Mergers &

Acquisitions

Merger
oA

transaction where two firms agree to

integrate their operations on a relatively coequal 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 stock
oExample: Company A+ Company B= Company
C.

ACQUISITION
A

transaction where one firms 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:
ACQUISITION

MERGER
i.
ii.
iii.

iv.

v.

vi.

Merging of two organization

in to one.
It is the mutual decision.
Merger is expensive than
acquisition(higher legal
cost).
Through merger
shareholders can increase
their net worth.
It is time consuming and the
company has to maintain so
much legal issues.
Dilution of ownership occurs
in merger.

i.
ii.

iii.
iv.
v.
vi.

Buying one
organization by another.
It can be friendly
takeover or hostile
takeover.
Acquisition is less
expensive than merger.
Buyers cannot raise
their enough capital.
It is faster and easier
transaction.
The acquirer does not
experience the dilution
of ownership.

MERGER:WHY & WHY NOT

WHY IS IMPORTANT
i.
ii.
iii.
iv.

v.

Increase Market Share.

Economies of scale
Profit for Research and
development.
Benefits on account of
tax shields like carried
forward losses or
unclaimed depreciation.
Reduction of
competition.

PROBLEM WITH MERGER

i.

Clash of corporate cultures

ii.

Increased business complexity

iii.

Employees may be resistant to

change

ACQUISITION:WHY & WHY NOT

WHY IS IMPORTANT
i.
ii.
iii.

iv.
v.

Increased market
share.
Increased speed to
market
Lower risk comparing
to develop new
products.
Increased
diversification
Avoid excessive
competition

PROBLEM WITH
ACUIQISITION

i.

ii.
iii.

Inadequate
valuation of
target.
Inability to
achieve synergy.
Finance by
taking huge debt.
6

TYPES OF M&A
M&A

Marketextension merger

Product-extension
merger

Conglomeration

Two companies
that sell the same
products in
different markets

Two companies selling

different but related
products in the same
market

Two companies
that have no
common business
areas

M&A DEALS

1. TATA STEEL-CORUS: $12.2 BILLION

January 30, 2007

Largest Indian takeover

After the deal TATAS

became the 5th largest
STEEL co.

Image: B Mutharaman, Tata Steel

MD; Ratan Tata, Tata chairman; J
Leng, Corus chair;
and P Varin, Corus CEO.

100 % stake in CORUS

paying Rs 428/- per
share

2. VODAFONE-HUTCHISON
ESSAR: $11.1 BILLION
TELECOM

Image: The then CEO of

Vodafone Arun Sarin visits
Hutchison
Telecommunications head

sector
11th February
2007
2nd largest
takeover deal
67 % stake
holding in hutch

3. HINDALCO-NOVELIS: $6 BILLION

Image: Kumar Mangalam

Birla (center), chairman of
Aditya Birla Group.

June

2008
Aluminium and
copper sector
Hindalco Acquired
Novelis
Hindalco entered
the Fortune-500
listing of world's
largest companies by
sales revenues

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 drugmaker

Image: Malvinder Singh (left), exCEO of Ranbaxy, and Takashi

Shoda, president and CEO of Daiichi
Sankyo.

5. ONGC-IMPERIAL ENERGY:$2.8BILLION
January

Image: Imperial Oil

CEO Bruce
March.

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

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,

Image: Rana Talwar (rear)

Centurion Bank of Punjab
chairman, Deepak Parekh,
HDFC Bank chairman.

2008
Banking sector
Acquisition deal
CBoP shareholders
got one share of
HDFC Bank for every
29 shares held by
them.
9,510 crore

 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 BILLION

Image: Tulsi Tanti, chairman

&
M.D of Suzlon Energy
Ltd.

May

2007
Acquisition deal
Energy sector
Suzlon is now the
largest wind
turbine maker in
Asia
5th largest in the
world.

11. RIL-RPL MERGER: $1.68 BILLION

March

Image: Reliance Industries'

chairman Mukesh Ambani.

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

WHY INDIA?
Dynamic

government policies
Corporate investments in industry
Economic stability
Ready to experiment attitude of
Indian industrialists

AMONGST BRIC NATIONS, INDIA SECOND MOST TARGETED

COUNTRY FOR MERGERS & ACQUISITIONS(2010):

MERGER & ACQUISITION(2010-11) :

22

PROCESS OF MERGER & ACQUISITION IN

INDIA:
The process of merger and acquisition has the following steps:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.

Approval of Board of Directors

Information to the stock exchange
Application in the High Court
Shareholders and Creditors meetings
Sanction by the High Court
Filing of the court order
Transfer of assets or liabilities
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

Management
Public

Competition

Employees

Impact

Shareholders

WHY MERGERS AND ACQUISITIONS FAIL?

Cultural

Flawed

Difference

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
Capacity

in managers operations

to meet new culture higher

management professionals must be ready to

greet a new or modified culture.
Talent

management by the management

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.

27

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.

28

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.

29

30

31

32

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 managements cost-cutting decisions through their
salaries have led to strikes by the employees.
Increased Competition: Air Indias 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 companys 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 companys margins.

33

34

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

35

SUCCESS & FAILURE RATE(2009-10):

36

EXPERIENCES IN M&A

Learn

from mistakes of others

Define your objectives clearly
Complete strategy to achieve goal.
SWOT analysis for the merged business - a
must
Conservative attitude necessary at evaluation
deskstrong arguments to support project
Pick holes in strategy to get the best
Will merged units be able to work at efficient /
ideal level?
Acquire expertise to interpret changes

MERGERS ,
ACQUISITIONS &
TAKEOVERS

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.

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

WHY DO MERGERS FAIL ?

Lack of human integration
Mismanagement of cultural issues
Lack of communication

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

SYNERGIES RELATED TO
ACQUISITION

Economies of scale

Staff reductions

Acquiring new technology

Improved market reach and industry visibility

Taxation

TOP ACQUISITIONS
Rank

Year

Purchaser

Transaction
Purchased

value (in mil.

USD)

2000

2000

2004

2006

2001

2004

2000

2002

2004

America Online
Inc. (AOL)
Glaxo Wellcome
Plc.
Royal Dutch
Petroleum Co.
AT&T Inc.

Time Warner
SmithKline
Beecham Plc.
Shell Transport &
Trading Co
BellSouth
Corporation
AT&T Broadband
& Internet Svcs

Comcast
Corporation
Sanofi-Synthelabo
Aventis SA
SA
Spin-off: Nortel
Networks
Corporation
Pharmacia
Pfizer Inc.
Corporation
JP Morgan Chase
Bank One Corp
& Co

164,747
75,961
74,559
72,671
72,041
60,243
59,974
59,515
58,761

TAKEOVERS

A corporate action where an acquiring company

makes a bid for an acquiree. If the target
company is publicly traded, the acquiring
company will make an offer for the outstanding
shares.

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.

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

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.

TYPES OF MERGER
1.
2.
3.
4.

Horizontal Merger
Vertical Merger
Conglomerate Merger
Concentric Merger

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.

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 Damodar Cement.

VERTICAL MERGER

A merger between two companies producing

different goods or services.

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

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.

EXAMPLE OF CONGLOMERATE
MERGER

Walt Disney Company and the American

Broadcasting Company.

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

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.

ANAND TANKS & VESSELS PVT.LTD.

ATV PROJECTS INDIA LTD.

ANANDMANGAL COMMODEAL PVT.LTD.

SARASWATI COMMERCIAL (INDIA) LTD.

ANIL SYNTHETICS LTD.

KANORIA CHEMICALS INDS.LTD.

ANJU SYNTHETICS PVT.LTD.

GUJARAT METAL FORM LTD.

ANKLESHWAR ION EXCH.& CHEM.LTD.

ION EXCHANGE (INDIA) LTD.

APURAJ CHEM LTD.

PIDILITE INDUSTRIES LTD.

ARAVALLI SVACHALIT VAHAN LTD.

KELVINATOR OF INDIA LTD.

ARRON INVESTMENT LTD.

LLOYDS STEEL LTD.

ARTPLY WOOD INDUSTRIES LTD.

KITPLY INDUSTRIES LTD.

ARUN GENERAL INDUSTRIES LTD.

GENERAL INDUSTRIAL SOCIETY LTD.

ARUNA LEATHERS & EXPORTS LTD.

MRF LTD.

ASEA LTD.

HINDUSTAN BROWN BOVERI LTD.

ASHIANA PROTEINS LTD.

ASHIANA HOUSING & FIN.(I) LTD.

ASIAN CABLE & INDUSTRIES LTD.

RPG CABLES LTD.

ASIAN CABLES CORPN.LTD.

ASIAN CABLES & INDUSTRIES LTD.

ASIAN COFFEE LTD.

CONSOLIDATED COFFEE LTD.

ASIAN WOODS & POLYMERS PVT.LTD.

KITPLY INDUSTRIES LTD.

ASOKA MILLS LTD.

ARVIND MILLS LTD.

ASSOCIATED ELECTRICAL INDS.LTD.

GENERAL ELECTRIC CO.OF INDIA LTD.

ASSOCIATED HOTELS OF INDIA LTD.

EAST INDIA HOTELS LTD.

ASSOCIATED POWER CO.LTD.

DISHERGARH POWER SUPPLY CO.LTD

ATLANTIC (EAST) LTD.

RECKITT & COLEMAN OF INDIA LTD.

Company

Merged With

A & F HARVEY LTD.

MADURA COATS LTD.

A.A.ALLOYS LTD.

BHUWALKA STEEL INDUSTRIES LTD.

A.H.BHIWANDIWALA & CO.LTD.

GREAT EASTERN SHIPPING CO.LTD.

A.K.STRUCTURAL LTD.

SUPREME INDUSTRIES LTD.

A.P.COTEX

ASIAN PAINTS LTD.

ABRASIVES & CASTINGS LTD.

WOOD POLYMERS LTD.

ACT INDIA LTD.

INDRAD AUTO COMPONENTS LTD.

ADDI FASHIONS PVT.LTD.

ADDI INDUSTRIES LTD.

ADDI WOOLLENS LTD.

ADDI INDUSTRIES LTD.

ADDI WORSTED LTD.

ADDI INDUSTRIES LTD.

ADEQUATE WEIGHERS (INDIA)LTD.

GILLANDERS ARBUTHNOT & CO.LTD.

ADONI SPG.& WVG.CO.LTD.

KOTHARI INDUSRIAL COPN.LTD.

ADVANCE WELDING ALLOYS LTD.

ADVANI-OERLIKON LTD.

AEKTA LTD.

KIRTIVARDHAN FINVEST SERVICES PVT.

AELPE FINANCE LTD.

ORIENT BEVERAGES LTD.

AGIPI CHEMICALS LTD.

STANDARD MEDICAL & PHARMA.LTD.

AHMEDABAD LAXMI COTTON MILLS CO.LTD

ARVIND MILLS LTD.

AKAR POLYMATIK LTD.

AKAR LAMINATORS LTD.

ALCO-CHEM LTD.

UPPER GANGES SUGAR & INDUSTRIES LT

ALEMBIC DISTRIBUTORS LTD.

ALEMBIC CHEMICALS WORKS CO.LTD.

ALLIANCE FUND MANAGEMENT LTD.

ALLIANCE CREDIT & INVESTMENT LTD.

ALU CAPSULES LTD.

LARSEN & TOUBRO LTD.

AMBUJA SHIPYARD & SOFTWARE LTD.

GALAXY APPLIANCE LTD.

AMIT ALCOHOL & CARBON DIOXDIE LTD.

AEGIS CHEMICALS INDUSTRIES LTD.

AMRIT PROTIEN FOOD LTD.

AMRIT BANSPATI LTD.

AMRITA EXPORTS PVT.LTD.

MADHUR FOOD PRODUCTS LTD.

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 Bendix
Corporation 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

TOP 10 ACQUISITIONS MADE BY INDIAN

COMPANIES WORLDWIDE:
Acquirer

Target

Company

Country

targeted

Deal value ($
ml)

Industry

Tata Steel

Corus Group plc UK

12,000

Steel

Hindalco

Novelis

Canada

5,982

Steel

Videocon

Daewoo
Electronics
Corp.

Korea

729

Electronics

Betapharm

Germany

597

Pharmaceutical

Hansen Group Belgium

565

Energy

Kenya
Petroleum
Refinery Ltd.

Kenya

500

Oil and Gas

Romania

324

Pharmaceutical

Dr. Reddys
Labs
Suzlon

Energy
HPCL

Ranbaxy Labs Terapia SA

INDIAN OUTBOUND DEALS

SINCE 2000

William Durant, the founder of General Motors, lost control of his company
due to his aggressiveexpansion plans. Going wholeheartedly from a carriage
manufacturer to an automotive force, Durant used debt to finance
histakeovers andmergers with other auto startups. The bankers, who
helped with refinancing efforts, and the stockholders, towhom Duranthad
sold and resold shares, finally decided to oust him andconsolidate current
holdings, rather than to continue the breakneck expansion.
Durant immediately began tolook for a way to regain control of his company.
He hooked up with a Swiss racer named Louis Chevrolet and the two formed
Chevrolet. Although Durant soon disagreed with Chevrolet about the
direction of the company andbought him out,the company was highly
successful. Durant still held a large amount of GM stock and he used the
profits from his new company to buy even more.
Durant eventually owned enough GM stock to bring the company to the table
for merger/buyout talks. Durant offered a five-for-one stock swap. GM
shareholders jumped at the chance to get another popular brand under their
umbrella at a cheap price.GMparticularly relished merging with a brand