All forms of business combinations including Mergers & Acquisitions (M&A), Take Overs (TOs), Joint Ventures (JVs), Joint Collaborations (JCs), Domestic and Foreign business combinations.
2. Business Combination
Combination of assets of a company or
companies themselves resulting in a new
entity or continue to exist in the old form.
These combinations can be temporary or
permanent.
Dr Raju Indukoori 2
3. Outcomes of Business Combination
• Change in stock price
• Change in Ownership
• Change in Management
• Change in Product/s
• Financial Structure
• Change in culture
• Organizational Structure
• Job Structure
• Company Name
• Brand image
• Logo
Dr Raju Indukoori 3
4. Business Combination - Motives and benefits
• Business Expansion
• Growth : ICICI Bank
• Synergy: Economies of scale,
Managerial & operational efficiency
India Cements + Raasi Cements
• Enter New Markets
• Tax Benefits : OBC + GTB
• Diversification
Mahindra + Satyam
• Strategic Reasons
Tata Tele DoCoMo : Market Entry
• Megalomania
Laxmi Niwas Mittal
• Hubris spirit
Auctions / Bid Offer
Dr Raju Indukoori 4
5. Does change in name of a
company imply an M&A?
Dr Raju Indukoori
NO
5
6. Examples of Change in Names
• Anderson Consulting – Accenture
• Quantum Computer Services – AOL
• Back Rub – Google
• Computing Tabulating Recording Corporation – IBM
• Lucky Chemical Industrial Corp – LG (Lucky Goldstar)
• Brad’s Drink – Pepsi
• Tokyo Tsushin Kogyo – Sony
• Jerry’s Guide to the world wide web – Yahoo
• UTI Bank – Axis Bank
• Indian Airlines – Indian
Dr Raju Indukoori 6
7. Combination forms
Internal Combinations
1. Subsidiary Merger /
Upstream Merger
2. Reverse Merger /
Downstream Merger
3. Management Buyout
(MBO)
Dr Raju Indukoori 7
External Combinations
A. Non Permanente
1. Joint ventures
2. Joint Collaborations
3. Strategic Alliance
B. Permanente
1. Asset Purchase
2. Acquisition
3. Merger
4. Consolidation
8. Internal Combinations
1. Subsidiary Merger/ Upstream Merger : Parent firm acquiring subsidiary
ICICI Bank merged ICICI Personal Financial Services and ICICI Capital
Services.
SBI merged State Bank of Mysore, State Bank of Hyderabad, State Bank of
Patiala and State Bank of Travancore.
ITC merged Bhadhrachalam Paper Board,
2. Reverse merger/ Down Stream Merger: Subsidiary acquiring parent .
ICICI Bank and ICICI
Godrej soaps with Gujarat Godrej Innovative Chemicals
3. Management Buy Out (MBO): Managers buy the equity of the firm
Inetelenet Global Services funded by Black Stone
Dr Raju Indukoori 8
10. 1. Joint Ventures
It is the business venture of two independent
corporations to do business in short term or long term
as one company or roll a new company
1) Jointly own a company for as project for a period of
time
2) Jointly roll a new company
Dr Raju Indukoori 10
11. 1. Joint Ventures
Indian JVs
• HPCL+ Total Gas & Power India (TGPI)
South Asia LPG (SALPG) – Under ground rock mined LPG Cavern
• Sail and Arcelor Mittal for automotive steel.
• Tata Technologies + HAL
Tata HAL Technologies Ltd
Foreign JVs
• Maruti Udyog ltd (MUL) + Suzuki Corporattion
• Toyota Corporation + Kirloskar
Dr Raju Indukoori 11
13. Contd…
SAINT-GOBAIN RESEARCH INDIA LTD. (SGRI) in
collaboration with INDO-FRENCH CENTRE FOR
THE PROMOTION OF ADVANCED RESEARCH
(CEFIPRA),an autonomous body for
bilateral cooperation in Science and
Technology between France and India .
Dr Raju Indukoori 13
14. 3. Strategic Alliance
Two companies joint hands to work together for
mutual benefit in promoting their own products or
services.
• ICICI Bank and Vodafone for mobile money transfer
‘m-pesa’.
• Tata Coffee and star bucks for sourcing and roasting
coffee beans in India.
• Microsoft India and TCS to launch Microsoft TCS
Virtualization Centre of Excellence.
Dr Raju Indukoori 14
15. 3. Strategic Alliance
why alliances can make more sense than
acquisitions?
• Economies of scale or operations.
• Sharing risks and expenses.
• Dilute unwanted rivalry.
• Tap to new markets and technologies.
Dr Raju Indukoori 15
18. External Combinations
A. Based on the process
A. Mergers
1. Consolidation or Amalgamation
2. Absorption
B. Acquisition
1. Asset Acquisition / purchase
2. Stock Acquisition
a. Friendly Take over
b. Reverse Take Over
c. Back Flip Take Over
d. Hostile Take Over
Dr Raju Indukoori 18
B. Based on the product
A. Related
1. Horizontal Merger: Same
product
2. Vertical Merger: Forward &
Backward Integration
B. Unrelated
3. Congeneric / Concentric : Same
Industry-different product
4. Conglomerate: Different industry
& region
C. Based on payment
1. Equity : A. Equity Swap B. Issue of new Equity
2. Non Equity : A. Cash Purchase B. Leveraged Buyout (LBO)
19. External Combinations
A. Based on the product
Mergers
1. Consolidation or Amalgamation
2. Absorption
Acquisition
1. Asset Acquisition / purchase
2. Stock Acquisition
a. Friendly Take over
b. Hostile Take Over
Dr Raju Indukoori 19
20. Mergers - Consolidation or Amalgamation
Two or more into new one. None of the previous
companies exist.
Hong Kong Bank and Shanghai Bank merged to
form a new entity HSBC.
Dr Raju Indukoori 20
21. Mergers - Consolidation or Amalgamation
• Combination of 2 or more companies.
• Form a new company.
• Existing companies will loose their identity.
Dr Raju Indukoori 21
22. Mergers - Absorption
Absorber exists and absorbed is diluted
– ICICI Bank acquired Bank of Rajasthan.
– Glaxo and Smithkline into GSK
– AOL and Time Warner
Dr Raju Indukoori 22
23. Mergers - Absorption
• Combination of 2 or more companies.
• One of the companies exist and other dilute.
Dr Raju Indukoori 23
24. Acquisition – Asset Acquisition
Acquiring company buys the asset/s of
target company in partial or full
Dr Raju Indukoori 24
25. Acquisition – Asset Purchase
• Buy Specific unit or asset or division of a
company.
• Share holders may loose / gain value from this.
Dr Raju Indukoori 25
26. Acquisition – Stock Acquisition
Acquiring company buys the stock of the target company in the market in
Partial or full. Post acquisition both the companies remain independent and
the change is the ownership in target company.
a. Friendly Stock Acquisition: one company acquires more than 50% shares
of another and both exist.: Pfizer
b. Reverse Take Over: Private company acquires public company.
Darwen – Optare in UK in 2008
a. Back Flip Take Over : Acquiring company turns into subsidiary.
Texas Air – Continental Air
Nations Bank – Bank of America
a. Hostile Take over: bid for the shares
Oracle-People Soft, HP-compaq
Grasim & Gesco - Ultratech
Reliance – L&T (Not successful)
Dr Raju Indukoori 26
27. Acquisition - Take Over
• Acquiring substantial portion of a company’s equity
shares at one time process or gradually for years.
• Objective is to control the company
• Bothe target and acquiring companies exist
Dr Raju Indukoori 27
28. Forms of Combinations
B. Based on the product
Mergers in Related Industry
o Horizontal Merger: Same product
o Vertical Merger: combination of 2 companies operating in different
levels of the supply chain.
Forward Integration : Customers – Paper acquiring book
publisher.
Backward Integration: Suppliers – Steel manufacturer
acquiring a Iron ore mining company.
Mergers in Unrelated
o Congeneric / Concentric : Same Industry-different product but complement.
Beer company acquiring a Tobacco company.
o Conglomerate: Different industry & region
Dr Raju Indukoori 28
29. Mergers in Related Industry
Horizontal combinations
• Pfizer and Pharmacia
• Lipton India and Brook Bond
• Bank of Mathura and ICICI Bank
Vertical combinations
• Walt Disney and American Broadcasting company
• Oracle bought Sun Micro Systems
Dr Raju Indukoori 29
30. Mergers in Unrelated Industry
Congeneric
• Phillip Morris (Cigarette) and Miller Brewing (Beer)
Conglomerate
• L&T and Voltas
• International Telephone & Telegraph(ITT) merged Avis – Rent a
Car, Sheraton Hotels and Continental Banking
• General Motors (GM) Merged Electronic Data Systems (EDS)
Dr Raju Indukoori 30
31. Forms of Combinations
C. Based on the payment
1. Equity Swap
2. Cash Purchase
3. Leveraged Buyout
Dr Raju Indukoori 31
32. Equity Swap
Acquiring company dilutes target company
shares and gives its own shares on a ratio. Most
of the combinations happen this way.
Cairn India was merged by Vedanta
Dr Raju Indukoori 32
33. Cash Purchase
Acquiring firm buys the target company’s
asset or the company as a whole through its
surplus cash payment.
Dr Raju Indukoori 33
34. Leverage Buyout (LBO)
Acquiring firm buys the target company’s
asset or the company as a whole through debt
Funding.
Tata motors acquired Jaguar and Land Rover
Dr Raju Indukoori 34
35. Combination Process
Dr Raju Indukoori
• Acquisition search
• Approach the target
• Valuation
• Negotiation
• Due diligence
• Financing
35
36. M&A and IB
• Help arrange mergers.
• Help target companies for defense.
• Help value target companies.
• Help in finance mergers.
• Invest in stock of potential targets.
Dr Raju Indukoori 36
37. Top mergers in 1990s
# Year
Acquiring
Company
Country Sector Target Company
Countr
y
Sector
Value
(USD in
Billions)
1 1999
Vodafone
Airtouch PLC
UK Telecom Mannesmann
German
y
Telecom 183.00
2 1999 Pfizer USA Pharma Warner-Lambert USA Pharma 90.00
3 1998 Exxon USA Oil Mobil USA Oil 77.20
4 1998 Citicorp USA
Financial
Services
Travelers Group USA
Financial
Services
73.00
5 1999
SBC
Communications
USA Telecom
Ameritech
Corporation
USA Telecom 63.00
6 1999 Vodafone Group UK Telecom
Airtouch
Communication
USA Telecom 60.00
7 1998 Bell Atlantic USA Telecom GTE USA Telecom 53.36
8 1998 BP UK Oil Amoco USA Oil 53.00
9 1999
Qwest
Communication
USA Telecom US West USA Telecom 48.00
10 1997 World com USA Telecom
MCI
Communication
USA Telecom 42.00
Dr Raju Indukoori 37
38. Dr Raju Indukoori
Top 10 Global M&A
# Acquirer Target
Value in
Billions
dollars
New Entity Year
1 AOL Time Warner 162 AOL Time Warner 2001
2 Pfizer Warner Lambert 90 Pfizer 1999
3 Exxon Mobil 82 Exxon Mobil 1999
4 Travelers Group Citi Corp 70 Travellers Group 1999
5 Nations Bank Bank of America 64 Nations Bank 1998
6 J P Morgan Chase Bank One Corp 58 J P Morgan Chase 2005
7 Procter & Gamble Gillette 57 Procter & Gamble 2005
8 Qwest US West 56.4 Qwest 2000
9 GTE Bell Atlantic 53 Verizon 2005
10 AT&T TCI 16 TCI 1998
38
39. Top 10 Indian M&A
# Acquirer Target
Value in
Billions
dollars
Deal
Type of
Combination
Year
1 Tata Steel Corus 12.2 Cash Merger 2007
2 Vodafone Hutch Essar (67%) 11.1 Takeover 2007
3 Hindalco(Adity
a Birla Group)
Novelis (Canada) 6.0 Cash Merger 2007
4 Daiichi
Sankyo (Japan)
Ranbaxy (44%) 4.5 Cash Takeover 2008
5 ONGC Imperial Energy
(Russia)
2.8 Cash Merger 2009
6 NTT DoCo Mo Tata Tele 2.7 Equity Consolidation 2008
7 HDFC Bank Centurion Bank of
Punjab
2.4 Swap
(1:29)
Merger 2008
8 Tata Motors Jaguar Land Rover
(UK)
2.3 LBO Merger 2008
9 Sterlite Asacro (USA) 1.8 Cash Merger 2008
10 Suzlon R E Power
(Germany)
1.7 Merger 2007
Dr Raju Indukoori 39
40. M&A within the same Group
# Acquirer Target Deal Year
1 Reliance Industries Reliance Petroleum Equity Swap
(1:16)
2008
2 JSW Holdings JVSL Equity Swap
(1:8)
2004
3 OBC GTB 2005
4 Air India Indian Airlines 2007
5 BSNL MTNL 2012
Dr Raju Indukoori 40
41. M&A of ICICI Bank
# Target Company Year
1
Shipping Credit Investment Corporation of
India (SCICI)
1996
2 ITC Classic Finance 1997
3 Anagram Finance 1998
4 Bank of Madura 2001
5 ICICI 2002
6 ICICI Personal Financial Services 2002
7 ICICI Capital Services 2002
8 Standard Chartered Grindlays Bank 2002
9 Sangli Bank 2007
10 Bank of Rajasthan 2010
Dr Raju Indukoori 41