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Mergers and Acquisitions

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MEMBERS

KARAN SHETHPALAK PATNI

PRATIK DOTIAASHWINI SHETTY

POOJA MEHTAKULDEEP MANDAIVYA

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MEANING

MergerA transaction where two firms agree to integrate theiroperations on a relatively co-equal basis becausethey have resources and capabilities that togethermay create a stronger competitive advantage.

The combining of two or more companies, generallyby offering the stockholders of one company

securities in the acquiring company in exchange forthe surrender of their stock

Example: Company A+ Company B= Company C.

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ACQUISITION

A transaction where one firms buys another firm withthe intent of more effectively using a corecompetence by making the acquired firm a

subsidiary within its portfolio of businessIt also known as a takeover or a buyout

It is the buying of one company by another.

In acquisition two companies are combine togetherto form a new company altogether.

Example: Company A+ Company B= Company A.

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MERGER ACQUISITION

DIFFERENCE BETWEEN MERGER ANDACQUISITION:

i. Merging of two organization into one.

ii. It is the mutual decision.

iii. Merger is expensive thanacquisition(higher legal cost).

iv. Through merger shareholderscan increase their net worth.

v. It is time consuming and thecompany has to maintain somuch legal issues.

vi. Dilution of ownership occursin merger.

i. Buying one organization byanother.

ii. It can be friendly takeover or

hostile takeover.iii. Acquisition is less expensive

than merger.

iv. Buyers cannot raise their

enough capital.v. It is faster and easier

transaction.

vi. The acquirer does notexperience the dilution ofownership.

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WHY IS IMPORTANT PROBLEM WITH MERGER

MERGER:WHY & WHY NOT

i. Increase Market Share.

ii. Economies of scale

iii. Profit for Research and

development.iv. Benefits on account of

tax shields like carriedforward losses or

unclaimed depreciation.

v. Reduction ofcompetition.

i. Clash of corporate cultures

ii. Increased business complexity

iii. Employees may be resistant tochange

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WHY IS IMPORTANT PROBLEM WITH ACUIQISITION

ACQUISITION:WHY & WHY NOT

i. Increased marketshare.

ii. Increased speed to

marketiii. Lower risk comparingto develop newproducts.

iv. Increaseddiversification

v. Avoid excessivecompetition

i. Inadequatevaluation of target.

ii. Inability to achievesynergy.

iii. Finance by taking

huge debt.

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TERMINOLOGIES

Asset Stripping

Demerger or Spin off

Black Knight

Carve - out

Poison Pill or Suicide Pill DefenseGreenmail

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Terminologies contd

Dawn Raid

Grey KnightMacaroni Defense

Management Buy In

Hostile Takeover

Management Buy Out

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EXPERIENCES IN M&A

Learn from mistakes of others

Define your objectives clearly

Complete strategy to achieve goal.SWOT analysis for the merged business - amust

Conservative attitude necessary at evaluationdeskstrong arguments to support project

Pick holes in strategy to get the bestWill merged units be able to work at efficient /ideal level?

Acquire expertise to interprete changes

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M&A DEALS

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1. Tata Steel-Corus: $12.2 billion

January 30, 2007

Largest Indian take-over

After the deal TATAS

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.

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2. Vodafone-Hutchison Essar:$11.1 billion

TELECOM sector

11th February 2007

2nd largesttakeover deal

67 % stake holdingin hutch

Image: The then CEO of Vodafone

Arun Sarin visits Hutchison

Telecommunications head office inMumbai.

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3. Hindalco-Novelis: $6 billion

June 2008Aluminium andcopper sector

Hindalco Acquired

Novelis

Hindalco entered theFortune-500 listing of

world's largestcompanies by salesrevenues

Image: Kumar Mangalam Birla

(center), chairman of Aditya BirlaGroup.

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4. Ranbaxy-Daiichi Sankyo: $4.5 b

Pharmaceuticals sectorJune 2008

Acquisition deal

largest-ever deal in the

Indian pharma industryDaiichi Sankyoacquired the majoritystake of more than 50

% in Ranbaxy for Rs15,000 crore

15th biggest drugmakerImage: Malvinder Singh (left), ex-CEOof Ranbaxy, and Takashi Shoda,

president and CEO of Daiichi Sankyo.

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5. ONGC-Imperial Energy:$2.8billion

January 2009

Acquisition deal

Imperial energy is abiggest chinese co.

ONGC paid 880 pershare to theshareholders of imperialenergy

ONGC wanted to tapthe siberian market

Image: Imperial Oil

CEO Bruce March.

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6. NTT DoCoMo-Tata Tele: $2.7 b

November 2008

Telecom sector

Acquisition deal

Japanese telecom giant

NTT DoCoMo acquired26 per cent equitystake in TataTeleservices for aboutRs 13,070 cr.

Image: A man walks past a signboard ofJapan's biggest mobile phone operator

NTT Docomo Inc. in Tokyo.

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7. HDFC Bank-Centurion Bankof Punjab: $2.4 billion

February, 2008

Banking sector

Acquisition deal

CBoP shareholdersgot one share of HDFCBank for every 29shares held by them.

9,510 crore

Image: Rana Talwar (rear) Centurion

Bank of Punjab chairman, Deepak

Parekh, HDFC Bank chairman.

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8. Tata Motors-Jaguar LandRover: $2.3 billion

March 2008 (just ayear after acquiringCorus)

Automobile sector

Acquisition deal

Gave tuff competition toM&M after signing the

deal with ford

Image: A Union flag flies behind a

Jaguar car emblem outside a

dealership in Manchester, England.

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9. Sterlite-Asarco: $1.8 billion

May 2008

Acquisition deal

Sector copper

Image: Vedanta Group chairman

Anil Agarwal.

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10. Suzlon-RePower: $1.7 billion

May 2007

Acquisition deal

Energy sector

Suzlon is now thelargest wind turbinemaker in Asia

5th largest in theworld.

Image: Tulsi Tanti, chairman &

M.D of Suzlon Energy Ltd.

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11. RIL-RPL merger: $1.68 billion

March 2009Merger deal

amalgamation of its

subsidiary ReliancePetroleum with theparent companyReliance industries

ltd.Rs 8,500 crore

RIL-RPL mergerswap ratio was at16:1

Image: Reliance Industries'

chairman Mukesh Ambani.

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Why India?

Dynamic government policiesCorporate investments in industry

Economic stability

Ready to experiment attitude ofIndian industrialists

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Deals in India for first financial

quarter 2010Sector No. of Deals

Value in USD

million

Share in per

cent

Telecom 3 22732.26 67.19

Pharmaceutical 4 3958.29 11.02

BFSI 6 2651.54 7.84

Metal and Mining 4 1483.15 4.38

Energy 4 1320 3.90

Other sectors 39 1919.00 5.67

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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 meetingsv. Sanction by the High Court

vi. Filing of the court order

vii. Transfer of assets or liabilitiesviii.Payment by cash and securities

Maximum Waiting period:210 days from the filing of notice(or the order ofthe commission - whichever earlier).

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Impact of Mergers and Acquisitions

ImpactEmployees

Competition

Management

Public

Shareholders

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Why Mergers and Acquisitions Fail?

Cultural Difference

Flawed Intention

No guiding principles

No ground rules

No detailed investigating

Poor stake holder outreach

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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

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RECENT M&A HAPPENINGS

India Inc runs up an M&A bill of Rs 1.8 lakh cr inH1

M&A deals touch $14 billion in June

Value of telecom M&A deals touched USD 23billion in Q1: Assocham.

Godrej acquires Argentine firm

Oil India eyes shale gas acquisition overseasRIL acquires Pioneer stake for $1.32 bn

Indian hunger for new technology fuels foreignacquisitions

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contd

Dabur completes merger of Fem Care

Ebay India ties up with Adidas for FIFA

World Cup.Abbott buys Piramal unit, tops table

Eurocopter signs two joint ventures with

Pawan HansMahindra to buy out Renaults stake in

India, revive Logan sales.

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Amongst BRIC Nations, India second most targetedcountry for Mergers & Acquisitions(2010):

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MERGER & ACQUISITION(2009-10) :

33

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ICICI BANK & BANK OF RAJASTHAN(19th MAY,2010):

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ADVANTAGES FROM THIS MERGER:

This amalgamation would substantially enhance

ICICI Bank's branch network (23 % increaseapprx).

Strengthen ICICI banks presence in northern and

western India. ICICI has now moved to a branch-led businessmodel.

The acquisition will help ICICI increase CASA

(current and savings account) flows, as also helpin cross-selling products.

Both banks working on the same platform,

integration will also be less taxing.

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SUCCESS & FAILURE RATE(2009-10):

36

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