merger & acquisitions
TRANSCRIPT
MERGERS AND ACQUISITIONS
GMCS December ‘2012 BatchGMCS December ‘2012 BatchVasai RoadVasai RoadVasai Branch of WIRCVasai Branch of WIRCThe Institute of Chartered Accountants of IndiaThe Institute of Chartered Accountants of India
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Introduction
With recession taking toll of many Indian businesses and the feeling of insecurity surging over our businessmen, it is not surprising when we hear about the immense numbers of corporate restructurings taking place, especially in the last couple of years. Several companies have been taken over and several have undergone internal restructuring, whereas certain companies in the same field of business have found it beneficial to merge together into one company.
All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs, tender offers & other forms of corporate restructuring. In this context, it would be essential for us to understand what corporate restructuring and mergers and acquisitions are all about.
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What is Merger & Acquisitions?
MERGERMERGERMerger is defined as combination of two or more Merger is defined as combination of two or more companies into a single company where one survives companies into a single company where one survives and the others lose their corporate existence. The and the others lose their corporate existence. The survivor acquires all the assets as well as liabilities of survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, the the merged company or companies. Generally, the surviving company is the buyer, which retains its surviving company is the buyer, which retains its identity, and the extinguished company is theidentity, and the extinguished company is theseller.seller.Merger is also defined as amalgamation. Merger is Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration transferred to Transferee Company in consideration of payment in the form of:of payment in the form of:
•Equity shares in the transferee company,Equity shares in the transferee company,•Debentures in the transferee company,Debentures in the transferee company,•Cash, orCash, or•A mix of the above modes.A mix of the above modes.
ACQUISITIONACQUISITIONAcquisition in general sense is acquiring the Acquisition in general sense is acquiring the ownership in the property. In the context of business ownership in the property. In the context of business combinations, an acquisition is the purchase by one combinations, an acquisition is the purchase by one company of a controlling interest in the share capital company of a controlling interest in the share capital of another existing company.of another existing company.
Methods of Acquisition:Methods of Acquisition:An acquisition may be affected by:An acquisition may be affected by:a) Agreement with the persons holding majority a) Agreement with the persons holding majority interest in the company management like members interest in the company management like members of the board or major shareholders commanding of the board or major shareholders commanding majority of voting power;majority of voting power;b) Purchase of shares in open market;b) Purchase of shares in open market;c) To make takeover offer to the general body of c) To make takeover offer to the general body of shareholders;shareholders;d) Purchase of new shares by private treaty;d) Purchase of new shares by private treaty;e) Acquisition of share capital through the following e) Acquisition of share capital through the following forms of considerations viz. Means of cash, issuance forms of considerations viz. Means of cash, issuance of loan capital, orof loan capital, orinsurance of share capital.insurance of share capital.
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A MERGER happens when two firms, often about same size, agree to go forward as a new single company A MERGER happens when two firms, often about same size, agree to go forward as a new single company rather than remain separately owned & operated by pooling all their resources together, to create a rather than remain separately owned & operated by pooling all their resources together, to create a sustainable competitive advantage. For example, both Daimler-Benz & Chrysler ceased to exist when two firms sustainable competitive advantage. For example, both Daimler-Benz & Chrysler ceased to exist when two firms merged, and a new company ’Daimler-Chrysler’ was created. merged, and a new company ’Daimler-Chrysler’ was created.
When a Company takes over another one & clearly becomes the new owner ,the purchase is called When a Company takes over another one & clearly becomes the new owner ,the purchase is called ‘ACQUISITION’. Unlike mergers, acquisitions can sometimes be unfriendly. i.e., when a firm tries to takeover ‘ACQUISITION’. Unlike mergers, acquisitions can sometimes be unfriendly. i.e., when a firm tries to takeover another by adopting hostile measures.another by adopting hostile measures.
B
STRUCTURE 2
A = Amalgamating Company: Ceases to ExistA = Amalgamating Company: Ceases to Exist B = Amalgamated CompanyB = Amalgamated Company B receives all of A’s assets and liabilitiesB receives all of A’s assets and liabilities Shareholders of A receive shares in B and Shareholders of A receive shares in B and
maybe other benefits like debentures, cashmaybe other benefits like debentures, cash
Transfer assets and liabilitiesA
STRUCTURE 1
D
A
B
C
A, B and C = Amalgamating Companies: Cease to existD = Amalgamated Company: may or may not have existed before MergerAll assets and liabilities of A, B and C transferred to DShareholders in A,B and C get shares in D.
STRUCTURE 3
X Y Y
Shareholders of A
Company A
Company B
Transfers undertaking Y
Issues shares
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Mergers & Acquisitions –An Overview(RECAP)
Mergers and Acquisitions M&A ,have become very popular strategy all over the world in last 3 decades.Mergers and Acquisitions M&A ,have become very popular strategy all over the world in last 3 decades. The value M &A WORLDWIDE increased from $464 Billion in 1990 to $3.4 trillion in 1999-2000, followed by The value M &A WORLDWIDE increased from $464 Billion in 1990 to $3.4 trillion in 1999-2000, followed by
sharp decline during 2001 & 2002.It has again shown improvement from 2003 onwards & has crossed $320 sharp decline during 2001 & 2002.It has again shown improvement from 2003 onwards & has crossed $320 trillions till 2011-12. trillions till 2011-12.
India born Laxmi Nivas Mittal has taken over Arcelor in Europe , to form a largest Steel making Company in India born Laxmi Nivas Mittal has taken over Arcelor in Europe , to form a largest Steel making Company in Europe-”Arcelor-Mittal.”(117 Mtons/Year-Global) .Europe-”Arcelor-Mittal.”(117 Mtons/Year-Global) .
Tata Steel-Corus(UK) Acquisition by Tata Steel for $12 Billion is very significant and a landmark for the Indian Tata Steel-Corus(UK) Acquisition by Tata Steel for $12 Billion is very significant and a landmark for the Indian Corporate World. (28 Mtons/Annum-2006)Corporate World. (28 Mtons/Annum-2006)
M&A means and includes
AcquisitionsMergersPurchase Of UnitTake OversAlliances
DivestituresSell OffsDemergers
Own, Restruct.Going Private Leveraged Buy Outs
Org. Restruct.RedesignPerformance Enhancement Programmes
M&A is all about…..
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The Synergy Matrix
Company-specific RiskCost-of-capital reduction
Operating SynergyScale EconomiesImprove margins
Financial SynergyRedeploy capital
Increase ROI
Managerial SynergyImprove management or
replace inefficient one
Market Valuation Release “value”
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Types of Mergers
Horizontal mergers:Horizontal mergers: A horizontal merger involves two firms operating and competing in
the same kind of business activity. Textiles firm merges raw materials firm.
- Example: Exxon - Mobil Vertical mergers:Vertical mergers:
Vertical mergers occur between firms in different stages of production operation. - Example: Helene Curtis and Unilever
Conglomerate Mergers:Conglomerate Mergers: - Conglomerate mergers involve firms engaged in unrelated types of
business activity - Example: General Electric buying NBC television
Concentric MergersConcentric Mergers - - Based on specific management functions where as the Based on specific management functions where as the
conglomerate mergers are based on general management conglomerate mergers are based on general management functionsfunctions
- - Example: Citigroup (principally a bank) buying Example: Citigroup (principally a bank) buying Salomon Smith Barney (an investment banker/stock Salomon Smith Barney (an investment banker/stock brokerage operationbrokerage operation
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Purpose of Mergers & Acquisitions
Purpose of Mergers & AcquisitionsPurpose of Mergers & AcquisitionsThe purpose for an offeror company for acquiring another company shall be reflected in the corporate The purpose for an offeror company for acquiring another company shall be reflected in the corporate objectives. It has to decide the specific objectives to be achieved through acquisition. The basic purpose of objectives. It has to decide the specific objectives to be achieved through acquisition. The basic purpose of merger or business combination is to achieve faster growth of the corporate business. Faster growth may merger or business combination is to achieve faster growth of the corporate business. Faster growth may be had through product improvement and competitive position. Other possible purposes for acquisition are be had through product improvement and competitive position. Other possible purposes for acquisition are short listed below: -short listed below: -
(1) Procurement of supplies:(1) Procurement of supplies:1. To safeguard the source of supplies of raw materials or intermediary product;2. To obtain economies of purchase in the form of discount, savings in transportation costs, overhead costs in buying department, etc.;3. To share the benefits of suppliers economies by standardizing the materials.
(2) Revamping production facilities:(2) Revamping production facilities:1. To achieve economies of scale by amalgamating production facilities through more intensive utilization of plant and resources;2. To standardize product specifications, improvement of quality of product, expanding3. Market and aiming at consumers satisfaction through strengthening after sale Services;4. To obtain improved production technology and know-how from the offered company5. To reduce cost, improve quality and produce competitive products to retain and Improve market share.
(3) Market expansion and strategy:(3) Market expansion and strategy:1. To eliminate competition and protect existing market;2. To obtain a new market outlets in possession of the offeree;3. To obtain new product for diversification or substitution of existing products and to enhance the product range;4. Strengthening retain outlets and sale the goods to rationalize distribution;5. To reduce advertising cost and improve public image of the offeree company;6. Strategic control of patents and copyrights.
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(4) Financial strength:1. To improve liquidity and have direct access to cash resource;2. To dispose of surplus and outdated assets for cash out of combined enterprise;3. To enhance gearing capacity, borrow on better strength and the greater assets backing;4. To avail tax benefits;5. To improve EPS (Earning Per Share).
(5) General gains:1. To improve its own image and attract superior managerial talents to manage its affairs;2. To offer better satisfaction to consumers or users of the product.
(6) Own developmental plans:The purpose of acquisition is backed by the offeror company’s own developmental plans. A company thinks in terms of acquiring the other company onlywhen it has arrived at its own development plan to expand its operation having examined its own internal strength where it might not have any problem of taxation, accounting, valuation, etc. But might feel resource constraints with limitations of funds and lack of skill managerial personnel’s. It has to aim at suitable combination where it could have opportunities to supplement its funds by issuance of securities, secure additional financial facilities, eliminate competition and strengthen its market position.
(7) Strategic purpose:The Acquirer Company view the merger to achieve strategicobjectives through alternative type of combinations which may be horizontal, vertical, product expansion, market extensional or otherspecified unrelated objectives depending upon the corporate strategies. Thus, various types of combinations distinct with each other in nature are adopted to pursue this objective like vertical or horizontal combination.
(8) Corporate friendliness:Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve performance heights through business combinations. The combining corporate aim at circular combinations by pursuing this objective.
Continue….
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The M & A Process1)1) Develop a strategic plan for the business.(Business Plan)Develop a strategic plan for the business.(Business Plan)2)2) Develop an acquisition plan related to the strategic plan.( Acquisition Plan)Develop an acquisition plan related to the strategic plan.( Acquisition Plan)3)3) Search companies for acquisitions.(Search)Search companies for acquisitions.(Search)4)4) Screen and prioritize potential companies.(Screen)Screen and prioritize potential companies.(Screen)5)5) Initiate contact with target.Initiate contact with target.6)6) Refine valuation, structure the deal and develop financial plan.Refine valuation, structure the deal and develop financial plan.
( Negotiation)( Negotiation)7)7) Develop plan for integrating the acquired business. (Integration Plan)Develop plan for integrating the acquired business. (Integration Plan)8)8) Obtain all necessary approvals and implement closing.Obtain all necessary approvals and implement closing.9)9) Implement post closing integration.Implement post closing integration.10)10) Conduct a post closing evaluation.Conduct a post closing evaluation.
Start here to Maximize
Merger benefits.… And not here.
The M&A Process
The Getting Ready Process
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Integrationdifficulties
Inadequate evaluation of target
Too muchdiversification
Large orextraordinary debt
Inability toachieve synergy
Managers overlyfocused on acquisitions
Too large
Increasedmarket power
Overcomeentry barriers
Lower riskcompared to developing new
products
Cost of newproduct development
Increased speedto market
Increaseddiversification
Avoid excessivecompetition
M & A
Reasons forReasons forM & AM & A
Problems inProblems inAchieving SuccessAchieving Success
Acquisition intended to reduce the competitive balance of the industryExample: British Petroleum’s acquisition of U.S. Amoco
Acquisitions overcome costly barriers to entry which may make “start-ups” economically unattractiveExample: Belgian-Dutch Fortis’ acquisition of American Banker’s Insurance Group
Buying established businesses reduces risk of start-up venturesExample: Watson Pharmaceuticals’ acquisition of TheraTech
Closely related to Barriers to Entry, allows market entry in a more timely fashionExample: Kraft Food’s acquisition of Boca Burger
Quick way to move into businesses when firm currently lacks experience and depth in industryExample: CNET’s acquisition of mySimon
Firms may use acquisitions to restrict its dependence on a single or a few products or marketsExample: General Electric’s acquisition of NBC
Differing financial and control systems can make integration of firms difficultExample: Intel’s acquisition of DEC’s semiconductor division“Winners Curse” bid causes acquirer to overpay for firm
Example: Marks and Spencer’s acquisition of Brooks Brothers
Costly debt can create onerous burden on cash outflows.Example: AgriBioTech’s acquisition of dozens of small seed firmsJustifying acquisitions can increase estimate of expected benefitsExample: Quaker Oats and Snapple
Acquirer doesn’t have expertise required to manage unrelated businessesExample: GE--prior to selling businesses and refocusing
Managers may fail to objectively assess the value of outcomes achieved through the firm’s acquisition strategyExample: Ford and Jaguar
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Strategic approach To Mergers and Acquisitions
Present Situation Strategy
• Growing steadily but in a mature market with limited growth
Acquire a company in a younger market with higher growth rate
• Operating at maximum productive capacity Acquire a company making similar products operating substantially below capacity
• Under-utilizing management resources Acquire a company into which the talents can be extended
• Marketing an incomplete product range , or having the potential to sell other products or services to your existing customers
Acquire a company with product range which is complementary
• Lacking key clients in a targeted sector Acquire a company with right customer profile
• Need to increase market share Acquire an important competitor
• Need to widen capability Acquire a company with key talents and/or technology
• Need more control of suppliers or customers Acquire a company which is, or which gives access to a significant customer or supplier
• Preparing for floatation but need to improve balance sheet
Acquire a company with the right customer profile
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Takeover Strategies and Defenses
Kinds of takeovers:Kinds of takeovers: Negotiated or Friendly Takeover The existing management of a company decides to give away the control of the The existing management of a company decides to give away the control of the
company to another group on terms and conditions mutually agreed upon by both the company to another group on terms and conditions mutually agreed upon by both the parties.parties.
Open market or Hostile Takeover A group acquires shares of a company from the open market in order to take control of A group acquires shares of a company from the open market in order to take control of
the companythe company Eg: Autoriders’ Hostile Takeover Bid for Saurashtra CementEg: Autoriders’ Hostile Takeover Bid for Saurashtra Cement Bail-out Takeover When a financially sick company is taken over by a profit earning company in order to When a financially sick company is taken over by a profit earning company in order to
bail out the former ,it is called a bail-out takeover.bail out the former ,it is called a bail-out takeover.• Hostile Takeover Strategies- Tender Offer General offer made publicly and directly to a firm’s shareholders to buy their stock at a price well above
the current market price.- Street Sweep The acquirer accumulates large amounts of the stocks in the target company before making the open
offer- Bear Hug The acquirer tries to put pressure on the management of the target firm by threatening to make an
open offer- Strategic Alliance An acquirer offers a partnership rather than a buyout of the target firm.- Brand Power The acquiring firm enters into an alliance with other powerful brands to displace the competitor’s
brand.
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Effects of Takeovers Effects on the Acquirer CompanyEffects on the Acquirer Company Effects on the Target companyEffects on the Target company Effects on the Shareholders of the Target CompanyEffects on the Shareholders of the Target Company Effects on the Shareholders of Acquiring CompanyEffects on the Shareholders of Acquiring Company
Defenses against Takeovers Golden ParachutesGolden Parachutes Poison PutPoison Put Anti-takeover AmendmentsAnti-takeover Amendments Super majority amendmentsSuper majority amendments Fair price amendmentsFair price amendments Classified boardsClassified boards Authorization of preferred stockAuthorization of preferred stock Poison Pill DefensePoison Pill Defense Targeted Share Repurchase and Standstill AgreementsTargeted Share Repurchase and Standstill Agreements Other Takeover DefencesOther Takeover Defences
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What is an Acquisition?
A fundamental characteristic of merger is that the acquiring company takes over the A fundamental characteristic of merger is that the acquiring company takes over the ownership of other companies and combines their operations with its own operations.ownership of other companies and combines their operations with its own operations.
An acquisition may be defined as an act of acquiring effective control by one company over An acquisition may be defined as an act of acquiring effective control by one company over the assets or management of another company without any combination of companies.the assets or management of another company without any combination of companies.
• Attributes of Effective Acquisitions
Friendly deals make integration go more smoothly+
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M&A REGULATORY FRAMEWORK
TRANSACTION STRUCTURE•Companies Act•Income Tax Act•Stamp Act•Competition Act
LISTED COMPANIES•SEBI Regulations•Stock Exchange – Listing Agreement
TRANS-BORDER TRANSACTIONS•Foreign Exchange Management Act
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Legal Procedure
Sec 391 – 394 of Indian Companies Act covers M & A. Examination of object clause Approval from the Board Intimation to share holders and creditors. Approval from share holders and creditors.- 75% of SH
and creditors to approve. Application to National Company Law Tribunal (NCLJ) Intimation to SEs Petition to NCLT for approval Filing order with ROC Transfer of assets and Liabilities Issuance of shares/cash
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ABOUT THE DEALABOUT THE DEAL
TATA Acquired CORUS on 2TATA Acquired CORUS on 2ndnd April 2007 which is 4 times larger than its size. April 2007 which is 4 times larger than its size. The deal price was $ 12 Billion.The deal price was $ 12 Billion. TATA Steel,the winner of the auction for CORUS declares a bid of 608 Pence per share.TATA Steel,the winner of the auction for CORUS declares a bid of 608 Pence per share. In 2005 when the deal was started the price per share was 455 pence.In 2005 when the deal was started the price per share was 455 pence. TATA Surpassed the final bid from Brazilian steel maker ‘COMPANHIA SIDERURGICA NACIONAL’ TATA Surpassed the final bid from Brazilian steel maker ‘COMPANHIA SIDERURGICA NACIONAL’
(CSN) of 603 pence per share.(CSN) of 603 pence per share. The combined entity has become the world’s fifth largest steelmaker after the deal.The combined entity has become the world’s fifth largest steelmaker after the deal. For this deal TATA has finance only 4 Billion $ from internal company resources.For this deal TATA has finance only 4 Billion $ from internal company resources. TATA Have secured funding commitments from its advisors.TATA Have secured funding commitments from its advisors. These advisors were Deutshe bank, ABN Amro and Standard Chartered.These advisors were Deutshe bank, ABN Amro and Standard Chartered.
IMPORTANCE OF DEALIMPORTANCE OF DEALFOR TATAFOR TATA FOR CORUSFOR CORUS
The initial motive behind the deal was not CORUS revenue size but rather its market value.
To compete on global scale because then TATA was just at 56th rank in steel production.
CORUS holds a number of Patents and R & D facility. Acquiring Corus will give Tata access to European
customers of steel. Acquisition cost will be lower then setting up new green
field plants and marketing channel.
To extend its Global reach through TATA. To get access to Indian Ore reserves, as well as virgin
market for steel. To get access to low cost materials. Total Debt of Corus was GBP 1.6bn Saturated market of Europe. Better facilities and lower cost of production Employee cost was 15 % (TATA- 9%) Profit margin was 3.4% (TATA- 17%)
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Overview Ford, a leading automaker and one of the largest MNC in the global automobile industry. Ford acquired Jaguar from British Leyland Limited in 1989 for US$ 2.5 billion Ford bought Land Rover in 2000 for US$ 2.7 billion from BMW Over the years, the operations of both Jaguar and Land Rover were fully integrated Ford reported losses of US$ 12.7 billion in the year 2006 Ford conducted strategic reviews on the two brands and in June 2007 announced that it was
considering selling JLR Ford was concerned more about the interest of the workers employed with JLR than the price JLR’s labour union were against selling to private equity firms to be assure of job security On January 03,2008,Ford announced that it had chosen Tata Motors for the JLR deal and
had entered into focused negotiations with the company. On March 26,2008, Tata Motors agreed to pay US$ 2.3 billion in cash for a 100% acquisition
of the businesses of JLR.
Tata Motors-Rationale Of Acquiring JLR
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Problems & Issues of Tata-JLR Merger
Problems with deal Sales of JLR declined by 11.4% during the 2nd
quarter ending Sep.2008 Tata motors had to pump in funds to keep JLR on
the move By the end of Nov.2008,198 employees opted for
voluntary retirement and 400 more decide to leave by Jan 2009
With not much of cash generation internally, additional investments of funds would only add to the debt and interest burden of the company
In early Jan 2009,JLR announced 450 jobs cut Announced that managers would not receive any
bonuses in 2009 while salary raises would be deferred till Oct 2009
For the quarter ending Dec2008,the sales volumes of JLR decreased by 35.2% to 49,186
Total car sales in the UK in the year 2009 would be at 1.78 million as against 2.4 million in 2008
By the end of 2008,retail vehicle sales were reported at 10.8 million-around 2 million lower than the sales reported in 2007
Consumers were delaying the purchase of new vehicles due to lack of consumer loans
Financial Issues Tata Motors raised a bridge loan of US S$ 3
billion through a syndicate of banks The loan was raised through Tata Motors UK, a
special purpose vehicle and a 100% subsidiary of Tata Motors
The interest on the bridge loan was linked to LIBOR(London Inter Bank Offer Rate)
Tata also proposed to raise around US 500 to 600 million through an international issue
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Overview Biggest merger in the history of Consumer goodsBiggest merger in the history of Consumer goods P&G acquired Gillette for $57b to become the world’s largest consumer goods companyP&G acquired Gillette for $57b to become the world’s largest consumer goods company Annual Sales of the combined entity:$60.7bAnnual Sales of the combined entity:$60.7b After purchase of Gillette P&G will have $21b brands with market cap of $200bAfter purchase of Gillette P&G will have $21b brands with market cap of $200b P&G paid .975$/share(20% premium),later buyback of shares worth $18-22b over 12-18 P&G paid .975$/share(20% premium),later buyback of shares worth $18-22b over 12-18
monthsmonths Merging companies: similarity in Corporate historyMerging companies: similarity in Corporate history Merger based on a different model where innovation was the focus rather than the scaleMerger based on a different model where innovation was the focus rather than the scale Regulatory concerns: Product overlapsRegulatory concerns: Product overlaps Consumer goods after 1980sConsumer goods after 1980s
Why Gillette? P&G strength: Women’s personal care productsP&G strength: Women’s personal care products Gillette strength: Men’s grooming categoryGillette strength: Men’s grooming category Complementary in strength cultures and vision to create potential for superior sustainable Complementary in strength cultures and vision to create potential for superior sustainable
growthgrowth Gillette stock climbed 50% since 2003,profits jumped on premium productsGillette stock climbed 50% since 2003,profits jumped on premium products Acquisition added about 20% to P&G sales, long term sales growth estimate to 5-7% a yearAcquisition added about 20% to P&G sales, long term sales growth estimate to 5-7% a year Operating margin expected to grow by 25 % by 2015 from 19% in 2003Operating margin expected to grow by 25 % by 2015 from 19% in 2003 The companies expected cost savings of $14-16 bn from combining back-room operations and The companies expected cost savings of $14-16 bn from combining back-room operations and
new growth opportunities.new growth opportunities. more resources to enable intensive collaborative supply chain initiatives in a more cost-more resources to enable intensive collaborative supply chain initiatives in a more cost-
effective way.effective way. merger would also bring down the advertising and media costs owing to greater bargaining merger would also bring down the advertising and media costs owing to greater bargaining
powerpower Opportunities in developing markets: Gillette would give exposure to P&G in emerging Opportunities in developing markets: Gillette would give exposure to P&G in emerging
economies like India and Brazil, while P&G would distribute Gillette products in Chinaeconomies like India and Brazil, while P&G would distribute Gillette products in China It will give P&G the much needed boost to further strengthen its product categories where at It will give P&G the much needed boost to further strengthen its product categories where at
present it has negligible presencepresent it has negligible presence
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Integration issues The merger would result in around 6,000 job cuts, equivalent to 4% of the two The merger would result in around 6,000 job cuts, equivalent to 4% of the two
companies' combined workforce of 140,000. Most of the downsizing will take place to companies' combined workforce of 140,000. Most of the downsizing will take place to eliminate management overlaps and consolidation of business support functions. eliminate management overlaps and consolidation of business support functions.
Cultural problems absence because of geographical proximityCultural problems absence because of geographical proximity P&G is considered a promote-from-within company, and already had a lot of executive P&G is considered a promote-from-within company, and already had a lot of executive
talent at the top. Therefore, absorbing Gillette's management to their satisfaction talent at the top. Therefore, absorbing Gillette's management to their satisfaction could be difficultcould be difficult
P&G's ability to handle this massive cultural assimilation would decide the success or P&G's ability to handle this massive cultural assimilation would decide the success or failure of this acquisition.failure of this acquisition.
Overlaps of some brandsOverlaps of some brands
Future Outlook Pressure for competitors in the industryPressure for competitors in the industry competitors could launch new products or strengthen their supply chain relationships competitors could launch new products or strengthen their supply chain relationships
during this time to gain an edgeduring this time to gain an edge P&G-Gillette combination could be a transformative deal for the industry because of P&G-Gillette combination could be a transformative deal for the industry because of
Gillette's growth potential. Analyst forecasted that this deal could lead to further Gillette's growth potential. Analyst forecasted that this deal could lead to further consolidation in the industryconsolidation in the industry
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• January 2006 : Mittal Steel offers the shareholders of Arcelor to create the world's first 100 million tonne plus steel producer.• The deal valued at $22.7 billion offer to Arcelor’s shareholders• The deal was split between Mittal Shares (75 percent) and cash (25 percent)• But soon the deal landed into controversy
• An Attractive Target:
Arcelor had 71% pre merger revenue share from Europe while Mittal had only 34% While in North America The revenue share for Arcelor was only 9% but Mittal had 42% So they had complementary industrial and market footprint
Arcelor Management – • The management was extremely hostile to Mittal Steel’s bid• The CEO of Arcelor dismissed Mittal Steel as a “company of Indians”
European governments –•The French, Spanish and the government of Luxembourg was against the deal• The French opposition was initially very fierce • But It was criticized in the British, American and Indian media as double standards and economic nationalism in Europe
Deal finally clinched when the shareholders of Arcelor agreed to Mittal Steel’s offer – In June 2006 Mittal raised its valuation of Arcelor to $32.9 billion. The Mittal family holds 43 percent of the combined group. The combined company holds 10 percent of the global market for steel.
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Year Target Buyer Value ($ bn)
2006 Arcelor Mittal Steel 312001 NKK Corp Kawasaki Steel 14.12004 LMM Holdings Ispat Intl 13.32006 Corus TATA 12.01997 Krupp AG Thyssen 8.02005 Dofasco Arcelor 5.22005 Intl Steel Mittal Steel 4.82010 Agro Dutch Industries Penta Homes S ($4.26 mn, up from 32.5% to
57.7%)2010 Encore Cement and Addictive ACC A2010 Orissa Cement Dalmia Cement S ($37.66mn, 45.4%)2010 Brook Crompton Greaves Crompton Greaves M2010 Havells India DPSC A ($25.53mn)2010 Srei-led Consortium 20.25 MW hydro power assets S ($36.6mn, 57%)2010 Greenko Group Plc Malanpur Captive Power (subsidiary of crompton
greaves) A ($32.98mn, 57%)
2010 Avantha Power and Infrastructure Almondz Insurance Brokers S ($10.94mn, 59%)2010 Almondz Global Securities IDFC – SSKI Securities S (51%)2010 Infrastructure Development Finance
Company(IDFC) Indian Infoline Investment services S (from 80% to 100%)
2010 Indian Infoline (Orient Global Tamarind Fund) Anagram Capital S ($72mn, 22%)
2010 Edelweiss Capital Mathew Easow Research Securities A ($34.89mn)2010 Vista Vyapaar Solvex, General Foods, Param Industriess S ($0.84mn,69.2%)
Major Acquisitions
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CHECKLIST - MERGERS AND CORPORATE CULTURE
Develop a strategy for cultural integration Analyse existing cultures - identify cultural barriers, differences in communication and
other potential problems. Decide which role the new culture shall play in the merged organization. Establish ‘bridges’ between both companies. Establish a basis and mechanisms for the new culture. Be patient People take time to be acquainted to a new cultural reality.
Conclusion Mergers and Acquisitions plays important role in corporate restructuring and
development of country. In India it is also playing same role. But some times it represent market and financial power. And after liberalization it increased due to liberal government policies
Mergers & Acquisitions are a significant form of business strategy today for Corporates. The two main objectives behind any M&A Transaction, for corporates today is :
• to improve Revenues and Profitability• Faster growth in scale and quicker access to market• Competition in Globalized Market
The most important factors according to corporate India that contribute to the success of an M&A Transaction are : Timing Intrinsic Fit Personnel Advisors on legal, policy and financial strategies
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Presented By:
Mahendra M SoniWRO 0310760
Poonam P ChaturvediWRO 0279480
Mahavir M KothariWRO 0278768
Divya R AnchanWRO 0314688
Mahavir C JainWRO 0312210
Beena S ThomasWRO 0261274
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