
acquiring effective control by one company
over the assets or management of another
company without any combination of
Attributes of Effective Acquisitions
+ Complementary Assets or Resources
Buying firms with assets that meet current
needs to build competitiveness
+ Friendly Acquisitions
Friendly deals make integration go more smoothly
+ Careful Selection Process
Deliberate evaluation and negotiations is more likely
to lead to easy integration and building synergies
Maintain Financial Slack
Provide enough additional financial resources so
that profitable projects would not be foregone
Attributes of Effective Acquisitions
Merged firm maintains financial flexibility
Has experience at managing change and is
flexible and adaptable
Continue to invest in R&D as part of the
firm’s overall strategy
Sec 391 – 394 of Indian companies act
covers M & A.
Examination of object clause
Approval from the board
Intimation to share holders and
Approval from share holders and
creditors.- 75% of SH and creditors to
Application to National Company Law
Intimation to SEs
Pettion to NCLT for approval
Filing order with ROC
Transfer of assets and Liabilities
Issuance of shares/cash
Sep 20, 06 : CORUS uses the strategy to work with low cost producer.
Oct 06, 06 : Initial offer by TATA is considered to be too low.
Oct 17, 06: TATA kept its offer to 455 pence per share.
Oct 20, 06 : CORUS accepts the offer of £4.3 billion.
Oct 23, 06 : Brazilian Steel Group CSN counter-offer to TATA’s offer.
Oct 27, 06 : CORUS criticized by JCB for acceptance of TATA’s offer.
Nov 18, 06 : The CSN approaches Corus With an offer of 475 pence per
Nov 27, 06 : Board of Corus decides to give more time for shareholders to
decide whether it issue forward a formal offer.
Dec h18,06 : Tata increases its original bid for Corus 500 pence per share,
then CSN made its counter bid at 515 pence per share in cash
Jan 31, 07 : Tata ad agreed to offer Corus investors 608 pence per share in
Apr 02, 07 : Tata steel manages to win acquisition to CSN and has the full
voting support from Corus shareholders
TATA Acquired CORUS on 2nd April 2007 which is 4 times larger than its
The deal price was $ 12 Billion.
TATA Steel,the winner of the auction for CORUS declares a bid of 608
Pence per share.
In 2005 when the deal was started the price per share was 455 pence.
TATA Surpassed the final bid from Brazilian steel maker ‘COMPANHIA
SIDERURGICA NACIONAL’ (CSN) of 603 pence per share.
The combined entity has become the world’s fifth largest steelmaker
after the deal.
For this deal TATA has finance only 4 Billion $ from internal company
TATA Have secured funding commitments from its advisors.
These advisors were Deutshe bank, ABN Amro and Standard
The initial motive behind the deal was not CORUS
revenue size but rather its market value.
To compete on global scale because then TATA was
just at 56th rank in steel production.
CORUS holds a number of Patents and R & D
Acquiring Corus will give Tata access to European
customers of steel.
Acquisition cost will be lower then setting up new
green field plants and marketing channel.
To extend its Global reach through TATA.
To get access to Indian Ore reserves, as well as
virgin market for steel.
To get access to low cost materials.
Total Debt of Corus was GBP 1.6bn
Saturated market of Europe.
Better facilities and lower cost of production
Employee cost was 15 % (TATA- 9%)
Profit margin was 3.4% (TATA- 17%)
5.Tata steel- Corus
Ford, a leading automaker and one of the largest MNC in the global
Ford acquired Jaguar from British Leyland Limited in 1989 for US$ 2.5 billion
Ford bought Land Rover in 2000 for US$ 2.7 billion from BMW
Over the years, the operations of both Jaguar and Land Rover were fully
Ford reported losses of US$ 12.7 billion in the year 2006
Ford conducted strategic reviews on the two brands and in June 2007
announced that it was considering selling JLR
Ford was concerned more about the interest of the workers employed with
JLR than the price
JLR’s labour union were against selling to private equity firms to be assure of
On January 03,2008,Ford announced that it had chosen Tata Motors for
the JLR deal and had entered into focused negotiations with the
On March 26,2008, Tata Motors agreed to pay US$ 2.3 billion in cash for a
100% acquisition of the businesses of JLR.
Tata Motors raised a bridge loan of US S$
3 billion through a syndicate of banks
The loan was raised through Tata Motors UK,
a special purpose vehicle and a 100%
subsidiary of Tata Motors
The interest on the bridge loan was linked
to LIBOR(London Inter Bank Offer Rate)
Tata also proposed to raise around US 500 to
600 million through an international issue
Sales of JLR declined by 11.4% during the 2nd quarter ending Sep.2008
Tata motors had to pump in funds to keep JLR on the move
By the end of Nov.2008,198 employees opted for voluntary retirement
and 400 more decide to leave by Jan 2009
With not much of cash generation internally, additional investments of
funds would only add to the debt and interest burden of the company
In early Jan 2009,JLR announced 450 jobs cut
Announced that managers would not receive any bonuses in 2009
while salary raises would be deferred till Oct 2009
For the quarter ending Dec2008,the sales volumes of JLR decreased by
35.2% to 49,186
Total car sales in the UK in the year 2009 would be at 1.78 million as
against 2.4 million in 2008
By the end of 2008,retail vehicle sales were reported at 10.8 millionaround 2 million lower than the sales reported in 2007
Consumers were delaying the purchase of new vehicles due to lack of
Biggest merger in the history of Consumer
P&G acquired Gillette for $57b to become
the world’s largest consumer goods company
Annual Sales of the combined entity:$60.7b
After purchase of Gillette P&G will have
$21b brands with market cap of $200b
P&G paid .975$/share(20% premium),later
buyback of shares worth $18-22b over 12-18
Merging companies: similarity in Corporate
Merger based on a different model where
innovation was the focus rather than the
Regulatory concerns: Product overlaps
Consumer goods after 1980s
P&G strength: Women’s personal care products
Gillette strength: Men’s grooming category
Complementary in strength cultures and vision to
create potential for superior sustainable growth
Gillette stock climbed 50% since 2003,profits
jumped on premium products
Acquisition added about 20% to P&G sales, long
term sales growth estimate to 5-7% a year
Operating margin expected to grow by 25 % by
2015 from 19% in 2003
The companies expected cost savings of $14-16
bn from combining back-room operations and
new growth opportunities.
more resources to enable intensive collaborative
supply chain initiatives in a more cost-effective
merger would also bring down the advertising
and media costs owing to greater bargaining
Opportunities in developing markets: Gillette
would give exposure to P&G in emerging
economies like India and Brazil, while P&G would
distribute Gillette products in China
It will give P&G the much needed boost to
further strengthen its product categories where
at present it has negligible presence
The deal will help Gillette in improving its
The merger would result in around 6,000 job cuts,
equivalent to 4% of the two companies' combined
workforce of 140,000. Most of the downsizing will take
place to eliminate management overlaps and
consolidation of business support functions.
Cultural problems absence because of geographical
P&G is considered a promote-from-within company, and
already had a lot of executive talent at the top.
Therefore, absorbing Gillette's management to their
satisfaction could be difficult
P&G's ability to handle this massive cultural assimilation
would decide the success or failure of this acquisition.
Overlaps of some brands
Pressure for competitors in the industry
competitors could launch new products or
strengthen their supply chain relationships
during this time to gain an edge
P&G-Gillette combination could be a
transformative deal for the industry because
of Gillette's growth potential. Analyst
forecasted that this deal could lead to
further consolidation in the industry