Mergers and acquisitions


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Mergers and acquisitions

  2. 2. MERGERS Merger is a financial tool used for enhancing long term profitability by expanding their operation. It occurs when merging companies have their mutual consent. It is also referred as “merger of equals”
  3. 3. TYPES OF MERGERS…  Horizontal merger.  Conglomerate merger.  Vertical merger.  Product extension merger.  Market extension merger.
  4. 4. A B D Autos Mobile E G FC H Hood Production Engine Mobile os system, Model Merging Horizontal Horizontal
  5. 5. A B D Autos Mobile E G FC H Hood Production Engine Mobile os system, Model Vertical Vertical
  6. 6. A B D Autos Mobile E G FC H Hood Production Engine Mobile os system, Model Conglomerate Conglomerate
  7. 7. EXAMPLES OF DIFF. TYPES OF MERGERS…. Horizontal mergers  Merger of Bank of Mathura & ICICI.  Merger of BSES with Orissa power supply. Vertical merger  Merger of Time warner corporation with Turner corporation. Conglomerate mergers  Merger of Walt Disney Comp. & American Broad casting company. Market extension merger.  Merger of Eagle Bancshares by the RBC centura . Product extension Mergers.  Merger of Mobilink Telecom by Broadcom.
  8. 8. Motivation of mergers Desired to unified control Desire to enjoy monopoly power Government pressure Elimination of competance Adopton of modern technology Lack of managerial talent Personal ambition Patent rights Economics of large scale business
  9. 9. BENEFITS OF MERGING… • Iron out the internal difference to maintain satisfaction. • Increase in production . • Cost efficiency. • Increase in share value of a firm. Share holders benefit. Market benefit. Employee’s benefit. Company’s benefit.
  10. 10. ACQUISITIONS  An acquisition is the buying of company by another. It is also known as take over or buyout.  It occurs between the bidding and the target company. It may be either hostile or friendly takeovers. Reverse takeovers may occur when target is larger than bidding firm.
  11. 11. TYPES OF ACQUISITIONS.. Friendly acquisitions - In this type , the target company’s board negotiates or accept the offer in a friendly or welcoming manner. Hostile acquisitions – Within this type the target company’s board is not willing to be bought or the target’s company has no prior knowledge of this offer.
  12. 12. STEPS INVOLVED IN ACQUITIONS Start with an offer… The target’s response…. Accept the terms of the offer. Attempt to negotiate. Execute a poison bill Find a white knight. Closing the deal…
  13. 13. HISTORY OF MERGERS & ACQUISITIONS  Tracing back to history, merger & acquisition have evolved in five stages . As seen from past experience M&A are triggered by economic factors. 1st wave mergers (1897- 1904) 2nd wave mergers (1916- 1929) 3rd wave mergers (1965- 1969) 4th wave mergers (1981-1989) 5th wave mergers (1992-till now)
  14. 14. VALUATION MATTERS…..  Investors in a company that are aiming to take over one must determine whether the purchase will be beneficial to them or not.  Common methods of assessing a target company are.. Comparative ratios P/E ratio. EV/sales ratio. Replacement cost. Discounted cash flow
  15. 15. LARGEST M&A DEALS WORLDWIDE Rank Year Acquirer Target Trans. value % 1 2000 American online inc. Time warner 167747 21.83 2 2000 Glaxo wellcome plc. Smithkline Beecham Plc. 75961 10.06 3 2004 Royal Dutch Petroleum co. Shell Transport & Trading Co. 74559 9.87 4 2006 AT&T inc. Bellsouth Corporation 72671 9.62 5 2001 Comcast corporation AT&T broadband svcs 72041 9.54
  16. 16. WHY THEY CAN FAIL…  Historical trends shows that roughly two thirds of big mergers will disappoint on their own terms, which means they will lose value on the stock market.  Some common reasons are>>>  FLAWED INTENTIONS &  THE OBSTACLES TO MAKING IT WORK.
  17. 17. Integration Difficulties Inadequate evaluation of target Larger or extraordinary debt Inability to achieve synergy Too much diversification Managers overly focussed in acquisitions Problems in achieving success
  18. 18. If the merged companies wants to break up , corporate finance do the reverse and break up companies through Spinoffs Carve-outs Tracking stocks
  19. 19. M&A IN DIFFERENT SECTORS IN INDIA… Banking sector – In this sector , imp. M&A in India in recent years include the merger b/w IDBI & its own subsidiary . The deal was worth $ 174.6 million. Another imp. Merger was that b/w Centurian bank & bank of punjab worth $ 82.6 million. Telecom sector – In the Telecom sector , an increase of stakes by SingTEL from 26.92% to 32.8% in Bharati Telecom was worth $252 million. In Foods & FMCG sector, a controlling stake of Shaw Wallace & co. was aquired by United Breweries Group owned by Vijay Malya. This deal was worth $ 371.6 million.
  20. 20. STATUS OF THOSE SECTORS…  In 2005 , finance topped the list with 20% of total value of M&A in India taking place in this sector.  Telecom accounted for 16%.  FMCG & Construction materials for 10%.
  21. 21. CROSS BORDER M&A :INDIA YEAR SALES PURCHASES 2000 1219 910 2001 1037 2195 2002 1698 270 2003 949 1362 2004 1760 863 2005 4210 2649 TOTAL 10873 8249
  22. 22. CROSS BORDER M&A IN INDIA 0 500 1000 1500 2000 2500 3000 3500 4000 4500 1 2 3 4 5 6 7 YEAR SALES PURCHASE
  23. 23. INDIA DOMINATING…….  India has emerged as one of the top countries w.r.t merger and acquisition deals.  In 2007 , the first 2 months alone accounted for M&A deals worth $ 40 billion in India. The estimated figures for the entire year projected a total of more than $ 150 billion .  This is two fold growth from 2006 & a growth of almost four times from 2005.
  24. 24. • Arcelor acquired by Mr. Lakshmi Mittal. • Mahindra & Mahindra's takeover of 90 percent stake in Schoneweiss, a family-owned German company. • Tata's takeover of Corus & Tetley Tea Co. • Swiss cement major, Holcim, which acquired a 67 per cent stake in Ambuja Cement India Ltd (ACIL). • Videocon Group's acquisition of Thomson's colour picture tube business in China, Poland, Mexico, and Italy for a total of $290 million Indian Scenario - Major Deals
  25. 25. The Top 10 Acquisitions made by Indian Companies Worldwide. ACQUIRER TARGET COMPANY COUNTRY TARGETED DEAL VALUE IN $ INDUSTRY Tata steel Corus groups UK 12000 Steel Hindalco Novelis Canada 5982 Steel Videocon Daewoo Electronics Korea 729 Electronics DR.reddy’s Labs Betapharm Germany 597 Pharamaceuti cals Suzlon Energy Hansen group Belgium 565 Energy HPCL Kenya petroleum Kenya 500 Oil and gas Ranbaxy labs Terapia SA Romania 324 Pharmaceutic als Tata steel Natsteel Singapore 293 Steel Videocon Thomson SA France 290 Electronics BSNL Teleglobe Canada 239 Telecom