45436565 merger n acquisitions

7/28/2019 45436565 Merger n Acquisitions

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MERGERS

In merger two firms, agree to move ahead and exist as a singlenew company. Merger can be

merger of equals : both companies are of equal sizes.

merger of unequal's : large company merge with smaller one

Voluntary process : consent of both companies.

Name of new merged entity is usually a combination of bothparent companies

Mergers are mostly financed by a stock swap. Both companiessurrender their stocks and stock of the new company is issuedas a replacement.


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Types of mergerHorizontal merger : When two merging companies are of the same

industry and produce similar products.

Example : Footwear Company Merging with Footwear company

Vertical merger : When two companies are producing the same

goods, but are at different stages, it is a vertical merger.

Example : Footwear Company Merging with Leather Tannery

Concentric merger : when two companies are related to each other

in terms of customer functions or customer groups.

Example : Footwear Company Merging with another specialty

Footwear Company

Conglomerate merger : When two companies operate in different

industries.

Example : Footwear Company Merging with Pharmaceutical

Firms


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EXAMPLE:-

Example X + Y= Z

X + Y = X


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EXAMPLES OF HORIZONTAL

MERGER:-

Lipton India and Brooke Bond.

Bank of Mathura with ICICI Bank.

BSES Ltd with Orissa Power SupplyCompany.

Associated Cement Companies Ltd Damodar

Cement.


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EXAMPLES OF VERTICAL

MERGER:-

Time Warner Incorporated, a major cable

operation, and the Turner Corporation, which

produces CNN, TBS, and other programming.

Pixar-Disney( Merger ).


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EXAMPLE OF CONGLOMORATE

MERGER:-

Walt Disney Company and the American

Broadcasting Company.


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Major Mergers in the telecom:-

AUQUIRER

VODAFONE

MCL WorldCom

BELL Atlantic

AT AND T

SBC

TARGET

Manes and man

Spirit

GTE

MeCaw celluar

Pacific telesis


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EXAMPLE OF CONCENTRIC

MERGER:-

Nextlink is a competitive local exchange carrieroffering services in 57 cities and building anationwide IP network.

Concentric, a national ISP, offers dedicated and dial-up Internet access, high-speed DSL and VPN servicesacross the U.S. and overseas.

Citigroup (principally a bank) buying SalomonSmith Barney (stock brokerage investmentoperation.).

j A i i i i


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Major Mergers and Acquisitions in

India

Hindalco acquired Canada based Novelis. The deal involvedtransaction of $5,982 million.

Tata Steel acquired Corus Group plc. The acquisition dealamounted to $12,000 million.

Dr. Reddy's Labs acquired Betapharm through a deal worth of$597 million.Ranbaxy Labs acquired Terapia SA. The dealamounted to $324 million.

Suzlon Energy acquired Hansen Group through a deal of $565million.

The acquisition of Daewoo Electronics Corp. by Videoconinvolved transaction of $729 million.

HPCL acquired Kenya Petroleum Refinery Ltd.. The dealamounted to $500 million.

VSNL acquired Teleglobe through a deal of $239 million.


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Are all mergers successful?

Hindalco-Novelis (failure) Hindalco (metal maker of Birla group) acquired Novelis for a

staggering $ 5.76 billion.Novelis , on a net worth of $ 322 million, had a debt of $ 2.33billion

Hindalco took $ 3.13 bn loan to aquire Novelis. Right after

the acquisition hindalco came on a rough road.With the debt market tightening , the metal maker is left withno choice but to dilute its equity through a 1:3 rights issue.

Further, high interest costs, which rose by over 490 % loan

increased from Rs 3.13 billion in FY 07 to Rs 18.49 billion inFY 08.

Finally Hindalcos earning per share in FY08 dropped toRs.15.76, from Rs. 26.73 in FY07, a fall of 41% !


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Acquisition is a deal when one company takes over anothercompany and buyer becomes sole proprietor.

At times takeover occurs when the target company does notwant to be purchased. However with better offering of prices

shareholder are attracted by acquirer.

In legal terms, the target company ceases to survive. The buyerswallows the company and the buyer's stock continues to betraded.

Unlike mergers which are friendly, acquisitions can be friendlyand unfriendly.

AQUISITION


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Some notable Acquisitions

Google bought YouTube ($1.65B in 2006)

Google bought a rival.

YouTube had four times as many hits as Google Video

YouTube streamed nine times as many clips as Google Video.Googles choice to buy rather than build marked a big strategic change.

(Economist, 10/14/06, p82).


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CONTINUED

AOL acquired Time Warner for $164B (2003)

eBay acquired Skype for $2.6B (2005)

Newscorp acquired MySpace.com for $580M(2005)

T S l d C


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Tata Steel and CorusOn January 31, 2007, Tata Steel Limited, one of the leading steel producersin India, acquired the Anglo Dutch steel producer Corus Group for US$12.11 billion.

Corus was 2.5 times bigger company than TATA.

It took nine rounds for Tata to acquire Corus. In the first bid Tata hadclosed the deal at US $ 7.6 bn and later it ended up by paying US $ 12.11bn, making it an expensive turnover.

This acquisition was the biggest overseas acquisition by an Indiancompany. Tata Steel emerged as the fifth largest steel producer in theworld.

After acquisition Tata benefited itself from Corus:

Distribution network of Europe.

expertise in steel making for automobiles.

In return Corus benefit itself from Tata Steel's expertise in low costmanufacturing of steel.


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Major Laws Involved:-

SEBI (substantial Acquisition of shares &Takeovers) Regulations1997.

The Securities and Exchange Board of India Act,1992 .

Security Contract Regulation Act ,1956 .

The Depositories Act,1956. SEBI Disclosure and Investor Protection Guidelines 2000.

Securities and Exchange Board of India (Prohibition of InsiderTrading Regulation ),1992.

Securities and Exchange Board of India (Merchant Bankers)Rules/Regulation 1992.

SEBI (Delisting of Securities )Guidelines,2003.

Foreign Exchange Management Act,1999.

Companies Act,1956.


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the legal procedures for mergers or

acquisitions :-

Permission for merger

Information to the stock exchange

Approval of board of directors

Application in the High Court Shareholders' and creators' meetings

Sanction by the High Court

Filing of the Court order

Transfer of assets and liabilities

Payment by cash or securities


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Why M & A OCCUR ?

To reduce competition.

To increase growth rate & capture a greater market share

To improve value of organizations stock.

To acquire a needed resource quickly.

To take advantage of synergy.

To acquire resources to stabilize operations.

To achieve economies of scale.


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Disadvantages of M&A

Reduced competition may even facilitate monopolistic or

oligopolistic tendencies among firms.

Increase of prices.

Job losses for employees.

Difficulties in cultural integration of the merging firms.

Interest of minority shareholders is not protected.


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JOINT VENTURE An entity formed between two or more parties to undertake a specified

activity together. Parties agree to create a new entity by both contributing

equity, and they then share revenue, expenses, and control of the enterprise.

The venture can be for one specific project only or a continuing business

relationship Eg: Sony Ericsson.

Unlike mergers and acquisitions, in joint venture the parent companies doesnot cease to exist.

Types of Joint Ventures

(a) Between 2 Indian org. in one industry

(b) Between 2 Indian org. across different industries.(c) Between an Indian org. & a foreign org. in India.

(d) Between an Indian org. & a foreign org. in that foreign country.

(e) Between an Indian org. & a foreign org. in third country.

J i t V t


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Joint Venture

Maruti Udyog Ltd. & Suzuki Motor Corp.

Maruti Suzuki is one of India's leading automobile manufacturersand the market leader in the car segment, both in terms of volume of

vehicles sold and revenue earned.

Until recently, 18.28% of the company was owned by the Indiangovernment, and 54.2% by Suzuki of Japan.

The Indian government held an initial public offering of 25% of thecompany in June 2003.

As of May 10, 2007, Govt. of India sold its complete share to Indianfinancial institutions. With this, Govt. of India no longer has stake in

Maruti Udyog.

During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 wereexported.

In all, over six million Maruti cars are on Indian roads since the first car

was rolled out on December 14, 1983.


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Strategic alliancesA strategic alliance is a form of affiliation that involves a mutual sharing of

resources or partnering to improve efficiency.

In strategic alliances, the focus is on sharing of resources rather thanseeking change in control. Equity investment in each others company is not

any focus.

Types of strategic alliances :

Pre competitive alliance : vertical value chain alliances b/w manufacturers

and suppliers.

Non competitive alliances : Intra industry partnerships b/w noncompetitive

firms

like two firms in same industry but different geographical locations.

Competitive alliance : partnerships which brings two rival firms in a

cooperative arrangement where intense interaction is necessary.

Pre competitive alliance : partnerships which brings two firms of differentindustry


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Reasons for strategic alliances Market entry -A strategic alliance can ease entry into a foreign market .

Eg: strategic alliance between British Airways and American Airlines.

Share risk & expenses -firms involved can share risks. Eg: In early 1990sfilm manufacturers Kodak and Fuji joined with camera manufacturers

Nikon, Canon, and Minolta to create cameras and film for an "Advanced

Photo System.

Synergistic Effects of Shared Knowledge and Expertise- help a firmgain knowledge and expertise

Skills+ brand + market knowledge+ assets= synergizing effect

Eg: For example, in the early 1990s, Motorola initiated an alliance amongvarious partners, including Raytheon, Lockheed Martin, China Great Wall,and Nippon Iridium, to develop and build a global satellite-basedcommunications network.

Gaining Competitive Advantage-


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Pitfalls

Lack of trust & commitment.

Perceived misunderstanding among partners.

Conflicting goals & interests.

Inadequate preparation for entering into partnership.

Hasty implementation of plans.

Jet airways-Kingfisher Alliance


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Jet airways-Kingfisher Alliance

market leaders with share of

Jet30%

kingfisher29%

Economic slowdown and high ATF prices resulted in decline of air travel

both in international and domestic segments of the air travel market.

Airline sector is set to incur a loss of $ 2bn (Rs.10,000 Crore) this year

Thus Jet and Kingfisher have decided to form an alliance in fields includingfuel management, ground handling, sharing of technical resources and crew

for training and cross-utilization on similar aircraft types.

This will help both carriers to significantly rationalize and reduce costs and

provide improved standards of service and a wider choice of air traveloptions to consumers with immediate effect.

They could not merge as of rule that two airline companies with

combined market share greater than 40 % can not merge in India. So they

formed an alliance.

MERGER AQUISITION


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MERGER AQUISITION

JOINT VENTURE STRATEGIC ALLIANCE

Usually two companies of equal size merge

Together.

Voluntary and friendly process

Stock swap :both companies surrender their

stocks and stocks of new companies are given

as replacement.

Parent companies cease to exist.

Large company takes over the smaller

Company.

Often forceful or unfriendly where larger

company attracts the shareholders of targetcompany by offering them better price for

their shares.

Parent companies cease to exist.

Two or more companies agree to form an

Entity for a specific task or period.

Always friendly.

One company receives financial assistance,

Managerial inputs and technological inputs

from superior company.

Parent companies keep functioning in theirRespective areas.

To improve efficiency of companies.

Includes no equity investments.

Parent companies keep functioning

as normal by supporting each other.


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45436565 merger n acquisitions

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