Merger & Acquisition

Merger And Acquisition Mergers and acquisitions (M&A) is a

general term that refers to the consolidation  of companies or assets. While there are several types of transactions classified under the notion of M&A, a merger means a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.

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MergerIn a merger, the boards of

directors for two companies approve the combination and seek shareholders’ approval. After the merger, the acquired company ceases to exist and becomes part of the acquiring company. A merger in 2007 was a deal between Digital Computers and Compaq, where Compaq absorbed Digital Computers.

AcquisitionIn an acquisition, the acquiring company

obtains the majority stake in the acquired firms, which does not change its name or legal structure. An example of this transaction is Manulife Financial Corporation's 2004 acquisition of John Hancock Financial Services, where both companies preserved their names and forms of organization.

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History of merger and acquisition in India

• The concept of M and A in India was not popular until the year 1988.• The key factor contributing to fewer companies involved in the merger is the regulatory and

prohibitory provisions of MRTP Act ,1969. (Monopolies and Restrictive Trade Practices Act 1969)

• The year 1988 witnessed one of the oldest business acquisitions or company mergers in India.

• As for now the scenario has completely changed with increasing competition and globalization of business . It is believed that at present India has now emerged as one of the top countries entering into M and A.

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Different Types of Merger

• Horizontal Merger• Vertical Merger• Conglomerate Merger

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Benefits of M&A for the Organization are-Increase in

Capital Base

Increase in Customer

Base

Synergy Reduction in Competition

Reduction in Cost

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1. Increase in Capital Base Whenever M or A takes

place, the capital base of the newly formed firm always increases i.e the equity share capital increases. This own capital will help newly formed organization to expand its existing business. 9

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2. Increase in customer base

In case of a M&A their existing customer will remain the same but their customer base will increase. At the same time due to broader capital base,cost of production will decrease or this newly formed firm can sell the product at lesser pofit margin.

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3.SynergyThe real meaning of synergy is 1+1=3. It means when 2 firms merged together or there is an acquisition of target company.The newly formed firm has better capital base,high volume of customer base and at the same time high amount which can be useful for diversification with skilled labours available for the same.It is called MDP(Management Development Programme)

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4.Reduction in Competition

When two companies merge together, or a giant company acquires small organization there will be reduction in competition for given industry, whereby unfair trade practices are reduced.At the same time the proposal of M&A is to be submitted to the ROC(Registar of Companies) as well as to the Competition Tribunal(Competition Act 2003) where their approval is must.

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5.Reduction in costIn case of M&A, the newly formed firm can

afford to purchase raw material at wholesale price, can opt for contractual labours and high tech machines which will contribute automatically for the reduction in the cost.

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Examples of Merger and Acquisitions

The $26.2 billion acquisition of LinkedIn by Microsoft

• LinkedIn has 433 million users, more than a quarter of whom are in the US.

• LinkedIn knows about people better than Microsoft does

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Foodpanda acquires food ordering portal Just Eat India

• To strengthen its presence in India.• Foodpanda will assume full ownership of

Just Eat India.• According to Rohit Chadda, the two

companies will continue to operate independently and the Just Eat brand will continue to exist separately.

• He does not rule out an integration of the two platforms going forward. “I can’t rule it out and we will take a decision in due course of time. As of today, we will keep the brands and teams separate,” he added.

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Flipkart- Myntra

• In order to accelerate growth- by exploiting mutual synergies (like the technology at Flipkart and market leadership of Myntra)

• Mukesh Bansal said, “Fashion industry is so diversified that it cannot be constrained in one portal. There’s enough scope for multiple players to sustain and grow. Hence, both Flipkart fashion business and Myntra will keep on operating as separate entities (and different websites/portals).”

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Snapdeal acquires Freecharge for $400million (2400 cr)

• Snapdeal co-founder and CEO Kunal Bahl said here on Wednesday that the joint entity would create the country's largest mobile commerce platform with over 40 million customers. About half of that comes from FreeCharge.

• FreeCharge gives Snapdeal access to a much younger audience.

• Bahl said Snapdeal and FreeCharge would be able to cross-sell services on each other's platforms.

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