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MergeroA transaction where two firms agree to integrate theiroperations on a relatively co-equal basis because theyhave resources and capabilities that together may create astronger competitive advantage.oThe combining of two or more companies, generally byoffering the stockholders of one company securities in theacquiring company in exchange for the surrender of theirstockoExample: Company A+ Company B= Company C.
ACQUISITIONA 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 ANDACQUISITION: MERGER ACQUISITIONi. Merging of two organization in i. Buying one organization by to one. another.ii. It is the mutual decision. ii. It can be friendly takeover oriii. Merger is expensive than hostile takeover. acquisition(higher legal cost). iii. Acquisition is less expensiveiv. Through merger shareholders than merger. can increase their net worth. iv. Buyers cannot raise theirv. It is time consuming and the enough capital. company has to maintain so much legal issues. v. It is faster and easier transaction.vi. Dilution of ownership occurs in merger. vi. The acquirer does not experience the dilution of ownership.
MERGER:WHY & WHY NOT WHY IS IMPORTANT PROBLEM WITH MERGERi. Increase Market Share.ii. Economies of scale i. Clash of corporateiii. Profit for Research and cultures development. ii. Increased businessiv. Benefits on account of complexity tax shields like carried iii. Employees may be forward losses or resistant to change unclaimed depreciation.v. Reduction of competition. 5
ACQUISITION:WHY & WHY NOT WHY IS IMPORTANT PROBLEM WITH ACUIQISITIONi. Increased market share.ii. Increased speed to i. Inadequate market valuation of target.iii. Lower risk comparing ii. Inability to achieve to develop new synergy. products. iii. Finance by takingiv. Increased diversification huge debt.v. Avoid excessive competition 6
TYPES OF M&A M&A Market-extension Product-extension Conglomeration merger merger Two companies that Two companies selling Two companies that sell the same different but related have no common products in different products in the same business areas markets market
1. TATA STEEL-CORUS: $12.2 BILLION January 30, 2007 Largest Indian take-over After the deal TATA‟S became the 5th largest STEEL co. 100 % stake in CORUS paying Rs 428/- per shareImage: B Mutharaman, Tata Steel MD; RatanTata, 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 hutchImage: The then CEO of VodafoneArun Sarin visits HutchisonTelecommunications head office inMumbai.
3. HINDALCO-NOVELIS: $6 BILLION June 2008 Aluminium and copper sector Hindalco Acquired Novelis Hindalco entered the Fortune-500 listing of worlds largest companies by sales revenuesImage: Kumar Mangalam Birla(center), chairman of Aditya BirlaGroup.
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 drugmakerImage: Malvinder Singh (left), ex-CEOof 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 marketImage: 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 ofJapans biggest mobile phone operatorNTT 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 croreImage: Rana Talwar (rear) CenturionBank of Punjab chairman, DeepakParekh, 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 fordImage: A Union flag flies behind aJaguar car emblem outside adealership in Manchester, England.
9. STERLITE-ASARCO: $1.8 BILLION May 2008 Acquisition deal Sector copperImage: 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 mergerImage: Reliance Industrieschairman Mukesh Ambani. swap ratio was at 16:1
WHY INDIA? Dynamic government policies Corporate investments in industry Economic stability “Ready to experiment” attitude of Indian industrialists
AMONGST BRIC NATIONS, INDIA SECOND MOSTTARGETED COUNTRY FOR MERGERS &ACQUISITIONS(2010):
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).
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
MERGER BETWEEN AIR INDIA ANDINDIAN AIRLINES The government of India on 1 march 2007 approved the merger of Air India and Indian airlines. Consequent to the above a new company called National Aviation Company of India limited was incorporated under the companies act 1956 on 30 march 2007 with its registered office at New Delhi. 27
AIM OF THE MERGER Create the largest airline in India and comparable to other airlines in Asia. Provide an Integrated international/ domestic footprint which will significantly enhance customer proposition and allow easy entry into one of the three global airline alliances, mostly Star Alliance with global consortium of 21 airlines. Enable optimal utilization of existing resources through improvement in load factors and yields on commonly serviced routes as well as deploy „freed up‟ aircraft capacity on alternate routes. The merger had created a mega company with combined revenue of Rs 150 billion ($3.7billion) and an estimated fleet size of 150. It had a diverse mix of aircraft for short and long haul resulting in better fleet utilization. Provide an opportunity to fully leverage strong assets, capabilities and infrastructure. Provide an opportunity to leverage skilled and experienced manpower available with both the Transferor Companies to the optimum potential. Provide a larger and growth oriented company for the people and the same shall be in larger public interest. 28
AIM OF THE MERGER Potential to launch high growth & profitability businesses (Ground Handling Services, Maintenance Repair and Overhaul etc.) Provide maximum flexibility to achieve financial and capital restructuring through revaluation of assets. Economies of scale enabled routes rationalization and elimination of route duplication. This resulted in a saving of Rs1.86 billion, ($0.04 billion) and the new airlines will be offering more competitive fares, flying seven different types of aircraft and thus being more versatile and utilizing assets like real estate, human resources and aircraft better. However the merger had also brought close to $10 billion (Rs 440 billion) of debt. The new entity was in a better position to bargain while buying fuel, spares and other materials. There were also major operational benefits. Traffic rights - The protectionism enjoyed by the national carriers with regard to the traffic right entitlements is likely to continue even after the merger. This will ensure that the merged Airlines will have enough scope for continued expansion, necessitated due to their combined fleet strength. 29
POST MERGER SCENAREO NACILs employee-to-aircraft ratio: at 222:1 (the global average is 150:1), resulting in a surplus employee strength of almost 10,000. Fleet Expansion: NACILs fleet expansion seems out of sync with the times. Most airlines are actually rounding their fleet and cancelling orders for new planes. While NACIL plans to induct around 85 more aircrafts which means their debt going forward. Mutual Distrust and strong unions: Strong opposition from unions against management‟s cost-cutting decisions through their salaries have led to strikes by the employees. Increased Competition: Air India‟s domestic market share dropped from 19.8% in August 2007, when the merger took place, to 13.9% in January 2008 before rising to 17.2% in February 2009. Lower load factor: The company‟s load factor is decreasing year by year, in 2005- 06 load factor is 66.2% which is more than present load factor. Air India load factor is likely to be low because of the much higher frequency operated on each route. Lower load factor could decrease the company‟s margins. 33
REASONS FOR FAILURE The merger coincided with a flurry of increased domestic and international competition. Weak management and organization structure. More attention to non-core issues such as long term fleet acquisitions and establishing subsidiaries for ground handling and maintenance, than to addressing the state of the flying business. Bloated workforce Unproductive work practices Political impediments to shedding staff 35
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 interpret changes