Trend in Merger and Acquisition

The year 2004 saw merger and acquisition business up to $4.5 billion in India
It reached around $55 billion in 2010
The year 2011 saw a decline in this sector and value fell to around $45 billion
In 2012 also there was a slowdown mainly because of Eurozone crisis and other
domestic reasons such as inflation , currency depreciation etc.
Overall 500 publically announced M&A deals were recorded in 2013 amounting to
$28.19 billion.
From about $4.5 billion it rose to $13 billion in 2015
In the year 2016, domestic deals with US $ 25.1 billion
In the year 2016, 505 deals registered with an increase of 5% in the previous year
of 2015.
Corporate Restructuring
Definition
Corporate Restructuring can be defined as

i. any change in the business capacity or portfolio

that is carried out by an inorganic route or

ii. any change in the capital structure of a company

that is not a part of its ordinary course of
business or

iii. any change in the ownership of or control over

the management of the company or a
combination thereof.
 i. Any change in the business capacity or
portfolio carried out by an inorganic route
Not a corporate
restructuring
But an expansion of
its product portfolio

Tata Indica Tata Sumo Grande

Acquisition of Jaguar Land

Rover from Ford by Tata Motors:
corporate restructuring
i. Restructuring
ii. Any change in the capital structure of
a company that is not in the ordinary
course of its business
Capital structure refers to
the proportion of debt and
equity in the total capital
of a company

An IPO (an initial public offering) or buy-back of

equity shares would permanently alter the
capital structure of a company:
this would amount to corporate restructuring
 iii. any change in the ownership of or
control over the management of the
company or a combination thereof.

1. Merger of two companies

2. Demerger of a company (Sun Pharma and SPARC, Dabur
consumer and Dabur Pharma)
3. Acquisition of a company
4. Sell-off of a company
5. Delisting of a company
 Activities or changes which are not
corporate restructuring
1. Initial creation of a corporate structure
a. incorporation of a limited company
b. Conversion of proprietary/partnership concern into a company
2. Change in the internal command structure of the company
functional/divisional/matrix type of organisation
3. Change in the business processes or re-engineering
a radical redesign and not any change in the ownership, control or to the
capital structure of the organization
4. Downsizing
cutting down of manpower, recurring costs and /or capital expenditure either
as an objective or as a result of reengineering
5. Other activities such as outsourcing, ERP, TQM, Franchising alliances ,
Licensing
Major Forms of Corporate Restructuring

1. Merger
2. Consolidation
3. Acquisition
4. Divestiture
5. Demerger
6. Joint venture
7. Reduction of capital
8. Buy-back
9. Delisting of securities
 Merger
A merger is a strategy where two companies agree to combine
its operations.
Involves the combination of all the assets, liability, loans and
businesses (on a going concern basis) of two (or more)
companies such that one of them survives
Merger is primarily a strategy of inorganic growth
Two firms agree to go forward as a single new company rather
than remain separately owned and operated : a "merger of
equals"
The firms are often of about the same size
 Example
A Ltd has a paid-up equity capital of Rs 10 crore consisting of 1
crore shares of the face value of Rs 10 each.
B Ltd has a paid-up equity capital of Rs 50 crore consisting of 5
crore shares of face value of Rs 10 each.
A Ltd is proposed to be merged with B Ltd, wherein based on the
relative valuation of both companies , shareholders of A will be
given, 2 shares of B Ltd for every 5 shares of A Ltd held by them.
Upon the merger being carried out, the following things will
happen
 Example
a) Shareholders of A Ltd will get 40 lakh shares of face value of Rs
10 each of B Ltd in exchange of shares of A Ltd.
b) Shares of A Ltd will get cancelled since A Ltd will cease to exist
through a legal process called dissolution without winding up.
c) All the assets and liabilities of A Ltd will be transferred to B Ltd
d) Balance sheet of B Ltd will have equity capital of Rs 54 crore and
will include assets and liabilities of both A Ltd and B Ltd.
e) Business of A Ltd will be conducted under the name of B Ltd
along with the erstwhile business of B Ltd.
f) All rights exercisable by A Ltd against the third parties will now
be exercisable by B Ltd against them and vice-versa.

A Ltd will cease to exist and B Ltd will survive carrying on the
business of both A Ltd and B Ltd.
This is called a merger.
3 business segments:
petrochemicals, refining, and oil and gas,

Other segment of the company includes textile,

retail business, special economic zone (SEZ)
development and telecom and broadband
business.
 SmithKline
Beckman
1989
Both firms ceased to exist
Merged when they merged

acquired

1995

Both firms ceased to exist 2000

Merged when they merged
 1. Horizontal Merger
Under this merger two companies that are in direct competition
and sharing the same product lines and markets merge.
 2. Vertical Merger
Vertical Mergers are mergers of non- competing companies where ones
product is necessary component or complement of the others.
A vertical merger is a merger between two companies that produce
separate services or components along the value chain for some final
product.
Mergers between such companies occur in an effort to reduce production
costs and increase efficiency for higher profits.
To illustrate
Company XYZ produces shoes.
Company ABC produces leather.
ABC has been XYZ's leather supplier for many years, and they realize that by
entering into a merger together, they could cut costs and increase profits.
They merge vertically because the leather produced by ABC is used in XYZ's
shoes.
 3. Conglomerate Merger
A conglomerate merger is a merger between firms that are involved
in totally unrelated business activities.
There are two types of conglomerate mergers: pure and mixed.
Pure conglomerate mergers involve firms with nothing in common,
Mixed conglomerate mergers involve firms that are looking for
product extensions or market extensions.

Procter & Gamble had long held the lions share of the market in
providing personal care products to women and families.

Its 2005 merger with Gillette, the leader in the provision of personal
care products to men, led to the creation of one of the worlds largest
personal care product companies.
 General Electric Multiple Mergers
Thomas Edison formed the company General Electric (GE) in 1890,
providing lighting solutions.
The company soon began engaging in conglomerate mergers, as well
as other types of mergers, expanding its product range and
geographic market area.
The huge conglomerate company that is the modern GE now
produces radios, televisions, home and office appliances, wind
turbines, and even jet engines.
Eventually GE expanded into the arenas of providing television
networks, computer hardware, healthcare equipment, oil, gas, and
water production, and financial services.
Twelve companies that once existed on the stock exchange now exist
only as General Electric.
 4. Congeneric Merger

A Congeneric merger is a type of merger where two companies

are in the same or related industries but do not offer the same
products.
In a congeneric merger, the companies may share
similar distribution channels, providing synergies for the merger

A Bank and a leasing company merges, its a congeneric merger.

Citibank's acquisition of Travelers Insurance.

While both were in the financial services industry, they had

different product lines.
 5. Reverse Merger
A merger usually takes place when a smaller company folds into a larger
one through exchange of shares or cash.
But when the tables are turned and the acquiring company is weaker or
smaller than the one being gobbled up, this is termed a reverse merger.
Typically, reverse mergers take place through a parent company merging
into a subsidiary, or a profit-making firm merging into a loss-making
one.
One example of a reverse merger was when ICICI merged with its arm
ICICI Bank in 2002

The ICICI group retained ICICI Bank as the brand name for the new entity.

But when Godrej Soaps profitable and with a turnover of 437 crore
did a reverse merger with loss-making Gujarat Godrej Innovative Chemicals
(turnover of 60 crore), the resulting firm was named Godrej Soaps.
 Consolidation

It involves the creation of an altogether new company

owning assets, liabilities, loans and businesses (on a going
concern basis) of two or more companies, both or all of
which cease to exist

Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian

Software Company Ltd and Indian Reprographics Ltd merged
into an entirely new company called HCL Ltd
 Example
A Ltd has a paid-up equity capital of Rs 10 crore consisting of 1
crore shares of the face value of Rs 10 each.
B Ltd has a paid-up equity capital of Rs 50 crore consisting of 5
crore shares of face value of Rs 10 each.
A Ltd and B ltd decide to consolidate themselves into C Ltd. In
the process, based on relative valuation of the shares of A Ltd
and B Ltd, it is decided that for every 2 shares of A Ltd held by
them , shareholders of A Ltd will get 1 share of C Ltd and for
every 5 shares of B Ltd , its shareholders will get 2 shares of C
Ltd.
Upon the consolidation being carried out, the following things
will happen
 Example
Shareholders of A Ltd will get 50 lakh shares of face value of Rs 10 each of C
Ltd in exchange of shares of A Ltd and shareholders of B Ltd will get 2 crore
shares of face value of Rs 10 each of C Ltd in exchange of shares of B Ltd.
Shares of A Ltd and B Ltd will get cancelled since A Ltd and B Ltd will cease
to exist through a legal process called dissolution without winding up.
All the assets and liabilities of A Ltd and B Ltd will be transferred to C Ltd
Balance sheet of C Ltd will have equity capital of Rs 25 crore and will
include assets and liabilities of both A Ltd and B Ltd.
Business of A Ltd and B Ltd will be conducted under the name of C Ltd
All rights exercisable by A Ltd and B Ltd against the third parties will now
be exercisable by C Ltd against them and vice-versa.

A Ltd and B Ltd will cease to exist and C Ltd will survive carrying on the
business of both A Ltd and B Ltd.
This is called Consolidation.
 Amalgamation

Umbrella Term which includes both Merger and Consolidation.

In India legally merger is known as amalgamation.

 Acquisition

Acquisition is an attempt or a process by which a company

or an individual or a group of individuals acquires control
over another company called target company.

Acquiring control over a company means acquiring the right

to control its management and policy decisions.
There are many ways in which control over a (target)
company can be acquired:

1. By purchasing a substantial % of the voting capital of the target

company
2. By acquiring voting rights of the target company through a power
of attorney or through a proxy voting arrangement
3. By acquiring control over an investment or holding company
(listed or unlisted), which in turn holds controlling interest in the
target company
4. By simply acquiring management control through a formal or
informal understanding or agreement with the existing person(s)
in control of the target company
This is the most common. But what % is controlling interest?
Well various levels of control

Absolute control:

100% acquisition would give such a control. However, the

company cannot become a listed company or continue to be a
listed company if it was listed earlier.

Further, in terms of section 12 of the Companies Act, 1956,

the condition of minimum 2 members for a private company
or seven members for a public company will have to be
complied with, while doing such 100% acqusition.
 Partially Absolute control:

An ability to get any and all resolutions passed in the general

body meeting of the shareholders.

Most of the important decisions (further issue of capital, buy

back of shares, delisting etc.) can be taken only by passing a
special resolution.

A special resolution can be passed if the votes cast in its favor

in a general body meeting are not less than three times the
votes cast against it.

But these 75% votes are by value and of those present,

including proxy.
 General control over a company:

Those decisions which do not require passing of a special

resolution but which nevertheless require shareholders
approval an ordinary resolution has to be passed.

Ordinary resolution = simple majority = 51% (of the

members present and voting, including proxy.
The decisions which require passing of an ordinary
resolution include approval of annual accounts, declaration
of dividend ( other than interim dividend ), issue of bonus
shares etc

Trigger limit/threshold limit for open offer in India is 15%.

 Substantial acquisitions of shares of a company:

Can lead to 3 situations:

1. Existing promoters dislodged, acquirer takes over as

promoter (a successful acquisition)

2. Acquirer managing to acquire more or less the same % or

slightly less than the existing promoter (a partially
successful acquisition)

3. The acquirer not managing to get any really substantial %

of share capital (an unsuccessful acquisition)
 This is not a commonly used way of effecting
acquisitions

Usually a short-term tactic probably as a precursor to

substantial acquisition of shares

As per the power of attorney, the future acquirer may

be allowed right to vote on the behalf of existing
promoters only on certain key resolutions
 ABC ltd is an unlisted company wherein 100% of equity
shares are held by Shah & family.
ABC ltd has invested 40% in equity capital of XYZ Ltd and
Shah family has directly invested 10% in it.
The management of XYZ Ltd is controlled by ABC Ltd and
thereof by Shah Family.
Agarwal Family acquires ABC ltd
This is an indirect acquisition of XYZ by Agarwal family
 ABC ltd is a listed software company that is not doing as well
as it should.
Mr X who is a managing director wants the company to grow
much faster
He approaches Mr Z, renowned sotware guru to help him
run the company
Mr Z accepts the offer on the condition that all policy
decisions would be taken by him and Mr X would vote on all
the special and ordinary resolutions as per the requirement
of Z.
December, 2010, multinational FMCG 10 May 2011, Microsoft Corporation
giant Reckitt Benckiser acquired Paras agreed to acquire Skype
Pharmaceuticals for Rs.3,260 crore. Communications for US$8.5 billion
(US $ 724 million.)
 Difference Between Merger &
Acquisition
MERGER ACQUISITION
It means Unification of 2 or It involves buying of one or
more entities more entity by another

Merger results in dissolution of Both the entities involved still

one or more entities stand as separate entities

New entity is created once No new entity is created after

merger is done acquisition
 Divestiture
Divestiture is an out and out sale of all or substantially all the
assets of the company or any of its business
undertakings/divisions, usually for cash (or for a
combination of cash and debt) and not against equity shares.
In short, divestiture means sale of assets but not in a
piecemeal manner.
It is also called slump sale under the Income Tax Act, 1961.
Divestiture is normally used to mobilize resources for core
business or businesses of the company by realizing the value
of non-core business assets.

Valuation of the Company improves in the stock market.

 What is a 'De-Merger'
Demerger refers to corporate strategy in which a company splits into
more than one entity. Converse to merger, it is done to operate each of
the segments smoothly, dissolve one of the segments to raise capital or
to focus on core business.
Purpose:
In most of the cases, demerger takes place when management decides
to focus on core business activities. Also, it is used as a mechanism to
raise capital by selling off one of the parts of entity. It also simplifies
the company structure and is used to expand the operation of
segmented part(s).
Example:
On 3rd June 2015, Adani Enterprise demerged its Ports, Power and
Transmission businesses in Adani Ports and Special Economic Zone
Limited, Adani Power Limited and Adani Transmission Limited. The
company took the decision to simplify its structure and expand
operations.
 Improve valuation
The benefits of a greater focus to each of the businesses does get reflected in the
market and it is possible to realize the actual value of each business.
Example:
1. The combined market capitalization of Sun Pharma
and its demerged R&D firm SPARC 10 to 15 per cent
higher than the market capitalization of Sun Pharma
since SPARC listed in July 2007

2. Demerger of Dabur India comprised of

- The FMCG business including personal care,
healthcare and ayurvedic specialty products
- The pharmaceuticals business which include
allopathic, oncology formulations and bulk drugs.
Demerger to create a global presence for Daburs pharmaceuticals business and
provide focus to maximise penetration in global markets.
For the FMCG business: Better and more efficient management of its resources
and facilitate more accurate benchmarking with industry which lead to
improvement in valuations for both businesses
 Demerger can take 3 forms

Spin-off These are done to achieve focus in

Split-up Split-off
the respective businesses especially
if the businesses are unrelated or
non-synergistic

Involves transfer of all or

substantially all assets,
liabilities, loans and business of
one of the business divisions or
undertakings to another
company whose shares are
allotted to the shareholders of
the transferor company on a
proportionate basis.
Transferor co. carries on at least
one of the businesses.
Involves transfer of all or
substantially all assets, liabilities,
loans and business of the company
to 2 or more companies in which
the shares are allotted to the
original shareholders of the
company on a proportionate basis.
But in this case, the transferor co.
ceases to exist.
 Spin-off

A spinoff is the creation of an independent company

through the sale or distribution of new shares of an existing
business or division of a parent company.
In a spin-off, the parent company distributes shares of the
subsidiary that is being spun-off to its existing shareholders
on a prorata basis as special dividend.
Existing shareholders enjoy the benefit of holding shares of
two companies instead of just one company.
 Example
In October 2012, Kraft Foods Inc., spun off its North American
grocery business, Kraft Foods Group in a corporate action which
entailed distribution of the ratio of 1 share of Kraft Foods Group
common stock for every 3 shares of the parent companys common
stock.
Kraft Foods then renamed its snacks division as Mondelez
International which houses brands such as Oreos, Cadbury, Wheat
Thins, Ritz, and Trident.
The grocery company was renamed Kraft Foods Group which
focusses on grocery brands like Oscar Meyer, Nabisco, and Planters in
North America.
 Split-Off

In a split-off, shareholders in the parent company are offered

shares in a subsidiary, but the catch is that they have to
choose between holding shares of the subsidiary or the
parent company.
A shareholder thus has two choices:
(a) continue holding shares in the parent company, or
(b) exchange some or all of the shares held in the parent
company for shares in the subsidiary.
 Split-Off
ABC ltd is promoted by two brothers A and B.
Paid up capital of the company is Rs 10 Crore consisting of Rs 1 crore
shares of Rs 10 face value each.
A and B each hold 20 lakh shares and balance 60 lakh shares are held by
the public shareholders.
The shares are traded in the market at Rs 550 to Rs 600 whereas the
valuation based on the cash flows indicate the intrinsic value to be Rs 525.
The company has two business divisions namely software and BPO which
are valued more or less equally.
The brothers off late are not getting along well and want to demerge the
BPO business into a separate company XYZ Ltd which will be solely
controlled and managed by B.
A will not have any shareholding in XYZ Ltd and B on the other hand will
get out of ABC Ltd completely by transferring his shares to A.
 Split-Off
XYZ is incorporated with an authorized capital of Rs 1 crore
share of face value of Rs 10 each .
B is allotted 20 lakh shares at par prior to demerger, A is not
allotted any shares of XYZ Ltd, rest of the shareholders
including B are allotted 1 share of XYZ for 1 share of ABC Ltd.
As part of the scheme, shares held by B in ABC Ltd are
transferred to A .
As a result A will now hold 40 Lakh shares in ABC Ltd and
nothing in XYZ Ltd .
B will hold 40 Lakh shares in XYZ Ltd and nothing in ABC Ltd.
Public shareholders will hold 60 lakh shares in one of the
two companies.
 It is a hybrid of divestiture and spin-off.
In carve out, a company transfers all the assets, liabilities, loans
and business of one of its divisions/undertakings to its 100%
subsidiary.
Thus at the time of transfer, the shares are issued to the
transferor company itself and not to the shareholders.
Later on the co. sells the shares in part to outsiders --- whether
institutional investors by private placement or to retail investors
by offer for sale.
The consideration for transfer of business to a new company
eventually comes in the coffers of the transferor company.
Carve-outs thus are used to mobilize funds for core business of
a company by realizing the value of non-core businesses.
(Capital hungry businesses are usually carved out).
 Example

In February 2009, Bristol-Myers Squibb

Company sold 17% of the shares in its subsidiary
Mead Johnson Nutrition Company

By December 23, 2009, the Mead Johnson IPO was

the best performing one on the New York Stock
Exchange, with the shares increasing nearly 80%
from the IPO issue price.
 It is an agreement in which 2 or more companies (JV Partners) contribute to the equity
capital of a new Company in a pre-decided proportion.

Normally joint ventures are formed to pool the resources of the partners and carry out a
specific project beneficial to both the partners but which none of the partners wants to
carry out under its own corporate entity for any one of the given reasons:

The JV may be highly risky with unpredictable result eg. oil exploration

JV partners may be competitors but want to collaborate for a specific project or business

Neither of the partners may be interested in diluting control over their businesses by
accepting funding

To ensure that the management control of the common business or project is shared in
the agreed proportion through a charter of the JV company

Rewards of the common business are shared in the pre-determined ratio (rule out
manipulation by either side)
 Example
Kellogg Company Joins with Wilmar International Limited

Anticipating Chinas rise to the top of the food and beverage

global market, Kellogg Company entered into a joint venture
agreement with Wilmar International Limited for the purpose of
selling and distributing cereal and snack foods to consumers in
China.
While Kellogg brings to the table an extensive collection of
globally renowned products as well as their expertise in the
industry, Wilmar offers marketing and sales infrastructure in
China, including an extensive distribution network and supply
chain.
Joining together allows both companies to profit from a
synergistic relationship.
 It is a legal process u/s 100 to 104 of the Companies act by
which a company is allowed to extinguish or reduce liability
on any shares in respect of share capital not paid-up, or is
allowed to cancel any paid-up share capital which is excess
of its requirement.

The need of reducing share capital may arise in various

circumstances, for example, accumulated business losses,
assets of reduced or doubtful value, etc.
1. When a company is holding excess cash which it does
not require in the medium term (say 3 to 5 years) it is
prudent for the company to return its excess cash to the
shareholders.

2. One way is to pay shareholders a hefty special or one

time dividend. However, there is cost attached to the
company in terms of dividend distribution tax.
1. But paying dividend does not reduce the capital base
and therefore the future equity servicing requirements.

2. Therefore cos. resort to reduction of capital or to buy

back the shares.

3. In buy back, the company would be shelling out the

money and not the promoters. This in turn will increase
the shareholding % of the promoters by using the
companys funds.

4. This would thwart or reduce a takeover bid.

A listed company means a co. whose equity shares (or any of its securities) are
listed on any stock exchange

Delisting a company as a form of corporate restructuring entails delisting of its

equity shares (securities as well) from all stock exchanges.

Why do companies get listed?

1. To raise funds from the public at large. A co. can sell its shares much
better to the public than to institutional investors
2. Even Institutional investors need an exit route so they look for shares
having good volume/liquidity
3. Promoters also need to encash capital gains on their equity holding
4. Listed cos. Can access loans easily and at good rates.
5. Listing helps to build the corporate brand and brand equity for its cos.
Products. Also attracts talent
 Listed companies have to incur substantial costs in terms of providing info to
investors, holding shareholders meetings, communication to financial
analysts, fulfilling statutory compliances. Also more expensive company
secretary, CFO, more effective finance and secretarial department, computer
systems etc.
Listed companies have to share a lot of information in the public domain
thereby opening up vital info to competitors
Freedom can be curtailed compared to a promoter driven unlisted company

Delisting is done

When the promoter is not dependent on the public for funding

The promoter finds it advantageous and profitable to delist
Even MNCs are preferring to get delisted
M&A is a powerful strategy of instantaneous
quantum growth.

Various growth strategy models/approaches:

Ansoffs Product Market Matrix

BCG Matrix
Grand Strategy Matrix
Industry/Product Life Cycle Analysis
Ansoffs Product Market
Matrix
 Existing PRODUCTS New
INCREASING RISK

Existing
Market Penetration Product Development

INCREASING RISK
Sell more in Sell new products in
existing Markets existing markets

MARKETS

Market Diversification
Development
Sell new products in
Achieve higher new markets
sales/market
New share of existing
products in new
markets
 Growth
opportunities

Intensive Integrative Growth through

Growth Growth Diversification

1. Market penetration 1. Backward 1. Concentric

2. Market development 2. Forward 2. Horizontal
3. Product development 3. Horizontal 3. Conglomerate
Intensive Growth
 Intensive
Growth

Market Market Product

penetration development development
 Existing PRODUCTS
New
INCREASING RISK

Existing
Market Penetration

Sell more in existing

Markets

INCREASING RISK
MARKETS

New
 Market Penetration
Seeks growth for present products/services in present markets through
more aggressive marketing efforts.

Key Tactics:
Increase unit of purchase (i.e. retention; cross-selling)
Offer price incentives for increased use
Increase efforts to attract competitors' customers
Step up promotion (publicity, promotion, advertising, special events)
Improve brand differentiation (understand your unique selling point
and communicate it)
Increase efforts to attract non-users
Increase service trial through offering samples and incentives
Pricing up or down
 Existing PRODUCTS New
INCREASING RISK

Existing
Market
Penetration
Sell more in

INCREASING RISK
existing Markets

MARKETS
Market Development
Achieve higher
sales/market share
of existing products
New in new markets
 Market Development

Seeks to attract new market segments

Key Tactics:
Open additional units through regional expansion (establish a presence in a
target neighborhood through a special program)
Attract other market segments by developing service or product versions that
appeal to these segments
Enter other channels of distribution
Advertise in other media
Build new relationships

Marching on from Gujarat to Rajasthan, Maharashtra and MP

Market share in Gujarat est. at 65% (way ahead of Tata Tea and HUL put together)
Acquisition of Hutch by Vodafone is a notable example of market development
through acquisition ie. Inorganic route
 Existing PRODUCTS New
INCREASING RISK

Existing
Market Penetration
Product Development

Sell more in existing

INCREASING RISK
Sell new products in
Markets
existing markets

MARKETS

Market
Development
Achieve higher
sales/market
New share of existing
products in new
markets
Product Development

Seeks to grow by improved services for present markets

Key Tactics:
Develop new product/service features by attempting to adapt, modify,
magnify, minimize, substitute, rearrange, reverse or combine existing
features
Create different versions of the same product/service
Develop additional models and/or sizes

Every 2 to 3 years a new and improved version of the

operating system as also application software.
Integrative Growth
 Integrative
Growth

Backward Forward Horizontal

Integrative Growth
Backward Integration

Most impressive example

Starting with Vimal range of fabrics

Went backward into the manufacture of polyester, fibre and yarn

Followed by intermediate chemicals, polymers & refinery
Followed by Oil exploration

Piramal group ventured into APIs in 1995 by acquiring Hyderabad based Sumitra
Pharma
 Integrative Growth
Forward Integration

This consists of the Company seeking ownership or increased control of its

distribution system

Examples:

Reliance getting into petrol pumps after refineries

Big Cinemas a division of Reliance ADAGs Reliance Media Works

Raymond is one of the leading, integrated producers of worsted suiting fabric in

the world, with a capacity of producing 31 million meters of wool & wool-blended
fabrics.

Apollo Hospitals (53 hospitals and 8,500 beds) into Apollo Pharmacy chain
(over 1000 outlets)
Integrative Growth
Horizontal Integration

It consists of a company seeking ownership or increased control of its

competitor(s). This means acquisition.

Horizontal acquisition by definition is an inorganic growth whereas backward

or forward integration could be organic or inorganic.

It does not mean that there has to be a merger of the target company with the
acquirer company. It is sufficient that the acquirer acquires control over the
target company eg. Grasim-UltraTech (initially separate)
 Existing PRODUCTS New
INCREASING RISK

Existing
Market Penetration Product Development

INCREASING RISK
Sell more in Sell new products in
existing Markets existing markets

MARKETS

Market Extension Diversification

Achieve higher
sales/market share
Sell new products in
of existing products
New new markets
in new markets
 Diversification

This is the process of selling different,

unrelated goods or services in unrelated
markets

This is the most risky of all four strategies

Diversification
Concentric

It consists of a company seeking to add new products that

have technological or marketing synergies with the existing
products.
These products would appeal to new class of customers.

Launch of Sumo and Indica by Tata Motors

(earlier locomotives and commercial vehicles)

Male grooming products by Emami

Diversification
Horizontal

This consists of a company seeking to add new

products that could appeal to its present
customers though technically unrelated to its
present product line.
 Diversification
Conglomerate

This consists of a company seeking to add new

products for new classes of customers with no
relationship to the companys current technology
or markets.
Cigarettes, Hotels, Paperboards &
specialty papers, packaging, agri-
business, packaged foods
& confectionery, IT, branded
apparel, personal care,
Products/Categories stationery, safety matches and
other FMCG products
Revenue US$7 billion
Employees Over 26,000
Summary

Risks involved differ substantially

The matrix identifies different strategic areas

in which a business COULD expand

Managers need to then asses the costs,

potential gains and risks associated with the
other options
The BCG Matrix
Strategic Prescriptions using-
The BCG Matrix
1. Stars
a. Forward, Backward, Horizontal Integration
b. Intensive growth strategies
c. Concentric diversification
2. Cash Cows
a. Product development
b. Concentric Diversification
3. Question Marks
a. Intensive Growth Strategies
4. Dogs
a. Divestiture or liquidation
The Grand Strategy matrix
Single business firms
 Industry / Product Life Cycle and
Strategies
1. Introduction : Intensive Growth , Horizontal integration ;

2. Growth : Concentric or Conglomerate Diversification

Hotmail sold to Microsoft for US $ 400m

3. Maturity : Horizontal ,Forward or Backward integration ,

Acquisition of Arcelor by Mittal Steel

4. Decline : Conglomerate Diversification