Presentation on

‘Merger and acquisition’

Presented by Vandana 843

business

combination

Mergers

Amalgamation

Acquisitions

Takeovers

Merger

A merger is when two companies, more or less on equal footing, decide to join forces. It is considered to be an equal transaction, with both parties accepting risk and sharing in the potential rewards

in India merger is called Amalgamation

Merger

MergerThroughAbsorption

MERGERTHROUGHCONSOLIDATION

Merger takes place in two way:-

Merger

MergerThroughAbsorption

An Absorption is Combination of two or more companies into an existing company

All companies except one lose their identity

Western UnionBank Merged

WithIDBI

New Bank OfIndia Merged

With PNB

Bank Of New York MergedWith Mellon

Financial

Examples

Merger

MergerThroughConsolidation

A consolidation is a combination of two or more Companies into a new Company

All companies are dissolved to form a new Company

Merger

MergerThroughConsolidation

HindustanComputers Ltd

HindustanInstruments

Ltd

Indian SoftwareCo .Ltd

IndianReprographic

Ltd HCL LTD

HorizontalMerger

VerticalMerger

ConglomerateMerger

FORMS OF MERGER

Cross border international M&A

1. Horizontal• A merger in which two firms in the same industry

combine.• Often in an attempt to achieve economies of scale

and/or scope.For example, combining of two book publishers or two

luggage manufacturing companies to gain dominant market share

2. Vertical• A merger in which one firm acquires a supplier or

another firm that is closer to its existing customers.

• Often in an attempt to control supply or distribution channels.

For example, joining of a TV manufacturing(assembling) company and a TV marketing company or joining of a spinning company and a weaving company.

3. Conglomerate• A merger in which two firms in unrelated

businesses combine.• Purpose is often to ‘diversify’ the company by

combining uncorrelated assets and income streams

For example, merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investment and advertising agencies. L&T and Voltas Ltd are examples of such mergers.

4. Cross-border (International) M&As• A merger or acquisition involving a Indian and a

foreign firm a either the acquiring or target company.

Acquisition

When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded

Acquisition & Takeover

When Acquisition is unfriendly or hostileIt may be called Takeover

M&AObjectives

Faster GrowthImproving ProfitabilityManagerial EffectivenessGaining Market PowerLeadershipCost Reduction

Are there any alternatives to Mergers or acquisitions?

MergerAlternatives

Joint VentureStrategic AllianceEliminating Inefficient OperationsProductivity ImprovementHiring Capable Managers

MOTIVES & BENEFITS OF

MERGERS

Limit Competition Market Power Diversification Growth Economy of Scale Access to Foreign Market Resources Displace existing ManagementAggressiveness Diversifying Risk Profitability

MOTIVES & BENEFITS OF

MERGERS

Accelerated Growth

Expanding Existing MarketsEntering New MarketsExpand InternallyExpand ExternallyDeveloping Operating FacilitiesPrice Paid for Merger

MOTIVES & BENEFITS OF

MERGERS

Enhanced Profitability

Economies of ScaleOperating EconomiesSynergy

MOTIVES & BENEFITS OF

MERGERS

Reduction in Tax Liability

Carry forward Losses

Tax on Share

MOTIVES & BENEFITS OF

MERGERS

Financial Benefits

Eliminating Financial Constraints

Deploying Surplus Cash

Enhancing Debt Capacity

Lowering Financial Costs

MOTIVES & BENEFITS OF

MERGERS

Increased Market Power

Market Share

Bargaining Power

Technological Advancement

Pricing

Limiting Competition

Steps inAnalysisOfMergers&Acquisitions

Planning

Search & Screening

FinancialEvaluation

Mode ofMerger

Negotiation

PostMerger

Steps inAnalysisOfMergers&Acquisitions

Planning

Industry Data

Market GrowthCompetitionEase Of EntryCapital & LabourDegree of Regulation

Target Firm

Quality Of MgtMarket Share SizeCapital StructureProfitabilityProduction &MarketingCapabilities etc

Objective of AcquisitionsStrengths & WeaknessesBusiness Units-dropped or Added

Steps inAnalysisOfMergers&Acquisitions

Search & Screening

Where to look for candidatesIs it too large or smallEngaged in related or unrelated ActivityExport oriented or LocalAmenable or not amenable to merger

Steps inAnalysisOfMergers&Acquisitions

FinancialEvaluation

Determining

•Earnings•Cash flows•Areas Of Risk•Maximum Price Payable•How to Finance Merger

Current Market Value

PremiumValue

Steps inAnalysisOfMergers&Acquisitions

Mode ofMerger

•Regulations

•Time frame

•Resources

•Degree of control

•Assume hiddenliabilities

Steps inAnalysisOfMergers&Acquisitions

Negotiation

Your intentions should be to pay one dollar more than the value to the next highest bidder and an Amount that is less than the value to you

Steps inAnalysisOfMergers&Acquisitions

PostMerger

Check Hostility

Anticipate Problems

Solve Problems

Treat people With Dignity

“Art of taking overCompany

Without overtakingIt”

Economic Advantage (EA) if VPQ > (VP + VQ)

Where VPQ =Combined PV of merged firms

VP= Worth of Firm P

VQ=Worth of firm Q

Value Created by Merger

Economic Advantage

EA = VPQ - (VP + VQ)

Value Created by Merger

Few Mergers, Acquisitions, Take over