The document discusses mergers and acquisitions. It defines the key differences between mergers and acquisitions, provides examples of different types of mergers (horizontal, vertical, conglomerate), and lists common motives for M&As like economies of scale. The document also discusses waves of merger activity historically and provides examples of large M&As involving Indian companies. It includes a case study of the JPMorgan Chase acquisition of Bank One and the strategic benefits it provided both companies. Potential risks and challenges of M&As are also outlined.

1. By ARJUN MATHUR

2. The Main Idea
One plus one makes three: this equation is the special alchemy of a merger or an
acquisition. The key principle behind buying a company is to create shareholder value over
and above that of the sum of the two companies. Two companies together are more
valuable than two separate companies - at least, that's the reasoning behind M&A.
merger happens when two firms, often of about
the same size, agree to go forward as a
single new company rather than remain
separately owned and operated. This kind of
action is more precisely referred to as a "merger
of equals."
e.g diamler-chrysler

3. ACQUISITION: When one company takes over another
and clearly established itself as the new owner, the
purchase is called an acquisition. From a legal point of
view, the target company ceases to exist, the buyer
"swallows" the business and the buyer's stock continues
to be traded.

4. Horizontal merger- Two companies that are in direct competition and
share the same product lines and markets i.e. it results in the consolidation
of firms that are direct rivals. E.g. Exxon and Mobil, Ford and Volvo,
Volkswagen and Rolls Royce and Lamborghini
Vertical merger- A customer and company or a supplier and company i.e.
merger of firms that have actual or potential buyer-seller relationship eg.
Ford- Bendix, Time Warner-TBS.
Conglomerate merger- generally a merger between companies which do
not have any common business areas or no common relationship of any
kind. Consolidated firm may sell related products or share marketing and
distribution channels or production processes.

5. THE FOLLOWING MOTIVES ARE CONSIDERED TO IMPROVE FINANCIAL
PERFORMANCE:
Economy of scale
Economy of scope
Cross-selling
Synergy
Taxation
Geographical or other diversification
Resource transfer
Vertical integration
Absorption of Similar Businesses under Single Mangement

6. In practice, however, actual mergers of equals don't happen very often.
Usually, one company will buy another and, as part of the deal's terms,
simply allow the acquired firm to proclaim that the action is a merger of
equals, even if it's technically an acquisition. Being bought out often
carries negative connotations, therefore, by describing the deal as a
merger, deal makers and top managers try to make the takeover more
palatable.

7. Merger waves
The economic history has been divided into Merger Waves based on the
merger activities in the business world as:
Period Name Facet
1889 - 1904 First Wave Horizontal mergers
1916 - 1929 Second Wave Vertical mergers
Diversified
1965 - 1989 Third Wave
conglomerate mergers
Congeneric mergers;
1992 - 1998 Fourth Wave Hostile takeovers;
Corporate Raiding
2000 - Fifth Wave Cross-border mergers

8. Mergers and Acquisitions in India:
company acquired deal
Hindalco Novelis $5,982 million
Tata Steel Corus Group plc $12,000 million
Dr. Reddy's Labs Betapharm $597 million
Ranbaxy Labs Terapia SA $324 million.
Suzlon Energy Hansen Group $565 million
Videocon Daewoo Electronics $729 million
Corp.
HPCL Kenya Petroleum $500 million
Refinery Ltd..
VSNL Teleglobe $239 million.

9. When it comes to mergers and
acquisitions deals in India , the
total number was 287 from the
month of January to May in 2007.
It has involved monetary
transaction of US $47.37 billion.
Out of these 287 merger and
acquisition deals, there have been
102 cross country deals with a
total valuation of US $28.19 billion.
 The United Nations' “World
Investment Report 2000”
suggests that the recent increase
in cross-border mergers and
acquisitions is mainly due to
increase in the globalization
of markets

10. CASE STUDY
JPMorgan Chase & Co.

11. JPMorgan Chase & Co.
JPMorgan Chase Bank One
(merged 2000) (acq. 2004)
Chase J.P. Morgan & Co.
(merged 2000) (formerly Morgan Banc One Corp. First Chicago NBD
Chase Manhattan Bank Guaranty Trust) (merged 1968) (merged 1995)
(merged 1996) (merged 1959)

12. JPMorgan Chase & Co. has operations in 60 countries. It is a major
provider of financial services with assets of $2 trillion, and the largest
market capitalization and third largest deposit base U.S. banking
institution behind Wells Fargo and Bank of America. The hedge fund unit
of JPMorgan Chase is the largest hedge fund in the United States with
$53.5 billion in assets as of the end of 2009.
JP Morgan Chase is one of the Big Four banks of the United States with
Bank of America, Citigroup and Wells Fargo
JPMorgan Chase‟s activities are organized, for management
reporting purposes, into six business segments :
Investment Bank
Retail Financial Services
Card Services
Commercial Banking
Treasury & Securities Services
Asset Management

13. Bank One is the nation's sixth-largest bank holding
company, with assets of $290 billion. It had more
than 51 million credit cards issued, and serves nearly
7 million retail households and more than 20,000
middle market customers. It also manages $175
billion of clients' investment assets.

14. STEPS…
July 1stmarked the official “Day 1” for the competed merger
between JP Morgan Chase and Bank One.
Prior to this day, at midnight, these two companies officially
merged to form an integrated new financial giant.
Every day, internal newsletters came out to all of the employees of JP
Morgan Chase in order to inform everyone of the new steps being taken by
senior management towards the completion of the merger with Bank One
Furthermore, a discussion board was created on JP Morgan Chase‟s
website, in order for anyone internal to the firm to be able to ask questions,
or to voice any concerns with regard to the merger.
On April 22, 2004 the article heading “JP Morgan Chase reports 38%
increase in earnings” made its way into the business section of the New
York Times.

15. The net income was reported to be “$1.9 billion, or 92 cents a
share, at this point, compared with $1.4 billion, or 69 cents a share,”
a year earlier
Revenue for the first quarter was reported at “$8.98 billion, which
was up 7 percent from $8.41 billion” a year earlier.
This positive change in earnings, as well as an increase in share
value, also shows the stockholders‟ and stakeholders‟ support of the
merger
On June 3, 2004, the article headline now read “JP Morgan vice
president Donald Layton says he will retire.”
After the merger, he would have overseen the finance, risk
management and technology divisions, and would have reported to
the chief operating officer, James L. Dimon, now Bank One's chief
executive.

16. Last but not least, on September 1, 2004, The New York Times
article heading in the business sections read “JP Morgan and
Bank One to merge mutual fund units.”
JP Morgan Funds and One Group Mutual Funds became fully
integrated into a single fund in February 2005.
It is necessary to note that the words “merger” and “acquisition”
are often interchanged, and in some instances, the “merger”
between Bank One and JP Morgan Chase is referred to as JP
Morgan Chase buying Bank One.
The $58 billion deal was officially closed and empowered in
July. Before this event could take place, the balance sheets and
the financial statements of JP Morgan Chase and Bank One
needed to be integrated into single accounting statements

17. REASONS OF ACQUISITION:-
 A JP Morgan Chase press release dated January
14, 2004 announced that JP Morgan Chase and
Bank One had agreed to merge in a “strategic
business combination establishing the second
largest banking franchise in the United States,
based on core deposits.”
 With earnings contributions that are balanced out
between retail and 31 wholesale banking, the
combined company is expected to be “well-
positioned to achieve strong and stable financial
performance
 And increase shareholder value through its
balanced business mix, greater scale, and
enhanced efficiencies and competitiveness.”

18. OWNERSHIP
 The combined company will be headed by
William B. Harrison, 60, as the chairman and
chief executive officer
 And by James Dimon, 47, as the president and
chief operating officer, with Dimon to succeed
Harrison as CEO in 2006 and Harrison
continuing to serve as the chairman.

19. POST-MERGER
 The merged company will be known as JP Morgan
Chase & Co.
 It would continue to trade on the New York Stock
Exchange, under the symbol JPM, and its corporate
headquarters will still be located in New York.
 The JP Morgan brand will continue to be used for
the wholesale business; and the combined
company will continue to use both brands (JP
Morgan Chase and Bank One) in their respective
markets and products.

20. "[The merger] will create one of the world's great financial
services companies”
-Harrison
"the merger of Bank One and JP Morgan Chase makes
tremendous sense strategically, operationally and financially”
-Dimon

21. BENEFITS :-
 Bank One opened up to JP Morgan Chase a retail
banking market
 JP Morgan Chase gained over 2000 branches and
client exposure in areas in which it had not been as
well known before
 As known in the financial industry, Citigroup it the
biggest competitor of JP Morgan Chase. After the
merger, JP Morgan Chase with Bank One as its
ally, has a much bigger chance at beating its
competition.
 Cut out potential competitor in its area

22. TWO GREAT BANKING COMPANIES
JP Morgan Chase (as of
Bank One (as of 9/30/03)
9/30/03 )
 92,900 employees  71,200 employees
 3rd largest bank  6th largest bank
holding company in holding company in
U.S.  U.S.
 $793 billion assets  $290 billion assets
 Operations in virtually  1,800 branches in 14
every state and more states
than 50 countries

23. JP Morgan Bank One combined
Chase
Loans $236,201 $141,710 $ 377,911
Assets 792,700 290,006 1,082,706
Managed assets 827,015 326,769 1,153,784
Deposits $313,626 $163,411 $ 477,037
Total Liabilities 747,743 267,595 1,015,338
Total Equity 44,957 22,411 67,368
All data in million dollars

24. Financial data in $ millions
Financial data in $ millions
Year 2004 2005 2006 2007 2008 2009
Revenue 43,097 54,533 61,437 71,372 67,252 100,434
EBITDA 7,140 13,740 22,218
Net
Income
4,466 8,483 14,444 15,365 5,605 11,728
Employees 160,968 168,847 174,360 180,667 224,961 222,316

26. risk of monopolies. Consumers then become exploited and
resources become misallocated if these mergers create major entry
barriers restricting competition, which can potentially lead to market
failure and a decline in economic welfare.
companies make predictions for growth, increased efficiency, and
greater profits. However, more often then not, those predictions prove
to be over inflated, and this also leads to disappointments on the side
of investors, shareholders and the management involved in the
merger.
There are certain imperfections in the capital markets which
contribute to imperfect information and at times even merger failures.
The reasons for market imperfections include the fact that often
corporate control does not work optimally, and that unsuccessful
management is in place for a long time.

27. Despite negative studies and resistance from the economists,
M&A‟s continue to be an important tool behind growth of a company.
Reason being, the expansion is not limited by internal resources,
no drain on working capital - can use exchange of stocks, is
attractive as tax benefit and above all can consolidate industry -
increase firm's market power.
Two thirds of the respondents say that high acquisition activity positively
impacts a company‟s market perception.
Just as counselors say that marriages based on the premise that „she can
change him‟ do not have a stellar record, mergers and acquisitions are not
that diferent.