mergers acquisitions and takeovers

Mergers , Acquisitions &

Takeovers

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What Does Merger Mean?

The combining of two or more companies,

generally by offering the stockholders of one

company securities in the acquiring company

in exchange for the surrender of their stock.

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Benefits of merger

• Diversification of product and service offerings

• Increase in plant capacity

• Larger market share

• Utilization of operational expertise and research and development (R&D)

• Reduction of financial risk

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Why do mergers fail ?

• Lack of human integration

• Mismanagement of cultural issues

• Lack of communication

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A merger is a transaction that result in the transfer of ownership and control of a corporation.

When one company purchases another company of an approximately similar size. The two companies come together to become one.

Two companies usually agree to merge when they feel that they can do something together that they can not do one their own.

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Rajasthan bank and ICICI bank

Arcelor & Mittal

Renault and Nissan

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Horizontal Merger

• Horizontal mergers are those mergers where the companies manufacturing similar kinds of commodities or running similar type of businesses merge with each other.

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Examples of Horizontal Merger

• Lipton India and Brooke Bond.

• Bank of Mathura with ICICI Bank.

• BSES Ltd with Orissa Power Supply Company.

• Associated Cement Companies Ltd with Damodar Cement.

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Vertical Merger

• A merger between two companies producing different goods or services.

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Example 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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Conglomerate Merger

A merger between firms that are involved in totally

unrelated business activities.

Two types of conglomerate mergers:

1. Pure conglomerate mergers involve firms with nothing in common.

2. Mixed conglomerate mergers involve firms that are looking

for product extensions or market extensions.

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Example of Conglomerate Merger

• Walt Disney Company and the American Broadcasting Company.

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Concentric Merger

A merger of firms which are into similar type of business.

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Example of Concentric Merger

• Nextlink is a competitive local exchange carrier offering services in 57 cities and building a nationwide IP network.

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

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Ways of merger – A merger can take place

in following ways:

By purchasing of assets

By purchase of common shares

By exchanging of shares for assets

By exchanging of shares for shares

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By purchase of assets

By purchase of common shares

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By exchanging of shares for assets

By exchanging of shares for shares

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Reasons of

merger

Future goals Mutual

benefits

Maximizing profits

Expansion of

business

Economy of scale

Increase market share

Cost maximization

Diversification of

risk

Goodwill

Product improvement

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Acquisition

•When one company takes over another and clearly

established itself as the new owner, the purchase is

called an acquisition.

•Acquisition is generally considered negative in nature

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SYNERGIES RELATED TO ACQUISITION

• Economies of scale

• Staff reductions

• Acquiring new technology

• Improved market reach and industry visibility

• Taxation

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Top Acquisitions Rank Year Purchaser Purchased

Transaction value (in mil. USD)

1 2000America Online

Inc. (AOL)Time Warner 164,747

2 2000Glaxo Wellcome

Plc.

SmithKline

Beecham Plc.75,961

3 2004Royal Dutch

Petroleum Co.

Shell Transport &

Trading Co74,559

4 2006 AT&T Inc.BellSouth

Corporation72,671

5 2001Comcast

Corporation

AT&T Broadband

& Internet Svcs72,041

6 2004Sanofi-Synthelabo

SAAventis SA 60,243

7 2002 Pfizer Inc.Pharmacia

Corporation59,515

8 2004JP Morgan Chase

& CoBank One Corp 58,761

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Pac-Man defense• Scare off by purchasing large amounts of the acquiring

company's stock.

• Resisting company may even sell off non-vital assets to procure enough assets to buy out the acquirer.

Example

Attempted acquisition of Martin Marietta by BendixCorporation in 1982 :

• Martin Marietta's management responded to takeover attempt by selling non-core businesses in order to attempt a takeover of its own - of Bendix Corporation. In the end

• Bendix Corporation was bought by Allied Corporation

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ACQUISITION

• Purchase of one company by another company.

Company 1 Company 2

Newly Formed Company

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TYPES OF ACQUISITIONS

• Depending upon

– Acquiree or merging is or isn’t listed in public markets.

– How the communication is done and received by the target.

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THE FIRST CLASSIFICATION

ACQUISITION

PUBLIC (IF ACQUIREE LISTED IN PUBLIC

MARKETS)

PRIVATE (IF ACQUIREE NOT LISTED IN PUBLIC

MARKETS

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THE SECOND CLASSIFICATION

ACQUISITION

FRIENDLY HOSTILE

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CONFIDENTIALITY BUBBLE

• Quite normal for M&A deal communication to take place in a so called ‘confidentiality bubble’.

• Here information flows are restricted due to confidentiality agreements.

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FRIENDLY ACQUISITIONS

• Companies cooperate in negotiations.

• Synonymous to merger of equals.

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HOSTILE ACQUISITIONS

• Takeover target unwilling to be purchased.

• It can also be if the acquiree company has no prior knowledge of offer.

• Hostile takeovers do turn friendly in the end. Most of the times.

• For the above thing to happen, offer is usually improved.

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REVERSE TAKEOVERS

• Acquisition usually refers to purchase of smaller firm by larger firm.

• Sometimes, smaller firm acquire management control of a larger / longer established company.

• Keep its name for combined entity.

• Known as reverse takeover.

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REVERSE MERGER

• Another type of acquisition.• Is a deal enabling a private company to become a

public company.• The deal enables private company by listing in a short

time period.• Occurs when a private company has strong prospects

and is eager to raise financing, buys a publicly listed shell company.

• Usually the public one is one with– No business– Limited assets

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SOME STATISTICS

• Achieving acquisition successfully has proven to be tough.

• Various studies show 50% of them are unsuccessful.

• Process very complex, many dimensions influence its outcome.

• Variety of structures used in securing asset control.

• Different tax and regulatory implications

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THE ACQUISITION PROCESS

• Buyer buys shares of target company• Ownership control conveys effective control over assets,

but since company is going concern, liabilities come as well.• Buyer buys assets of target company.• Cash target receives from sell-off is paid back to its

shareholders by– Dividend– Through liquidation

• If buyer buys out entire assets, then target company = empty shell.

• Buyer often cherry picks his assets

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TAKEOVER OF COMPANIES

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Takeovers

• A corporate action where an acquiringcompany makes a bid for an acquire. If thetarget company is publicly traded, theacquiring company will make an offer for theoutstanding shares.

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Takeover might be :

Hostile Takeover

A takeover attempt that is

strongly resisted by the

target firm

Friendly Takeover

Target company's

management and board of

directors agree to a merger or

acquisition by another

company.

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WHAT IS TAKEOVER???

• General term referring to transfer of control of afirm from one group of shareholders to anothergroup of shareholders. Change in the controllinginterest of a corporation, either through a friendlyacquisition or an unfriendly, hostile, bid.

• When an "acquirer" takes over the control of the"target company", it is termed as Takeover.

• When an acquirer acquires "substantial quantity ofshares or voting rights" of the Target Company, itresults into substantial acquisition of shares.BY SAJNAFATHIMA,smbs,mgu

WHY SHOULD FIRMS TAKEOVER?

• To gain opportunities of market growth more quickly than through internal means

• To seek to gain benefits from economies of scale • To seek to gain a more dominant position in a national

or global market • To acquire the skills or strengths of another firm to

complement the existing business • To acquire a speedy access to revenue streams that it

would be difficult to build through normal internal growth

• To diversify its product or service range to protect itself against downturns in its core markets

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SEBI GUIDELINES FOR TAKEOVER

• As per 2011 takeover code, its mandate for an acquire to place anoffer for at least 26% of the total shares of the target company.

• An acquirer with 15% shareholding and increasing it by another20% through an open offer would have only got a 35%shareholding in the target company .

• An acquirer with a 25% shareholding and increasing it by another26% through the open offer under the Takeover Code of 2011 canaccrue 51% shareholding.

• The regulation further talks about acquirers who already have55% or more shares but less than 75% shares of the targetcompany but intend to acquire more shares, this can only be doneif the acquirer makes a public announcement in this regard.BY SAJNAFATHIMA,smbs,mgu

WHY TAKEOVER IS DONE???

• To gain opportunities of market growth more quickly thanthrough internal means.

• To seek to gain benefits from economies of scale.

• To seek to gain a more dominant position in a national orglobal market.

• To acquire the skills or strengths of another firm tocomplement the existing business.

• To acquire a speedy access to revenue streams that itwould be difficult to build through normal internal growth.

• To diversify its product or service range to protect itselfagainst downturns in its core markets.BY SAJNAFATHIMA,smbs,mgu

KNIGHTS AND SQUIRES

• In the case of a hostile takeover, the firm making the bid can be

referred to as a 'black knight'.

• ‘White knight' is a firm that may enter the fray as a 'friendly'

bidder.

• A 'grey knight' is a third firm that is not welcomed by the

'victim', seeking to exploit the situation to their own advantage.

• ‘Yellow knight' is a firm who originally seeks to launch a hostile

takeover bid but then moderates its stance and negotiates on the

basis of a merger.

• ‘White squires‘ is a firm which may not be big enough to be able to take control of another firm but may well seek to buy into the 'victim' firm to prevent the 'black knight' from being able to achieve its takeover plans.BY SAJNAFATHIMA,smbs,mgu

PANKAJ PIYUSH TRADE & INVESTMENT

LTD

• Name of the Acquirer – Mr. Vinod Kumar Bansal.

• No. of shares – 1,04,000 equity shares.

• Price for shares – Rs. 34 per share.

• Date – April 17, 2012.

• Name of the Target Company – Pankaj Piyush Trade & Investment Ltd

• Reasons to Acquire –

1. In the last 3 years, the target co. has achieved very low turnover & profitafter tax. Even EPS is very Low.

2. The fair value of shares issued by Avesh Patel (C.A.) is Rs. 33.53 perequity share which is lower than the offer price of Rs. 34 per equity share.

3. There has been no trading of shares on BSE. Thus it’s highly illiquid onBSE. It will provide an exit opportunity to the existing shareholders.

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M/S SURABHI CHEMICALS & INVESTMENTS

LIMITED

• Name of the Acquirer – M/s. Mahadhan Vincom Pvt. Ltd, Mr. Bishnu

Dutt Goenka, Mrs. Bina Agarwal & Mr. Santosh Sharma.

• No. of shares – 2,98,079 equity shares.

• Price for shares – Rs. 232 per share.

• Date – 26 March, 2012.

• Name of the Target Company – M/s. Surabhi Chemicals & Investment

Ltd.

• Size of the offer - Rs. 6,91,54,328. (No. of shares X Price for shares)

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ESAB INDIA LIMITED

• Name of the Acquirer – Colfax Corporation.

• No. of shares – 40,02,185 equity shares.

• Price for shares – Rs. 550.10 per share.

• Date – 19 March, 2012.

• Name of the Target Company – ESAB Indi Ltd.

• Size of the offer - Rs. 2,201.60 million.

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SHARP TRADING & FINANCE LIMITED

• Name of the Acquirer – Mr. Tarachand Varma

• No. of shares – 2,45,000equity shares.

• Price for shares – Rs. 185 per share.

• Date – 02 April,2012.

• Name of the Target Company – Sharp Trading & Finance Ltd.

• Book value per share – Rs.6.16.

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Difference Between Mergers and Acquisitions

Merger Acquisition

The case when two companies (often of same size) decide to move forward as a single new company instead of operating business separately.

The case when one company takes over another and establishes itself as the new owner of the business.

The stocks of both the companies are surrendered, while new stocks are issued afresh.

The buyer company “swallows” the business of the target company, which ceases to exist.

For example, Glaxo Wellcome and SmithKline Beehcam ceased to exist and merged to become a new company, known as Glaxo SmithKline.

Dr. Reddy's Labs acquired Betapharmthrough an agreement amounting $597 million.

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What is the difference

between Merger and Takeover?

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Takeover and Acquisition Takeover Acquisition

A takeover is usually a hostile act, where the acquirer will surpass the target company’s board of directors and will purchase more than 50% of the shares to obtain a controlling stake in the firm.

An acquisition is quite similar to a takeover in that one company will purchase the other; however, usually on a preplanned and orderly manner in which both parties strongly agree if beneficial to both firms.

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Thank You…

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