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Mergers & Acquisitions




Anurag Savarnya
10MI32003

Prateek Kishore
10MI10029
Merger
oA transaction where two firms agree to integrate their
operations on a relatively co-equal basis because they
have resources and capabilities that together may create a
stronger competitive advantage.
oThe combining of two or more companies, generally by
offering the stockholders of one company securities in the
acquiring company in exchange for the surrender of their
stock
oExample: Company A+ Company B= Company C.
ACQUISITION

A   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 AND
ACQUISITION:
             MERGER                                ACQUISITION

i.     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 or
iii.   Merger is expensive than                 hostile takeover.
       acquisition(higher legal cost).
                                         iii.   Acquisition is less expensive
iv.    Through merger shareholders              than merger.
       can increase their net worth.
                                         iv.    Buyers cannot raise their
v.     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 MERGER

i.     Increase Market Share.
ii.    Economies of scale         i.     Clash of corporate
iii.   Profit for Research and           cultures
       development.               ii.    Increased business
iv.    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 ACUIQISITION

i.     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 taking
iv.    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
M&A DEALS…
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
                                                share
Image: B Mutharaman, Tata Steel MD; Ratan
Tata, 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 hutch


Image: The then CEO of Vodafone
Arun Sarin visits Hutchison
Telecommunications head office in
Mumbai.
3. HINDALCO-NOVELIS: $6 BILLION
                                      June 2008
                                      Aluminium and
                                       copper sector
                                      Hindalco Acquired
                                       Novelis
                                      Hindalco entered the
                                       Fortune-500 listing of
                                       world's largest
                                       companies by sales
                                       revenues
Image: Kumar Mangalam Birla
(center), chairman of Aditya Birla
Group.
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 drugmaker
Image: Malvinder Singh (left), ex-CEO
of 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 market
Image: 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 of
Japan's biggest mobile phone operator
NTT 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 crore
Image: Rana Talwar (rear) Centurion
Bank of Punjab chairman, Deepak
Parekh, 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 ford


Image: A Union flag flies behind a
Jaguar car emblem outside a
dealership in Manchester, England.
9. STERLITE-ASARCO: $1.8 BILLION
                           May 2008

                           Acquisition deal

                           Sector copper




Image: 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 merger
Image: Reliance Industries'
chairman 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 MOST
TARGETED COUNTRY FOR MERGERS &
ACQUISITIONS(2010):
MERGER & ACQUISITION(2010-11) :




                                  22
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).
IMPACT OF MERGERS AND ACQUISITIONS
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 AND
INDIAN 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
30
31
32
POST MERGER SCENAREO
   NACIL's 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: NACIL's 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
34
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
SUCCESS & FAILURE RATE(2009-10):




                                   36
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
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Mergers and acquisitions

  • 1. Mergers & Acquisitions Anurag Savarnya 10MI32003 Prateek Kishore 10MI10029
  • 2. Merger oA transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage. oThe combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock oExample: Company A+ Company B= Company C.
  • 3. ACQUISITION A 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.
  • 4. DIFFERENCE BETWEEN MERGER AND ACQUISITION: MERGER ACQUISITION i. 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 or iii. Merger is expensive than hostile takeover. acquisition(higher legal cost). iii. Acquisition is less expensive iv. Through merger shareholders than merger. can increase their net worth. iv. Buyers cannot raise their v. 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.
  • 5. MERGER:WHY & WHY NOT WHY IS IMPORTANT PROBLEM WITH MERGER i. Increase Market Share. ii. Economies of scale i. Clash of corporate iii. Profit for Research and cultures development. ii. Increased business iv. 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
  • 6. ACQUISITION:WHY & WHY NOT WHY IS IMPORTANT PROBLEM WITH ACUIQISITION i. 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 taking iv. Increased diversification huge debt. v. Avoid excessive competition 6
  • 7. 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
  • 9. 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 share Image: B Mutharaman, Tata Steel MD; Ratan Tata, Tata chairman; J Leng, Corus chair; and P Varin, Corus CEO.
  • 10. 2. VODAFONE-HUTCHISON ESSAR: $11.1 BILLION  TELECOM sector  11th February 2007  2nd largest takeover deal  67 % stake holding in hutch Image: The then CEO of Vodafone Arun Sarin visits Hutchison Telecommunications head office in Mumbai.
  • 11. 3. HINDALCO-NOVELIS: $6 BILLION  June 2008  Aluminium and copper sector  Hindalco Acquired Novelis  Hindalco entered the Fortune-500 listing of world's largest companies by sales revenues Image: Kumar Mangalam Birla (center), chairman of Aditya Birla Group.
  • 12. 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 drugmaker Image: Malvinder Singh (left), ex-CEO of Ranbaxy, and Takashi Shoda, president and CEO of Daiichi Sankyo.
  • 13. 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 market Image: Imperial Oil CEO Bruce March.
  • 14. 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 of Japan's biggest mobile phone operator NTT Docomo Inc. in Tokyo.
  • 15. 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 crore Image: Rana Talwar (rear) Centurion Bank of Punjab chairman, Deepak Parekh, HDFC Bank chairman.
  • 16. 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 ford Image: A Union flag flies behind a Jaguar car emblem outside a dealership in Manchester, England.
  • 17. 9. STERLITE-ASARCO: $1.8 BILLION  May 2008  Acquisition deal  Sector copper Image: Vedanta Group chairman Anil Agarwal.
  • 18. 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.
  • 19. 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 merger Image: Reliance Industries' chairman Mukesh Ambani. swap ratio was at 16:1
  • 20. WHY INDIA?  Dynamic government policies  Corporate investments in industry  Economic stability  “Ready to experiment” attitude of Indian industrialists
  • 21. AMONGST BRIC NATIONS, INDIA SECOND MOST TARGETED COUNTRY FOR MERGERS & ACQUISITIONS(2010):
  • 23. 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).
  • 24. IMPACT OF MERGERS AND ACQUISITIONS
  • 25. WHY MERGERS AND ACQUISITIONS FAIL?  Cultural Difference  Flawed Intention  No guiding principles  No ground rules  No detailed investigating  Poor stake holder outreach
  • 26. 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
  • 27. MERGER BETWEEN AIR INDIA AND INDIAN 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
  • 28. 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
  • 29. 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
  • 30. 30
  • 31. 31
  • 32. 32
  • 33. POST MERGER SCENAREO  NACIL's 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: NACIL's 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
  • 34. 34
  • 35. 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
  • 36. SUCCESS & FAILURE RATE(2009-10): 36
  • 37. 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