IntroductionIn every organisation’s life and in every economy’s life comes a time when growth development and expansion seems to reach a plateau. Across what is today called the developed countries, we are witnessing such a Cycle, where iconic brands, companies and institutions are being acquired and merged. And across the world into Asia, transition economies like India, China are pumping in billions of dollars to acquire a stake or control of some of the crown jewels of American/European Business & Industry.

Until upto a couple of years back, the news that Indian companies having acquired American-European entities was very rare. However, this scenario has taken a sudden U turn. Nowadays, news of Indian Companies acquiring a foreign business is more common than other way round.

Buoyant Indian Economy, extra cash with Indian corporates, Government policies and newly found dynamism in Indian businessmen have all contributed to this new acquisition trend. Indian companies are now aggressively looking at North American and European markets to spread their wings and become the global players.

The Indian IT and ITES companies already have a strong presence in foreign markets, however, other sectors are also now growing rapidly. The increasing engagement of the Indian companies in the world markets, and particularly in the US, is not only an indication of the maturity reached by Indian Industry but also the extent of their participation in the overall globalization process.

The sectors attracting investments by Corporate India include metals, pharmaceuticals, industrial goods, automotive components, beverages, cosmetics and energy in manufacturing; and mobile communications, software and financial services in services, with pharmaceuticals, IT and energy being the prominent ones among these.

Year 2007 can be called as the year of mergers and aquisitions for India. Besides the investments flowing into India, Indian corporations currently loaded with excess cash are on an acquisitions spree.

ICICI bank’s Global Investment Outlook report, says the total equity deals struck by Indian companies have crossed 50 billion USD in 2007. In the same timeframe last year the equity deals stood at about 15 billion dollars in 2006.

Here are the top 10 acquisitions made by Indian companies worldwide:

AcquirerTarget Company

Country targeted

Deal value ($ ml)

Industry

Tata Steel

Corus Group plc

UK 12,000 Steel

Hindalco Novelis Canada 5,982 Steel

VideoconDaewoo Electronics Corp.

Korea 729 Electronics

Dr. Reddy’s Labs

Betapharm Germany 597Pharmaceutical

Suzlon Energy

Hansen Group

Belgium 565 Energy

HPCLKenya Petroleum Refinery Ltd.

Kenya 500 Oil and Gas

Ranbaxy Labs

Terapia SA Romania 324Pharmaceutical

Tata Steel

Natsteel Singapore 293 Steel

Videocon Thomson SA France 290 Electronics

VSNL Teleglobe Canada 239 Telecom

If you calculate top 10 deals itself account for nearly US $ 21,500 million. This is more than double the amount involved in US companies’ acquisition of Indian counterparts. Graphical representation of Indian outbound deals since 2000.

The largest overseas deal was the Videocon Group's acquisition of Thomson's colour picture tube business in China, Poland, Mexico, and Italy for a total of $290 million. The deal was paid for by an issue of shares in two Videocon companies — Videocon International (consumer durables) and Videocon Industries (oil and gas exploration).

The other large overseas deal was by pharmaceuticals Matrix Laboratories, which acquired 100 per cent of the Belgian pharma company, Docpharma for $263 million). UBS acted as the advisor to Thomson and Matrix respectively. IT companies were active acquirers with 13 deals worth $89 million.

From where has this confidence come in Indian Businesses ?

The outsourcing phenomenon, especially in IT Industry has helped Indian companies in lot of direct and indirect ways. First and foremost, it has ensured that Indian managers and executives are now far more exposed to Western business culture and practices. Over a period of time, the Indian offshore companies have created an image of reliable low cost, yet high quality products and services. Outsourcing/

Offshoring companies have increased their profits exponentially. There is a lot more cash available with Indian companies than ever before. Their capacity to borrow large amount of cash has also gone high.

What does all this result into - Acquisitions.

Indian companies are now eyeing Global markets instead of domestic to move up the growth ladder. If you are a large company, you need to have a presence in US and Europe. Managers and Executives of Indian companies are taking much higher Risks than ever before.

Also, the regulatory changes have made the whole process of acqusition much easier than ever before. Some restrictions like the amount of Foreign exchange entering India have been relaxed. Net result? Indian companies are flush with foreign exchange !

Overseas dealsWhile the INDATA survey is restricted to corporate finance activity involving Indian targets, the volume of overseas acquisitions by Indian companies can no longer be ignored. Indian companies continued to acquire abroad continued in H1 2005. There were 43 overseas acquisitions by Indian acquirers in H1 2005 compared to 60 in the whole of 2004 (Table 2).

Reasons for mergersWe identify four key drivers for Indian companies considering overseas acquisitions:

• The need to capture new markets: Some 81 percent of participants in the Accenture study said the key motivation for going global was to find new markets to sustain top-line growth.

• The need to expand capabilities and assets: Many Indian companies are seeking to expand their distinctive capabilities by acquiring specific skills, knowledge and technology abroad, which are either unavailable or of inadequate quality in India.

• The need to expand product or service portfolios: Accenture's analysis reveals that most Indian companies are endeavoring to increase market share by building the size of their product and service portfolios.

• The pressure of domestic competition: Domestic competition is pushing some Indian companies into less competitive overseas markets, thereby spreading their risk across geographies.

Similarly, the acquired companies can expect to receive their share of benefits.

1. Assurance of continued operation.2. Minimal workforce retrenchment3. Access to funds, resources and markets of the parent company.

The most important benefit that the developing and transition economies derive from outward investments is increased competitiveness. This strengthens the arms of local companies and of the MNCs to survive in a competitive milieu. Therefore, the more the domestic industries invest abroad, the more the benefits to the home economy.

Reasons for its failureRevenue deserves more attention in mergers; indeed, a failure to focus on this important

factor may explain why so many mergers don’t pay off. Too many companies lose their

revenue momentum as they concentrate on cost synergies or fail to focus on post merger

growth in a systematic manner. Yet in the end, halted growth hurts the market

performance of a company far more than does a failure to nail costs.

It is said 2 out of 3 mergers fail for a number of reasons:1. Lack of synergies, and cultural fit between two companies.2. Uncertainty over the process of merger/acquisition, leading to

loss of confidence among key personnel and workforce.3. Asset stripping of the acquired company.4. Shuttering up the acquired company because it was a competitor

whose products duplicate what the parent company is producing.

Culture Shock.

Mergers are like marriages. The right partner must be selected after an honest and meaningful courtship. There must be communication, flexibility and mutual respect.

Organizational culture is a blend of an organization's values, traditions, beliefs and priorities. Also, it helps determine and legitimize what sort of behavior is rewarded in an organization.

The very minute that merger rumblings are heard in an organization, the work climate begins to change. Employees become emotionally confused and anxious, similar to how one might feel when a mate makes an abrupt announcement demanding a divorce. The initial feeling is one of betrayal.

Employees begin to divert time and energy to wonder how their career, power and prestige will be impacted. Gossip within the organization competes with production and then the competition can gain a foothold.

Combining merged cultures requires a focus on one new vision and one new mission, developed by a cross-section team of representatives from both organizations. Problems typically occur when the larger or stronger of the two organizations try to significantly influence the integration.

4.5. Poor Organization Fit: Organizational fit is described as “the match betweenadministrative practices, cultural practices and personnel characteristics of the target and acquirer” (Jemison and Sitkin 28]). It influences the ease with which twoorganizations can be integrated during implementation. Machhi [36] states that

organisation structure with similar management problem, cultural system andstructure will facilitate the effectiveness of communication pattern and improve the company’s capabilities to transfer knowledge and skills. Need for proper organization fit is stressed by Hubbard [27]. Mismatch of organization fit leads tofailure of mergers.4.6. Poor Strategic Fit: A Merger will yield the desired result only if there isstrategic fit between the merging companies. But once this is assured, the gains will outweigh the losses (Maitra [38]). Mergers with strategic fit can improveprofitability through reduction in overheads, effective utilization of facilities, the ability to raise funds at a lower cost, and deployment of surplus cash for expanding business with higher returns. But many a time lack of strategic fit between two merging companies, especially lack of synergies results in merger failure. Strategic fit can also include the business philosophies of the two entities (return oninvestment versus market share), the time frame for achieving these goals (short-term versus long term) and the way in which assets are utilized (high capital investment or an asset stripping mentality). Sudarsanam, Holl and Salami [55] findthat marriage between companies with a complementary fit in terms of liquidityslack and surplus investment opportunities is value creating for both groups of shareholders. The absence of strategic fit between the companies may destroy the value for shareholders of both the companies. P&G –Gillette merger in consumer goods industry is a unique case of acquisition by an innovative company to expand its product line by acquiring another innovativecompany, was described by analysts as a perfect merger (Chaturvedi and Sinha [14]). 4.8. Paying Too Much (Over paying): In a competitive bidding situation, a

company may tend to pay more. Often highest bidder is one who overestimates value out of ignorance. Though he emerges as the winner, he happens to be in a way theunfortunate winner. This is called winners curse hypothesis (Roll [49]; Chandra [13]). Abyankar, Ho, and Zhao [1] find that the benchmark portfolio of acquirerdominates the merger portfolio of acquirers that paid highest premiums to the targetfirms. He views that overpayment may be a possible reason for the long-run underformance of some acquiring firms. Moeller, Schlingemann and Stulz [40] findoverall, the abnormal return associated with acquisition announcements for small firms exceeds the abnormal returns associated with acquisition announcements for large firms by 2.24 percent. They point out that the large firms offer larger acquisition premiums than small firms and enter into acquisitions with negative dollar synergies. Variaya and Ferris [57]’s empirical findings also subscribe to theoverpayment hypothesis. When the acquirer fails to achieve the synergies required to compensate the price, the M&A fail. More one pays for a company, the harder he will have to work tomake it worthwhile for his shareholders (Banerjee [8]).When the price paid is toomuch, how well the deal may be executed, the deal may not create value (Koller [30]). 4.14. Failure to Examine the Financial Position: Examination of the financialposition of the target company is quite significant before the takeovers are concluded. Areas that require thorough examination are stocks, salability of finishedproducts, value and quality of receivables, details and location of fixed assets, unsecured loans, claims under litigation, and loans from the promoters. A LondonBusiness School study in 1987 highlighted that an important influence on the ultimate success of the acquisition is a thorough audit of the target company before the takeover (Arnold [5]). When ITC took over the paper board making unit of BILT near Coimbatore, it arranged for comprehensive audit of financial affairs of the unit.

Many a times the acquirer is mislead by window-dressed accounts of the target(Hariharan [24]).4.22. Other Causes: Apart from the causes mentioned above there may be other reasons for failure of mergers which include: cash acquisitions resulting in theacquirer assuming too much debt (Business India [10]); mergers between two weakcompanies; ego clashes between the top managements of the companies to theM&As and subsequently lacking coordination especially in the case of mergers between equals; inadequate attention to people issues while the due diligence process is carried out; failure to retain the key people and best talent (Zainulbhai [60]);growth in strategic alliances as a cheaper and less risky route to a strategic goal than takeovers; loss of identity of merging companies after the merger; expecting results too quickly after the takeover; and spending too much time on new activity neglecting the core activity.

What will it take to succeed?

Funds are an obvious requirement for would-be buyers. Raising them may not be

a problem for multinationals able to tap resources at home, but for local companies,

finance is likely to be the single biggest obstacle to an acquisition. Financial institution in

some Asian markets are banned from leading for takeovers, and debt markets are small

and illiquid, deterring investors who fear that they might not be able to sell their holdings

at a later date. The credit squeezes and the depressed state of many Asian equity markets

have only made an already difficult situation worse. Funds apart, a successful Mergers &

Acquisition growth strategy must be supported by three capabilities: deep local networks,

the abilities to manage uncertainty, and the skill to distinguish worthwhile targets.

Companies that rush in without them are likely to stumble.

TATA GROUP THE EPITOME OF ACQUISITIONISTS

One Indian group epitomizes the current trend: The Tatas have been the most aggressive and successful Indian group in acquiring prized overseas assets.

The Tatas’ acquisitions have spanned the range of products, brands, industries and geographies

From Automobiles, to Tea, Coffee, IT, Chemicals, Steel, Telecom, Hotels, the Tatas

have pumped in huge sums of money. And their hunger for acquisitions shows no signs of abating.

Aggressive, Yet Respected

No other business house in India can boast the kind of unbroken century-old lineage that is the proud legacy of Tatas. And it was this legacy that swung the acquisition of Jaguar & Land Rover in Tatas favour.

IMPACT ON INDIA

This Tata buy-out of these two brands is much more than mere acquisition of a company. It is a strong positive message that Tata is sending across the globe about Indian companies and India itself !

For all the billions that will be going out of the country, much more is expected to comeInto India through these acquisitions.

But why M&As? Six reasons, according to the former Ranbaxy CEO, Mr D. S. Brar, drive M&As:

• Accessing new marketsFrom hotels across UK, France, Australia, to Steel and Automobiles, theTatas get to access new markets, which are otherwise difficult to prise open.

• Maintaining growth momentum, The Tatas clearly have serious ambitions of becoming strong global players.And this cannot come through organic growth or internal expansion.

• Acquiring visibility and international brandsCorus, Jaguar and Land Rover have brought the Tatas global attention,The development of Nano is another instance of the Tatas desire tomeet the world on their terms.

• Buying cutting-edge technology rather than importing it,Corus will give Tatas a whole mix of premium quality steel products.Jaguar & Land Rover are expected to bring a whole raft of new technologies andprocesses, and engineering expertise.

• Developing new product mixes.

• Improving operating margins and efficiencies, and taking on the global competition.

SUCCESS ASSURED?

The Tatas have shown that they are cut from a different cloth. None of the factors abovecan be said to apply to the Tatas; their intentions are clear: Live, Let Live, Grow & Flourish With Tatas.

CASE STUDY 1

GlaxoSmithKline Pharmaceuticals Limited, India ( Merger Success ).

Mumbai -- Glaxo India Limited and SmithKline Beecham Pharmaceuticals

(India) Limited have legally merged to form GlaxoSmithKline Pharmaceuticals Limited

in India (GSK). It may be recalled here that the global merger of the two companies came

into effect in December 2000.

Commenting on the prospects of GSK in India, Vice Chairman and Managing

Director, GlaxoSmithKline Pharmaceuticals Limited, India, Mr. V Thyagarajan said,

“The two companies that have merged to become GlaxoSmithKline in India have a great

heritage – a fact that gets reflected in their products with strong brand equity.” He

added, “The two companies have a long history of commitment to India and enjoy a very

good reputation with doctors, patients, regulatory authorities and trade bodies. At GSK

it would be our endeavor to leverage these strengths to further consolidate our market

leadership.”

GlaxoSmithKline, India

The merger in India brings together two strong companies to create a formidable

presence in the domestic market with a market share of about 7 per cent.

With this merger, GlaxoSmithKline has increased its reach significantly in India.

With a field force of over 2,000 employees and more than 5,000 stockiest, the company’s

products are available across the country. The enhanced basket of products of

GlaxoSmithKline, India will help serve patients better by strengthening the hands of

doctors by offering superior treatment and healthcare solutions.

GlaxoSmithKline, Worldwide

GlaxoSmithKline plc is the world’s leading research-based pharmaceutical and

healthcare company. With an R&D budget of over ₤2.3 billion (Rs.16, 130 crores),

GlaxoSmithKline has a powerful research and development capability, encompassing the

application of genetics, genomics, combinatorial chemistry and other leading edge

technologies.

A truly global organization with a wide geographic spread, GlaxoSmithKline has

its corporate headquarters in the West London, UK. The company has over 100,000

employees and supplies its products to 140 markets around the world. It has one of the

largest sales and marketing operations in the global pharmaceutical industry.

CASE STUDY 2

Deutsche – Dresdner Bank (Merger Failure)

The merger that was announced on march 7, 2000 between Deutsche Bank and

Dresdner Bank, Germany’s largest and the third largest bank respectively was considered

as Germany’s response to increasingly tough competition markets.

The merger was to create the most powerful banking group in the world with the

balance sheet total of nearly 2.5 trillion marks and a stock market value around 150

billion marks. This would put the merged bank for ahead of the second largest banking

group, U.S. based citigroup, with a balance sheet total amounting to 1.2 trillion marks

and also in front of the planned Japanese book mergers of Sumitomo and Sukura Bank

with 1.7 trillion marks as the balance sheet total.

The new banking group intended to spin off its retail banking which was not

making much profit in both the banks and costly, extensive network of bank branches

associated with it.

The merged bank was to retain the name Deutsche Bank but adopted the Dresdner

Bank’s green corporate color in its logo. The future core business lines of the new

merged Bank included investment Banking, asset management, where the new banking

group was hoped to outside the traditionally dominant Swiss Bank, Security and loan

banking and finally financially corporate clients ranging from major industrial

corporation to the mid-scale companies.

With this kind of merger, the new bank would have reached the no.1 position of

the US and create new dimensions of aggressiveness in the international mergers.

But barely 2 months after announcing their agreement to form the largest bank in the

world, negotiations for a merger between Deutsche and Dresdner Bank failed on April 5,

2000.

The main issue of the failure was Dresdner Bank’s investment arm, Kleinwort

Benson, which the executive committee of the bank did not want to relinquish under any

circumstances.

In the preliminary negotiations it had been agreed that Kleinwort Benson would

be integrated into the merged bank. But from the outset these considerations encountered

resistance from the asset management division, which was Deutsche Bank’s investment

arm.

Deutsche Bank’s asset management had only integrated with London’s

investment group Morgan Grenfell and the American Banker’s trust. This division alone

contributed over 60% of Deutsche Bank’s profit. The top people at the asset management

were not ready to undertake a new process of integration with Kleinwort Benson. So

there was only one option left with the Dresdner Bank i.e. to sell Kleinwort Benson

completely. However Walter, the chairman of the Dresdner Bank was not prepared for

this. This led to the withdrawal of the Dresdner Bank from the merger negotiations.

In economic and political circles, the planned merger was celebrated as

Germany’s advance into the premier league of the international financial markets. But

the failure of the merger led to the disaster of Germany as the financial center.

CASE STUDY 3

Standard Chartered Grindlay’s ( Acquisition Success )

It has been a hectic year at London-based Standard Chartered Bank, going by its

acquisition spree across the Asia-Pacific region. At the helm of affairs, globally, is Rana

Talwar, group CEO. The quintessential general, he knew what he was up against when

he propounded his 'emerging stronger' strategy - of growth through consolidation of

emerging markets - for the turn of the Millennium: loads of scepticism. The central issue:

Stan Chart’s August 2000 acquisition of ANZ Grindlays Bank, for $1.3 billion.

Everyone knows that acquisition is the easy part, merging operations is not. And

recent history has shown that banking mergers and acquisitions (MERGERS &

ACQUISITION’s), in particular, are not as simple to execute as unifying balance sheets.

Can Stan Chart’s proposed merger with ANZ Grindlays be any different?

The '1' refers to the new entity, which will be India's No 1 foreign bank once the

integration is completed. This should take around 18 months; till then, ANZ Grindlays

will exist separately as Standard Chartered Grindlays (SCG). The '2' and '3' are Citibank

and Hong Kong and Shanghai Banking Corp (HSBC), India's second and third largest

foreign banks, respectively.

That makes the new entity the world's biggest 'emerging markets' bank. By way of

strengths, it will have treasury operations that will probably go unchallenged as the

country's most sophisticated. Best of all, it will be a dynamic bank. Thanks to pre-merger

initiatives taken by both banks, it could per- haps boast of the country's fastest growing

retail-banking business.

StanChart is rated highly on other parameters too. It is currently targeting global

cost-savings of $108 million in 2001, having reported a profit-before-tax of $650 million

in the first half of 2000, up 31 per cent from the same period last year. Net revenue

increased 6 per cent to $2 billion for the same period. Consumer banking, a typically low-

profit business which accounted for less than 40 per cent of its global operating profits till

four years ago, now brings in 55 per cent of profits. So the company's global report card

looks fairly good.

StanChart knows it mustn't let its energy dissipate. It has been growing at a claimed

annual rate of 25 per cent in the last two years, well over the industry average of below

10 per cent. But maintaining this pace won't prove easy, with Citibank and HSBC just

waiting to snip at it. The ANZ Grindlays acquisition had happened just before that,

though the process started in early 1999, at Stan Chart’s headquarters in London. At first,

it was just talk of a strategic tie-up with ANZ Grindlays, which had the same colonial

British antecedents.

But this plan was abandoned when it became evident that all decision-making

would vacillate between Melbourne and London, where the two are headquartered. By

December, ANZ had expressed a willingness to sell out, and StanChart initiated the due-

diligence proceedings. It wasn't until March that a few senior Indian bank executives

were let into the secret. Now, it's time to get going. A new vehicle, navigators in place,

engines revving and map charted, the road ahead is challenging and full of promise. To

steer clear of trouble is the only caution advised by industry analysts, as the two banks

integrate their businesses. Sceptics don't see how StanChart can really be greater than the

sum of its parts.

The aggression, though, is not as raw as it sounds. Behind it all is a strategy that

everyone at StanChart seems to be in synchrony with. And behind that strategy is Talwar,

very much the originator of the oft-repeated phrase uttered by every executive - "getting

the right footprint". The other key words that tend to find their way into every discussion

are 'focus' and 'growth'.

StanChart India's net non-performing loans, as a percentage of net total

advances, is reported at just 2 per cent for 1999-2000. In terms of capital adequacy

too, the banks are doing fine. StanChart has a capital base of 9.5 per cent of its risk-

weighted assets, while SCG has 10.9 per cent. So, with or without a safety net

provided by the global group, the Indian operations are on firm ground.

CASE STUDY 4

TATA – TETLEY ( Controversial Issue over Success And Failure ).

The Tata group was infusing a fresh 30 million pounds into Tata tea that had been

used to buy an 85.7% stake in the UK-based Tetley last year. Already high on a heady

brew of a fresh buy and caffeine, most missed what Krishna Kumar's statement meant.

Tata Tea’s much hyped acquisition of Tetley, one of the world’s biggest tea

brands, isn’t proceeding according to the plan. 15 months ago, the Kolkata based Rs 913

crore Tata Tea’s buyout of the privately held The Tetley Group for Rs 1843 crore had

stunned corporate watchers and investment bankers alike. It was a coup! An Indian

company had used a leveraged buyout to snag one of the Britain’s biggest ever brands. It

was by far, the biggest ever leveraged buyout by an Indian company.

Tata Tea didn’t pay cash upfront. Instead, it invested 70 million pounds as equity

capital to set up Tata Tea. It borrowed 235 million to buy the Tetley stake. The plan was

that Tetley’s cash flows would be insulated from the debt burden.

When Tata Tea took the big gamble to buy Tetley, its intent was very clear. The

company had established a firm foothold in the domestic market and had a controlling

position in growing tea. Going global looked like the obvious thing to do. With Tetley,

the second largest brand after Lipton in its bag, Tata Tea looked ready to set the Thames

on fire.

Right from the start, Tetley was never a easy buy. In 1996, Allied Domecq, the

liquor and retail conglomerate, had put Tetley on the block. Even then Tata Tea, nestle,

Unilever and Sara lee had put in bids, all under 200 million pounds. Allied wanted to

cash on the table. Tata Tea didn’t have enough of its own. The others bids also did not go

through. Eventually, Tetley group together with a consortium of financial investors like

Prudential and Schroders, bought the entire equity stake for 190 million pounds in all

cash deal. Two years later, Tetley went for an IPO, hoping to raise 350-400 million

pounds. But the IPO never took place. Soon afterwards, the investors began looking for

exit options. Tetley was once again on the block.

It was until Feb 2000 that the due diligence was completed. By this time, the

Tata's were ready with their offer. They would pay 271 million pounds to buy the entire

Tetley equity and the funds would go towards first paying off Tetley’s 106 million debt.

The balance would go the owners.

The offer price did not include rights to Tetley coffee business, which was sold to

the US-based Rowland Coffee Roasters and Mother Parker’s Tea and Coffee in Feb 2000

for 55 million pounds.

For Tetley new owners, too, the problems were only just beginning. The deal

hinged on Tetley’s ability, over and above covering its own debts, to service the loans

Tata Tea had taken for the acquisition. That’s where reality bites.

Consider the facts. When Tata Tea acquired Tetley through Tata Tea, it sunk in 70

million pounds as equity and borrowed 235 million pounds fro ma consortium to finance

the deal. Implicit in the LBO was that Tetley’s future cash flows would fund the SPV’s

interest and principal repayment requirements. At an average interest rate of 11.5%,

Tetley needed to generate 22 million pounds in interest alone on a loan o 190 million

pounds. Add to this the interest on the high cost vendor loan notes of 30 million pounds

—it worked out to be 4.5 million and the charges on the working capital portion,

amounting to 2 million pounds per annum. All this works out to about 28 million pounds

in interest alone per year.

At the same time, it also has to pay back the principal of 110 million pounds over

a nice period through half yearly installments. This works out to 12 million pounds per

year. If you were to assume that depreciation and restructuring charges were pegged at

last year’s levels, the bill tots up to 48 million pounds a year. In FY 1999, the Tetley’s

cash flows were 29 million pounds.

Some of the problems could have been obviated if Tetley’s cash flows had

increased by 40 % in FY 2001 over the previous year. That way, the company would

have covered both its own commitments as well as of the Tata's. But the situation

worsened. Major UK retailers clamped down on grocery prices last year. That

substantially reduced Tetley’s pricing flexibility.

Besides, the UK tea markets have been under pressure for some time now.

According to the UK government’s national food survey, there has been a substantial fall

in the consumption of mainstream teas- tea-bag black teas drunk with milk and sugar.

Also the tea drinking population in UK has come down from 77.1% to 68.3% in 1999.

On the other hand, natural juices and coffee have consistently increased their market

share.

So, when it was confronted by Tetley’s sliding performance, what options did

Tata Tea have? On its own, it could not do much. The last year has been one of the worst

years for the Indian tea industry and Tata Tea has also been affected. The drop in tea

prices and a proliferation of smaller brands in the organized segment have taken toll on

Tata Tea’s performance. In FY 2001, Tata Tea’s net profit fell by 19.59% from Rs

124.63 crore to Rs 100.21 crore. Income from operations declined by 8.72%.

But letting Tetley sink under the weight of the interest burden would have been an

unthinkable option, given the prestige attached to the deal.

Thus from the above case we infer that Tata had to shell out a lot of money to

cover all the debts of Tetley which was found not worthy enough by the general public.

But Tata still calls it to be a success whereas in reality it is a failure.

ConclusionThe giant positive strides that Brand India has taken in last few years are nothing less than astonishing. Indian Businessmen and Entrepreneurs are set out to revamp Indian image that will be boasting world’s biggest corporation’s in near future. All the sectors, be it Steel, manufacturing, Information technology, Auto and FMCG are all buzzing with Mega Indian acquisitions.

One size doesn't fit all. Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, mergers create synergies and economies of scale, expanding operations and cutting costs. Investors can take comfort in the idea that a merger will deliver enhanced market power.

By contrast, de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. Additional capital can fund growth organically or through

acquisition. Meanwhile, investors benefit from the improved information flow from de-merged companies.

M&A comes in all shapes and sizes, and investors need to consider the complex issues involved in M&A. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals