Mergers and Acquisitions

Course OutlineIntroductionM&A Process Valuation Deal Structuring and FinancingAccounting for AcquisitionsRegulatory considerationsTakeover Tactics and DefensesCross Border AcquisitionsAlternative Restructuring Strategies

Reference Sources• Mergers Acquisitions and Other Restructuring

Activities – Donald DePamphilis • Mergers and Acquisitions Text and Cases – Rajesh

Kumar• Mergers, Restructuring And Corporate Control –

Fred Weston, Kwang S Chung, Susan E Hoag – • Corporate Finance-Theory And Practice –

Ashwath Damodaran• http://www.ventureintelligence.in/malogin.php

(IP based log in)

Course Evaluation

• Internal Evaluation 60%– Assignments 30 (due every class)– Quiz 30(tentative split – all assignments are compulsory,

average would be considered. Check on assignment due if you miss a class)

• External Evaluation 40%

Mergers and Acquisitions

Fortune 500 Firms in 1959 vs. 2009

86% Are Gone

Group A. American Motors, Studebaker, Eastman Kodak, Maytag and National Sugar Refining.

Group B. Boeing, Campbell Soup, Deere, IBM and Whirlpool.

Group C. Cisco, eBay, McDonald's, Microsoft and Yahoo.

All the companies in Group A were in the Fortune 500 in 1959, but not in 2009.

All the companies in Group B were in the Fortune 500 in both 1959 and 2009.

All the companies in Group C were in the Fortune 500 in 2009, but not 1959.

Definitions (Investopedia) Mergers - The 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. Note : One of the two may be the surviving company or

a new company could be formed

Acquisition - A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm.

Dollar Value of M&As Worldwide

0

1000

2000

3000

4000

5000

1995 1997 1999 2001 2003 2005 2007 2009 2011

$Billions

Source: Thompson Reuters, Thompson Financial Securities Data Corporation and Dealogic

Indian Deals

• M&As involving Indian companies touch $60.7 billion in 2010: E&Y

• Hit by adverse global and domestic factors, the value of deals fell to $34.4 billion in 2011.

• The number of M&A transactions involving Indian entities also dropped to 806 in 2011 from 1,135 deals in 2010.

Outlook for 2012 In the first two months of this year M&A deals worth $16.06 billion

has been announced, hinting that the year 2012 likely to witness a host of M&A deals.

The total value of outbound deals in February this year was $441 million (5 deals) as against $206 million (11 deals) a year ago (Economic Times)

The most targeted Emerging Market nation so far this year was China, with 674 deals worth a combined US$31.3 billion. Brazil and India followed, with US$21.2 billion and US$10.6 billion of activity, respectively. (Thomson Reuters)

Materials was the most active sector during the year accounting for 18% of Emerging Market volumes with US$24.4 billion in deal activity, closely followed by Financials with US$23.8 billion. (Thomson Reuters)

A few large International Deals of 2011 Google agrees to buy

Motorola Mobility Price: $9.8 billion

Date: August 15, 2011Type: Company takeover

Google’s (GOOG) largest acquisition to date will expand both mobile patents and hardware, such as the Xoom tablet, above. Google paid a 63 percent premium on Motorola's stock price in a deal that increases Google's competitiveness in cell phones and tablets.

Microsoft Agrees to Buy Skype Price: $8.5 billion Date: May 10, 2011Type: Private equity, cross border, company takeover

Potentially Microsoft’s (MSFT) largest acquisition, bigger may not be better, considering Microsoft’s unenviable track record of integrating purchases into the company. This bid is all about Microsoft’s mobile operating system, Windows Phone, and a joint agreement with Nokia.

Large Indian M&A deal in 2011• The Reliance – BP deal

– Reliance Industries signed a 7.2 billion dollar deal with UK energy giant BP buying 30 percent stake in 21 oil and gas blocks operated in India.

• Essar exits Vodafone – In March 2011, the Vodafone Group announced that it would buy 33 percent stake in its Indian joint

venture for about 5 billion dollars after the Essar Group sold its holding and exited Vodafone.

• The Fortis Healthcare merger – In September 2011, India’s second largest hospital chain, Fortis Healthcare (India) Ltd,

announced that it will merge with Fortis Healthcare International Pte Ltd., the promoters’ privately held company.

• iGate acquires majority stake in Patni Computers– In May 2011, IT firm iGate completed its acquisition of its midsized rival Patni Computers for an

estimated 1.2 billion dollars.

• GVK Power acquires Hancock Coal– In one of the biggest overseas acquisitions initiated by India in September 2011, Hyderabad-based

GVK Power bought out Australia’s Hancock Coal for about 1.26 billion dollars. The acquisition includes a majority of the coal resources, railway line and port infrastructure of Hancock Coal, along with the option for long term coal supply contracts.

Motivations for Mergers and Acquisitions

Synergy Operating (Economies of Scale and Economies of Scope) Financial

Diversification – (New Product, New Market, Both) Portfolio Theory /Developing countries

Strategic Realignment Regulatory Changes Technological changes

Q Ratio- Buying undervalued assets Mismanagement Hubris Tax Consideration

Forms of Mergers

• Horizontal

• Vertical

• Conglomerate

International Merger Waves(Boom Periods)

• Horizontal Consolidation (1897-1904)• Increasing Concentration (1916-1929)• The Conglomerate Era (1965-1969)• The Retrenchment Era (1981-1989)• Age of Strategic Megamerger (1992-2000)• Age of Cross Border and Horizontal Megamergers

(2003-2007)

Merger Waves in India

• First Wave (1980’s) Swaraj Paul, RP Goenka, Manu Chabria

• Second Wave (1992-1995) FEMA and SEBI Takeover code

• Third Wave (1997-2002) Cement and Telecom• Fourth Wave (2004-2006) Cross Border deals,

Technology and IT