MERGERS & ACQUISITIONSBY PARTHA S. PANDA

109MN0121

SANJIB PRAHARAJ109MN0123

PURNA B. RAI109MN0486

SIDDHARTH B. PARASHAR109MN0122

MERGERS

Merger is a financial tool used for enhancing long term profitability by

expanding their operation. It occurs when merging companies have their mutual

consent. It is also referred as “merger of equals”

TYPES OF MERGERS…Horizontal merger.Conglomerate merger.Vertical merger.Product extension merger.Market extension merger.

A B

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Merging Horizontal

Horizontal

A B

D

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Engine

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Vertical Vertical

A B

D

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Conglomerate

Conglomerate

EXAMPLES OF DIFF. TYPES OF MERGERS….Horizontal mergers Merger of Bank of Mathura & ICICI. Merger of BSES with Orissa power supply.Vertical merger Merger of Time warner corporation with Turner

corporation.Conglomerate mergers Merger of Walt Disney Comp. & American Broad

casting company. Market extension merger. Merger of Eagle Bancshares by the RBC centura .Product extension Mergers. Merger of Mobilink Telecom by Broadcom.

Motivation of

mergers

Desired to unified control

Desire to enjoy

monopoly power

Government pressure

Elimination of competance

Adopton of modern

technology

Lack of managerial

talent

Personal ambition

Patent rights

Economics of large scale business

BENEFITS OF MERGING…

• Iron out the internal difference to maintain satisfaction.

• Increase in production .

• Cost efficiency.

• Increase in share value of a firm.

Share holders benefit.

Market benefit.

Employee’s benefit.

Company’s benefit.

ACQUISITIONS

An acquisition is the buying of company by another. It is also known as take over or buyout.

It occurs between the bidding and the target company. It may be either hostile or friendly takeovers. Reverse takeovers may occur when target is larger than bidding firm.

TYPES OF ACQUISITIONS..

Friendly acquisitions - In this type , the target company’s board negotiates or accept the offer in a friendly or welcoming manner.

Hostile acquisitions – Within this type the target company’s board is not willing to be bought or the target’s company has no prior

knowledge of this offer.

STEPS INVOLVED IN ACQUITIONS

Start with an offer…

The target’s response….

Accept the terms of the offer.

Attempt to negotiate.Execute a poison billFind a white knight.

Closing the deal…

HISTORY OF MERGERS & ACQUISITIONS

Tracing back to history, merger & acquisition have evolved in five stages . As seen from past experience M&A are triggered by economic factors.

1st wave mergers

(1897-1904)

2nd wave mergers

(1916-1929)

3rd wave mergers

(1965-1969)

4th wave mergers

(1981-1989)

5th wave mergers (1992-till

now)

VALUATION MATTERS…..Investors in a company that are aiming to

take over one must determine whether the purchase will be beneficial to them or not.

Common methods of assessing a target company are..

Comparative ratios

P/E ratio.

EV/sales ratio.

Replacement cost.

Discounted cash flow

LARGEST M&A DEALS WORLDWIDERank

Year Acquirer Target Trans. value

%

1 2000 American online inc.

Time warner

167747 21.83

2 2000 Glaxo wellcome plc.

Smithkline Beecham Plc.

75961 10.06

3 2004 Royal Dutch Petroleum co.

Shell Transport & Trading Co.

74559 9.87

4 2006 AT&T inc. Bellsouth Corporation

72671 9.62

5 2001 Comcast corporation

AT&T broadband svcs

72041 9.54

WHY THEY CAN FAIL…Historical trends shows that roughly two

thirds of big mergers will disappoint on their own terms, which means they will lose value on the stock market.

Some common reasons are>>>FLAWED INTENTIONS &THE OBSTACLES TO MAKING IT WORK.

Integration Difficulties

Inadequate evaluation of

target

Larger or extraordinary

debt

Inability to achieve synergy

Too much diversification

Managers overly focussed in acquisitions

Problems in achieving success

If the merged companies wants to break up , corporate finance do the reverse and break

up companies through

Spinoffs

Carve-outs

Tracking stocks

M&A IN DIFFERENT SECTORS IN INDIA…Banking sector – In this sector , imp. M&A in India in recent years include the merger b/w IDBI & its own

subsidiary . The deal was worth $ 174.6 million.Another imp. Merger was that b/w Centurian bank &

bank of punjab worth $ 82.6 million.Telecom sector – In the Telecom sector , an increase of

stakes by SingTEL from 26.92% to 32.8% in Bharati Telecom was worth $252 million.

In Foods & FMCG sector, a controlling stake of Shaw Wallace & co. was aquired by United Breweries

Group owned by Vijay Malya. This deal was worth $ 371.6 million.

STATUS OF THOSE SECTORS…

In 2005 , finance topped the list with 20% of total value of M&A in India taking place in this sector.

Telecom accounted for 16%.

FMCG & Construction materials for 10%.

CROSS BORDER M&A :INDIAYEAR SALES PURCHASES

2000 1219 910

2001 1037 2195

2002 1698 270

2003 949 1362

2004 1760 863

2005 4210 2649

TOTAL 10873 8249

CROSS BORDER M&A IN INDIA

1 2 3 4 5 6 70

500

1000

1500

2000

2500

3000

3500

4000

4500

YEARSALESPURCHASE

INDIA DOMINATING…….India has emerged as one of the top

countries w.r.t merger and acquisition deals.

In 2007 , the first 2 months alone accounted for M&A deals worth $ 40 billion in India. The estimated figures for the entire year projected a total of more than $ 150 billion .

This is two fold growth from 2006 & a growth of almost four times from 2005.

• Arcelor acquired by Mr. Lakshmi Mittal.

• Mahindra & Mahindra's takeover of 90 percent stake in Schoneweiss, a family-owned German company.

• Tata's takeover of Corus & Tetley Tea Co.

• Swiss cement major, Holcim, which acquired a 67 per cent stake in Ambuja Cement India Ltd (ACIL).

• Videocon Group's acquisition of Thomson's colour picture tube business in China, Poland, Mexico, and Italy for a total of $290 million

Indian Scenario - Major Deals

The Top 10 Acquisitions made by Indian Companies Worldwide.

ACQUIRER TARGET COMPANY

COUNTRY TARGETED

DEAL VALUE IN $

INDUSTRY

Tata steel Corus groups

UK 12000 Steel

Hindalco Novelis Canada 5982 Steel

Videocon Daewoo Electronics

Korea 729 Electronics

DR.reddy’s Labs

Betapharm Germany 597 Pharamaceuticals

Suzlon Energy

Hansen group

Belgium 565 Energy

HPCL Kenya petroleum

Kenya 500 Oil and gas

Ranbaxy labs

Terapia SA Romania 324 Pharmaceuticals

Tata steel Natsteel Singapore 293 Steel

Videocon Thomson SA

France 290 Electronics

BSNL Teleglobe Canada 239 Telecom

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