Mergers and Acquisitions

Subject Code: MF 0011 BKID B1732

Revised Edition: Spring 2010
 Sikkim Manipal University
Directorate of Distance Education

Department of Management Studies

Board of Studies
Chairman Mr. Pankaj Khanna
HOD, Dept. of Management Studies Director
SMU DDE HR, Fidelity Mutual Fund
Additional Registrar Mr. Shankar Jagannathan
SMU DDE Former Group Treasurer
Wipro Technologies Limited
Dr. T. V. Narasimha Rao Mr. Abraham Mathew
Adjunct Faculty and Advisor Chief Financial Officer
SMU DDE Infosys BPO
Prof. K. V. Varambally Ms. Sadhna Dash
Director Senior HR Consultant
Manipal Institute of Management, Manipal Bangalore

Originally Prepared by:

Mr. R. Vadapalli
Associate Professor
MDI, Gurgaon

Revised Edition: Spring 2010

Printed: January 2013
This book is a distance education module comprising a collection of learning
materials for our students. All rights reserved. No part of this work may be
reproduced in any form by any means without permission in writing from Sikkim
Manipal University, Gangtok, Sikkim. Printed and Published on behalf of Sikkim
Manipal University, Gangtok, Sikkim by Manipal Global Education Services
Manipal 576 104. Printed at Manipal Technologies Limited, Manipal.
Content Revised and Updated by:
Prof. V. S. Kumar holds PDGBA from IIM Ahmedabad, AICWA from the Institute of
Cost and Works Accountants of India, and ACS from the Institute of Company
Secretaries of India. He has worked as CEO, Chief Compliance Officer, Company
Secretary, Chief Financial Officer, and General Manager in various organizations for
over 35 years. He is a specialist in the field of Financial & Accounting Controls,
Reporting & MIS, Disclosure, and Decision Support Systems. He conducts
programmes in leading corporations like Infosys and Ford, and in premier institution.

Peer Reviewed by:

Dr. Savitha G. Lakkol, MBA Ph.D., has over 14 years of teaching experience at
various management institutes and currently working as Assistant Professor at JSS
Centre for Management Studies, SJCE Mysore. She is currently undertaking
teaching assignments in the area of Corporate Finance and Restructuring. Her area
of research is Mergers Acquisitions and Corporate Restructuring. Her Thesis (in the
context of Indian Banking Sector) and few publications are in the area of Corporate
Restructuring. She has presented papers at National and International
Conferences. Engaged in designing and delivering the Project Management and
Entrepreneurship workshops.

In House Content Review Team

Dr. Sudhakar G. P. Dr. Sireesha Nanduri
HOD Assistant Professor
Dept. of Management Studies Dept. of Management Studies
SMU DDE SMU DDE
 Contents

SECTION A: THE DIMENSIONS OF M & A

Unit 1
Introduction to Mergers and Acquisitions 1

Unit 2
Strategic Evaluation of M & A Opportunities 19

Unit 3
Strategizing and Structuring M & A Activity 39
Unit 4
Synergy and Value Creation in Mergers 59

Unit 5
Corporate Restructuring 75

Unit 6
Demergers 93
Unit 7
LBOs, MBOs, MLPs and ESOPs 105
Unit 8
Joint Ventures 123

Unit 9
International Mergers & Acquisitions 139
 SECTION B: THE PROCESSES IN M & A
Unit 10
Takeover Defences 155
Unit 11
Legal and Regulatory Framework of M & A 170
Unit 12
Accounting for Amalgamation 185
Unit 13
Valuation 204
Unit 14
Post-merger Integration 224

SECTION C: ILLUSTRATIONS OF NOTED M & AS

Unit 15
Prominent Cases of Mergers and Acquisitions 239
 MF 0011
Mergers and Acquisitions

COURSE DESCRIPTION

Mergers and Acquisitions (MF 0011)

The hallmark of any successful business is profitable growth. It is not
sufficient if the business is making a good net profit; it also needs to post an
increase in volumes year on year. There are two ways in which this can be
done: organic growth, and inorganic growth.
Organic growth is increase in volumes by the business on its own, acquiring
fresh customers, making and selling new products, and entering new
markets with its products. But businesses have realised that this is steady
but not spectacular: for growth in quantum leaps they look for inorganic
growth or growth by acquiring businesses. This is the subject of Mergers &
Acquisitions, which you will be studying in this SLM.
This fascinating subject is a major component of financial management, and
exemplifies some key concepts of financial management like business
valuation, due diligence, financing, and buyback.
The course comprises 15 units divided into three sections:
Section A, which comprises Units 1-9, deals with the many facets and
dimensions of M & A activity, It starts with looking at strategies, goes on
to discuss various forms of mergers including demergers, sickness &
restructuring and defence against hostile takeover bids.
Section B, comprising Units 10-14, covers the wide variety of processes
involved in a typical merger and the attendant managerial actions. Here
we look at takeover defences, valuation, accounting and statutory
compliances, and round off with the post-merger integration activity,
which is the key to realising the benefits targeted by a merger.
Section C (unit 15) describes a few renowned merger cases.
M & A activity exemplifies many major financial concepts like valuation, due
diligence, financing and buyback strategies. Applied knowledge of these
topics can strengthen a Finance Managers skill-set considerably and get
him to succeed especially in times of financial crisis.

Course Objectives:
The objective of this course is to introduce the students the concept of
Mergers and Acquisitions, Amalgamation and the valuation approaches.
After studying this subject, you should be able to:
describe the key motives of M & A activity
discuss strategic aspects of M & A decisions and identification of
acquisition opportunities
explain the merger process right from planning the merger till
implementation
explain the concept of synergy in M & A as the primary source of value
addition through M & A
describe corporate restructuring and different methods of corporate
restructuring
describe the structure of demerger, and explains tax implication of
demergers
explain the meaning of LBO, MBO, MLP and ESOP
explain the role of joint ventures in business strategy
discuss international M & A
describe takeover regulations and amendments, and explains guidelines
for takeovers
explain valuation approaches
explain types of amalgamation, describes the methods of accounting for
amalgamation,
describe the accounting and legal aspects of M & A
explain integration planning, lists the factors in post-merger integration
model, discusses post-merger integration model
discuss some examples of M&A in the Indian and international contexts
The Self Learning Material (SLM) for this subject is divided into 15 units. A
brief description of all the 15 units is given below:

SECTION A: THE DIMENSIONS OF M&A

Unit 1: Introduction to Merger and Acquisition
Defines the meaning of mergers and acquisitions (M & A), describes the
motives behind the M & A, states the advantages and disadvantages of
M & A, classifies the types of mergers, and explains the steps to be taken
for a successful merger.
Unit 2: Strategic Evaluation of M & A Opportunities
Defines selection approaches and criteria, explains the modalities of fixing
the acquisition price, lists the key steps in the strategic planning of a merger,
discusses feasibility analysis in respect of cash and stock deals, describes
fair value: institutional criteria, and explains the special features of
acquisition of sick companies.
Unit 3: Strategising and Structuring M & A Activity
Explains the merger process right from planning the merger till
implementation, discusses the five-stage model, elaborates methods of
financial mergers, and describes merger as a capital budgeting decision.
Unit 4: Synergy and Value Creation in Mergers
Explains synergy and its different types, describes the role of industry life
cycle, discusses the value creation in synergy, and recognises the
theoretical factors that would affect M & A activity.
Unit 5: Corporate Restructuring
Explains the meaning of corporate restructuring, states the need for
corporate restructuring, and describes different methods of corporate
restructuring.
Unit 6: Demergers
Defines the meaning of demerger, explains the characteristics of demerger,
describes the structure of demerger, and explains tax implication of
demergers.
Unit 7: LBOs, MBOs, MLPs and ESOPs
Explains the meaning of LBO, MBO, MLP and ESOP, describes governance
and mode of purchase in LBO, identifies the key motives behind an MBO,
states the structure of MBO, classifies the types of MLP and ESOP, and
explains regulations that usually govern ESOPs.
Unit 8: Joint Ventures
Explains the meaning of joint ventures, defines the characteristics of a joint
venture, states the rationale for joint ventures, explains the role of joint
ventures in business strategy, defines joint venture and complex learning,
explains tax aspects of joint ventures, describes international joint ventures,
discusses common reasons for failure of joint ventures, and explains joint
venture vis--vis anti-trust policy.
Unit 9: International M & A
Defines international M & A activity, explains the opportunities and threats,
states role of M & A in international trade growth, recognises the external
advantages in differential products, defines the impact of government
policies and political and economic stability on international M&A decisions,
and makes recommendation for effective cross-border M & A.

SECTION B: THE PROCESSES IN M&A

Unit 10: Takeover Defences
Identifies different types of takeovers, defines techniques of bidding for a
takeover, states the defences against takeover bids, describes takeover
regulations and amendments, and explains guidelines for takeovers.
Unit 11: Valuation
Explains valuation approaches, defines the basis of valuation, states
different methods of valuation, discusses valuation of synergy, corporate
control and LBO.
Unit 12: Accounting for Amalgamation
Defines amalgamation, explains types of amalgamation, describes the
methods of accounting for amalgamation, states the meaning of
consideration, and discusses the treatment of goodwill, reserves and other
profits.
Unit 13: Legal and Regulatory Framework of M & A
Defines the provisions of the Companies Act, 1956 relating to M & A,
explains buyback of shares, discusses the provisions of SEBI act, 1992 and
1997, discusses provisions relevant to M & A activity in the Income Tax Act,
and Foreign Exchange Management Act.
Unit 14: Post-Merger Integration
Explains integration planning, lists the factors in post-merger integration
model, discusses post-merger integration model, describes strategic
interdependence and autonomy, states political and cultural aspects in
integration, defines cultural profiling and assessment of cultural
compatibility, explains HRM issues, and discusses the problems in
integration and five rules of integration process

SECTION C: ILLUSTRATIONS OF NOTED M&AS

Unit 15: Prominent Cases of Mergers and Acquisitions
Discusses some examples of M & A in the Indian and international contexts.