Mergers & Acquisitions

MergeroA transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage.oThe 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 stockoExample: Company A+ Company B= Company C.

ACQUISITION

A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business

It also known as a takeover or a buyout It is the buying of one company by another. In acquisition two companies are combine

together to form a new company altogether. Example: Company A+ Company B=

Company A.

DIFFERENCE BETWEEN MERGER AND ACQUISITION:

i. Merging of two organization in to one.

ii. It is the mutual decision.

iii. Merger is expensive than acquisition(higher legal cost).

iv. Through merger shareholders can increase their net worth.

v. It is time consuming and the company has to maintain so much legal issues.

vi. Dilution of ownership occurs in merger.

i. Buying one organization by another.

ii. It can be friendly takeover or hostile takeover.

iii. Acquisition is less expensive than merger.

iv. Buyers cannot raise their enough capital.

v. It is faster and easier transaction.

vi. The acquirer does not experience the dilution of ownership.

MERGER ACQUISITION

MERGER:WHY & WHY NOT

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i. Increase Market Share.

ii. Economies of scaleiii. Profit for Research

and development.iv. Benefits on account

of tax shields like carried forward losses or unclaimed depreciation.

v. Reduction of competition.

i. Clash of corporate cultures

ii. Increased business complexity

iii. Employees may be resistant to change

WHY IS IMPORTANT PROBLEM WITH MERGER

ACQUISITION:WHY & WHY NOT

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i. Increased market share.

ii. Increased speed to market

iii. Lower risk comparing to develop new products.

iv. Increased diversification

v. Avoid excessive competition

i. Inadequate valuation of target.

ii. Inability to achieve synergy.

iii. Finance by taking huge debt.

WHY IS IMPORTANT PROBLEM WITH ACUIQISITION

TYPES OF M&A

M&A

Market-extension merger

Two companies that sell the same

products in different markets

Product-extension merger

Two companies selling different but related products in the same

market

Conglomeration

Two companies that have no

common business areas

TOP 11 M&A DEALS…

1. TATA STEEL-CORUS: $12.2 BILLION

January 30, 2007

Largest Indian take-

over

After the deal TATA’S

became the 5th largest

STEEL co.

100 % stake in CORUS

paying Rs 428/- per

shareImage: B Mutharaman, Tata Steel MD; Ratan Tata, Tata chairman; J Leng, Corus chair; and P Varin, Corus CEO.

2. VODAFONE-HUTCHISON ESSAR: $11.1 BILLION

TELECOM sector11th February

20072nd largest

takeover deal67 % stake

holding in hutch

Image: The then CEO of Vodafone Arun Sarin visits Hutchison Telecommunications head office in Mumbai.

3. HINDALCO-NOVELIS: $6 BILLION June 2008 Aluminium and

copper sector Hindalco Acquired

Novelis Hindalco entered

the Fortune-500 listing of world's largest companies by sales revenues

Image: Kumar Mangalam Birla (center), chairman of Aditya Birla Group.

4. RANBAXY-DAIICHI SANKYO: $4.5 B

Pharmaceuticals sector June 2008 Acquisition deal largest-ever deal in the

Indian pharma industry Daiichi Sankyo acquired

the majority stake of more than 50 % in Ranbaxy for Rs 15,000 crore

15th biggest drugmakerImage: Malvinder Singh (left), ex-CEO of Ranbaxy, and Takashi Shoda, president and CEO of Daiichi Sankyo.

5. ONGC-IMPERIAL ENERGY:$2.8BILLION

January 2009 Acquisition deal Imperial energy is a

biggest chinese co. ONGC paid 880 per

share to the shareholders of imperial energy

ONGC wanted to tap the siberian market

Image: Imperial Oil CEO Bruce March.

6. NTT DOCOMO-TATA TELE: $2.7 B

November 2008 Telecom sector Acquisition deal Japanese telecom

giant NTT DoCoMo acquired 26 per cent equity stake in Tata Teleservices for about Rs 13,070 cr.

Image: A man walks past a signboard of Japan's biggest mobile phone operator NTT Docomo Inc. in Tokyo.

7. HDFC BANK-CENTURION BANK OF PUNJAB: $2.4 BILLION

February, 2008 Banking sector Acquisition deal CBoP shareholders

got one share of HDFC Bank for every 29 shares held by them.

9,510 croreImage: Rana Talwar (rear) Centurion Bank of Punjab chairman, Deepak Parekh, HDFC Bank chairman.

8. TATA MOTORS-JAGUAR LAND ROVER: $2.3 BILLION

March 2008 (just a year after acquiring Corus)

Automobile sector Acquisition deal Gave tuff

competition to M&M after signing the deal with ford

Image: A Union flag flies behind a Jaguar car emblem outside a dealership in Manchester, England.

9. STERLITE-ASARCO: $1.8 BILLION May 2008 Acquisition deal Sector copper

Image: Vedanta Group chairman Anil Agarwal.

10. SUZLON-REPOWER: $1.7 BILLIONMay 2007 Acquisition dealEnergy sectorSuzlon is now the

largest wind turbine maker in Asia

5th largest in the world.

Image: Tulsi Tanti, chairman & M.D of Suzlon Energy Ltd.

11. RIL-RPL MERGER: $1.68 BILLION

March 2009 Merger deal amalgamation of

its subsidiary Reliance Petroleum with the parent company Reliance industries ltd.

Rs 8,500 crore RIL-RPL merger

swap ratio was at 16:1

Image: Reliance Industries' chairman Mukesh Ambani.

WHY INDIA?

Dynamic government policiesCorporate investments in industryEconomic stability“Ready to experiment” attitude of

Indian industrialists

AMONGST BRIC NATIONS, INDIA SECOND MOST TARGETED COUNTRY FOR MERGERS & ACQUISITIONS(2010):

MERGER & ACQUISITION(2010-11) :

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PROCESS OF MERGER & ACQUISITION IN INDIA:

The process of merger and acquisition has the following steps:

i. Approval of Board of Directorsii. Information to the stock exchangeiii. Application in the High Courtiv. Shareholders and Creditors meetingsv. Sanction by the High Courtvi. Filing of the court ordervii. Transfer of assets or liabilitiesviii. Payment by cash and securities

Maximum Waiting period:210 days from the filing of notice(or the order of the commission - whichever earlier).

  IMPACT OF MERGERS AND ACQUISITIONS

ImpactEmployees

Competition

Management

Public

Shareholders

WHY MERGERS AND ACQUISITIONS FAIL?

Cultural Difference

Flawed Intention

No guiding principles

No ground rules

No detailed investigating

Poor stake holder outreach

HOW TO PREVENT THE FAILURE

Continuous communication –

employees, stakeholders, customers,

suppliers and government leaders.

Transparency in managers operations

Capacity to meet new culture higher

management professionals must be ready

to greet a new or modified culture.

Talent management by the management

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MERGER BETWEEN AIR INDIA AND INDIAN AIRLINES

The government of India on 1 march 2007 approved the merger of Air India and Indian airlines.

Consequent to the above a new company called National Aviation Company of India limited was incorporated under the companies act 1956 on 30 march 2007 with its registered office at New Delhi.

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AIM OF THE MERGER Create the largest airline in India and comparable to other airlines in

Asia. Provide an Integrated international/ domestic footprint which will

significantly enhance customer proposition and allow easy entry into one of the three global airline alliances, mostly Star Alliance with global consortium of 21 airlines.

Enable optimal utilization of existing resources through improvement in load factors and yields on commonly serviced routes as well as deploy ‘freed up’ aircraft capacity on alternate routes.

The merger had created a mega company with combined revenue of Rs 150 billion ($3.7billion) and an estimated fleet size of 150. It had a diverse mix of aircraft for short and long haul resulting in better fleet utilization.

Provide an opportunity to fully leverage strong assets, capabilities and infrastructure.

Provide an opportunity to leverage skilled and experienced manpower available with both the Transferor Companies to the optimum potential.

Provide a larger and growth oriented company for the people and the same shall be in larger public interest.

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AIM OF THE MERGER Potential to launch high growth & profitability businesses

(Ground Handling Services, Maintenance Repair and Overhaul etc.)

Provide maximum flexibility to achieve financial and capital restructuring through revaluation of assets.

Economies of scale enabled routes rationalization and elimination of route duplication. This resulted in a saving of Rs1.86 billion, ($0.04 billion) and the new airlines will be offering more competitive fares, flying seven different types of aircraft and thus being more versatile and utilizing assets like real estate, human resources and aircraft better. However the merger had also brought close to $10 billion (Rs 440 billion) of debt.

The new entity was in a better position to bargain while buying fuel, spares and other materials. There were also major operational benefits.

Traffic rights - The protectionism enjoyed by the national carriers with regard to the traffic right entitlements is likely to continue even after the merger. This will ensure that the merged Airlines will have enough scope for continued expansion, necessitated due to their combined fleet strength.

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POST MERGER SCENAREO NACIL's employee-to-aircraft ratio: at 222:1 (the global

average is 150:1), resulting in a surplus employee strength of almost 10,000.

Fleet Expansion: NACIL's fleet expansion seems out of sync with the times. Most airlines are actually rounding their fleet and cancelling orders for new planes. While NACIL plans to induct around 85 more aircrafts which means their debt going forward.

Mutual Distrust and strong unions: Strong opposition from unions against management’s cost-cutting decisions through their salaries have led to strikes by the employees.

Increased Competition: Air India’s domestic market share dropped from 19.8% in August 2007, when the merger took place, to 13.9% in January 2008 before rising to 17.2% in February 2009.

Lower load factor: The company’s load factor is decreasing year by year, in 2005- 06 load factor is 66.2% which is more than present load factor. Air India load factor is likely to be low because of the much higher frequency operated on each route. Lower load factor could decrease the company’s margins.

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REASONS FOR FAILURE

The merger coincided with a flurry of increased domestic and international competition.

Weak management and organization structure.

More attention to non-core issues such as long term fleet acquisitions and establishing subsidiaries for ground handling and maintenance, than to addressing the state of the flying business.

Bloated workforce Unproductive work practices Political impediments to shedding staff

SUCCESS & FAILURE RATE(2009-10):

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EXPERIENCES IN M&ALearn from mistakes of othersDefine your objectives clearlyComplete strategy to achieve goal.SWOT analysis for the merged business - a

mustConservative attitude necessary at

evaluation deskstrong arguments to support project

Pick holes in strategy to get the bestWill merged units be able to work at

efficient / ideal level?Acquire expertise to interpret changes