Table of ContentsParticularsPage Number

Introduction3

Literature Review4

Acquisition Motives

Rationale for Tata Steels Acquisition of Corus6

Rationale for Hindalcos Acquisition of Novelis8

Rationale for Suzlons Acquisition of REPower9

Empirical Results

Announcement Date v/s. Execution Date11

Analysis of Stock Movement: Announcement Date v/s. Execution Date12

Performance of Shares

Performance in the Short Term13

Analysis: Performance of Shares in the Short Term (+, - 30 Days)14

Performance in the Long Term15

Analysis: Performance of Shares in the Long Term (+, - 5 years)16

Summary of Operating Performance: Financial Ratios17

Scoring system adopted to evaluate change in financial ratios17

Cumulative Impact of Key Financial Ratios18

Analysis: Operating Performance of Acquiring Firms

Tata Steel: Key Observation19

Hindalco: Key Observations19

Suzlon Energy: Key Observations20

Conclusion21

References22

List of AbbreviationsAbbreviationFull Form

CSNCompahnia Sidderuggica Nacional

D&BDistribution & Building

MTPAMillion Tonnes per Annum

GoIGovernment of India

RBIReserve Bank of India

VSNLVidyut Sanchar Nigam Limited

HindalcoHindalco Industries Limited

NovelisNovelis Incorporation

CARSCurrency Convertible Alternative Reference Securities

SECSecurities Exchange Commission

COGSCost of Goods Sold

SuzlonSuzlon Energy Limited

REpowerREpower Systems AG

BWUBrandenburgische Wind- und Umwelttechnologien GmbH

WTG Wind Turbine Generator

kWKilowatt

MWMegawatt

HansenHansen Transmissions International NV

ADAccelerated Depreciation

GBIGeneration Based Incentives

IPPIndependent Power Producers

RoCEReturn on Capital Employed

RoNWReturn on Net Worth

RoAReturn on Assets

ROEReturn on Equity

S&PStandard & Poor

LMELondon Metal Exchange

ARFSAnand Rathi Financial Services

DSCRDebt Service Coverage Ratio

CDRCorporate Debt Restructuring

M&AMergers & Acquisitions

M.D.Managing Director

IntroductionThe objective of my paper is to evaluate the effect of M&A on the operating performance & shareholder value of acquiring firms.While stock markets often react negatively to M&A, it is common for managements of acquiring firms to claim that the M&A will benefit the strategic interests of the Company in the long run. In order to test the veracity of this strategic logic, part of my analysis is based on the comparative analysis of the operating performance of acquiring firm for a period of 5 years pre and post-acquisition.For the purpose of my research, I selected three firms from India, Tata Steel, Hindalco and Suzlon Energy which made cross-border acquisitions during 2007-08. While Tata Steel was forced into a 5 year restructuring program worth GBP400million which resulted in loss of upto 1500 employees & the firm was downgraded to BB by Fitch after the acquisition of Corus, Hindalco had to carry the burden of the loss making Novelis for a long time and Hindalco had to seek refuge under goodwill impairment to write off the goodwill of Novelis which is typically done when the recoverable value is smaller than the carrying cost of assets.Five years post acquisition, Suzlon was grappling under a debt pile of INR 13,017 crore and it could not utilize the cash in the balance sheet of REPower due to restrictive laws of Germany. The Lenders were forced to restructure INR 9,500 crore loan obligations from its balance sheet.From my analysis, I do not find much evidence to support that M&A activities improves the operating performance of the acquiring firm or leads to adding to shareholder value.

Literature ReviewWhile Indian firms are known to be involved in cross-border acquisitions of industries such as pharmaceuticals & software development (Sun, S. L., Yan, D, Ren, B., &. Peng, 2012), recent studies such as Duanmu & De Beule (2012) provide that firms look to reduce costs while acquiring in emerging economies & overcome trade barriers when they invest in developed economies. Although there are numerous research papers on M&A in western countries, there are very few researches that validate the proposed western theories using empirical cases of Indian firms.

Ruback, Healy & Palepu (1997) studied the operating performance of fifty merged firms in USA, on the basis of cash flows and discovered that these firms experienced major improvements in their operating cash flows post mergers leading to enhanced asset productivity. Doi & Ikeda (1983) found that the ROE & ROA increased in half of the sample firms immediately after merger & after the adjustment period, when the acquirers learn to efficiently manage the acquired firm, ROA & ROE increase for more than half the firms. Park, Suzuki & Kruse (2003) researched on a sample of 56 Japanese manufacturing firms & studied the operating performance of these firms from 1966 to 1997. It was revealed through this research that operating performance of these firms improved over a period of 5 years.

However, Ghosh (2001) compared the operating cash flows during pre and post-acquisition periods of merging companies and did not find any proof to substantiate that the M&As are instrumental to grow the operating cash flows post acquisitions. Ghosh (2001) also argued that cash flows do not rise for acquiring firms that use stock to merge instead of cash. This is predominantly drawn from the fact that the firms acquiring by cash exhibit superior pre-acquisition performance which help in better operating cash flow performance post acquisition as well. Further, it was also observed by various studies (Fishman, 1989, Ryngaert & Brown, 1991, and Majluf & Myers, 1984) that improved post-acquisition performance is more linked to better sales growth than reduction in costs. Mansingka & Weston (1971) researched on the impact of M&As on the performance of conglomerate firms vis--vis the firm itself & found that the difference was inconsequential over a the long run. Renneboog, OOsting, & Marina (2007) worked on the acquisitions made in Europe & their effect on the economic performance and concluded that the profitability of both the acquiring & acquired company decreased after the M&A.

In addition to the argument proposed by Lyon & Barber (1996), the practice of researchers using industry-median companies as benchmark to compare performance of firms around particular events have been criticized by Shivdasani & Kang (1997) and (Daley et al., 1997) as they argue that such a benchmark will most probably lead to biased conclusions when the size & performance of the firms differs between the industry median firms and the sample prior to the event. Following these suggestions, I have not to compare the performance of the acquiring firms with an industry median, but to compare the financial performance of the firm pre and post-acquisition (over a period of time).

Therefore, various researchers have uncovered mixed results on the subject of difference of financial performance of acquiring firms pre & post-acquisition. I endeavor to exhibit my findings on the subject through this study by using Asian examples.

Acquisition MotivesIn addition to the liberalization of policies towards overseas investments in 2000 by the GoI, the RBI had increased the limit of Indian companies wishing to invest overseas from 100% of the net worth of the Indian firm to 200% during 2005. Additionally, it was also announced that it would be possible to further enhance the limit of overseas investment in deserving cases & several other rules pertaining to cross-border investments were simplified. These policies encouraged many Indian firms (especially conglomerates) to actively consider overseas investments as an option to acquit themselves as global players.Deal Financing**As there was reasonably low debt (US$2.4 bn. against equity of US$6.8bn.) on the balance sheet of Corus, Tata Steel was able to borrow US$6.26bn. on the balance sheet of Corus. Although Tata Steel Asia Holdings Pte. Ltd. and Tulip UK Holdings (No. 1) Ltd. had drawn approx. US$3.85bn. of bridge loans at the time of acquisition, Tata Steel repaid these loans out of equity issues, CARS & internal accruals.

Rationale for Tata Steels Acquisition of CorusAmongst the worlds most geographically branched out producers of steel today, Tata Steel operates in 26 countries, has presence in more than 50 nations and employs 80,000 employees in 5 continents. On 2nd April 2007, Tata Steel acquired 100% stake in Corus at 608 pence per share (Guardian, 2007) amounting to US$12.04 billion (seven times the EBITDA forecast of 2006) surpassing CSNs bid of 603 pence per share. Tata Steel had earlier acquired Singapore based Natsteel Ltd. and Thailand based Millennium Steel in during February & December 2005 respectively.The Tata Group already had extensive experience in domestic & cross-border acquisitions prior to this deal such as the acquisition of Tetley for $407million in 2002, Natsteel ($486 million) in 2004, VSNLs acquisition of U.S. based Teleglobe for $239million, U.S. based Eight O Clock Coffee and Glaceau for $220 million and $677 million respectively in 2006. (Forbes, 2006)

On 6th October 1999, Koninklijke Hoogovens N.V. and British Steel Plc. merged to form Corus. At the time of the acquisition, Corus could produce 21.2 MTPA steel and was the worlds ninth-largest producer of steel in the world (Annual Report of Corus, 2006) while Tata Steel was producing only 8.1 MTPA of steel, including 4.4 MTPA at the plant in India, Nat Steels plants produced 2 MTPA and 1.7 MTPA at the plant of Millennium Steel. (Tata Steel, Annual Report 2006) during that time. Corus comprised of four divisions long products, strip products, D&B systems and Aluminum.While Tata Steel was manufacturing long & flat steel products which were typically low value, high value stripped products were produced by Corus thereby creating a natural synergy between the two firms. Corus also owns a strong R&D unit with several patents to its credit which would facilitate cross fertilization of the R&D initiatives of both the firms and catalyze exchange in technology. (Chairmans Speech, Tata Steel Annual Report 2007).As on March 31, 2008, the equity capital infused by Tata Steel (including preference shares & warrants is US$ 7.45bn. The end use of the non-recourse borrowed funds (syndicated for Tata Steel UK) included upgradation of iron making facilities & installation of new facilities like thin slab casting, steel making shop, rolling mills and palletizing plants (capacity: 6 MTPA) in addition to acquisition of Corus.

Although in terms of shipments, Corus was approximately four times the size of Tata Steel, the operating profit achieved by Tata Steel in 2006 on sales of 5.3 MTPA of steel was USD 1.38 billion* while Corus achieved operating profit of only USD 797.02 million* on sale of 18.6 MTPA of steel in the same year. This highlights the exponentially superior levels of operating efficiency of Tata Steel as compared to Corus and the value that can be added to Corus by measures such as procuring significantly cheaper raw material from the iron ore mines owned by Tata Steel in India.*Figures converted to USD at retrospective exchange rate as on March, 2006**Figures extracted from the Tata Steel Annual Report, 2008 & converted to USD at retrospective exchange rate.

Rationale for Hindalcos Acquisition of NovelisDeal FinancingWith long term & short term debts of US$2.29bn.* against shareholders equity of just $0.19bn.*, a leveraged buyout like the case of Tata-Corus deal was not possible in this case. The deal was financed by debt of US$3.03bn. from a consortium of lenders and Noveliss existing bank loans of US$1.2bn. was refinanced by fresh term loans. Noveliss notes of US$1.4bn. continued to exist.Hindalcos treasury operations arranged US$ 450 million of equity. Further bridge loans of US$3.1 bn.** was arranged by subsidiaries of Hindalco on the Corporate Guarantee

The Georgia based Novelis which (a spin-off of the Canadian Alcan Inc.) was leading producer of aluminium rolled products in the world with shipments of 2,960 kt. in 2006 (Novelis, Annual Report-2006). On 15th May, 2007 the firm was acquired by Hindalco (flagship metal company of the Aditya Birla Group which was the largest producer of aluminium domestically in India) for a consideration of USD 44.93/share amounting to USD 6.2 billion (which was 16.6% higher than the closing price of the stock on February 9, 2007).The valuation offered by Hindalco translates into an Enterprise Value/EBITDA multiple of 38.99 and Market Cap/PBT multiple of 36 based on the 2007 year end results forecasted by Novelis. Earlier in March 2006, Aleris had acquired Coruss aluminium rolled product venture at a Market Cap/PBT multiple of just 18. This proves the bullish levels of bidding made by Hindalco in this case.

While Hindalco produced only 211,088 tonnes of aluminium in 2006, Novelis had produced 211,088 tonnes in that year. Also, the global market share of Novelis was 19% (Hindalco Annual Report, 2007) in the aluminium can recycling segment with sophisticated technology that Hindalco would have otherwise required over 10 years to build. (Kumar Mangalam Birla, 2007). Novelis employed 12,500 employees across 11 nations and reported sales of US$9.9bn in 2006. Hindalco would have access to reputed customers like Coca Cola, Ford, Kodak, General Motors, etc. by taking over Novelis. A predominantly upstream player, Hindalco would be able to add downstream operations after acquisition of Novelis. However, the COGS of Novelis was extremely high (94.6% of sales) and the firm was tied with some fixed-price contracts without an escalation clause which caused the company net loss of US$275 million in 2006. These agreements were however, expected to expire shortly.of Hindalco which was to be repaid by 10th Nov, 2008. Accordingly, interest costs rose from INR 314cr. in 2007 to INR 1849cr. in 2008.

* Figures extracted from Form 10-K (Annual Report) as reported by Novelis on March 1, 2007** Figures extracted from the Annual Report of Hindalco, 2008

Rationale for Suzlons Acquisition of REPowerDeal FinancingThe acquisition was predominantly financed by debt. On 9th Feb, 2007, Suzlon & its subsidiaries entered into a credit agreement with ABN AMRO Bank for an acquisition finance facility of US$ 800million. Secured debt of US$745 million was arranged against pledge of shares of REpower & corporate guarantee of Suzlon. Suzlon also issued zero-coupon convertible bonds to the tune of US$500 million during the financial year.

REpower was formed in 2001 by the merger of BWU, Jacobs Energie & Energiesysteme (German suppliers of wind turbines), functioned in the area of wind power and had installed 1,250MW during 2008 (Annual Report, Suzlon, 2008). While the market was predominantly dominated by 750kW class WTGs, REpower introduced the technologically sophisticated 1.5MW MD70/77 series of WTGs which was stellar performer and followed it up with production of 2MW WTGs with rotor diameters of upto 92.5metres. In its quest to be the market leader in offshore WTGs, Repower assembled a prototype of a 5MW 5M offshore WTG in 2004 at Brunsbuttel, Germany which was commissioned in the open sea by 2006. (REPower Annual Report, 2006) With rated output of 6.15 MW and rotor diameter of 126.5 metres, this was termed as a masterpiece by many and attracted immediate attention from companies like Suzlon & AREVA as the offshore market was expected to grow to 8,155MW by 2012 (Annual Report of Suzlon, 2008).During 2007, Suzlon had 58% market share in the 8000MW wind power capacity of India (Annual Report of Suzlon, 2008). Based out of Pune, Suzlon was the fifth largest in the world in terms of installations made annually (BTM Consult ApS - World Market Update) in 2007 and had installed huge capacities (3294MW) in USA, China, Australia, EU, Australia & South America. The range of products offered by Suzlon included medium capacity WTGs for the on-shore market, but it had long been aspiring to introduce off-shore class of WTGs, and that is where a natural synergy was available with Repower.The secured loans of Suzlon increased from US$ 3.17 billion* in FY 2006-07 to US$ 11.29 billion* in 2007-08 due the acquisitions of Hansen and Repower. Suzlons investments increased from US$2.5 million* in FY 2006-07 to US$ 501.8 million* in 2007-08 due the acquisition of REpower.

Along with gaining expertise in off-shore capabilities, the acquisition of REPower would also complement the supply chain strategies, product portfolio and geographical presence of Suzlon. On June 21, 2007, Suzlon acquired 33.6% stake in REPower for US$ 1.75 billion* which was gradually stepped up to 66% in 2008, 92% in 2009 and 100% in 2012. However, the acquisition was not appreciated by all experts. (Eize de Vries, 2007). Many believed that the valuation offered by Suzlon for the acquisition was too high. Suzlon itself was a young company (just 13 years old) at that point of time and many questioned the maturity levels of the firm to handle a cross-border business of this nature. Earlier in March 2006, Suzlon had acquired Belgium based Hansen for US$565 million to control the supply of wind turbine gearboxes. This acquisition was financed by a consortium of Banks and added to the debt pile of Suzlon. Unfortunately for Suzlon, they had to sell their stake in both based Hansen and REPower in the subsequent years due to heavy debts. REPower was later renamed to Senvion and sold at a distress valuation of US$1.09bn. in January, 2015.

*Approximate figures extracted from the Annual Report of Suzlon (2007-08)

Empirical ResultsAnnouncement Date v/s. Execution DateTata Steel Hindalco Suzlon Energy Analysis of Stock Movement: Announcement Date v/s. Execution DateWhile the share price of Suzlon was marginally lower on the announcement date as compared to the execution date, a backward trend is observed in case of Tata Steel and Hindalco. Further, Suzlon recorded a whopping 18.9% rise in its share price at BSE on the execution date which reflected the bullish sentiment of the market. Analysts were bullish on the REpower acquisition by Suzlon (Forbes, 2007) and predicted a neutral ROE by 2009.In case of Tata Steels acquisition of Corus, stock market reacted negatively to the expensive deal. While neutral view of the stock investors continued from the announcement date till the October 18, 2006 when Coruss board approved the acquisition. However, as the cost of the deal started rising (see appendix), shareholders started behaving negatively & the stock plummeted by 6.4% on December 11, 2006 on the news of Tata Steel raising its bid to $9.2 billion. In reaction to Tata Steels final bid of 608p / share, on January 31, 2007, the stock price further fell by 10.5% due to the investors skepticism about the piling debt levels for the deal which was now worth $12 billion. Similarly, and the market capitalization of Hindalco tanked by over INR 2,700 crores and there was a rush to offload shares as within two days, shareholders had dumped approximately 7.3 million shares since Hindalco announced the price for acquisition on February 11, 2007. The valuation premium paid by Hindalco for Novelis rose to 49.1% on January 25, 2007 from 16.61% on the date of announcement causing share prices to dip by 13.7%. By the close of next trading day the share price of Hindalco was lower than the Sensex by approximately 15%. Hindalcos Chairman made a statement urging the shareholders to remain patient and see the bigger picture.A similar trend was witnessed in the case of share volume movements where Suzlons stock volume rose a whopping 1252% on the execution date as compared to the announcement date. The same is not true for Tata Steel & Hindalco as the share volume dropped 73% and 95% on the execution date as compared to the announcement date for the two firms respectively. Performance of SharesPerformance in the Short Term (Note: Day 0 is the acquisition date) Share Price Share Volume Total Turnover Number of Trades Spread (High - Low) Spread (Close - Open)

Analysis: Performance of Shares in the Short Term (+, - 30 Days)There was growing concern over both the Corus & Novelis acquisitions as Corus was 3 times the size of Tata Steel (in terms of capacity) and Novelis made a loss of $275 million in 2006. While Corus was considered to be a drag on the balance sheet of Tata Steel (International Herald Tribune, 2007), analysts felt the Birlas were paying too much for Novelis that was caught in some fixed-price contracts without an escalation clause which caused the company net losses in 2006.Amidst growing concerns of Tata having overpaid for Corus and debt liabilities due to the acquisition (International Herald Tribune, 2007), the average share price of Tata Steel dropped to INR 434 on the date of acquisition further falling to INR 429 on the next day. In case of Suzlons acquisition of Repower, when Suzlon submitted the bid, the immediate reaction of the market was negative. However, with the transaction fructifying in an amicable way for a valuation of $1.8 billion (which was agreed to be paid over a period of time in installments) the market reacted positively with the share price rising over the 30 day timeline.The initial hysteria around acquisition can be observed from the steep rise in share volume and number of trades of all the three stocks in the first 7 days post acquisition. While stock volumes of all three firms show an upward trend after the M&A has just completed, we observe a decrease in the stock volume over a period of time.Further, the high spreads (close-open) of Suzlons shares during the acquisition week shows the active intra-day movement of the shares and may indicate towards weak correlation between the trading activities & the fundamentals of the company itself.

Performance in the Long Term (Note: Day 0 is the acquisition year) Share Price Movement Share Volume Movement EV/EBITDA Multiple EV/EBIT Multiple

Analysis: Performance of Shares in the Long Term (+, - 5 years) While the stock prices continued to drop for all three firms (biggest drop in Suzlons stock) in the first year after acquisition, Tata Steel & Hindalco seem to have recovered over a period of time while Suzlon continued its free fall. Corus was acquired by Tata Steel at the cost of 9 times its EBITDA while in the same year Arcelor was acquired by Mittal Steel for 6 times EBITDA Multiple Considering lack of exposure to cross-border acquisitions by Indian companies, Crisil declared a rating watch with negative insinuations on Tata Steel. B. Muthuraman (M.D., Tata Steel) was quoted saying that the acquisition price implies that the value of steel-making capacity at Corus is US$710/ton, which is much cheaper than installing a greenfield capacity which would cost upto $1300 per ton (Bloomberg, 2007). However, as per ARFS (2010), the valuation of the capacity at Corus is approximately $360-400/ton, which is slightly higher than half of what Tata Steel paid in 2007-08. The shares of Hindalco had underperformed Sensex by 26% even one year after the announcement. The reason for the sudden drop in stock price of Suzlon in 2008 (acquisition year) may not be completely attributed to the acquisition as the Company had announced a stock split in 2008 (January). The sudden rise in stock volume of Suzlon can also be attributed to the stock split which reduced the price of the stock making it more affordable for investors to buy. At the time of acquisition of Repower in 2006, the material cost of Suzlon was 60.3% while the material cost of Repower was 83.6%. Therefore, analysts reasoned that Repower could benefit tremendously if Suzlon can integrate its Indian & Chinese operations to bring down the material cost for REpower significantly.

Summary of Operating Performance: An approach using Financial RatiosIn order to summarize the exhaustive financial ratios, that were calculated to evaluate the pre and post-acquisition operating performance of acquiring firms, the following steps have been adopted:

Scoring system adopted to evaluate change in each financial ratio:Financial RatiosScoreScore

Positive change in financial ratio+1+1

Negative change in financial ratio-1-1

Cumulative Impact of all Major Financial RatiosFinancial RatiosComparing +, - 1 yearComparing +, - 5 years

Earnings per Share-1-1

Price/Earning Ratio-11

Dividend per Share-1-1

Gross Profit Margin (%)-1-1

Net Profit Margin (%)-1-1

Return On Capital Employed (%)-1-1

Return on Net Worth (%)-1-1

Return on Assets-1-1

Current Ratio-1-1

Quick Ratio-1-1

Debt Equity Ratio-1-1

Interest Coverage Ratio-1-1

Inventory Turnover Ratio1-1

Debtors Turnover Ratio-11

Fixed Assets Turnover Ratio1-1

Number of Days In Working Capital11

Material Cost Composition-1-1

Dividend Payout Ratio Net Profit1-1

Cash Earning Retention Ratio1-1

Cumulative Score-9-13

As can be observed from the above table, the financial ratios indicate that the financial health of the acquiring firms have only been deteriorating post the acquisition and contrary to the findings of Doi & Ikeda (1983), the levels of operating performance of acquiring firms continue to reduce even in the long run (unless the adjustment period defined as the time taken by the acquirer to learn to efficiently manage the acquired firm by Doi & Ikeda (1983) is more than the time period of 5 years considered in my analysis.Note: A graphical representation of the financial ratios has been captured in the appendix.

Analysis: Operating Performance of Acquiring FirmsTata Steel: Key Observations Soon after Tata Steel acquired Corus, the division producing long products at Corus was struggling due to low demand of the construction & infrastructure sector. (The Wall Street Journal, 2011). Because of lack in demand, Tata Steel was forced to embark on a 5 year restructuring programme worth GBP400million which resulted in loss of upto 1500 employees. Further, many factors such as the termination of the Teesside Offtake Agreement in Europe and the lower demand of long products in Europe & Thailand added to lower profitability of Tata Steel. (Tata Steel Annual Report, 2009-10). While Tata Steel is 100% & 50% backward integrated in terms of its iron ore & coking coal requirements respectively, Corus is entirely unprotected to raw material price volatility. While Tata Steel had stated offloading low cost slabs to Corus as a synergistic strategy, there was no spare slab capacity it could offer in 2006. While Tata Steels strengths were capacity utilization & low labor costs, Corus had strong unions, high labor costs & excess capacity. While Tata Steel is today rated in the BB family by most of the reputed Credit rating agencies, the firm used to be rated BBB- (S&P) which was two notches above Indias sovereign rating prior to the acquisition of Corus.Hindalco: Key Observations Similar dip in demand in the US & Eurpean market for flat rolled products & decrease in average LME price caused Hindalcos sales to fall from INR19,118 crores in FY2007-08 to INR18,334 crores in 2008-09 (Annual Report of Hindalco, 2009). The acquisition year of 2007-08 witnessed the deterioration of key value drivers at Hindalco such as stronger rupee, increase in input costs due to spike in crude prices, lower LME, etc. However, positives such as Hirakud expansion led to additional production of 35% as compared to 2007 helped to contain a fall in EBIT. Due to the fixed price contracts carried by Novelis, the firm declared $472 million unrealized losses for derivatives that were used to hedge foreign currency & commodities exposure. The sudden increase in debt from US$1.94 billion in 2007 to US$8.09 billion in 2008 (Hindalco Novelis-Analyst Presentation, 2008) caused the DSCR of Hindalco to drop from 15 times in 2007 to 3 times in 2008.Suzlon Energy: Key Observations Suzlon could never access the technology of REPower until it purchased the stake from all minority shareholders in 2012. Although Suzlon was reeling under a mountain of debt of INR 13,017 crore, it could not utilize the cash in the balance sheet of REPower due to prohibitive German laws. Suzlon soon found itself in a CDR programme in June, 2012 when the lenders were forced to restructure INR 9,500 crore loan obligations from its balance sheet. The recall of AD & GBI benefits in India during 2013 reduced the incentives offered to the IIPs in India which led to slower growth in wind capacity & had a catastrophic impact on the sales of Suzlon. (Suzlon Annual Report, 2012-13) Suzlon witnessed an unprecedented spike in COGS during FY2012-13 due to inventory mismatches, provisions made because of bad accounts, idle crane time caused by slower execution, etc. (Annual Report of Suzlon, 2013) Suzlon finally renamed REPower to Senvion & sold it to Centerbridge Partners, LP (a PE Fund that buys distressed assets) at a consideration of INR 7500 crores whereas it has purchased the same at INR 10,000 crores.The findings from our sample is in accordance to that of Ryngaert & Brown (1991), Fishman (1989) and Majluf & Myers (1984) which highlight although sales growth is observed in the acquiring firm after acquisition, cost reductions are not a reality which contradicts with the very purpose of acquisition as suggested by Duanmu & De Beule (2012).ConclusionBy comparing the pre and post-acquisition financial positions of the selection of acquiring firms, there is very little evidence to support that the operating performance of the acquiring firms have improved following acquisitions. The possible limitations of my research are that all the chosen acquisitions were cash transactions & hence we cannot form any view on stock acquisitions, the firms operate in different industries, size, etc., and these examples are limited to cross-border acquisitions only. It may therefore be concluded that firms need to identify economic rationale and not get carried away by ego and emotion (Malvinder Singh - CEO, Ranbaxy) in case of cross-border acquisitions. True to his own advice, Mr. Singh offloaded his entire stake in Ranbaxy to a Japanese drug producer (Daiichi Sankyo) and eminent business tycoons from India such as Anand Mahindra (Chairman, Mahindra & Mahindra) said he felt regret that Japan will now control the Indian MNC. Within a year, the share price of Ranbaxy plummeted by 70% coercing Daiichi to write-down the value of Ranbaxy by $3.6 billion.In conclusion, the causes for underperformance observed in the selected firms may be directly linked to agency problems, easy capital (as the firms would not be under the debt piles had the funding institutions evaluated the debt servicing capabilities post-acquisition more carefully) and difficulty in achieving true integration in cross-border mergers & acquisitions.

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