acquisition 1(final)

8/4/2019 Acquisition 1(FINAL)

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SUBMITTED BY

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PPPaaallllllaaavvviii MMM... BBBiiirrraaarrriii... 333999...

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Acknowledgement

We take this opportunity to express our sincere thanks and deep

gratitude to all those people, who helped us in completing this project

successfully, this work of creation wouldnt have been possible

without their kind help, cooperation and extended support.

First and most sincere thanks to our respected guide Prof.Naina Bhatia for providing the necessary facilities to carry out this

work. We also take the opportunity to express our profound sense of

gratitude for his guidance which leads us to the successful completion

of this major project.

Our sincere thanks to all the coordinators, whose valuable

suggestions and supports and motivation provided us the required

strength for the accomplishment of this major project.

Date 21st August 2010.


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IIINNNDDDEEEXXX

SR NO: PARTICULARS PAGENO:

1. INTRODUCTION 5-7

2. TYPES OF ACQUISITION 8-9

3. REASONS FOR ACQUISITION 10-13

4. PROBLEMS WITH ACQUISITION 14-15

5. GRAPHICAL REPRESENTATION 16-20

6. RECENT TRANSACTIONS 21-23

7. CONCLUSION 24-25

8. REFERENCE 26-27


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An acquisition is similar to merger, butinvolves the purchase of one organization byanother.

In this the large firm buys the small firm. Global Trust Bank was

acquired by Oriental Bank of Commerce. Reliance Petroleum is

acquired by Reliance Industries Ltd.

Acquisition means strategy where one firm buys a controlling or100% interest in another firm with the intent of making the acquired

firm a subsidiary within its portfolio.

Takeover means an acquisition where the target firm did not ask forthe bid of the acquiring firm.

A corporate action in which a company buys most, if not all, of the

target company's ownership stakes in order to assume control of the

target firm. Acquisitions are often made as part of a company's

growth strategy whereby it is more beneficial to take over an existing

firm's operations and slot compared to expanding on its own.

Acquisitions are often paid in cash, the acquiring company's stock ora combination of both.Acquisitions can be either friendly or hostile. Friendly acquisitions

occur when the target firm expresses its agreement to be


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acquired, whereas hostile acquisitions don't have the same agreement

from the target firm and the acquiring firm needs to actively purchase

large stakes of the target company in order to have a majority stake.

In either case, the acquiring company often offers a premium on the

market price of the target company's shares in order to entice

shareholders to sell. For example, News Corp.'s bid to acquire Dow

Jones was equal to a 65% premium over the stock's market price.

One of the most important things you will learn when trading

the currency market is that the world is interconnected. The stock,

bond, commodity and currency markets all have a hand in each

other's business. There is no rule written in stone about which market

has a leading or lagging effect on another. Rather, any one of the

markets can lead or lag the other markets. In the article Bond

Spreads: A Leading Indicator for Forex, we looked at howmovements in the bond market can be used to trade in the forex (FX)

market. Here we will focus on how the stock market can impact the

currency market and how traders can use this information to identify

trading opportunities.
http://www.investopedia.com/articles/forex/05/041305.asphttp://www.investopedia.com/articles/forex/05/041305.asphttp://www.investopedia.com/terms/f/forex.asphttp://www.investopedia.com/terms/f/forex.asphttp://www.investopedia.com/terms/f/forex.asphttp://www.investopedia.com/terms/f/forex.asphttp://www.investopedia.com/articles/forex/05/041305.asphttp://www.investopedia.com/articles/forex/05/041305.asp


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HHHOOORRRIIIZZZOOONNNTTTAAALLLAAACCCQQQUUUIIISSSIIITTTIIIOOONNNThe acquisition of a company competing in the same industry in

which the acquiring firm competes.

VVVEEERRRTTTIIICCCAAALLLAAACCCQQQUUUIIISSSIIITTTIIIOOONNNA firm acquiring a supplier of distributor of one or more of its goods

or services.

RRREEELLLAAATTTEEEDDDAAACCCQQQUUUIIISSSIIITTTIIIOOONNNThe acquisition of a firm in a highly related industry...

1.

2.

3.


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INCREASED MARKET POWER:Acquisition intended to reduce the competitive balance of the

industry

Example:-Alcans purchase of Pechiney

OVERCOME BARRIERS TO ENTRY:Acquisitions overcome costly barriers to entry which may make

start-ups economically unattractive

Example:-Best Buys purchase of Future Shop

LOWER COST &RISK OF NEW PRODUCT DEVELOPMENT:Buying established businesses reduces risk of start-up ventures

Example:-Pharmaceutical firms access new products through

acquisitions of other drug manufacturers

INCREASED SPEED TO MARKET:Closely related to Barriers to Entry, allows market entry in a more

timely fashion

Example:-British Telcoms Acquisition of Irelands East Telecom


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INCREASING DIVERSIFICATION AND COMPETITIVE SCOPE:Firms may use acquisitions to restrict dependence on a single or a

few products or markets

Example:-Torontos Onex CorporationAVOIDING EXCESSIVE COMPETITION:Firms may acquire businesses in which competitive pressures are

less intense than in their core business

Example:-The Jim Pattison Group of CompaniesLEARN &DEVELOP NEW CAPABILITIES:Acquiring firms with new capabilities helps the acquiring firm to

learn new knowledge and remain agile.

Example:-Angiotech: a Vancouver based research lab.RESHAPE THE FIRMS COMPETITIVE SCOPE:Reducing a firms dependence on specific markets alters the firms

competitive scope.

Example:-The Jim Pattison Group of Companies


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INTEGRATION DIFFICULTIES:Differing cultures may make integration of firms difficult.

Example:-EG TD Banks acquisition of Canada TrustINADEQUATE EVALUATION OF TARGET:

Winners Curse causes acquirer to overpay for firm.

Example:-Dynegys near purchase of Enron

LARGE OR EXTRAORDINARY DEBT:Costly debt can create onerous burden on cash outflows.

Example:- TransCanadas acquisition of Nova CorpINABILITY TO ACHIEVE SYNERGY:

Justifying acquisitions can increase estimate of expected benefits.

Example:-Vivendis purchase of Seagram Co. Ltd.OVERLY DIVERSIFIED:

Acquirer doesnt have expertise required to manage unrelated

businesses.

Example:-prior to selling businesses and refocusing


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MANAGERS OVERLY FOCUSED ON ACQUISITIONS:Managers lose track of core business by spending so much effort on

acquisitions.

Example:-FuturelinkTOO LARGE:

Large bureaucracy reduced innovation & flexibility.


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FIGURE 1


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Figure 1 is an illustration of the price action in the GBP/CHFfollowing an announcement by Holcim Ltd Reg (a Swiss company)

that it planned to acquire Aggregate Industries (a U.K. company) for

2.2 billion ($4.1 billion) cash, which means that Holcim would need

to sell Swiss francs and buy British pounds. On the day of the

announcement, GBP/CHF rallied 150 pips. Two weeks later,

GBP/CHF was at least 450 pips higher.

Figure 1 - Holcim Ltd Reg announces acquisition of AggregateIndustries PLC for 2.6 billion ($4.1 billion) .

FIGURE 2
http://www.investopedia.com/terms/p/pip.asphttp://www.investopedia.com/terms/p/pip.asp


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Figure 2 is an illustration of the price action in EUR/GBP following

an announcement by Pernod-Ricard (a European company) that it

would be acquiring Allied Domecq PC (a U.K. company) for 9.6

billion ($17.8 billion) through a combination of 80% cash and 20%

stock. This was a huge deal, and even though EUR/GBP rallied 40

pips on the day of the announcement, it ended up more than 125 pips

lower over the next week and 194 pips, or 2.8%, lower at the end of 50

days. For EUR/GBP, this was a big move.

Figure 2 - Pernod-Ricard announces acquisition of Allied Domecq

PLC for 7.5 billion ($17.8 billion)

FIGURE 3


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The next example, seen in Figure 3, is the announcement by Procter

& Gamble (a U.S. company) of a 77% acquisition of Wella AG (a

European company) for US$4.5 billion. On the day of the

announcement, the EUR/USD jumped over 100 pips, and in the week

following the announcement, the currency pair was 200 pips higher.

Figure 3 - Procter & Gamble announces 77% acquisition of

Wella AG for US$4.5 billion .

FIGURE 4


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The last example of a large cross-border transaction having an impact

on the currency market is Great West Life's (a U.S. company)

acquisition of Canadian Life (a Canadian company) for US$4.7

billion. As we can see in Figure 4, on the day of the announcement,

USD/CAD dropped approximately 50 pips, but in the week following

the announcement, the currency pair was more than 250 pips lower.

Three weeks after the announcement, it was close to 600 pips lower.

Figure 4 - great west life co announces acquisition of canada life for

us$4.7 billion .


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The preceding examples all serve to illustrate the interconnectedness

of the markets. Major cross-border M&A activity can have a

considerable impact on the currencies involved in the transaction.

Perceptive FX traders can use this information to identify trading

opportunities that others might miss.

We got an enormous knowledge about acquisition.

It has also helped us in adopting an analytical approach to problem

solving.


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Yahoo Finance and CNN Money (NEWS PAPERS)www.investopedia.com
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