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Project Report on:

Mergers & Acqisitions (India)

Submitted By:
NAME: Siddhi Agarwal
SEAT NO: __________
Semester V
Submitted To:
University Of Mumbai
Project Guide:
CA(Mrs.) Shital Trivedi
Academic Year

This is to certify that the project entitled Mergers
&Acquisitions (India) is successfully done by
Siddhi Agarwal . During the Third Year, Fifth Semester of [Financial Markets] under University Of Mumbai
through the Thakur College of Science & Commerce,
Kandivali (East), Mumbai 400101.

Date: _________



Project Guide


Place: ____________

External Examiner

I Siddhi Agarwal from Thakur College of Science & Commerce,
student of T.Y.B.Com (Financial Markets), semester VI,
Examination Seat no:-_________, here by submit my project report
on Mergers & Acquisitions (India).
I also declare that this project which is the partial fulfillment of the
requirement for the degree of T.Y.B.Com (Financial Markets) of
University of Mumbai, is the result of my own efforts with the help
of experts.

Date: __________

Signature : __________


It gives me immense pleasure in presenting the project report on Mergers &

Acquisitions (India) .
Firstly, I take the opportunity in thanking almightily and my parents without
whose continuous blessings, I would not have been able to complete this project.
I would like to thank my project guide CA Shital Trivedi for her great help,
valuable opinions, advice and suggestions in fulfillment of this project.
I am also grateful to my co-ordinator, Mrs. Rashmi Shetty for always
encouraging and given me new hope to do this project.
I convey my deep appreciation to them for sparing their valuable time and
efforts, so as to make me capable of presenting this project.
I am thankful to our college for all the possible assistance and support, by making
available the required books and internet room which have proved useful to me
in successfully completing my project.
I hope that I have succeeded in presenting this project to the best of my abilities.

After several years of declining activity, mergers and acquisitions (M&As) are making
a comeback in India . More deals are occurring, and the value of transactions is also on
the rise. Year-end totals for 2000 marked the first upswing in India.-based merger and
acquisition activity since the turn of the century.
Mega-deals (those valued at over $1 billion) have had significant impact, but some
analysts have noted that their popularity may be short-lived. However, firms are
beginning to question the profitability of such transactions, and deal sizes have
diminished for now. Now in India, companies have started engaging their business
profile pertaining to reverse merger as well as merger arbitrage thereby widening the
scope for domestic M&As.
Regardless of size, many firms are not prepared to meet the people management
challenges that M&As often introduce. A study conducted by Accenture, a global
management consulting, technology services and outsourcing company, found that
only 48% of surveyed firms believe their post-merger integration practices are sound.
The same study suggests that performance management systems are not adequately
tied to merger successes; just 37% of respondents reported that executives are
evaluated according to ongoing integration metrics.
Pre-planning can help firms avoid pitfalls that would otherwise doom a deal, whether a
merger is cross-border or domestic. Mergers fail for three primary reasons, according
to a poll by Thomson Financial and the Association for Corporate Growth:
inadequate post-merger integration,
too high a price paid for the acquired business
insufficient communications.
Due diligence is key to ethical and successful planning , but some firms are not doing
all they should. What might be the reason for their failure?
According to the 2003 research document, there has been slightly less than two-thirds
of companies surveyed conducted due diligence in the M&A process.
It's never too early for an organization to develop some expertise in M&As. After all,
based on current trends, the likelihood of a company's becoming involved in a merger
is increasing. By making basic preparations, can help firms update their processes and
procedures and decide if a future M&A would be in their best interest.


To understand the process of increase and diversification of sources of revenue by the

acquisition of new and complementary product and service offerings (Revenue Synergies)

To understand the increase in production capacity through acquisition of workforce and facilities
(Operational Synergies)

To know the increase in market share and economies of scale prevalent in the market (Revenue
Synergies/Cost Synergies)

To analyse the extent of reduction of financial risk and potentially lower borrowing costs
(Financial Synergies)

To get an understanding of the optimal increase

in operational efficiency and expertise

(Operational Synergies/Cost Synergies)

To make a detailed study of Research & Development expertise and programs (Operational
Synergies/Cost Synergies)


Sr. No.


Pg. No.








Meaning of Mergers & Aquisitions



Difference between Mergers & Aquisitions



Types of Mergers & Aquisitions



Process of Mergers & Aquisitions



Merger Regulations



Merger Arbitrage



Reverse Merger



Merger Agreement



Merger & Acquisition : Adviosry



Methods of valuation of M&A


Sr. No.


Pg. No.


Benefits of M&A



Problems related to M&A



Reasons behind M&A



Important tactics of M&A



Due diligence



Major M&A Deals in India



Review OF Literature







Indian enterprises were subjected to strict control regime before 1990s. This has led to haphazard
growth of Indian corporate enterprises during that period. The reforms process initiated by the
Government since 1991, has influenced the functioning and governance of Indian enterprises which
has resulted in adoption of different growth and expansion strategies by the corporate enterprises. In
that process, mergers and acquisitions (M&As) have become a common phenomenon. M&As are not
new in the Indian economy. In the past also, companies have used M&As to grow and now, Indian
corporate enterprises are refocusing in the lines of core competence, market share, global
competitiveness and consolidation. This process of refocusing has further been hastened by the
arrival of foreign competitors. In this backdrop, Indian corporate enterprises have undertaken
restructuring exercises primarily through M&As to create a formidable presence and expand in their
core areas of interest.

Mergers & Acquisitions in India

M&As have played an important role in the transformation of the industrial sector of India since the
Second World War period. The economic and political conditions during the Second World War and
postwar periods (including several years after independence) gave rise to a spate of M&As. The
inflationary situation during the wartime enabled many Indian businessmen to amass income by way
of high profits and dividends and black money (Kothari 1967). This led to wholesale infiltration of
businessmen in industry during war period giving rise to hectic activity in stock exchanges. There
was a craze to acquire control over industrial units in spite of swollen prices of shares. The practice
of cornering shares in the open market and trafficking of managing agency rights with a view to
acquiring control over the management of established and reputed companies had come prominently
to light. The net effect of these two practices, viz of acquiring control over ownership of companies
and of acquiring control over managing agencies, was that large number of concerns passed into the
hands of prominent industrial houses of the country (Kothari, 1967). As it became clear that India
would be gaining independence, British managing agency houses gradually liquidated their holdings
at fabulous prices offered by Indian Business community. Besides, the transfer of managing agencies,
there were a large number of cases of transfer of interests in individual industrial units from British to
Indian hands. Further at that time, it used to be the fashion to obtain control of insurance companies
for the purpose of utilising their funds to acquire substantial holdings in other companies. The big
industrialists also floated banks and investment companies for furtherance of the objective of
acquiring control over established concerns.
The post-war period is regarded as an era of M&As. Large number of M&As occurred in industries
like jute, cotton textiles, sugar, insurance, banking, electricity and tea plantation. It has been found
that, although there were a large number of M&As in the early post independence period, the anti-big
government policies and regulations of the 1960s and 1970s seriously deterred M&As. This does not,
of course, mean that M&As were uncommon during the controlled regime. The deterrent was mostly
to horizontal combinations which, result in concentration of economic power to the common
detriment. However, there were many conglomerate combinations. In some cases, even the
Government encouraged M&As; especially for sick units. Further, the formation of the Life
Insurance Corporation and nationalization of the life insurance business in 1956 resulted in the
takeover of 243 insurance companies. There was a similar development in the general insurance
business. The national textiles corporation (NTC) took over a large number of sick textiles units (Kar

Recent Development in Mergers & Acquisitions

The functional importance of M&As is undergoing a sea change since liberalisation in India. The
MRTP Act and other legislations have been amended paving way for large business groups and
foreign companies to resort to the M&A route for growth. Further The SEBI (Substantial Acquisition
of Shares and Take over) Regulations, 1994 and 1997, have been notified. The decision of the
Government to allow companies to buy back their shares through the promulgation of buy back
ordinance, all these developments, have influenced the market for corporate control in India.



M&As as a strategy employed by several corporate groups like R.P. Goenka, Vijay Mallya and
Manu Chhabria for growth and expansion of the empire in India in the eighties. Some of the
companies taken over by RPG group included Dunlop, Ceat, Philips Carbon Black, Gramaphone
India. Mallyas United Breweries (UB) group was straddled mostly by M&As. Further, in the post
liberalization period, the giant Hindustan Lever Limited has employed M&A as an important growth
strategy. The Ajay Piramal group has almost entirely been built up by M&As. The south based,
Murugappa group built an empire by employing M&A as a strategy. Some of the companies acquired
by Murugappa group includes, EID Parry, Coromondol Fertilizers, Bharat Pulverising Mills, Sterling
Abrasives, Cut Fast Abrasives etc. Other companies and groups whose growth has been contributed
by M&As include Ranbaxy Laboratories Limited and Sun Pharmaceuticals Industries particularly
during the later half of the 1990s. During this decade, there has been plethora of M&As happening in
every sector of Indian industry. Even, the known and big industrial houses of India, like Reliance
Group, Tata Group and Birla group have engaged in several big deals.

Most histories of M&A begin in the late 19th century U.S. However, mergers coincide historically
with the existence of companies. In 1708, for example, the East India Company merged with an
erstwhile competitor to restore its monopoly over Indian trade. In 1784, the Italian Monte dei Paschi
and Monte Pio banks were united as the Monti Reuniti.[29] In 1821, the Hudson's Bay Company
merged with the rival North West Company.
The Great Merger Movement: 18951905
The Great Merger Movement was a predominantly U.S. business phenomenon that happened from
1895 to 1905. During this time, small firms with little market share consolidated with similar firms to
form large, powerful institutions that dominated their markets. It is estimated that more than 1,800 of
these firms disappeared into consolidations, many of which acquired substantial shares of the markets
in which they operated. The vehicle used were so-called trusts. In 1900 the value of firms acquired in
mergers was 20% of GDP. In 1990 the value was only 3% and from 1998 to 2000 it was around 10
11% of GDP. Companies such as DuPont, US Steel, and General Electric that merged during the
Great Merger Movement were able to keep their dominance in their respective sectors through 1929,
and in some cases today, due to growing technological advances of their products, patents, and brand
recognition by their customers. There were also other companies that held the greatest market share
in 1905 but at the same time did not have the competitive advantages of the companies like DuPont
and General Electric. These companies such as International Paper and American Chicle saw their
market share decrease significantly by 1929 as smaller competitors joined forces with each other and
provided much more competition. The companies that merged were mass producers of homogeneous
goods that could exploit the efficiencies of large volume production. In addition, many of these
mergers were capital-intensive. Due to high fixed costs, when demand fell, these newly merged
companies had an incentive to maintain output and reduce prices. However more often than not
mergers were "quick mergers". These "quick mergers" involved mergers of companies with unrelated
technology and different management. As a result, the efficiency gains associated with mergers were
not present. The new and bigger company would actually face higher costs than competitors because
of these technological and managerial differences. Thus, the mergers were not done to see large
efficiency gains, they were in fact done because that was the trend at the time. Companies which had
specific fine products, like fine writing paper, earned their profits on high margin rather than volume
and took no part in Great Merger Movement.
Short-run factors
One of the major short run factors that sparked The Great Merger Movement was the desire to keep
prices high. However, high prices attracted the entry of new firms into the industry.
A major catalyst behind the Great Merger Movement was the Panic of 1893, which led to a major
decline in demand for many homogeneous goods. For producers of homogeneous goods, when
demand falls, these producers have more of an incentive to maintain output and cut prices, in order to
spread out the high fixed costs these producers faced (i.e. lowering cost per unit) and the desire to
exploit efficiencies of maximum volume production. However, during the Panic of 1893, the fall in
demand led to a steep fall in prices.
Another economic model proposed by Naomi R. Lamoreaux for explaining the steep price falls is to
view the involved firms acting as monopolies in their respective markets. As quasi-monopolists,
firms set quantity where marginal cost equals marginal revenue and price where this quantity
intersects demand. When the Panic of 1893 hit, demand fell and along with demand, the firms
marginal revenue fell as well. Given high fixed costs, the new price was below average total cost,
resulting in a loss. However, also being in a high fixed costs industry, these costs can be spread out
through greater production (i.e. Higher quantity produced). To return to the quasi-monopoly model,
in order for a firm to earn profit, firms would steal part of another firms market share by dropping
their price slightly and producing to the point where higher quantity and lower price exceeded their

average total cost. As other firms joined this practice, prices began falling everywhere and a price
war ensued.[30]
One strategy to keep prices high and to maintain profitability was for producers of the same good to
collude with each other and form associations, also known as cartels. These cartels were thus able to
raise prices right away, sometimes more than doubling prices. However, these prices set by cartels
only provided a short-term solution because cartel members would cheat on each other by setting a
lower price than the price set by the cartel. Also, the high price set by the cartel would encourage new
firms to enter the industry and offer competitive pricing, causing prices to fall once again. As a result,
these cartels did not succeed in maintaining high prices for a period of more than a few years. The
most viable solution to this problem was for firms to merge, through horizontal integration, with
other top firms in the market in order to control a large market share and thus successfully set a
higher price.[citation needed]
Long-run factors[edit]
In the long run, due to desire to keep costs low, it was advantageous for firms to merge and reduce
their transportation costs thus producing and transporting from one location rather than various sites
of different companies as in the past. Low transport costs, coupled with economies of scale also
increased firm size by two- to fourfold during the second half of the nineteenth century. In addition,
technological changes prior to the merger movement within companies increased the efficient size of
plants with capital intensive assembly lines allowing for economies of scale. Thus improved
technology and transportation were forerunners to the Great Merger Movement. In part due to
competitors as mentioned above, and in part due to the government, however, many of these initially
successful mergers were eventually dismantled. The U.S. government passed the Sherman Act in
1890, setting rules against price fixing and monopolies. Starting in the 1890s with such cases as
Addyston Pipe and Steel Company v. United States, the courts attacked large companies for
strategizing with others or within their own companies to maximize profits. Price fixing with
competitors created a greater incentive for companies to unite and merge under one name so that they
were not competitors anymore and technically not price fixing.
The economic history has been divided into Merger Waves based on the merger activities in the
business world as:

First Wave
Second Wave
Third Wave


Fourth Wave


Fifth Wave
Sixth Wave

Horizontal mergers
Vertical mergers
Diversified conglomerate mergers
Congeneric mergers; Hostile takeovers;
Corporate Raiding
Cross-border mergers
Shareholder Activism, Private Equity, LBO


A merger or aquisition is a combination of two companies where one corporation is completely
absorbed by another corporation. The less important company loses its identity and becomes part of
the more important corporation, which retains its identity. A merger extinguishes the merged
corporation and surviving corporation assumes all the rights, privileges and liabilities of the merged
corporation. A merger is not the same as a consolidation, in which two corporations lose their
separate identities and unite to form a completely new corporation.
Federal and state law regulates mergers and acquisitions. Regulation is based on the concern that
mergers inevitably eliminate competition between the merging firms. This concern is most acute
where the participants are direct rivals because courts often presume that such arrangements are more
prone to restrict output and to increase prices. The fear that the mergers and acquisitions reduce
competition has meant that the government carefully scrutinizes proposed mergers. On the other
hand, the federal government has become less aggressive in seeking the preventions of mergers.
Despite concerns about a lessening of competition, U.S. law has left firms relatively free to buy or
sell entire companies or specific parts of a company. Mergers and acquisitions often result in a
number of social benefits. Mergers can bring better management or technical skill to bear on
underused assets. They also can produce economies of scale and scope that reduce costs, improve
quality, and increase output. The possibility of a takeover can discourage company managers from
behaving in ways that fail to maximize profits. A merger can enable a business owner to sell the firm
to someone who is already familiar with the industry and who would be in a better position to pay the
highest price. The prospect of a lucrative sale induces entrepreneurs to form new firms. Finally, many
mergers pose few risks to competition.
Antitrust merger law seeks to prohibit transactions whose probable anticompetitive consequences
outweigh their likely benefits. The critical time for review usually is when the merger is first
proposed. This requires enforcement agencies and courts to forecast market trends and future effects.
Merger cases examine past events or periods to understand each merging party's position in its
market and to predict the merger's competitive impact.
Mergers and acquisitions are both aspects of strategic management, corporate finance and
management dealing with the buying, selling, dividing and combining of different companies and
similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new
field or new location, without creating a subsidiary, other child entity or using a joint venture.
Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a
smaller firm will acquire management control of a larger and/or longer-established company and
retain the name of the latter for the post-acquisition combined entity. This is known as a reverse
takeover. Another type of acquisition is the reverse merger, a form of transaction that enables a
private company to be publicly listed in a relatively short time frame. A reverse merger occurs when
a privately held company (often one that has strong prospects and is eager to raise financing) buys a
publicly listed shell company, usually one with no business and limited assets.
The combined evidence suggests that the shareholders of acquired firms realize significant positive
"abnormal returns" while shareholders of the acquiring company are most likely to experience a
negative wealth effect. The overall net effect of M&A transactions appears to be positive: almost all
studies report positive returns for the investors in the combined buyer and target firms. This implies
that M&A creates economic value, presumably by transferring assets to management teams that
operate them more efficiently


A merger occurs when two separate entities combine forces to create a new, joint organization.
An acquisition refers to the takeover of one entity by another. A new company does not emerge from
an acquisition; rather, the smaller company is often consumed and ceases to exist, and its assets
become part of the larger company.
Acquisitions sometimes called takeovers generally carry a more negative connotation than
For this reason, many acquiring companies refer to an acquisition as a merger even when it is clearly

Legally speaking, a merger requires two companies to consolidate into a new entity with a new
ownership and management structure (ostensibly with members of each firm).
An acquisition takes place when one company takes over all of the operational management decisions
of another.
The more common interpretive distinction is whether the purchase is friendly (merger) or hostile

In practice, friendly mergers of equals do not take place very frequently.
It's uncommon that two companies would benefit from combining forces and two different CEOs
agree to give up some authority to realize those benefits.
When this does happen, the stocks of both companies are surrendered and new stocks are issued under
the name of the new business identity.

Merger involves high legal cost and therefore is more expensive than aquistion.
Aquistion involves least or no legal cost and therefore is less expensive than mergers.

It is time consuming and the company has to maintain so much legal issues.
It is faster and easier transaction.
Since mergers are so uncommon and takeovers are viewed in a negative light, the two terms have
become increasingly conflated and used in conjunction with one another. Contemporary corporate
restructurings are usually referred to as merger and acquisition (M&A) transactions rather than simply
a merger or acquisition. The practical differences between the two terms are slowly being eroded by
the new definition of M&A deals.







Horizontal Mergers
Horizontal mergers happen when a company merges or takes over another company that offers the
same or similar product lines and services to the final consumers, which means that it is in the same
industry and at the same stage of production. Companies, in this case, are usually direct competitors.
For example, if a company producing cell phones merges with another company in the industry that
produces cell phones, this would be termed as horizontal merger. The benefit of this kind of merger is
that it eliminates competition, which helps the company to increase its market share, revenues and
profits. Moreover, it also offers economies of scale due to increase in size as average cost decline due
to higher production volume. These kinds of merger also encourage cost efficiency, since redundant
and wasteful activities are removed from the operations i.e. various administrative departments or
departments suchs as advertising, purchasing and marketing.

Vertical Mergers
A vertical merger is done with an aim to combine two companies that are in the same value chain of
producing the same good and service, but the only difference is the stage of production at which they
are operating. For example, if a clothing store takes over a textile factory, this would be termed as
vertical merger, since the industry is same, i.e. clothing, but the stage of production is different: one
firm is works in territory sector, while the other works in secondary sector. These kinds of merger are
usually undertaken to secure supply of essential goods, and avoid disruption in supply, since in the
case of our example, the clothing store would be rest assured that clothes will be provided by the
textile factory. It is also done to restrict supply to competitors, hence a greater market share, revenues
and profits. Vertical mergers also offer cost saving and a higher margin of profit, since
manufacturers share is eliminated.

Concentric Mergers
Concentric mergers take place between firms that serve the same customers in a particular industry,
but they dont offer the same products and services. Their products may be complements, product
which go together, but technically not the same products. For example, if a company that produces
DVDs mergers with a company that produces DVD players, this would be termed as concentric
merger, since DVD players and DVDs are complements products, which are usually purchased
together. These are usually undertaken to facilitate consumers, since it would be easier to sell these
products together. Also, this would help the company diversify, hence higher profits. Selling one of
the products will also encourage the sale of the other, hence more revenues for the company if it
manages to increase the sale of one of its product. This would enable business to offer one-stop
shopping, and therefore, convenience for consumers. The two companies in this case are associated
in some way or the other. Usually they have the production process, business markets or the basic
technology in common. It also includes extension of certain product lines. These kinds of mergers
offer opportunities for businesses to venture into other areas of the industry reduce risk and provide
access to resources and markets unavailable previously.

Conglomerate Merger
When two companies that operates in completely different industry, regardless of the stage of
production, a merger between both companies is known as conglomerate merger. This is usually
done to diversify into other industries, which helps reduce risks.




Asset acquisitions
In an asset sale, individually identified assets and liabilities of the seller are sold to the acquirer. The
acquirer can choose ("cherry pick") which specific assets and liabilities it wants to purchase, avoiding
unwanted assets and liabilities for which it does not want to assume responsibility. The asset
purchase agreement between the buyer and seller will list or describe and assign values to each asset
(or liability) to be acquired, including every asset from office supplies to goodwill. Determining the
fair value of each

asset (or liability) acquired can be mechanically complex and expensive; tedious valuations are costly
and title transfer taxes must be paid on each asset transferred. Also, some assets, such as government
contracts, may be difficult to transfer without the consent of business partners or regulators.
If the assets to be acquired are not held in a separate legal entity, they must be purchased in an asset
sale, rather than a stock sale, unless they can be organized into a separate legal entity prior to sale.
Subsidiaries of consolidated companies are often organized as separate legal entities, whereas
operating divisions are usually not.
A major tax advantage to the acquirer of structuring a transaction as a taxable asset purchase is that
the acquirer receives stepped-up tax basis in the target's net assets (assets minus liabilities). This
means that the acquired net assets are written up (or down) from their carrying values on the seller's
tax balance sheet to fair value (FV) on the acquirer's tax balance sheet. The higher resulting tax basis
in the acquired net assets will minimize taxes on any gain on the future sale of those assets. Under
U.S. tax law, goodwill and other intangibles acquired in a taxable asset purchase are required by the
IRS to be amortized over 15 years, and this amortization is tax-deductible. Recall that goodwill is
never amortized for accounting purposes but instead tested for impairment.
Stepped-Up Basis
Buyer assumes a FV tax basis in the acquired net assets equal to the purchase price.
In a taxable asset sale, the seller pays tax on any gain on the sale of its assets. Of course, the seller
won't agree to bear the tax burden of an asset sale while the acquirer enjoys the benefit of a tax stepup without some incentives. To induce the seller to agree to an asset purchase, the buyer will often
pay a higher purchase price (relative to a stock acquisition) to the seller as compensation for the
seller's tax liability.

Stock Acquisitions
In a stock purchase, all of the assets and liabilities of the seller are sold upon transfer of the seller's
stock to the acquirer. As such, no tedious valuation of the seller's individual assets and liabilities is
required and the transaction is mechanically simple. The acquirer does not receive a stepped-up tax
basis in the acquired net assets but, rather, a carryover basis. Any goodwill created in a stock
acquisition is not tax-deductible.
Carryover Basis
Buyer assumes the seller's existing tax basis in the acquired net assets.
However, if an Internal Revenue Code (IRC) Section 338 election is made by the acquirer (or jointly
by the acquirer and seller), the stock sale is treated as an asset sale for tax purposes. A Section 338
election entitles the buyer to the coveted stepped-up tax basis and tax-deductible goodwill, but also
triggers a taxable gain on the hypothetical asset sale. We will discuss Section 338 elections more in
another lesson.
Although the buyer acquires all assets and liabilities in a stock purchase, it may contractually allocate
unwanted liabilities to the seller by selling them back to the seller.
In the stock acquisition of a corporate subsidiary without a Section 338 election, the selling parent
company may use the tax attributes (e.g. NOLs) of its other subsidiaries to offset its gain on the sale
of target stock. However, the parent cannot use the tax attributes of the target subsidiary because they
are lost to the buyer in the transaction and subject to limitation under Section 382.


Mergers and acquisitions-well conceived and properly executed-can deliver greater value than ever
right now. And savvy acquirers are taking action, as deal activity accelerates amid signs of recovery.
One reason is the effect that a downturn has on asset values: Other things being equal, it's a good
time to buy. Bain analysis of more than 24,000 transactions between 1996 and 2006 shows that
acquisitions completed during or just after the 2001-2002 recession generated almost triple the excess
returns of acquisitions made during the preceding boom years. ("Excess returns" refers to shareholder
returns from four weeks before to four weeks after the deal, compared with peers.) This finding held
true regardless of industry or the size of the deal. Given today's relatively low equity values,
acquirers with cash to invest are likely to find deals that produce similar returns.
Successful integration-the key to avoiding the risks of a merger or acquisition and to realizing its
potential value-is always a challenge. And it is complicated by the simple fact that no two deals
should be integrated in the same way, with the same priorities, or under exactly the same timetable.
But 10 essential guidelines can make the task far more manageable and lead to the right outcome:

1. Follow the money

Every merger or acquisition needs a well-thought-out deal thesis-an objective explanation of how the
deal enhances the company's core strategy. "This deal will give us privileged access to attractive new
customers and channels." "This deal will take us to clear leadership positions in our 10 priority
markets." A clear deal thesis shows where the money is to be made and where the risks are. It
clarifies the five to 10 most important sources of value-and danger-and it points you in the direction
of the actions you must take to be successful. It should be the focus of both the due diligence on the
deal and the subsequent integration. It is the essential difference between a disciplined and an
undisciplined acquirer.
The integration taskforces are then structured around the key sources of value. It is also necessary to
translate the deal thesis into tangible nonfinancial results that everyone in the organization can
understand and rally around-for example, one salesforce or one order-to-cash process. The teams
naturally need to understand the value for which they are accountable, and should be challenged to
produce their own bottom-up estimates of value right from the start. That will allow you to update
your deal thesis continuously as you work toward close and cutover-the handoff from the integration
team to frontline managers.

2. Tailor your actions to the nature of the deal

Anyone undertaking a merger or acquisition must be certain whether it is a scale deal-an expansion in
the same or highly overlapping business-or a scope deal-an expansion into a new market, product or
channel (some deals, of course, are a mix of the two types). The answer to the scale-or-scope
question affects a host of subsequent decisions, including what you choose to integrate and what you
will keep separate; what the organizational structure will be; which people you retain; and how you
manage the cultural integration process. Scale deals are typically designed to achieve cost savings
and will usually generate relatively rapid economic benefits. Scope deals are typically designed to
produce additional revenue. They may take longer to realize their objectives, because cross-selling
and other paths to revenue growth are often more challenging and time-consuming than cost
reduction. There are valid reasons for doing both types of transactions-though success rates in scope
deals tend to be lower-but it is critical to design the integration program to the deal, not vice versa.
Consider the recent spate of announcements about computer hardware companies buying services
businesses. In 2008, it was Hewlett-Packard buying EDS. More recently, Dell announced the
acquisition of Perot Systems, and Xerox made a bold move for ACS that will more than double the
size of its workforce. These are clearly scope deals, as these companies search for ways to move up
the value chain into more profitable lines of business. And they require a new type of integration

effort for these hardware companies. If HP, for example, applied the same principles and processes
that it used in integrating Compaq, it would greatly complicate the EDS acquisition.

3. Resolve the power and people issues quickly

The new organization should be designed around the deal thesis and the new vision for the combined
company. You'll want to select people from both organizations who are enthusiastic about this vision
and can contribute the most to it. Set yourself an ambitious deadline for filling the top levels and stick
to it-tough people decisions only get harder with time. Moreover, until you announce the
appointments, your best customers and your best employees will be actively poached by your
competitors when you are most vulnerable to attack. The sooner you select the new leaders, the
quicker you can fill in the levels below them, and the faster you can fight the flight of talent and
customers and the faster you can get on with the integration. Delay only leads to endless corridor
debate about who is going to stay or go and spending time responding to headhunter calls. You want
all this energy focused on getting the greatest possible value out of the deal.
The fallout from delays in crucial personnel decisions is all too familiar. When GE Capital agreed to
buy Heller Financial in 2001, paying a nearly 50 percent premium over Heller's share price at the
time, GE Capital indicated that it would need to reduce Heller's workforce by roughly 35 percent to
make the deal viable. But it didn't move quickly to say who would remain. Key players departed
before waiting to find out, and several helped Merrill Lynch create a rival middle-market unit the
following year.

4. Start integration when you announce the deal

Ideally, the acquiring company should begin planning the integration process even before the deal is
announced. Once it is announced, there are several priorities that must be immediately addressed.
Identify everything that must be done prior to close. Make as many of the major decisions as you can,
so that you can move quickly once close day arrives. Get the top-level organization and people in
place fast, as we noted-but don't do it so fast that you lose objectivity or that you shortcut the
necessary processes.
One useful tool is a clean team-a group of individuals operating under confidentiality agreements and
other legal protocols who can review competitive data that would otherwise be off limits to the
acquirer's employees. Their work can help get things up to speed faster once the deal closes. In late
2006, for example, Travelport-owner of the Galileo global distribution system (GDS) for airline
tickets-announced that it intended to acquire Worldspan, a rival GDS. The two companies used a
clean team to work through many critical people and technology issues while they awaited final
regulatory approval from the European Commission. When regulators gave the green light, the
company was able to begin integration immediately rather than spending weeks waiting to gather the
necessary data and making critical decisions in a rush.

5. Manage the integration through a "Decision Drumbeat"

Companies can create endless templates and processes to manage an integration. But too much
program office bureaucracy and paperwork distract from the critical issues, suck the energy out of the
integration and demoralize all concerned. The most effective integrations instead employ a Decision
Management Office (DMO); and integration leaders, by contrast, focus the steering group and
taskforces on the critical decisions that drive value. They lay out a decision roadmap and manage the
organization to a Decision Drumbeat to ensure that each decision is made by the right people at the
right time with the best available information.
To get started, ask the integration taskforce leaders to play back the financial and nonfinancial results
they are accountable for, and in what timeframe. That will help identify the key decisions they must
make to achieve these results, by when and in what order. Using this method, one global consumer
products company recently was able to exceed its synergy targets by 40 percent-faster than originally
planned-while retaining 75 percent of the top talent identified. (For a primer on how companies can

create an effective decision timeline, see "Making it happen: The Decision Drumbeat in practice," on
page 7.)

6. Handpick the leaders of the integration team

An acquisition or merger needs a strong leader for the Decision Management Office. He or she must
have the authority to make triage decisions, coordinate taskforces and set the pace. The individual
chosen should be strong on strategy and content, as well as process-in other words, one of your rising
stars. Ideally, this individual and other taskforce leaders will spend about 90 percent of their time on
the integration. Given the importance of maintaining the base business's performance while you're
pursuing integration, one solution is to put the No. 2 person in a country or function in charge of the
integration taskforce. The chief can take over the No. 2's responsibilities for the duration.

7. Commit to one culture

Every organization has its own culture-the set of norms, values and assumptions that govern how
people act and interact every day. It's "the way we do things around here." One of the biggest
challenges of nearly every acquisition or merger is determining what to do about culture. Usually the
acquirer wants to maintain its own culture. Occasionally, it makes the acquisition in hopes of infusing
the target company's culture into its own. Whatever the situation, commit to the culture you want to
see emerge from the integration, talk about it and put it into practice. A diagnostic can help reveal the
gaps between the two, provided acquirers are appropriately skeptical about people's descriptions of
their organization's culture and provided they recognize their own potential biases.
Whatever you decide on, executives from the CEO on down then need to manage the culture
actively. Design compensation and benefits systems to reward the behaviors you are trying to
encourage. Create an organizational structure and decision-making principles that are consistent with
the desired culture. The company's leaders should take every opportunity to role-model the desired
behaviors. And they should consider carefully the fit with the new culture in making decisions about
which people to keep. Will they support and reflect the new culture-or not?
When Cargill Crop Nutrition acquired IMC Global to form the Mosaic Company, a global leader in
the fertilizer business, the new CEO, who came from Cargill, knew from the outset that retaining
IMC employees and creating one culture would be important to the success of the fledgling company.
One-on-one meetings with the top 20 executives and surveys of the top teams from both companies
revealed differences between Cargill's consensus-driven decision-making process-which would be
the culture of the new company-and IMC's more-streamlined approach, which emphasized speed.
Armed with an early understanding of the differences in approach, the CEO was able to select leaders
who reinforced the new culture. Cargill managers also made time to explain the benefits of their
decision-making system to their new colleagues, rather than simply mandating it. Result: The
synergies estimated (and owned) by jointly staffed integration teams turned out to be double what
due diligence had estimated.

8. Win hearts and minds

Mergers and acquisitions make people on both sides of the transaction nervous. They're uncertain
what the deal will mean. They wonder whether-and how-they will fit into the new organization. All
of this means that you have to "sell" the deal internally, not just to shareholders and customers.
Consider the challenge faced by InBev, the global beverage company, in acquiring Anheuser-Busch,
one of the most iconic American brands. Early in the integration process, the leadership team focused
on the most effective way to introduce InBev's long-term global strategy to Anheuser-Busch
managers and employees. One powerful tool was InBev's "Dream-People-Culture" mission
statement, which was tailored to the US company and introduced into the Anheuser-Busch lexicon
with strong messages emphasizing the value of its customers and products, to excite the imagination
of the AB organization.
It's vital that your messages be consistent. If you are acquiring a smaller company and the deal is

mostly about taking out costs, for instance, don't focus on a "Best of Both Organ-izations" in your
first town-hall speech. In general, it's wise to concentrate on what the deal will mean in the future for
your people, not on the synergies it will produce for the organization. "Synergies," after all, usually
means reducing payroll, among other things-and people know that.

9. Maintain momentum in the base business of both companies-and monitor their

performance closely
It's easy for people in an organization to get caught up in the glamour of integrating two
organizations. For the moment, that's where the action is. The future shape of the company, including
jobs and careers, appears to be in the hands of the integration taskforces. But if management allows
itself and the organization to get distracted, the base business of both companies will suffer. If
everybody's trying to manage both the ongoing business and the integration, nobody will do either
job well.
The CEO must set the tone here. He or she should allocate the majority of time to the base business
and maintain a focus on existing customers. Below the CEO, at least 90 percent of the organization
should be focused on the base business, and these people should have clear targets and incentives to
keep those businesses humming. By having No. 2s running the integration, their bosses should be
able to make sure the base business maintains momentum. Take particular care to make customer
needs a priority and to bundle customer and stakeholder communications, especially when systems
change and customers may be confused about who to deal with. Meanwhile, establish an aggressive
integration timeline with a countdown to cutover-the day when the primary objectives of integration
are completed and the two businesses begin operating as one.
To make sure things stay on track, monitor the base business closely throughout the integration
process. Emphasize leading indicators like sales pipeline, employee retention and call-center volume.
Olam International, a global leader in the agri-commodity supply chain business with $6 billion in
annual revenues, has managed to maintain its base business while incorporating a stream of
acquisitions. In 2007, for instance, Olam purchased Queensland Cotton, with trading, warehousing
and ginning operations in the US, Australia and Brazil. Olam ensured that a core part of the
Queensland Cotton team remained focused on the base business, while putting together a separate
team made up of Queensland Cotton and Olam employees to manage the integration. That helped the
company navigate difficult conditions due to drought in Australia, while also growing their Brazil
and US businesses well above the market. Olam's acquisitions contributed 16 percent to its total sales
volumes in fiscal year 2009 and 23 percent to its earnings, which have grown at an overall rate of 45
percent CAGR since 1990.

10. Invest to build a repeatable integration model

Once you have achieved integration, take the time to review the process. Evaluate how well it
worked and what you would do differently next time. Get the playbook and the names of your
integration experts down on paper, so that next time you will be able to do it better and faster-and
you will be able to realize that much more value from a merger or acquisition.
Bain has done extensive research on what drives success in acquisitions, including two Learning
Curve studies completed in 2004 and again in 2007. The data is compelling. Frequent acquirers
consistently outperform infrequent acquirers as well as companies that do no deals at all. If you had
invested $1 in each group, the returns from the frequent-acquirer group would be 25 percent greater
than the infrequent group over a 20-year period. Over the last 15 years, a number of companies,
including Cisco Systems, Danaher, Cardinal Health, Olam International and ITW, have shown that
you can substantially beat the odds if you get the integration process right and make it a core

The basic regulations covering mergers exist in section 391 of the Companies Act, 1956, which
enables a company to compromise or make arrangement with creditors and members. This can be
done in the following ways:
(a) Between a company and its creditors or any class of them; or
(b) Between a company and its members or any class of them.
Procedural formalities
The process effecting a merger is quite complex and elaborate in nature which can be summed up as
Preparation of draft scheme of merger.
Approval of the same by the board of directors of the companies intending to merge.
Application to the concerned High Court to convene general meetings of the respective companies
for obtaining approvals of the shareholders to the proposed scheme of merger.
Obtaining approval of the High Court for convening such meeting including fixation of time, place,
quorum and appointment of Chairman.
Giving Notice of the petition to the Central Government.
Holding the general body meetings and obtaining approvals of the shareholders.
Submission of the particulars of the general body meetings to the High Court where the following
resolutions need to be passed:
Resolution approving the scheme of mergers to be passed by three fourths majority in value of
shareholders and authorizing the directors to implement the scheme.
Resolution for increasing the authorized capital of the company, if necessary.
Submitting petition to the High Court by the respective companies for obtaining the Court's final
order which may be given on the basis of the report of the Official Liquidator.
Filing the certified true copy of the court's order with the concerned Registrar of Companies.
Annexing a copy of the order of the High Court to every copy of the memorandum of association
after filing the certified copy of the order as aforesaid, and
Allotment of shares or other instruments as per the approved scheme of merger.

Legal Aspects Involved In Mergers And Acquisitions:

The basic regulation that is enforceable is Section 391 of the companies act which talks about the
reorganization of share capital, consolidation of shares and the division of shares into classes.
Section 23 of the MRTP Act also said that no mergers and acquisitions were possible unless
approved by the Central Govt. This section is now defunct.
The Industrial Policy statement, 1991, first talked about structural reforms to ensure partnerships and
go for global competition.

Merger arbitrage is an investment strategy that simultaneously buys and sells the stocks of two
merging companies.
Before we explain that, lets review the concept of arbitrage. Arbitrage, at its most simplest,
involves buying securities on one market for immediate resale on another market in order to
profit from a price discrepancy. But in the hedge fund world, arbitrage more commonly refers to
the simultaneous purchase and sale of two similar securities whose prices, in the opinion of the
trader, are not in sync with what the trader believes to be their true value. Acting on the
assumption that prices will revert to true value over time, the trader will sell short the
overpriced security and buy the underpriced security. Once prices revert to true value, the trade
can be liquidated at a profit. (Remember, short selling is simply borrowing a security you dont
own, selling it, then hoping it declines in value, at which time you can buy it back at a lower price
than you paid for it and return the borrowed securities.) Arbitrage can also be used to buy and
sell two stocks, two commodities and many other securities.
Merger arbitrage is a type of Event-Driven investing, which is an investing strategy that seeks to
exploit pricing inefficiencies that may occur before or after a corporate event, such as a
bankruptcy, merger, acquisition or spinoff.
To illustrate, consider what happens in the case of a potential merger. When a company signals
its intent to buy another company, the stock price of the target company typically rises, and the
stock price of the acquiring company typically declines. However, the stock price of the target
company usually remains somewhere below the acquisition pricea discount that reflects the
markets uncertainty about whether the merger will truly occur.
Thats where merger arbitrageurs enter the picture. To understand how merger arbitrage is
profitable, it is important to understand that corporate mergers are typically divided in two
categories: cash mergers and stock-for-stock mergers.
With cash mergers, an acquiring company purchases the shares of the target company for cash.
Until the acquisition is complete, the stock of the target company typically trades below the
acquisition price. So, one can buy the stock of the target company before the acquisition, and
then make a profit if and when the acquisition goes through. This is not arbitrage, however; this
is a speculation on an event occurring.
With a stock-for-stock merger, an acquiring company exchanges its own stock for the stock of
the target company. During a stock-for-stock merger, a merger arbitrageur buys the stock of the
target company while shorting the stock of the acquiring company. So, when the merger is
complete, and the target companys stock is converted into the acquiring companys stock, the
merger arbitrageur simply uses the converted stock to cover his or her short position.
While that sounds simple, there are a number of risks involved. For example, the merger may not
go through due to a number of reasons. One of the companies may not be able to satisfy the
conditions of the merger. Shareholder approval may not be obtained. Or, regulatory issues (such
as antitrust laws) may prevent the merger.
Additional complications arise with stock-for-stock mergers when the exchange ratiothe ratio
at which the target companys stock is exchanged for the acquiring companys stockfluctuates
with the stock price of the acquiring company. This makes evaluating a merger arbitrage
opportunity complex, and requires significant expertise on the part of the merger arbitrageur.
Because of these risks, merger arbitrageurs must have the knowledge and skill to accurately
assess a number of factors. A merger arbitrageur will analyze the potential mergerlooking at
the reason for the merger, the terms of the merger, and any regulatory issues that may hinder
the mergerand determine the likelihood of the merger actually occurring and how.
Because this requires expertise, large institutional investorssuch as hedge funds, private
equity firms and investment banksare the major user of merger arbitrage.
In summary, then, while merger arbitrage may sound like a good investment strategy, and often
is, it is best used by sophisticated investors who have the expertise to evaluate the merger and
are willing to accept the risk of it not going through.


A reverse merger (also known as reverse merger or reverse IPO) is a way for private companies
to go public, typically through a simpler, shorter, and less expensive process. A conventional
initial public offering (IPO) is more complicated and expensive, as private companies hire an
investment bank to underwrite and issue shares of the soon-to-be public company. Aside from
filing the regulatory paperwork - and helping authorities review the deal - the bank also helps to
establish interest in the stock and provide advice on appropriate initial pricing. The traditional
IPO necessarily combines the go-public process with the capital raising function. We will go over
how a reverse merger separates these two functions, making it an attractive strategic option for
managers and investors of private companies. (For more information, check out, why should a
company do a reverse merger than an IPO?)

What is a reverse merger?

In a reverse merger, investors of the private company acquire a majority of the shares of the
public shell company, which is then merged with the purchasing entity. Investment banks and
financial institutions typically use shell companies as vehicles to complete these deals. These
relatively simple shell companies can be registered with the SEC on the front end (prior to the
deal), making the registration process relatively straightforward and less expensive. To
consummate the deal, the private company trades shares with the public shell in exchange for
the shell's stock, transforming the acquirer into a public company.
Reverse mergers allow a private company to become public without raising capital, which
considerably simplifies the process. While conventional IPOs can take months (even over a
calendar year) to materialize, reverse mergers can take only a few weeks to complete (in some
cases, in as little as 30 days). This saves management a lot of time and energy, ensuring that
there is sufficient time devoted to running the company.
Undergoing the conventional IPO process does not guarantee that the company will ultimately
finish the process. Managers can spend hundreds of hours planning for a traditional IPO,
however, if market conditions become unfavorable to the proposed offering, all of those hours
will have become a wasted effort. Pursuing a reverse merger minimizes this risk.
As mentioned earlier, the traditional IPO combines both the go-public and capital raising
functions. As the reverse merger is solely a mechanism to convert a private company into a
public entity, the process is less dependent on market conditions (because the company is not
proposing to raise capital). Since a reverse merger functions solely as a conversion mechanism,
market conditions have little bearing on the offering. Rather, the process is undertaken in order
to attempt to realize the benefits of being a public entity.

Benefits as a Public Company

Private companies, generally with $100 million to several hundred million in revenue, are
usually attracted to the prospect of being a publicly- traded company.
The company's securities become traded on an exchange, and thus enjoy greater liquidity.
The original investors gain the option of liquidating their investment, providing for convenient
exit alternatives.
The company has greater access to the capital markets, as management now has the option of
issuing additional stock through secondary offerings. If stockholders possess warrants where
they have the right to purchase additional stock at a pre-determined price the exercise of these
options provides additional capital infusion into the company.
Public companies often trade at higher multiples than do private companies; significantly
increased liquidity means that both the general public and investing institutions (and large
operational companies) have access to the company's stock, which can drive up price.
Management also has more strategic options to pursue growth, including mergers and
acquisitions. As stewards of the acquiring company, they can use company stock as the

currency with which to acquire target companies. Finally, because public shares are more
liquid, management can use stock incentive
plans in order to attract and retain employees.

Disadvantages of a Reverse Merger

Managers must conduct appropriate diligence regarding the profile of the investors of the
public shell company. The following are certain questions which have remained unsolved:
What are their motivations for the merger?
Have they done their homework to make sure the shell is clean and not tainted?
Are there pending liabilities (such as those stemming from litigation) or other "deal warts"
hounding the public shell?
If so, shareholders of the public shell may merely be looking for a new owner to take possession
of these deal warts. Therefore, following measures should be undertaken:
Appropriate due diligence should be conducted, and transparent disclosure should be expected
(from both parties).If the public shell's investors sell significant portions of their holdings right
after the transaction, this can materially and negatively affect the stock price.
To reduce or eliminate the risk that the stock will be dumped, important clauses can be
incorporated into a merger agreement such as required holding periods.
It is important to note that, as in all merger deals, the risk goes both ways. Investors of the
public shell should also conduct reasonable diligence on the private company, including its
management, investors, operations, financials and possible pending liabilities (i.e., litigation,
environmental problems, safety hazards, labor issues).
After a private company executes a reverse merger, will its investors really obtain sufficient
liquidity? Smaller companies may not be ready to be a public company, including lack of
operational and financial scale. Thus, they may not attract analyst coverage from Wall Street;
after the reverse merger is consummated, the original investors may find out that there is no
demand for their shares. Reverse mergers do not replace sound fundamentals. For a company's
shares to be attractive to prospective investors, the company itself should be attractive
operationally and financially.
A potentially significant setback when a private company goes public is that managers are often
inexperienced in the additional regulatory and compliance requirements of being a publicly-
traded company. These burdens (and costs in terms of time and money) can prove significant,
and the initial effort to comply with additional regulations can result in a stagnant and
underperforming company if managers devote much more time to administrative concerns
than to running the business. To alleviate this risk, managers of the private company can
partner with investors of the public shell who have experience in being officers and directors of
a public company. The CEO can additionally hire employees (and outside consultants) with
relevant compliance experience. Managers should ensure that the company has the
administrative infrastructure, resources, road map and cultural discipline to meet these new
requirements after a reverse merger.


A reverse merger is an attractive strategic option for managers of private companies to
gain public company status. It is a less time-consuming and less costly alternative than
the conventional IPO. As a public company, management can enjoy greater flexibility in
terms of financing alternatives, and the company's investors can also enjoy greater
liquidity. Managers, however, should be cognizant of the additional compliance burdens
faced by public companies, and ensure that sufficient time and energy continues to be
devoted to running and growing the business. It is after all a strong company, with
robust prospects, that will attract sufficient analyst coverage as well as prospective
investor interest. Attracting these elements can increase the value of the stock and its
liquidity for shareholders.


A Foreign Corporation





This Plan and Agreement of Merger made and entered into on the ___________ day of
________________________________________________, a Delaware Corporation, and
WHEREAS, the Delaware Corporation is a Corporation organized and existing under the laws of
the State of Delaware, its Certificate of Incorporation having been filed in the Office of the
Secretary of State of the State of Delaware on _____________________, ________; and
WHEREAS, __________________________________________ is a corporation organized and
existing under the laws of the State of __________________________; and WHEREAS, the
aggregate number of shares which the ________________
WHEREAS, the Board of Directors of each of the constituent corporations deems


it advisable that the Delaware Corporation be merged into ________________________

____________________________________ on the terms and conditions hereinafter set forth, in
accordance with the applicable provisions of the statutes of the State of Delaware and
_____________________________________________________________________ respectively,
which permit such merger;
NOW, THEREFORE, in consideration of the premises and of the agreements, covenants and
provisions hereinafter contained, the Delaware Corporation and the ___________________
Corporation, by their respective Boards of Directors, have agreed and do hereby agree, each with
the other as follows:
The ________________________________________________ and the Delaware Corporation
shall be merged into a single corporation, in accordance with applicable provisions of the laws of
the State of ___________________________ and of the State of Delaware, by the Delaware
Corporation merging into the ________________ Corporation, which shall be the surviving
Upon the merger becoming effective as provided in the applicable laws of the State of
___________________ and of the State of Delaware (the time when the merger shall so become
effective being sometimes herein referred to as the EFFECTIVE DATE OF THE MERGER):
1. The two Constituent Corporations shall be a single corporation, which shall be
________________________________________________________ as the Surviving Corporation,
and the separate existence of ______________________________________

shall cease except to the extent provided by the laws of the State of __________________ in the
case of a corporation after its merger into another corporation.
The Certificate of Incorporation of ____________________________ shall not be amended in any
respect by reason of this Agreement of Merger.
The manner of converting the outstanding shares of each of the Constituent Corporations shall be as
The surviving corporation agrees that it may be served with process in the State of Delaware in any
proceeding for enforcement of any obligation of any constituent corporation of Delaware, as well as
for enforcement of any obligation of the surviving corporation arising from this merger, including
any suit or other proceeding to enforce the rights of any stockholders as determined in appraisal
proceedings pursuant to the provisions of Section 262 of the Delaware General Corporation laws,
and irrevocably appoints the Secretary of State of Delaware as its agent to accept service of process
in any such suit or proceeding. The Secretary of State shall mail any such process to the surviving
corporation at ___________________________________________________.
IN WITNESS WHEREOF, the _______________________ Corporation and the Delaware
Corporation, pursuant to the approval and authority duly given by resolutions adopted by their
respective Boards of Directors have caused this Plan and Agreement of Merger to be executed by an
authorized officer of each party thereto.
____________________________________ (A Delaware Corporation)
Name:____________________________________ Print or Type


____________________________________ (A __________________ Corporation)

Name:____________________________________ Print or Type


___________________________________, a corporation organized and existing under the laws of
the State of Delaware, hereby certify, as such Secretary of the said corporation, that the Agreement
of Merger to which this certificate is attached, after having been first duly signed on behalf of said
__________________________________________________, a corporation of the State of
Delaware, was duly submitted to the stockholders of said ________________________
______________________________________________________________, at a special meeting
of said stockholders called and held separately from the meeting of stockholders of any other
corporation, upon waiver of notice, signed by all the stockholders, for the purpose of considering
and taking action upon said Agreement of Merger, that _____________________ shares of stock of
said corporation were on said date issued and outstanding and that the holder of
__________________ shares voted by ballot in favor of said Agreement of Merger and the holders
of ______________________ shares voted by ballot against same, the said affirmative vote
representing at least a majority of the total number of shares of the outstanding capital stock of said

corporation, and that thereby the Agreement of Merger was at said meeting duly adopted as the act
of the stockholders of said

___________________________________________________, and the duly adopted agreement of

said corporation.
WITNESS my hand on behalf of said __________________________________ on this
________________ day of __________________________, ________.
By:____________________________________ Secretary
Name:____________________________________ Print or Type


The term Mergers and acquisitions M&A is an important source of fee income for investment
banks as the fee margin structure is substantially higher than most underwriting fees. This is why
M&A bankers are some of the highest paid and highest profile bankers in the industry.
As a result of much corporate consolidation during 1990s,M&A advisory became an increasingly
profitable line of business for investment banks. M&A is a cyclical business that was hurt badly
during the financial crisis of 2008-2009, but rebounded in 2010, only to dip again in 2011. In any
event, M&A will likely to continue being an important focus for investment banks. JP
Morgan, Goldman Sachs, Morgan Stanley, Credit Suisse, BofA/Merrill Lynch, and Citigroup, are
generally recognized leaders in M&A advisory and are usually ranked high in M&A deal volume.
The scope of the M&A advisory services offered by investment banks usually relates to various
aspects of the acquisition and sale of companies and assets such as business valuation, negotiation,
pricing and structuring of transactions, as well as procedure and implementation. One of the most
common analyses performed is the accretion\dilution analysis, while an understanding of M&A
accounting, for which the rules have changed significantly over the last decade, is critical. Investment
banks also provide fairness opinions documents attesting to the fairness of a transaction.
Sometimes firms interested in M&A advice will approach an investment bank directly with a
transaction in mind, while many times investment banks will pitch ideas to potential clients.
What is M&A Advisory Work, Really?
First, terminology: When an investment bank takes on the role of an advisor to a potential seller
(target), this is called a sell-side engagement. Conversely, when an investment bank acts as an
advisor to the buyer (acquirer), this is called a buy-side assignment. Other services include advising
clients on joint ventures, hostile takeovers, buyouts, and takeover defense.
Sample Merger Process
Week 1-4: Strategic Assessment of Possible Transaction
The Investment Bank will identify potential merger partners and confidentially contact them to
discuss the transaction. As potential partners respond, the Investment Bank will meet with potential
partners to determine if transaction makes sense. Follow-up management meetings with serious
potential partners to establish terms
Weeks 5-6: Negotiation and Documentation
Negotiate Definitive Merger and Reorganization Agreement
Negotiate Pro Forma Composition of Board of Directors and Management
Negotiate Employment Agreements, as required
Ensure Transaction Meets Requirements for a Tax-Free Reorganization
Prepare Legal Documentation Reflecting Results of Negotiations
Week 7: Board of Directors Approval
The Clients and Merger Partners Board of Directors Meet to approve the transaction, while the
Investment Bank (and the investment bank advising the Merger Partner) both deliver a Fairness
Opinion attesting to the fairness of the transaction (i.e., nobody overpaid or underpaid, the deal is
fair). All definitive agreements are signed.
Weeks 8-20: Shareholder Disclosure and Regulatory Filings
Both companies prepare and file appropriate documents (Registration Statement: S-4), Schedule
Shareholder Meeting. Prepare filings in accordance with antitrust laws (HSR) and begin preparing
integration plans.
Week 21: Shareholder Approval
Both companies hold Shareholder Meeting to approve transaction
Weeks 22-24: Closing
Close merger and reorganization and Effect share issuance


Discounted-Cash-Flow Method:
The discounted-cash-flow approach in an M&A setting attempts to determine the value of the
company (or corporation is assumed to have infinite life, the analysis is broken into two parts: a
forecast period and a terminal value. In the forecast period, explicit forecasts of free cash flow must
be developed that incorporate the economic costs and benefits of the transaction. Ideally, the forecast
period should equate with the interval over which the firm enjoys a competitive advantage (i.e., the
circumstances where expected returns exceed required returns). In most circumstances, a forecast
period of five or ten years is used.
The value of the company derived from free cash flows occurring after the forecast period is captured
by a terminal value. Terminal value is estimated in the last year of the forecast period and capitalizes
the present value of all future cash flows beyond the forecast period. To estimate the terminal value,
cash flows are projected under a steady state assumption that the firm enjoys no opportunities for
abnormal growth or that expected returns equal required returns following the forecast period. Once a
schedule of free cash flows is developed for the enterprise, the Weighted Average Cost of Capital
(WACC) is used to discount them to determine the present value. The sum of the present values of
the forecast period and the terminal value cash flows provides an estimate of company or enterprise
Review of basics of DCF
Let us briefly review the construction of free cash flows, terminal value, and the WACC. It is
important to realize that these fundamental concepts work equally well when valuing an investment
project as they do in an M&A setting.
Free cash flows
The free cash flows in an M&A analysis should be the expected incremental operating cash flows
attributable to the acquisition, before consideration of financing charges (i.e., pre- financing cash
flows). Free cash flow equals the sum of NOPAT (net operating profits after taxes.), plus
depreciation and noncash charges, less capital investment and less investment in working capital.
NOPAT is used to capture the earnings after taxes that are available to all providers of capital: i.e.,
NOPAT has no deductions for financing costs. Moreover, since the tax deductibility of interest
payments is accounted for in the WACC, such financing tax effects are also excluded from the free
cash flow, which can be expressed as:


NOPAT is equal to EBIT (1-t) where t is the appropriate marginal (not average) cash tax rate, which
should be inclusive of federal, state and local, and foreign jurisdictional taxes.
Depreciation is non-cash operating charges including depreciation, depletion, and amortization
recognized for tax purposes.
CAPEX is capital expenditures for fixed assets.
NWC is the increase in net working capital defined as current assets less the non-interest bearing
current liabilities.
The cash-flow forecast should be grounded in a thorough industry and company forecast. Care should
be taken to ensure that the forecast reflects consistency with firm strategy as well as with
macroeconomic and industry trends and competitive pressure.
The forecast period is normally the years during which the analyst estimates free cash flows that are
consistent with creating value. A convenient way to think about value creation is whenever the return

on net assets (RONA) the weighted average cost of capital (RONA can be divided into an income
statement component and a balance sheet component:

RONA = NOPAT / Net Assets

= NOPAT/Sales x sales/Net Asset
In this context, value is created whenever earnings power increases (NOPAT/Sales) or when asset
efficiency is improved (Sales/Net Assets). Or, stated differently, analysts are assuming value creation
whenever they allow the profit margin to improve on the income statement and whenever they allow
sales to improve relative to the level of assets on the balance sheet.
Terminal value
A terminal value in the final year of the forecast period is added to reflect the present value of all
cash flows occurring thereafter. Since it capitalizes all future cash flows beyond the final year, the
terminal value can be a large component of the value of a company, and therefore deserves careful
attention. This can be of particular importance when cash flows over the forecast period are close to
zero (or even negative) as the result of aggressive investment for growth.
A standard estimator of the terminal value (TV) in the final year of the cash flow forecast is the
constant growth valuation formula.
Terminal Value = FCF (WACC g), where:
FCF is the steady state expected free cash flow for the year after the final year of the cash flow
WACC is the weighted average cost of capital
g is the expected constant annual growth rate of perpetuity

One challenging part of the analysis is to generate a free cash flow for the year after the forecast
period that reflects a sustainable or steady state cash flow. A convenient approach is for the analyst
to assume that RONA remains constant; i.e., both profit margin and asset turnover remain constant in
perpetuity. Under this assumption, the analyst applies g, the long-term, sustainable growth rate to all
financial statement line items: sales, NOPAT, depreciation, net working capital, additions to property
plant and equipment, etc.
Discount rate
The discount rate should reflect the weighed average of investors opportunity cost (WACC) on
comparable investments. The WACC matches the business risk, expected inflation, and currency of
the cash flows to be discounted. In order to avoid penalizing the investment opportunity, the WACC
also must incorporate the appropriate target weights of financing going forward. Recall that the
appropriate rate is a blend of the required rates of return on debt and equity, weighted by the
proportion these capital sources make up of the firms market value.
WACC = Wd .kd(1-t) + where:

kd is the required yield on new debt: its yield to maturity

ke is the cost of equity capital.
Wd , We are target percentages of debt and equity (using market values of debt and equity)
t is the marginal tax rate.

The costs of debt and equity should be going-forward market rates of return. For debt securities, this
is often the yield to maturity that would be demanded on new instruments of the same credit rating
and maturity. The cost o0f equity can be obtained from the Capital Asset Pricing Model (CAPM).


ke = Rf + B(Rm-Rf) where:

Rf is the expected return on risk-free securities over a time horizon consistent with the investment
horizon. Most firm valuations are best served by using a long maturity government bond yield.
Generally use the 10-year government bond rate.
Rm-Rf is the expected market risk premium. This value is commonly estimated as the average
historical difference between the returns on common stocks and long-term government bonds. For
example, Ibbotson Associates estimates the geometric mean return between 1926 and 2003 for large
capitalization U.S. equities between 1926 and 2003 was 10.4%. The geometric mean return on longterm government bonds was 5.4%. The difference between the two implies a historical market-risk
premium of 5.0%.
is beta, a measure of the systematic risk of a firms common stock. The beta of common stock
includes compensation for business and financial risk.


Network Economies: In some industries, firms need to provide a national network. This means
there are very significant economies of scale. A national network may imply the most efficient
number of firms in the industry is one.
For example, when T-Mobile merged with Orange in the UK, they justified the merger on the
grounds that:
The ambition is to combine both the Orange and T-Mobile networks, cut out duplication, and
create a single super-network. For customers it will mean bigger network and better coverage, while
reducing the number of stations and sites which is good for cost reduction as well as being good
for the environment.

Research and development: In some industries, it is important to invest in research and

development to discover new products / technology. A merger enables the firm to be more
profitable and have greater funds for research and development. This is important in industries such
as drug research.

Other Economies of Scale: The main advantage of mergers is all the potential economies of scale
that can arise. In a horizontal merger, this could be quite extensive, especially if there are high fixed
costs in the industry. Examples of economies of scale. Note: if the merger was a vertical merger or
conglomerate merger, the scope for economies of scale would be lower.

Avoid Duplication: In some industries it makes sense to have a merger to avoid duplication. For
example two bus companies may be competing over the same stretch of roads. Consumers could
benefit from a single firm with lower costs. Avoiding duplication would have environmental
benefits and help reduce congestion.

Regulation of Monopoly: Even if a firm gains monopoly power from a merger, it doesnt have to
lead to higher prices if it is sufficiently regulated by the government. For example, in some
industries the government have price controls to limit price increases. That enables firms to benefit
from economies of scale, but consumer dont face monopoly prices.

Obtaining quality staff or additional skills, knowledge of your industry or sector and other business
intelligence. For instance, a business with good management and process systems will be useful to a
buyer who wants to improve their own. Ideally, the business you choose should have systems that
complement your own and that will adapt to running a larger business.

Accessing funds or valuable assets for new development. Better production or distribution facilities
are often less expensive to buy than to build. Look for target businesses that are only marginally
profitable and have large unused capacity which can be bought at a small premium to net asset

Organic growth, i.e. the existing business plan for growth, needs to be accelerated. Businesses in
the same sector or location can combine resources to reduce costs, eliminate duplicated facilities or
departments and increase revenue.


1. Many mergers and acquisitions today involve companies headquartered in two different countries.
This can complicate the transfer of best practices, since managers generally assume that their
knowledge bases apply universally. They do not always take into consideration that performance
drivers vary from culture to culture.
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent
Not at all
2. Language barriers between the participants of a cross-national merger must be readily countered.
Information concerning the deal must be translated into both languages so questions can be answered
in real time. Employees of both cultures must be educated in the other language so that
communication between workforces can be effective and productivity can be facilitated.
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent
Not at all
3. Often human resources professionals are not sufficiently involved with the evaluation of target
companies before deals are signed. If they are not participants in the development of an M&A
strategy and the screening of talent and culture very early on, they will have to play catch-up later on,
fixing problems that might have been avoided had they been involved initially.
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent
Not at all
4. The importance of communication, employee retention, and training and other components of
integration is fairly well known. However, integration activities should be customized based on
feedback from the affected employee populations. Communication must work in both directions, up
and down the organization.
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent
Not at all
5. Even the most talented business leaders are generally not experts in the various stages of a merger
and/or acquisition. Moreover, given ongoing demands of the business, they do not have unlimited
time to devote to merger activity. Retain the services of a qualified consultant who understands the
companys merger goals and has the skills to help achieve them.
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent
Not at all
6. A significant challenge is to ensure that ongoing business is not adversely affected by M&A

activity. Monitor employee performance to ensure that customer needs continue to be met. Solicit
customer feedback to verify that all is well on their end.
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent
Not at all
7. Integration planning and implementation should begin as early as possible, well before the deal
closes. If integration is started early, there is a better chance for a seamless transition.
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent
Not at all
8. Once integration is underway, companies can forget to stop and check their progress. It can be
challenging to redirect integration activity but it must be done to ensure desired results. Check
employee perceptions of integration progress by regularly soliciting their feedback.
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent
Not at all
9. Merger training is often overlooked and can present obstacles if not implemented promptly. For
example, a group of acquired employees may need assistance in participating in automated benefits
enrollment. Without necessary training, it will take longer for new employees to feel part of their new
work environment.
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent
Not at all
10. Managers must not only be given adequate information; they must also be trained in appropriate
dissemination techniques. They must learn how to coach and remain sensitive to the feelings of their
staff. They must learn about change management and how to deal with resistance. If people are made
to feel that their feelings are normal and are given opportunities to openly discuss issues, their
concerns can be faced head on.
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent
Not at all
11. Employee productivity often falls where major staffing decisions are being made. The fear of
making a mistake can cause a drop in creativity or efficiency, as people become increasingly
cautious. Also, the time taken to talk to other employees during the period of uncertainty can affect
Extent to which the above Issue/Challenge is a Factor in Your Organization (circle one)
To a great extent
To a moderate extent
To a minor extent


Companies and businesses use mergers and acquisitions for many reasons. Some are mentioned
Mergers and acquisitions can pave ways for entering new markets, Adding new product lines and
increasing the distribution reachthat is gaining a core competence to do more combinations.
Mergers and acquisitions are used to increase / enhance shareholder value. This is done by:

Cost reductions that are achieved by combining departments, operations, and trimming the
workforcethis cost reduction in turn leads to increased profitability.

Increasing revenue by absorbing a major competitor and thereby increasing market share.

Cross-selling of products / services.

International Journal of BRIC Business Research (IJBBR) Volume 3, Number 1, February 2014

Tax savings that are achieved when a profitable company merges with or takes over a
money- loser.

Diversification that can stabilize earnings and boost investor confidence.

Some mergers and acquisitions take place when management of any business recognizes the need
to transform corporate identity.
Acquisitions are undertaken to achieve vertical and horizontal operational synergies where
synergies signify that the whole is greater than the parts.
Some mergers and acquisitions take place for market dominance and reaching economies of scale.

The Lifecycle
To achieve a successful merger or acquisition, business leaders must address a range of issues
strategic, operational, financial, cultural in an integrated way throughout all phases of the deal. The
M&A lifecycle model represents key M&A activities which must be addressed, beginning with the
strategic consideration of a deal through the post-merger integration and operation of the new,
merged entity.
Manage Deal
This phase involves oversight and program management for pre-deal and deal
- Communicate to key constituencies
- Manage the strategic review and target analysis efforts
- Manage the deal team and advisors
- Track data and documents, issues and overall logistics
Develop Strategy
An organization evaluating mergers or acquisitions as growth options establishes its
Develop corporate strategies

Identify and assess M&A options

Develop acquisition rationale and intent
Agree on acquisition strategy
Analyze Target
The organization assesses potential targets.
Determine acquisition criteria
Screen and prioritize candidates
Prepare preliminary deal shapes
Select target(s)
Agree on an initial target approach strategy
Structure Deal
The acquirer approaches the target and begins, and hopefully concludes, the acquisition.
Form the deal team
Conduct due diligence
Prepare bid tactics and strategy
Finalize the deal shape
Prepare offer documents
Approve the bid
Conduct final negotiations and bid conclusion
Begin mobilization activities (such as appointing integration director, and preparing
initial public relations plan and deal announcement)
Manage Transition
This phase occurs throughout the post-merger integration effort.
- Initiate an overall program management structure
- Develop an approach to risk and issue management
- Oversee legal and regulatory approval
- Manage the business case
- Develop and implement a readiness program
- Monitor performance and stability

Mobilize Effort
The organization establishes the methods and resources required to communicate the
deal and conduct the integration.
Identify organization and integration team leadership
Make initial strategic decisions
Build the integration framework
Set up a stabilization program
Launch communications, including announcement of the deal
Define Migration
The organization defines the integrated environment and how the organization will
migrate to it.
Map and analyze current environments to determine target environment
Estimate overall work effort and budget required
Establish integration sequence and timeline
Determine high-level approaches for human resources, customers, lines of business and

Execute Integration
The organization conducts the migration to the integrated environment.
Perform detailed design, development and testing of the target environment
Communicate the target environment to employees and conducting training
Communicate to impacted customer segments
Convert to the target environment
Prepare for post-implementation stabilization and support


1. Internal Capabilities: The process of assessing and integrating of a target company should be carried
by a business development team.
2. Strategic goals and alignment
3. Selection criteria:
4. Target selection: The process needs to be carried out quickly keeping in mind that it should be
explicit and transparent.
M&As can either be successful or complete failures. A study in which 180 cases were studied
showed that two-thirds of mergers and acquisitions fail. Substandard outcomes were also considered
as failures.
According to an earlier research, inadequate planning, hurry to close the deal, not being able to
foresee the future integration problems and projecting synergies that turn out to be illusionary are all
causes of failure.
A detailed merger plan over how the implementation of the merger or acquisition should be executed
and implemented is extremely important. A successful merger plan will bear fruitful results. In the
mergers that do succeed, experiences and preparation are said to be the key factors. A merger or
acquisition has a higher chance of succeeding if the organization and its management has previously
experienced and survived a merger.
There are five overarching areas that all CEOs and strategists should address to ensure a successful
M&A journey:
It is very important to evaluate a companys strategic and financial goalsdetermining if
They can be achieved faster or more easily via organic growth or an acquisition.
Selection should be based on post-acquisition market share, cost reduction and synergy opportunities.
Flexibility should be maintained, as criteria in one industry may not apply to another.

Mergers and acquisitions typically involve a substantial amount of due diligence by the buyer. Before
committing to the transaction, the buyer will want to ensure that it knows what it is buying and what
obligations it is assuming, the nature and extent of the target companys contingent liabilities,
problematic contracts, litigation risks and intellectual property issues, and much more. This is
particularly true in private company acquisitions, where the target company has not been subject to
the scrutiny of the public markets, and where the buyer has little (if any) ability to obtain the
information it requires from public sources.
The following is a summary of the most significant legal and business due diligence activities that are
connected with a typical M&A transaction. By planning these activities carefully and properly
anticipating the related issues that may arise, the target company will be better prepared to
successfully consummate a sale of the company.
Of course, in certain M&A transactions such as mergers of equals and transactions in which the
transaction consideration includes a significant amount of the stock of the buyer, or such stock
comprises a significant portion of the overall consideration, the target company may want to engage
in reverse diligence that in certain cases can be as broad in scope as the primary diligence
conducted by the buyer. Many or all of the activities and issues described below will, in such
circumstances, apply to both sides of the transaction.
1. Financial Matters. The buyer will be concerned with all of the target companys historical
financial statements and related financial metrics, as well as the reasonableness of the targets
projections of its future performance. Topics of inquiry or concern will include the following:
What do the companys annual, quarterly, and (if available) monthly financial statements for the last
three years reveal about its financial performance and condition?
Are the companys financial statements audited, and if so for how long?
Do the financial statements and related notes set forth all liabilities of the company, both current and
Are the margins for the business growing or deteriorating?
Are the companys projections for the future and underlying assumptions reasonable and believable?
How do the companys projections for the current year compare to the board-approved budget for the
same period?
What normalized working capital will be necessary to continue running the business?
How is working capital determined for purposes of the acquisition agreement? (Definitional
differences can result in a large variance of the dollar number.)
What is the condition of assets and liens thereon?
2. Technology/Intellectual Property. The buyer will be very interested in the extent and quality
of the target companys technology and intellectual property. This due diligence will often focus on
the following areas of inquiry:
What domestic and foreign patents (and patents pending) does the company have?
Has the company taken appropriate steps to protect its intellectual property (including confidentiality
and invention assignment agreements with current and former employees and consultants)? Are there
any material exceptions from such assignments (rights preserved by employees and consultants)?
What registered and common law trademarks and service marks does the company have?
What copyrighted products and materials are used, controlled, or owned by the company?
Does the companys business depend on the maintenance of any trade secrets, and if so what steps
has the company taken to preserve their secrecy?
Is the company infringing on (or has the company infringed on) the intellectual property rights of any
third party, and are any third parties infringing on (or have third parties infringed on) the companys
intellectual property rights?
Is the company involved in any intellectual property litigation or other disputes (patent litigation can

be very expensive), or received any offers to license or demand letters from third parties?
What technology in-licenses does the company have and how critical are they to the companys
3. Customers/Sales. The buyer will want to fully understand the target companys customer base
including the level of concentration of the largest customers as well as the sales pipeline. Topics of
inquiry or concern will include the following:
Who are the top 20 customers and what revenues are generated from each of them?
What customer concentration issues/risks are there?
Will there be any issues in keeping customers after the acquisition (including issues relating to the
identity of the buyer)?
How satisfied are the customers with their relationship with the company? (Customer calls will often
be appropriate.)
Are there any warranty issues with current or former customers?
What is the customer backlog?
What are the sales terms/policies, and have there been any unusual levels of
How are sales people compensated/motivated, and what effect will the transaction have on the
financial incentives offered to employees?
What seasonality in revenue and working capital requirements does the company typically
4. Material Contracts. One of the most time-consuming (but critical) components of a due diligence
inquiry is the review of all material contracts and commitments of the target company. The categories
of contracts that are important to review and understand include the following:
Guaranties, loans, and credit agreements
Customer and supplier contracts
Agreements of partnership or joint venture; limited liability company or operating agreements
Contracts involving payments over a material dollar threshold
Settlement agreements
Past acquisition agreements
Equipment leases
Indemnification agreements
Employment agreements
Exclusivity agreements
Agreements imposing any restriction on the right or ability of the company (or a buyer) to
compete in any line of business or in any geographic region with any other person
Real estate leases/purchase agreements
License agreements
Powers of attorney
Franchise agreements
Equity finance agreements
Distribution, dealer, sales agency, or advertising agreements
Non-competition agreements
Union contracts and collective bargaining agreements
Contracts the termination of which would result in a material adverse effect on the company
Any approvals required of other parties to material contracts due to a change in control or



Case Details:


Tata Steel Limited, Corus Group Plc
Iron & Steel
India, Netherlands
$12.2 billion

On January 31, 2007, India based Tata Steel Limited (Tata Steel) acquired the Anglo Dutch steel
company, Corus Group Plc (Corus) for US$ 13.70 billion3. The merged entity, Tata-Corus, employed
84,000 people across 45 countries in the world. It had the capacity to produce 27 million tons of steel
per annum, making it the fifth largest steel producer in the world as of early 2007 (Refer Exhibit I for
the top ten players in the steel industry after the merger). Commenting on the acquisition, Ratan Tata,
Chairman, Tata & Sons, said, "Together, we are a well balanced company, strategically well placed
to compete at the leading edge of a rapidly changing global steel industry."
Tata Steel outbid the Brazilian steelmaker Companhia Siderurgica Nacional's (CSN) final offer of
603 pence per share by offering 608 pence per share to acquire Corus.
Tata Steel had first offered to pay 455 pence per share of Corus, to close the deal at US$ 7.6 billion
on October 17, 2006. CSN then offered 475 pence per share of Corus on November 17, 2006.
Finally, an auction was initiated on January 31, 2007, and after nine rounds of bidding, Steel could
finally clinch the deal with its final bid 608 pence per share, almost 34% higher than the first bid of
455 pence per share of Corus.
Many analysts and industry experts felt that the acquisition deal was rather expensive for Tata Steel
and this move would overvalue the steel industry world over.
Commenting on the deal, Sajjan Jindal, Managing Director, Jindal South West Steel said, "The price
paid is expensive...all steel companies may get re-rated now but it's a good deal for the industry."6
Despite the worries of the deal being expensive for Tata Steel, industry experts were optimistic that
the deal would enhance India's position in the global steel industry with the world's largest7 and fifth
largest steel producers having roots in the country. Stressing on the synergies that could arise from
this acquisition, Phanish Puram, Professor of Strategic and International Management, London

School said, "The Tata-Corus deal is different because it links low-cost Indian production and raw
materials and growth markets to high-margin markets and high technology in the West.

Background Note
Tata Steel
Tata Steel is a part of the Tata Group, one of the largest diversified business conglomerates in India.
Tata Group companies generated revenues of Rs. 967,229 million in the financial year 2005-06.
The group's market capitalization was US$ 63 billion as of July 2007 (only 28 of the 96 Tata Group
companies were publicly listed). In 1907, Jamshedji Tata established Tata Steel at Sakchi in West
Bengal. The site had a good supply of iron ore and water...
Gain an in-depth knowledge about various corporate valuation techniques.
Critically examine the rationale behind the acquisition of Corus by Tata Steel.
Understand the advantages and disadvantages of cross-border acquisitions.
Understand the need for growth through acquisitions in foreign countries.
Study the regulations governing mergers & acquisitions in the case of a cross-border acquisition.
Get insights into the consolidation trends in the Indian and global steel industries.
Tata Steel Vs CSN: The Bidding War
There was a heavy speculation surrounding Tata Steel's proposed takeover of Corus ever
since Ratan Tata had met Leng in Dubai, in July 2006. On October 17, 2006, Tata Steel made an
offer of 455 pence a share in cash valuing the acquisition deal at US$ 7.6 billion. Corus
responded positively to the offer on October 20, 2006.
Agreeing to the takeover, Leng said, "This combination with Tata, for Corus shareholders and
employees alike, represents the right partner at the right time at the right price and on the
right terms." In the first week of November 2006, there were reports in media that Tata was
joining hands with Corus to acquire the Brazilian steel giant CSN, which was itself, keen on
acquiring Corus. On November 17, 2006, CSN formally entered the foray for acquiring Corus
with a bid of 475 pence per share. In the light of CSN's offer, Corus announced that it would
defer its extraordinary meeting of shareholders to December 20, 2006 from December 04,
2006, in order to allow counter offers from Tata Steel and CSN...
Financing the Acquisition
By the first week of April 2007, the final draft of the financing structure of the acquisition was
worked out and was presented to the Corus' Pension Trusties and the Works Council by the
senior management of Tata Steel. The enterprise value of Corus including debt and other costs
was estimated at US$ 13.7 billion (Refer Table I for fund raising mix for the Corus'

The Integration Efforts

Industry experts felt that Tata Steel should adopt a 'light handed integration approach, which meant
that Ratan Tata should bring in some changes in Corus but not attempt a complete overhaul of
Corus'systems (Refer Exhibit XI and Exhibit XII for projected financials of Tata-Corus). N
Venkiteswaran, Professor, Indian Institute of Management, Ahmedabad said, If the target company
is managed well, there is no need for a heavy-handed integration. It makes sense for the Tatas to
allow the existing management to continue as before.

The Synergies
Most experts were of the opinion that the acquisition did make strategic sense for Tata Steel. After
successfully acquiring Corus, Tata Steel became the fifth largest producer of steel in the world, up
from fifty-sixth position.
There were many likely synergies between Tata Steel, the lowest-cost producer of steel in the world,
and Corus, a large player with a significant presence in value-added steel segment and a strong
distribution network in Europe. Among the benefits to Tata Steel was the fact that it would be able to
supply semi-finished steel to Corus for finishing at its plants, which were located closer to the highvalue markets.

The Pitfalls
Though the potential benefits of the Corus deal were widely appreciated, some analysts had doubts
about the outcome and effects on Tata Steel's performance. They pointed out that Corus' EBITDA
(earnings before interest, tax, depreciation and amortization) at 8 percent was much lower than that of
Tata Steel which was at 30 percent in the financial year 2006-07.

The Road Ahead

Before the acquisition, the major market for Tata Steel was India. The Indian market accounted for
sixty nine percent of the company's total sales.
Almost half of Corus' production of steel was sold in Europe (excluding UK). The UK consumed
twenty nine percent of its production.
After the acquisition, the European market (including UK) would consume 59 percent of the merged
entity's total production





Vodafone, Hutchison Essar
Telecom and Broadband
India, UK
$10 billion

In the year 2007, the world's largest telecom company in terms of revenue, Vodafone Plc (Vodafone)
made a major foray into the Indian telecom market by acquiring a 52 percent stake in the Indian
telecom company, Hutchison Essar Ltd (Hutchison Essar), through a deal with the Hong Kong-based
Hutchison Telecommunication International Ltd. (HTIL). It was the biggest deal in the Indian
telecom market. Vodafone's main motive in going in for the deal was its strategy of expanding into
emerging and high growth markets like India. In 2007, India had emerged as the fastest growing
telecom market in the world outpacing China. But it still had low penetration rates, making it the
most lucrative market for global telecom companies.
Though Hutchison Essar was one of the established players in this market, HTIL had exited India as
the urban markets in the country had become saturated. Future expansion would have had to be only
in the rural areas, which would lead to falling average revenue per user (ARPU) and consequently
lower returns on its investments. HTIL also wanted to use the money earned through this deal to fund
its businesses in Europe.
Vodafone had to face many obstructions in clinching the deal - initial opposition for the Indian
partner of HTIL, Essar Ltd., aggressive bidding by competitors, as well as regulators who took their
time to approve the deal. But in the end, Vodafone bagged the deal outbidding other competitors.
Though some critics felt that Vodafone had overpaid for Hutchison Essar, Vodafone contended that
the price was worth paying as the deal would help it get a massive footprint in one of the most
competitive telecommunication markets in the world.

The case will help the students to:
Understand the importance of international mergers and acquisitions as a growth strategy in the era
of globalization.
Understand the opportunities that emerging markets such as India offer to global business
Understand the issues and challenges faced by global business firms expanding into emerging
Understand the entry and exit strategies adopted by firms operating in the international markets.
Understand the importance of the government's policy in influencing the business strategy of a

Vodafone's Foray into India

On February 11, 2007, the Vodafone Group Plc (Vodafone), a UK-based telecom company, declared
that it had finally bagged the fourth largest Indian mobile operator, Hutchison Essar Ltd. (HEL). This
announcement ended an acquisition battle - probably the most ferociously fought - in the Indian
telecom sector. Vodafone bought a 52% stake in HEL for US$11.1 billion from Hutchison Telecom
International Ltd. (HTIL); 33% stake was still held by the Essar Group (Essar). The company was
valued at US$19.3 billion. Vodafone won the battle against other major competitors in the fray like
Reliance Communications Ventures Ltd.(Reliance). The deal, the biggest ever in the Indian telecom
industry, came after the Indian government's (GoI) decision in 2006 to raise the limit on foreign
direct investment (FDI) in the telecom sector from 49% to 74%. The deal was expected to infuse
much-needed FDI into the sector to meet the government's targeted numbers of 500 million
customers by 2010.), Essar and the Hinduja group.
Industry and government circles welcomed the deal and said that it would give a big boost to the
telecom sector. It would help not just by capital infusion into the sector, but also by bringing in
Vodafone's experience in operating telecom networks.
HEL was the fourth biggest player in the Indian telecom sector with a subscriber base of 29.2 million
in July 2007.
HEL had a pan-Indian presence with a presence in 13 of the total 28 circles in the country. HEL also
had the second highest average revenue per user (ARPU) of Rs.340.15, second only to the market
leader Bharti India Ltd. (Bharti Airtel) which had an ARPU of Rs.343.17.
India was, in 2007, the fastest growing mobile market in the world unseating China which used to
occupy the top slot.
The Foreign Investment Promotion Board (FIPB) gave its nod to the acquisition on April 27, 2007,
after having deferred the decision on the issue of FDI limits allowed in the telecom sector three

Background Note
Vodafone, based in the UK, was the world's largest mobile communications company by revenue. It
operated under the brand name 'Vodafone'. The brand name 'Vodafone' comes from 'Voice data fone',
reflecting the company's wish to provide voice and data services on the mobile phones. Vodafone
operated in Europe, the Middle East, Africa, Asia Pacific, and the US.
Vodafone Eyes Hutchison Essar: In 2006, GoI raised the FDI limit in the telecom sector from 49%
to 74%. The government increased the FDI limit in the sector after protracted lobbying by telecom
players who were in dire need of capital...

Other Contenders for the Bid

Vodafone wasn't the only company eyeing HEL, however. The fast growth of the Indian mobile
market coupled with a relatively low penetration level made it a very lucrative market.
So it was no wonder that Vodafone's announcement started the race for the acquisition of HTIL's
stake in HEL among several interested players. Some of the important players in the fray were
Reliance, Bharti Airtel, Essar and Orascom

The Slugfest
Before initiating the bidding process, Vodafone had to clear many regulatory issues.
Bharti Airtel, in which Vodafone had a 10% stake, asked its partner to make it clear whether
Vodafone wanted to continue its relation with it.
Moreover, as GoI's telecom policy allowed only 74% of FDI into the sector, Vodafone's acquisition
of a 67% stake in HEL would lead to the company crossing the limits of FDI allowed as both the
players would be operating in the same circles...

The Aftermath
On March 22, 2007, Vodafone signed a shareholder agreement with its Indian partner, Essar,
according to which Vodafone would hold a 52% and Essar would continue to hold a 33% stake.
Some other minority shareholders, such as Asim Ghosh (Ghosh), Infrastructure development finance
company (IDFC) and Analjit Singh together would continue to hold the remaining 15 per cent stake
in the company...

Vodafone planned to bring world class branding to India after the 'Hutch' brand was replaced by the
Vodafone brand name. Vodafone wanted to build up its numbers in the Indian market mostly by
expanding into the rural areas.Vodafone also wanted to launch a 3G service in the Indian market as
soon as the government declared the 3G policy. Rather than using the 3G services as a premium
product targeted at upscale segment, Vodafone wanted to take 3G to the rural areas to provide hispeed data services to the rural masses...


Case Details:


1991 - 2007
Hindalco, Novelis
Metal and Mining
US(India), Canada
$6 billion

The case discusses the acquisition of US-Canadian aluminum company Novelis by India-based
Hindalco Industries Limited (Hindalco), a part of Aditya Vikram Birla Group of Companies, in May
2007. The case explains the acquisition deal in detail and highlights the benefits of the deal for both
the companies. It also examines the valuation of the acquisition deal and how the deal was financed.
The case concludes by describing the challenges that Hindalco would face in integrating the
operations of Novelis and analyzing if the deal was overvalued as opined by some industry experts.
On May 16, 2007, India-based Hindalco Industries Limited (Hindalco), a subsidiary of the AV
(Aditya Vikram) Birla Group of Companies (Aditya Birla Group), acquired the US-Canadian
aluminum giant Novelis Inc. (Novelis). The acquisition was the result of an agreement arrived at
between Hindalco and Novelis on February 10, 2007. Hindalco was to buy Novelis for US$ 6 billion
in cash, making it the second biggest acquisition3 by an Indian company till then. Novelis was to
operate as a subsidiary of Hindalco, and was to have Kumar Mangalam Birla (Kumar Mangalam) as
Chairman who was also the Chairman of Hindalco and the Aditya Birla Group.
Martha Finn Brooks, from Novelis would continue as Chief Operating Officer and was also
appointed as the President of the merged entity. Hindalco was among the leading companies in the
aluminum and copper industry in the world. (Refer to Exhibit I for leading aluminum companies in
the world based on EBITDA figures).

In the financial year 2006-07, Hindalco generated revenues of US$ 14 billion and the company
had a market capitalization of more than US$ 4.5 billion. It had a significant market share in all
the segments in which it operated and enjoyed a domestic market share of 42 percent in primary
aluminum, 63 percent in rolled products, 20 percent in extrusions, 44 percent in foils, and 31
percent in wheels (Refer to Exhibit II for Hindalco's revenues and net income for the year 2006
and 2005). Novelis had a three million ton capacity for manufacturing value added aluminum
rolled products4 and was a leading producer of aluminum sheet and light gauge (thin) rolled
products for the construction and industrial markets.
The company operated in 11 countries and supplied high quality aluminum sheet and foil
products to various industries including automotive, transportation, packaging, construction,
industrial products, and printing. Novelis'customers included companies like Coca-Cola, Kodak,
Ford, General Motors, and other leading Fortune 500 companies. Novelis sold rolled aluminum
products in Asia, Europe, North America, and South America (Refer to Exhibit III for
performance of Novelis in different regions). Industry analysts opined that the acquisition would
benefit Hindalco by strengthening the company's global presence, as Novelis had flat rolled
aluminum manufacturing plants in different locations in the world. They considered the deal a
good platform for Hindalco to access global customers. Novelis had a 19 percent global market
share in foil products, 25 percent in construction and industrial products, and 43 percent in
beverage cans.
After the acquisition, the merged entity would emerge as the world's largest aluminum rolling
company and among the world's top five aluminum manufacturers. According to Shivanshu
Mehta, Assistant Vice-President, NCDEX, "The deal will catapult Hindalco's flat rolled product
capacity from 0.2 million ton to 3.2 million ton per annum and elevate the company to a
leadership position in the business.
Some analysts, however, were of the view that the deal was not beneficial to Hindalco as it had
paid a huge amount in cash to acquire a company which was recording losses. Novelis had
incurred a loss of US$ 275 million for the year 2006.
Even in the year 2005, when Novelis had reported US$ 90 million as net profit, its share price did
not cross US$ 30 (Refer to Exhibit IV for Novelis and Hindalco stock charts).
The analysts pointed out that the way the deal was financed would affect Hindalco's financial
performance as the acquisition would not add value in the short and medium term.

Study the synergies of the merger between Hindalco and Novelis
Study the rationale behind Hindalco acquiring a loss making aluminum company
Examine the way the acquisition deal was financed
Analyze whether the deal was overvalued or not
Analyze the trends in the global aluminum industry

Background Note
Hindalco Industries Limited
The Birla Group of Companies was founded by Seth Shiv Narayan Birla in 1857 as a cotton trading
company at Pilani, Rajasthan, India. The group later expanded its operations into other business
segments (Refer to Exhibit V for other business of Birla Group). Hindustan Aluminum Corporation
Limited (HACL) was established on December 15, 1958, to manufacture alumina, aluminum, and

aluminum fabricated items. The company was formed as collaboration between Kaiser Aluminum &
Chemicals Corporation (KACC), US, and the Birla Group. Under the agreement with KACC, KACC
had to train the people of HACL and provide technical advice and information for 20 years along
with the assistance to operate the aluminum fabrication plant.

Novelis was split from its parent company, Alcan Inc. (Alcan), the Canada-based aluminum giant and
set up as its subsidiary in January 2005. The origin of the company can be traced back to 1902 when
the Northern Aluminum Company, a Canadian subsidiary of the Pittsburgh Reduction Company was
set up.
The Pittsburgh Reduction Company was renamed as the Aluminum Company of America (ALCOA)
in the year 1907. In 1925, The Northern Aluminum Company was renamed the Aluminum Company
of Canada (ACOC) Limited.

The Deal
Hindalco acquired Novelis through its wholly owned subsidiary AV Metals on February 10, 2007.
AV Metals purchased 100 percent of the issued and outstanding common shares of Novelis at US$
44.93 per share, amounting to US$ 3.6 billion. Hindalco paid a premium of 16.6 percent on the
closing price of Novelis' stock. Apart from equity purchase, Hindalco also acquired Novelis' debts to
the tune of US$ 2.4 billion.

Rationale for Acquisition

After the deal was signed for the acquisition of Novelis, Hindalco's management issued press releases
claiming that the acquisition would further internationalize its operations and increase the company's
global presence. By acquiring Novelis, Hindalco aimed to achieve its long-held ambition of
becoming the world's leading producer of aluminum flat rolled products. Hindalco had developed
long-term strategies for expanding its operations globally and this acquisition was a part of it.
Novelis was the leader in producing rolled products in the Asia-Pacific, Europe, and South America
and was the second largest company in North America in aluminum recycling, metal solidification
and in rolling technologies worldwide. Novelis had the most modern technology in the industry and
efficiently produced high-quality products in several countries across the world.

The Pitfalls
Though the Hindalco-Novelis merger had many synergies, some analysts raised the issue of valuation
of the deal as Novelis was not a profit-making company and had a debt of US$ 2.4 billion. They
opined that the acquisition deal was over-valued as the valuation was done on Novelis' financials for
the year 2005 and not on the financials of 2006 in which the company had reported losses (Refer to
Exhibit IX for Novelis P&L statements and balance sheets). They said that Hindalco might have to
collect a huge amount of resources to revive and restructure Novelis.


Case Details:



TATA MOTORS, Jaguar Land Rover


Automobile sector


India, US


$2.3 billion

Corporations have been following an upward tendency of mergers, joint ventures and acquisitions,
which results in new strategies and approaches. The scenario can be more challenging when it
happens internationally and the company needs to deal with different cultures. Nonetheless, the need
to expand the business is responsible for a huge slice of Foreign Direct Investment (FDI) worldwide
crossing several sectors and industries. Clearly factors as globalization and technology are
responsible to accelerate this process by accessing markets and human capital rapidly. Companies
increased its economies of scale by conquering new markets and new public. This need is the reason
why Tata Motors decided for the acquisition of Jaguar and Land Rover (JRL), which involved
advantages as well as pitfalls.


What was the strategic and economic rationale for the acquisition in the case?
What strengths of Jaguar and Land Rover were the most valuable for Tata?
What were the major challenges for Tata Motors in this acquisition?
What were the major potential synergies from the deal? Were they realized?

Background note:
Tata Motors
Nowadays Tata Group is one of the India s biggest business conglomerates and it was established by
an Indian industrialist called Jamsetji Tata known as the Father of the Indian Economy. In the
first moment, the conglomerate was established as a private trading firm in 1868. In the previous
decade, Tata has posted a revenue over $30 billion among a diversified business sectors such as
communications, engineering, energy and so on. The conglomerate includes several companies,
which TML was the automobile manufacturing. TML major segment included commercial (medium
and heavy commercial) and passenger vehicles (small cars).

Jaguar and Land Rover

Jaguar and Land Rover (JLR) integrated the Ford's Premier Automotive Group (PAG) and they were
one of the most important British icons. Jaguar is committed with manufacture of high-end luxury
cars and Land Rover manufactured high-end SUVs. It is important to mention that PAG is also
responsible for Aston Martin and Lincoln.

Economic rationale:
Tata Motors (TML) acquired Jaguar Land Rover for many reasons. First of all, it made part of the
strategy of TML. The acquisition would have been able to launch Tata worldwide by providing it
better technology and broadening its product range. Tata was well established in India but it had
problems to expand globally because of the high entry barriers of the automotive sector. With the
acquisition of JRL, Tata would be in charge for two well-known brands which could allow it easy
access to international markets.
Tata aimed to improve its technology in order to ingress into the international markets and JRL
would support it by providing technological know-how. Moreover, the terms of the contract with
Ford covered the provision of technology know-how to Tata for a period of time. With the
acquisition, it would be possible to expand the range of products which focused in the very beginning
on low end cars. Tata would also broader its consumers by selling to luxury market as well.
Therefore, the acquisition would provide gain of competitiveness such as technology, brand names
valued and logistical and distribution advantages while getting advantage among others competitors
in the Indian market.

A) Strategy
Tata Motor s had a clear strategy regarding the consolidation of the company: keep investing on
Indian market but also expanding towards international markets by focus on the development of the
products as well as acquisitions and collaborations.
Ford decided to adopt a new strategy The Ford Forward which consisted in dismantling PAG as a
part of a plan to integrate the brand globally and for this reason Ford sells one of its the most luxury
brand Land Rover and Jaguar for $2,3 billion in 2008. One aspect that must be highlighted about
this acquisition is that TML demonstrated interest in keeping the brands identities intact at the same
time incorporating the expertise and experience of the employees to its growth.
This acquisition represented a huge step once TML could enter into a global market by adding
technology and diversifying its products. Moreover, TML now could reach a selected public
emerging markets which countries have expressive growth in a short period of time. This suddenly
growth sometimes is not sustainable and equal among the population has created a high society,
which is able to consume these luxury products such as in India. Nonetheless, there are some
considerations before continue. Theory argues that a way to be global is looking for resources,
markets and productive advantages. In this case, Tata is looking for a new segment which means new
market. TML acquires Jaguar and Land Rover in order to incorporate expertise & technology and it
represents a chance to expand the business into emerging countries, precisely luxury segment.
The necessity to go abroad and expand its operations is to decrease the dependence of the Indian
market which is responsible for 90% of the sales and this strategy is supported by theory as the
growth necessity. Therefore, it would expand the markets not only geographically but also across
different segments. With this acquisition TML would its efficiency in terms of economies of scales
once the sales will increase as well as the profit. So relevant as the economy of scale is the economy
of scope in this case. The acquisition also means the acquisition of technology and expertise so that
TML can improve its low-ends cars without extra expenses because it would be integrated. The
production of vehicles depends on the research and ongoing improvements in its vehicles.
Acquiring an enterprise anywhere in the world has three common elements and for TML would not
be different. The theory points out some steps that support us to understand this case:
Identification and Valuation of the Target (acquiring a good vs. bad company)
Jaguar and Land Rover are considered a good company due to its good reputation among the luxury
segment. The decision of Ford to sell its brand concerns Ford strategy which does not mean
necessarily that the brand was not doing well.
The Tender or Completion of the Ownership Change Transaction (approval of the target
company or if not, hostile takeover; regulatory approval; compensation settlement)
In this case, the acquisition was made in a compensation settlement

basis in which TML paid ($2,3billion) for the operation. In other words, it was a cash deal.
This step is the most challenging for TML once the loan required for the acquisition has caused
uncertainty among the investors and there is synergy issue as well. Therefore, TML has to handle
these two main challenges.

B) Synergies
One of the major reasons for a company to acquire another, according to acquisitions and merges
theory, is the possibility to obtain synergy in order to be competitive. In the case of Tata Motors,

there were potential synergies involved. The Indian group responds for others companies as well,
such as:
i) Tata Auto Comp Systems Limited (TACO), owned by Tata, specialized in the provision of
products and services in the automotive industry; ii) Tata Consultancy Services (TCS): it is an Indian
multinational information technology area in Europe.
The potential synergy in this situation is huge once TML was acquiring also the expertise and the
technology of JRL which would be useful to improve the quality of Tata products in the Indian
market. One of the most remarkable features of the JRL is the design and Tata would incorporate it in
the other companies of the group. One proof that it was realized is the new range of Tata truck
launched last year .It has a global design that matches aesthetics with enhanced comfort, fuelefficiency and low cost. Another aspect also important in terms of synergy is the reduction of
production costs. The cost will decrease because of synergy with Corus (another company of the
same group). Apart from the production cost, it is also important to look at the operational costs
because Tata will spend less money on Research and Development. Also, qualified personnel
represent another synergy once Tata can transfer the workers from the UK to India or vice versa.
All these synergies summed up roughly $450 million that Tata saved in production, procurement,
financing, in the first three years after the acquisition which proved that the synergies made Tata
better off. Therefore, the acquisition of JRL will improve the financial situation of Tata because Tata
would reduce the cost of production and as a consequence it will increase its margin of profit.
Although Tata invest US$ 3 billion to acquire JRL, the reduction of cost production would offset this
loan. Finally, JRL will allow Tata access to the luxury market.



Case Study:



HDFC Bank, Bank of Punjab


Banking Sector




$ 2.4 billion

HDFC Bank Board on 25th February 2008 approved the acquisition of Centurion Bank of Punjab
(CBoP) for Rs 9,510 crore in one of the largest merger in the financial sector in India. CBoP
shareholders will get one share of HDFC Bank for every 29 shares held by them.
HDFC Bank and Centurion Bank of Punjab have agreed to the biggest merger in Indian banking
history, valued at about $2.4 billion. It is likely the beginning of wave of M&A deals in the
financial services industry, as India prepares to ease restrictions on bank ownership in 2009.

Background note:
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive
an 'in principle' approval from the Reserve Bank of India (RBI) to setup a bank in the private sector,
as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was
incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in
Mumbai, India. HDFC Bank commences operations as a Scheduled Commercial Bank in January
The following year, it started its operations as a Scheduled Commercial Bank. Today, the bank
boasts of as many as 1412 branches and over 3275 ATMs across India.

Centurion bank of Punjab

Centurion bank of Punjab is a new generation private bank offering a wide spectrum of retail, SME
and corporate banking products and services. It has been among the earliest banks to offer a
technology enabled customer interface that provides easy access and superior customer service.
Centurion Bank of Punjab has a nationwide reach through its network of 241 branches and 389
ATMs.The bank aims to serve all the banking and financial needs of its customers through multiple
delivery channels, each of which is supported by state of the art technology architecture. Centurion
Bank of Punjab was formed by the merger of Centurion Bank and Bank of Punjab, both of which
had strong retail franchises in their respective markets. Centurion Bank had a well managed and
growing retail assets business, including
leadership positions in two wheeler loans and commercial vehicles loans and a strong capital base.
The shares of the bank are listed on the major stock exchanges in India and also on the Luxembourg
Stock exchange.

Merger Positions
HDFC Bank Board on 25th February 2008 approved the acquisition of Centurion Bank of Punjab
(CBoP) for Rs 9,510 crore in one of the largest merger in the financial sector in India. CBoP
shareholders will get one share of HDFC Bank for every 29 shares held by them.
HDFC Bank and Centurion Bank of Punjab have agreed to the biggest merger in Indian banking
history, valued at about $2.4 billion. It is likely the beginning of a wave of M&A deals in the
financial services industry, as India prepares to ease restrictions on bank ownership in 2009. This will
be HDFC Banks second acquisition after Times Bank. HDFC Bank will jump to the 7th position
among commercial banks from 10th after the merger.
However, the merged entity would become second largest private sector bank. The merger will
strengthen HDFC Bank's distribution network in the northern and the southern regions. CBoP has
close to 170 branches in the north and around 140 branches in the south. CBoP has a concentrated
presence in the in the Indian states of Punjab and Kerala. The combined entity will have a network of
1148 branches.
HDFC will also acquire a strong SME (small and medium enterprises) portfolio from CBoP. There is
not much of overlapping of HDFC Bank and CBoP customers. The entire process of the merger had
taken about four months for completion. The merged entity will be known as HDFC Bank. Rana
Talwar's Sabre Capital would hold less than 1 per cent stake in the merged entity from 3.48 in CBoP,
while Bank
Muscat's holding will decline to less than 4 per cent from over 14 per cent in CBoP. HDFC
shareholding falls to will fall from 23.28 per cent to around 19 per cent in the merged entity.
Rana Talwar, chairman of Centurion Bank of Punjab, says, I believe that the merger with HDFC
Bank will create a world-class bank in quality and scale and will set the stage to compete with banks
both locally as well as on a global level.
According to HDFC Bank Managing Director and Chief Executive Officer Aditya Puri, Integration
will be smooth as there is no overlap. In an interview, he mentioned that at 40% growth rate there
will be no lay-offs. The integration of the second rung officials should be smooth as there is hardly
any overlapping.


Case Details:

Flipkart , Myntra
$ 2.32 billion

The acquisition of Myntra (Indias largest fashion e-tailer) by Flipkart (Indias biggest e-tail
company) brought together two of the biggest e-tailers in India. Made possible by common investors,
the acquisition would enable Myntra to leverage on Flipkarts infrastructure, while allowing Flipkart
to strengthen its portfolio of product offering. This consolidation is seen as a response to taking on
Amazon, which has made big plans for Indian market.
It was midsummer in 2014 in India when the countrys leading e-tailer Flipkart made the hottest and
most awaited announcement of the Indian e-commerce industry the acquisition of Myntra, its rival
and leading e-tailer in the fashion and lifestyle segment, a vertical in which Flipkart was lagging
behind its competitors. On this occasion, Sachin Bansal (Sachin) and Binny Bansal (Binny), cofounders of Flipkart, said, We believe that the future of fashion in India is e-commerce. Myntra has
a strong team with excellent domain knowledge. They also have the best relationships with lifestyle
This partnership will strengthen both our positions in the fashion space. We will continue to work as
independent entities and grow together as leaders in the Indian fashion and lifestyle industry. Arvind
Singhal, Chairman of Technopak Advisors Pvt. Ltd., said, The Flipkart and Myntra merger will
create the first Indian e-tailing powerhouse, and provide a big fillip to India's still nascent but very
promising e-commerce industry.

However, not all experts were of the same view. Mahesh Murthy, co-founder of Seedfund , said,
While this (deal between Flipkart and Myntra) may be good for investors, it might not be so good
for the entrepreneurs and staff of these companies. Swati Bhargava, cofounder of ,
said Consolidation of top two out of five players is probably not great from a customer
perspective. It reduces competition and perhaps incentive for continual improvement....

The case is structured to achieve the following teaching objectives:
Evaluate the Acquisition of Myntra and its potential synergies
Study the benefits of the deal to Flipkart and Myntra
Evaluate the impact of the deal on Indian e-commerce industry
Analyze the future challenges, which Indian ecommerce players could face with the global majors
focusing on India.This case is meant for MBA/MS students as a part of the Merger and Acquisition/
Business Strategy curriculum.

Indian Online Retail (E-Tail) Industry

The online retail space formed about 0.55% of the overall Indian retail industry (about Rs. 25.3
billion), and included organized and unorganized retail. The online retail industry constituted just
about 7.9% of the organized retail industry in India (Refer to Figure 1). Indian e-tail industry players
mostly followed an inventory-based model or a non-inventory-based model also known as the
marketplace model . In August 2014, the players which followed the inventory-based model
were ,, , (all were online retailers) and players that
followed the non-inventory-based model were, , , and
(all were marketplaces). Industry experts felt the Flipkart and Myntra deal could start a phase of
consolidation in the Indian online retail space which was worth about Rs. 139 billion (about US$2.32
billion) in 2012-13.
The first RadioShack store was started in 1921 by two brothers, Theodore and Milton Deutschmann
in Boston, US. The store primarily sold ship radio equipment and ham radios . The brothers named
the company after the small wooden structure on board ships that carried the radio equipment, which
was referred to as the Radio Shack. RadioShack had to its credit the first audio showroom in the US
that provided comparisons of speakers, amplifiers, turntables, and phonograph cartridges.

Flipkart: Leading E-tailer In India (Flipkart), often referred to as the Amazon of India, was started by two ex-Amazon
employees, Sachin Bansal (Sachin) and Binny Bansal (Binny), (not related) in October 2007 with an
investment of Rs. 0.4 million. The company started as an online book seller with 50,000 book titles
and got its first order about four months after its launch. , Two years later around December 2009,
it had grown to become the largest online bookstore in India. Once it picked up momentum, Flipkart
started offering various products under different categories.
. In 2010, it began selling DVDs/VCDs, mobile phones etc. In March 2011, the company was doing
business with a Gross Merchandise Value (GMV) of around US$10 million. Gradually, it added
more categories on its website,, such as cameras, laptops, home appliances, elearning, healthcare and personal products, and clothing.

Myntra: Leader In Fashion E-Tail (Myntra) was founded by Mukesh Bansal (Mukesh) and Ashutosh Lawania (Lawania) in
February 2007 in a three-bedroom flat in Bengaluru, Southern India. Vinneet Saxena (Saxena) and
Raveen Sastry (Sastry) also joined the company as founders the same year. All four founders

invested Rs. 5 million in the company. Myntra was started as an on-demand online personalization
platform for products and gifts where the customer could personalize products such as mugs, Tshirts, calendars, key-chains, diaries, etc.

Funding From Various Leading Venture

In October 2007, Myntra got an undisclosed amount of first funding from Accel Partners (Accel) and
Sasha Mirchandani . After that the company generated a series of fundings from various venture
capitalists at regular intervals. By February 2014, Myntra had generated funds of U$115 million plus
in six rounds of funding.

Acquisition By Myntra
November 2012, Myntra acquired Inc and its brand Sher Singh (
in exchange for cash and equity. On this acquisition, Mukesh said, We have been working on a
private label initiative within Myntra and wanted a team with strong design and inventory and Sher
Singh has done that really well. It made sense to acquire the team. In April 2013, Myntra went in for
its second acquisition, buying FITIQUETTE for cash and stock. Mentioning the significance of this
acquisition, Mukesh said, Myntra aims to create the most compelling fashion shopping experience
for Indian consumers at per or better than global standards. FITIQUETTE developed pioneering
technology for solving the fit/size problem online.
This acquisition will not only help us improve the experience significantly, but will also enhance our
technology team with addition of top tech talent.

Financal Growth Of Myntra

In 2008, Myntra reported revenues of Rs. 40-50 million with a customer base of 150-plus companies
and 50 colleges. The company also reported a monthly growth rate of 10-30% with a gross margin of
25-60%, depending on the product. Myntra stated that it would break even by the end of the financial
year 2010. In 2010, it was generating Rs. 10 million of revenue every month. In August 2012,
Lawania stated that the company had close to 8,000 transactions per day and was shipping about
11,000-12,000 products every day with a margin of 35-40%. In Financial Year (FY) 2012-13, Myntra
reported revenue of Rs. 4 billion.

The Deal
In January 2014, The Times of India reported that Flipkart had approached Myntra with a merger
proposal. Initially, the offer was to merge Myntra with Flipkart.
However, later, Flipkart changed the offer and agreed to run both companies (Flipkart and Myntra)
independently. Experts said that two common investors campaigned for the deal Tiger Global
Management, LLC (Tiger) and Accel. If the deal went through, then it would save both investors
from injecting fresh capital into the loss making duo. In addition to this, the merger would create the
undisputed leader in the Indian online space and keep the competitors of both companies, such as
Amazon and Snapdeal (competitors of Flipkart) and Jabong (competitor of Myntra), at bay.

Myntra was in the high margin fashion segment and was the leader in this category. Flipkart wanted
to establish itself in this segment ever since it had launched mens
clothing in October 2012. Vijay Kumar Ivaturi, member of Indian Angel Network , said, Flipkart
wants to be a horizontal, multi-category, and scale player. Hence, it seems like a good strategy to
acquire a category (fashion) player for scale and depth. The deal helped Myntra gain access to
Flipkart's logistics network and it was able to deliver its products to more than 9,000 PIN codes
(before this deal it could do so only in 9,000 PIN codes) and cover more than 100 cities (before this
deal it was only 30 cities). In July 2014, both websites (Flipkart and Myntra) had 26 million unique
visitors followed by Jabong and Amazon with 23.5 million and 16.9 million unique visitors
Road Ahead
After the deal, Flipkart and Myntra had a total 50% share in the Indian online fashion segment. BS
reported that both were looking to achieve a 65% share by late 2015 or early 2016. To achieve its
target, the company had a plan. According to Mukesh, Recently (around mid of 2014), we set up a
fashion incubator, in which 15-20 people will be given support in manufacturing, sampling, supply
chain, etc, to grow private labels. After a year, three-four private labels might be acquired by
Myntra. Both companies also planned to take over some private brands whether online and offline.


Case Details :
Organisation VSNL , Teleglobe
India , UK
EUR 18.22 billion

Videsh Sanchar Nigam Limited (VSNL) was incorporated in 1986 as a public sector enterprise to
cater to overseas communication services. In 2002, the Indian government privatised VSNL and the
Tata Group acquired a controlling stake in the company..VSNL is India's largest player in
international long-distance services and has a strong pan-India presence in domestic long-distance
services.The company operates landing stations, undersea cables, managed services, leased lines and
data centres across India. It also runs a network of earth station, switches and submarine cable
systems and offers international telecommunications services including mobile, IP and voice
services. 7%

VSNL is the worlds largest international wholesale carrier with more than 415 direct and bialateral
relationships with leading international voice tetecommunications providers ,providing more than 17
billion minutes of international wholesale voice traffic annually. It was the first telecom service
provider to acquire the TL 9000 certification globally.The company provides connections to
over 400 mobile operators worldwide. It is also the principal provider of signalling conversion
services to enable GSM roaming to and from North America.
Through its acquisition of Teleglobe in 2005,VSNL extended its global reach to over 240 countries.
It also became the worlds largest submarine cable system after acquiring the Tyco Global Network.
UK Ltd., in the country. Over the years, the company has been able to increase its presence across the
EU. In 2005, it acquired the Tyco Global Network, a state-of-the-art undersea cable network that
covers Europe.Another subsidiary,VSNL UK, also launched its wholesale voice service in the UK
and focuses on selling call-termination services to telecom companies in Europe.
Currently, the company has 52 subsidiaries in
21 countries as well as operations across four continents. VSNL International, a subsidiary of the

company, takes care of its international operations. It has its offices in Virginia, New Jersey, London,
Paris, Madrid, Amsterdam, Frankfurt, Singapore and Tokyo. Its ADRs are listed on the New York Stock
Exchange .VSNL International had a work force of about 2000 employees and generated revenue of
EUR 704.01 million for the financial year 2005-06.
Financial Backup
VSNL is backed by the EUR 18.22 billion Tata Group providing the company with the necessary
financial cushion to pursue its global acquisitions drive. It acquired the Tata Global Network (TGN)
and Teleglobe at EUR 107.66 million and EUR 197.93 million, respectively, enabling it to diversify
its business across the EU.

Factors for Success

World Class Infrastructure
VSNL offers multiple connectivity options internationally, using its robust network infrastructure. It
operates a total of 26 switches,
5 international gateway switches and 21 national long-distance switches worldwide. It has over 50
earth stations and terrestrial cable systems with 200,000 kilometers of fibre and cable.The company
offers high-end services to its EU clients by successfully leveraging its infrastructure.
Integrated Service Provider
VSNL has decided to offer joint services with Tata Consultancy Services (TCS). It plans to offer not
only connectivity services but also integrated network services, network management services as well
as IT services to its EU clients, in partnership with TCS.

Mergers and acquisitions in India have grown on a rampant scale after the introduction of the

takeover code. This has created a market for M&A and M&A specialists in the form of consultants,
merchant bankers, managers, etc. Corporate India has been quick to grab the opportunity and try for
the maximum success rate. In a short time, it has also been learnt that Mergers and acquisitions are
not a panacea for corporate ills. Negotiated takeovers with the proper synergy to back them and
managerial willingness to manage the process smoothly have resulted in the few successes that were
seen in India.


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