MERGERS, ACQUISITIONS AND JOINT VENTURES s

MEANINGMerger •A transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage.

•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

•Example: 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.

MERGER ACQUISITION

COMPANY A

COMPANY A

COMPANY BCOMPANY B

Company A and Company B together form the new

Company C

Company A buys Company B Company A

MERGER ACQUISITION

DIFFERENCE BETWEEN MERGER AND ACQUISITION:

i. Merging of two organization in to one.

ii. It is the mutual decision.

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

iv. Through merger shareholders can increase their net worth.

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

vi. Dilution of ownership occurs in merger.

i. Buying one organization by another.

ii. It can be friendly takeover or hostile takeover.

iii. Acquisition is less expensive than merger.

iv. Buyers cannot raise their enough capital.

v. It is faster and easier transaction.

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

WHY IS IMPORTANT PROBLEM WITH MERGER

MERGER:WHY & WHY NOT

i. Increase Market Share.

ii. Economies of scaleiii. Profit for Research

and development.iv. Benefits on account

of tax shields like carried forward losses or unclaimed depreciation.

v. Reduction of competition.

i. Clash of corporate cultures

ii. Increased business complexity

iii. Employees may be resistant to change

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WHY IS IMPORTANT PROBLEM WITH ACUIQISITION

ACQUISITION:WHY & WHY NOT

i. Increased market share.

ii. Increased speed to market

iii. Lower risk comparing to develop new products.

iv. Increased diversification

v. Avoid excessive competition

i. Inadequate valuation of target.

ii. Inability to achieve synergy.

iii. Finance by taking huge debt.

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PROCESS OF MERGER & ACQUISITION IN INDIA:

i. Approval of Board of Directors

ii. Information to the stock exchange

iii. Application in the High Court

iv. Shareholders and Creditors meetings

v. Sanction by the High Court

vi. Filing of the court order

vii.Transfer of assets or liabilities

viii.Payment by cash and securities

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

MEANING OF JOINT VENTURE

Joint venture is the co operation of two or more individuals or business in which each agrees to share profit, loss and

control in a specific enterprise.

FEATURES OF JOINT VENTURE

• Joint venture is a short duration special purpose partnership.

• Joint venture does not follow the accounting concept 'going concern'.

• The members of joint venture are known as co-ventures.

• Joint venture is a temporary business activity.

• In joint venture, profits and losses are shared in agreed proportion. If there is no agreement regarding the distribution of profit, they will share profit equally.

• Joint venture is an agreement for polling of capital and business abilities to be employed in some profitable venture.

ADVANTAGES• Accessing additional financial resources:

• Sharing the economic risk with co-venturer

• Widening economic scope fast

• Tapping newer methods, technology, and approach you do not have 

• Building relationship with vital contacts

DISADVANTAGES• Shared profit – Since you share assets, you also share the profit.

• Diminished control over some important matters - Operational control and decision making are sometimes compromised in joint ventures.

• Undesired outcome of the quality of the product or project.

• Uncontrolled or unmonitored increase in the operating cost

DIFFERENCE BETWEEN MERGER, ACQUISITION & JOINT VENTURE

• Merger = two companies come together "permanently" for mutual gains or to reduce competition

• Acquisition = one company buys another company which may or may not be doing well

• Takeover = same like "acquisition", but generally a company buys another company which is not doing well or has gone bankrupt.

• Joint Venture = two companies come together "temporarily" for mutual gains for a particular project/job. after the project/job is completed the joint venture is dissolved.

TOP 11 M&A DEALS…

• January 30, 2007

• Largest Indian take-

over

• After the deal TATA’S

became the 5th largest

STEEL co.

• 100 % stake in CORUS

paying Rs 428/- per

share

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

1. Tata Steel-Corus: $12.2 billion

2. VODAFONE-HUTCHISON ESSAR: $11.1 BILLION

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

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

3. HINDALCO-NOVELIS: $6 BILLION

• June 2008• Aluminium and

copper sector• Hindalco Acquired

Novelis Hindalco entered

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

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

4. RANBAXY-DAIICHI SANKYO: $4.5 B

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

Indian pharma industry• Daiichi Sankyo

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

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

5. ONGC-IMPERIAL ENERGY:$2.8BILLION

• January 2009• Acquisition deal• Imperial energy is a

biggest chinese co.• ONGC paid 880 per

share to the shareholders of imperial energy• ONGC wanted to tap

the siberian market

Image: Imperial Oil CEO Bruce March.

6. NTT DOCOMO-TATA TELE: $2.7 B

• November 2008 • Telecom sector• Acquisition deal • Japanese telecom

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

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

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

• February, 2008• Banking sector• Acquisition deal• CBoP shareholders

got one share of HDFC Bank for every 29 shares held by them.• 9,510 crore

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

• 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.

8. Tata Motors-Jaguar Land Rover: $2.3 billion

9. STERLITE-ASARCO: $1.8 BILLION

• May 2008• Acquisition deal• Sector copper

Image: Vedanta Group chairman Anil Agarwal.

10. SUZLON-REPOWER: $1.7 BILLION

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

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

11. RIL-RPL MERGER: $1.68 BILLION

• March 2009• Merger deal• amalgamation of

its subsidiary Reliance Petroleum with the parent company Reliance industries ltd.• Rs 8,500 crore• RIL-RPL merger

swap ratio was at 16:1

Image: Reliance Industries' chairman Mukesh Ambani.