Merger & Amalgamations  ! Ashok Chhabra
World’s Largest Mergers *At date of announcement (Excludes Debt) $54.91 Jan. 28, 2005 Procter & Gamble-Gillette 15. $60.29...
Historical experience on M&A <ul><li>General experience not very positive   </li></ul><ul><ul><li>53% failed to meet expe...
M&A Waves <ul><li>First </li></ul><ul><ul><li>1860-1880 </li></ul></ul><ul><ul><li>Horizontal merger </li></ul></ul><ul><u...
M&A Waves <ul><li>Second </li></ul><ul><ul><li>Anti trust mood – Breakup of Standard Oil </li></ul></ul><ul><ul><li>Sherma...
M&A Waves <ul><li>Third </li></ul><ul><ul><li>1960s </li></ul></ul><ul><ul><li>Premise: Post war slow down in defense expe...
M&A Waves <ul><li>Fourth </li></ul><ul><ul><li>1980s </li></ul></ul><ul><ul><li>Emergence of Corporate Raiders </li></ul><...
M&A Waves <ul><li>Fifth </li></ul><ul><ul><li>1990s and beyond </li></ul></ul><ul><ul><li>Deregulation, Globalization, Tec...
P&G- Gillette Merger Rationale <ul><li>Synergy </li></ul><ul><li>Efficiency </li></ul><ul><li>Tax Considerations </li></ul...
P&G Gillette Deal - Financials <ul><li>P&G Gillette </li></ul><ul><ul><li>$57bn all stock deal </li></ul></ul><ul><ul><ul>...
P&G Gillette Deal - Financials <ul><li>Acquisition premium at 18% or $8.1/share: </li></ul><ul><ul><li>Acquisition valued ...
Key Challenges <ul><li>Ensuring top-line growth </li></ul><ul><ul><li>Esp. under various distractions. </li></ul></ul><ul>...
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Outside cp knowledge presentation 9256140

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Outside cp knowledge presentation 9256140

  1. 1. Merger & Amalgamations ! Ashok Chhabra
  2. 2. World’s Largest Mergers *At date of announcement (Excludes Debt) $54.91 Jan. 28, 2005 Procter & Gamble-Gillette 15. $60.29 bn Jan. 18, 1999 Vodafone Group-Air Touch 10. $61.63 bn Apr. 13, 1998 NationsBank-BankAmerica 9. $62.59 bn May 11, 1998 SBC Communications-Ameritech 8. $72.56 bn Apr. 6, 1998 Traveller’s Group-Citicorp 7. $74.35 bn Oct.28, 2004 Royal Dutch-Shell Transport 6. $75.96 bn Jan.7, 2000 Glaxo Wellcome-Smithkline Beecham 5. $78.95 bn Dec. 1, 1998 Exxon-Mobil 4. $89.17 bn Nov. 4, 1999 Pfizer-Warner Lambert 3. $164.75 bn Jan. 10, 2000 America Online-Time Warner 2. $179.86 bn Nov. 14, 1999 Vodafone AirTouch-Mannesmann  1. Deal Value* Announcement Date Acquirer-Target Rank
  3. 3. Historical experience on M&A <ul><li>General experience not very positive  </li></ul><ul><ul><li>53% failed to meet expectations </li></ul></ul><ul><ul><ul><li>Booz Allen study [1997-98] </li></ul></ul></ul><ul><ul><li>Only 18% grew topline </li></ul></ul><ul><ul><li>Acquirer’s market price usually went down </li></ul></ul><ul><li>All the same, significant opportunity to improve shareholder value </li></ul><ul><ul><li>Top performing mergers grew shareholder value by 50%+! </li></ul></ul>
  4. 4. M&A Waves <ul><li>First </li></ul><ul><ul><li>1860-1880 </li></ul></ul><ul><ul><li>Horizontal merger </li></ul></ul><ul><ul><li>Concept of trust </li></ul></ul><ul><ul><li>Example: US Steel, Standard Oil Trust/American Railway Union </li></ul></ul>
  5. 5. M&A Waves <ul><li>Second </li></ul><ul><ul><li>Anti trust mood – Breakup of Standard Oil </li></ul></ul><ul><ul><li>Sherman Act 1890 </li></ul></ul><ul><ul><li>Clayton Act 1914 and the Federal Trade Commission (Section 7) </li></ul></ul><ul><ul><li>Resulting in Second Wave in 1920s </li></ul></ul><ul><ul><li>Vertical Mergers </li></ul></ul><ul><ul><li>Example: Ford </li></ul></ul>
  6. 6. M&A Waves <ul><li>Third </li></ul><ul><ul><li>1960s </li></ul></ul><ul><ul><li>Premise: Post war slow down in defense expenditure and resultant low growth rates. </li></ul></ul><ul><ul><li>Premise: “Good Manager” concept and mood </li></ul></ul><ul><ul><li>Conglomerate merger – acquirer often smaller </li></ul></ul><ul><ul><li>Financing usually through stock swaps </li></ul></ul>
  7. 7. M&A Waves <ul><li>Fourth </li></ul><ul><ul><li>1980s </li></ul></ul><ul><ul><li>Emergence of Corporate Raiders </li></ul></ul><ul><ul><li>Financial Innovation, Investment Banking </li></ul></ul><ul><ul><li>Use of debt to finance takeovers: Junk Bonds </li></ul></ul>
  8. 8. M&A Waves <ul><li>Fifth </li></ul><ul><ul><li>1990s and beyond </li></ul></ul><ul><ul><li>Deregulation, Globalization, Technology </li></ul></ul><ul><ul><li>Cross Border M&As </li></ul></ul><ul><ul><li>HHI index </li></ul></ul>
  9. 9. P&G- Gillette Merger Rationale <ul><li>Synergy </li></ul><ul><li>Efficiency </li></ul><ul><li>Tax Considerations </li></ul><ul><li>Other reasons </li></ul><ul><ul><li>Diversification? </li></ul></ul><ul><ul><li>Size? </li></ul></ul><ul><ul><li>Management Control? </li></ul></ul><ul><ul><li>Management Incentive? </li></ul></ul>
  10. 10. P&G Gillette Deal - Financials <ul><li>P&G Gillette </li></ul><ul><ul><li>$57bn all stock deal </li></ul></ul><ul><ul><ul><li>$55bn equity (incl. options), $2bn debt </li></ul></ul></ul><ul><ul><li>Gillette: </li></ul></ul><ul><ul><ul><li>$10.5bn sales (+13%), $1.7bn profits (+22%) </li></ul></ul></ul><ul><ul><ul><li>Share price at $45.8, 1bn shares outstanding </li></ul></ul></ul><ul><ul><li>P&G: </li></ul></ul><ul><ul><ul><li>$51.4bn sales (+18%), $6.5bn profits (+25%) </li></ul></ul></ul><ul><ul><ul><li>Share price $55.3, 2.8bn shares outstanding </li></ul></ul></ul><ul><ul><li>Deal [Exchange Ratio]: </li></ul></ul><ul><ul><ul><li>0.975 share of P&G for every Gillette share </li></ul></ul></ul>
  11. 11. P&G Gillette Deal - Financials <ul><li>Acquisition premium at 18% or $8.1/share: </li></ul><ul><ul><li>Acquisition valued at P/E of 32 (vs. P&G 24) </li></ul></ul><ul><li>Min. required synergy savings of $8.1bn: </li></ul><ul><ul><li>P&G promised $15bn </li></ul></ul><ul><ul><li>Cost and Revenue synergies </li></ul></ul><ul><li>Market Reaction (initial): </li></ul><ul><ul><li>Fear of paying too high a price… </li></ul></ul><ul><ul><li>P&G shares down $1.5 or 3% </li></ul></ul><ul><ul><li>Gillette shares were up $5.6 or 12%! </li></ul></ul><ul><li>P&G’s response: </li></ul><ul><ul><li>Buyback $~20bn of common stock. </li></ul></ul><ul><ul><li>Send strong positive signals. </li></ul></ul>
  12. 12. Key Challenges <ul><li>Ensuring top-line growth </li></ul><ul><ul><li>Esp. under various distractions. </li></ul></ul><ul><li>Delivering synergies </li></ul><ul><ul><li>Taking hard calls </li></ul></ul><ul><li>Employee retention </li></ul><ul><ul><li>Knowledge gets lost </li></ul></ul><ul><li>Hidden risks </li></ul><ul><li>Corrupting what’s working </li></ul><ul><li>Competitive Pressures </li></ul><ul><li>Culture-Communication </li></ul>
  13. 13. Thank You!

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