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 Acknowledgement
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Apart from the efforts of me, the success of this project depends largely on the
encouragement and guidelines of many others. I take this opportunity to express my
gratitude to the people who have been instrumental in the successful completion of this
project.

I would like to show my greatest appreciation to___. I can¶t say thank you enough for his
tremendous support and help. I feel motivated and encouraged every time I attend his
lecture. Without his encouragement and guidance this project would not have
materialized.

The guidance and support received from my parents and all others who contributed to
this project, was vital for the success of the project. I am grateful for their constant
support and help. 


 
 

   
   

 


  

  
 


   

   

    

 
ACQUISITION
An acquisition may be only slightly different from a merger. In fact, it may be different in
name only. Like mergers, acquisitions are actions through which companies seek
economies of scale, efficiencies and enhanced market visibility. Unlike all mergers, all
acquisitions involve one firm purchasing another - there is no exchange of stock or
consolidation as a new company. Acquisitions are often congenial, and all parties feel
satisfied with the deal. Other times, acquisitions are more hostile. In an acquisition, as in
some of the merger deals we discuss above, a company can buy another company with
cash, stock or a combination of the two. Another possibility, which is common in smaller
deals, is for one company to acquire all the assets of another company. Company X
buys all of Company Y's assets for cash, which means that Company Y will have only
cash (and debt, if they had debt before). Of course, Company Y becomes merely a shell
and will eventually liquidate or enter another area of business. Another type of
acquisition is a reverse merger, a deal that enables a private company to get publicly-
listed in a relatively short time period. A reverse merger occurs when a private company
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 private company
reverse merges into the public company, and together they become an entirely new
public corporation with tradable shares. Regardless of their category or structure, all
mergers and acquisitions have one common goal: they are all meant to create synergy
that makes the value of the combined companies greater than the sum of the two parts.
|ASE 1

ENTRY OF LI| INTO BANKING

LIC is a long-term player with long-term resources garnered at a low cost. It has chosen
Corporation Bank and Oriental Bank of Commerce, for investments in their equity
shares. These two public sector banks have the distinction of turning out superlative
performance. The business per employee and intermediation costs for these two banks
is the lowest in the industry. So are there Non Performing Assets. Corporation bank
incidentally, is the only public sector bank, where the recent voluntary retirement
schemes has not been implemented, as it does not have any excess staff to be sent
out.

In the Mangalore based Corporation bank are perhaps the biggest gambles over
undertaken by the two giants. That, despite the state banks status as one of the best-
managed bank in the country. Competition is intense in both domence at last count
there were 19 public sectors, 34 private sectors, and 45 foreign banks operating in the
country, and at the time of going to press, 6 companies have secured license from the
IRDA to start operations (four of these already had).

The State Bank of India¶s decision may have something to do with the state of the
banking business. Indian banks have seen there interest speared- the difference
between the rate at which they lend money and the rate at which they borrow it
squeezed over the last 5 years. From a healthy 4% in 1996, this has come down to
around 2.7% now.

The Life Insurance Corporations belated attempt to leverage its consideration financial
and distribution muscle could have stemmed from a desire to become more ten a
insurance company. It is highly likely that the immediate motivation was the entry of
aggressive private sector player into its home-turf, insurance. Bajpai believes the
Corporation Bank deal is a win-win one. ³ The proposed synergy between the two
efficient public sector organizations will be mutually rewarding and help LIC in
marketing, servicing, and cash flow management.´

Ads Ashwin Parekh, the managing partner at consulting major author Andersen,´ The
ongoing convergence in (Indian) financial markets will result in the emergence of three
or four large universal banks. Both LIC and SBI WANT to be serious contenders for the
post´.

It is logical for the two companies to want to be universal banks.´ The marriage of
banking and insurance´, explains Ravi Trivedi, an Executive director with consulting firm
Price water house Coopers, ´will provide banks with a source of long-term funds to
manage their short-term liabilities.´ That both companies are serious about their
universal-banking ambitions is evident. Says Bajapai: ³We have put in a place a very
wide array of products and today we are truly financial supermarket´.
Today 65 per cent of SBI¶s revenues come from banking, and almost all of LIC¶s
revenues come from insurance. Both are seeking to reduce this proportion over the next
five years. Only, SBI is seeking to become a universal bank through organic means,
while LIC has started its campaign with the acquisition of a significant stake in
corporation bank.

The Same Ends:

The Life Insurance Corporation¶s acquisition of a 27 percent stake in corporation bank

for Rs.470.40 crore does make great business sense: Corporation Bank is among the
better banks in the country; and a green-filed banking entity will find it difficult to
establish itself in these trying times. Bajpai has already articulated his desire to up LIC¶s
stake in the banks once the government amends the banking companies Act, allowing
private holdings in nationalized banks to exceed 49 per cent.

Thanks to the acquisition of this stake, India¶s largest insurance company now benefit
from Corporation Bank¶s expertise in money management. LIC boasts an annual cash
flow of around rs.85000 crore. The bank can help it manage this money. Managing a
sum of this magnitude will not only enable Corporation Bank earn a large management
fee, it will also help it acquire a significant clout in the money market.

By acquiring a 33% stake in corpbank securities, LIC acquires an almost in house fund
manager for all the Rs.25, 000 crore it needs to invest in government securities. And by
gradually increasing its stake in the profit making Oriental Bank of Commerce (2001
deposits, Rs. 24,680 crore; net profit, Rs.202.8 crore) to 11%, LIC has made its intent
clear; to restructure itself into what Bajpa terms ³a transnational competitive financial
conglomerate of significance to societies´.

Who¶s Better?

Discounting the overlap that must exist between the two, both companies on their
existing customer base to help them make the transformation to universal bank. SBI, for
instance, can sell a clutch of offering to its account-holders; LIC, to its policyholders.
Then there are operational efficiencies to be gained.

Despite SBI¶s strong brand, sizeable network, and huge customer base, it does look
second best (to LIC) in the first lap of what must certainly be a long-distance race.

One reason is its decision to link the fortunes of its insurance subsidiaries, SBI-life, to
the ability of its banking-branches to sell insurance policies-the classic
BANCASSURANCE model. The decision is a result of its desire to augment its fee-
based income through commission from the sale of policies.
The strategy has imposed several limitations on SBI. Its progress in the insurance
business has been slow simply because the parliament has yet to clear a bill allowing
banks to sale insurance.

Worse, the bank faces the unsavory prospect of working with not one, but two
regulators, RBI and IRDA. It isn¶t just externalities that are queering the pitch for SBI,
several people are raising questions about whether or not it posses the skill relevant for
the insurance business. ³LIC can easily leverage the expertise of corporation bank to
become a major banking player. SBI, cant¶ do the same thing in insurance´ µsays a
mumbai-based investment banker. SBI¶s vagueness about its plans for the insurance
segment hasn¶t helped its cause, but fact is, the bank had enjoyed some success in its
prior diversification.
CASE

Tata Daewoo |ommercial Vehicle |ompany

The Tata Daewoo Commercial Vehicle Company (TDCV) is South Korea's second
largest manufacturer of medium and heavy-duty trucks. Formerly part of the Daewoo
Group, the company was acquired by Tata Motors in 2004. With the acquisition of
TDCV, Tata Motors has grown to become the world's fifth largest manufacturer of heavy
commercial vehicles.
Established in 1983 as the Daewoo Motor Company, the business was spun off as
Daewoo Commercial Vehicle Company in 2002. TDCV trucks are distributed locally
through Daewoo Motor Sales Company and are exported to over 60 countries
worldwide, including South Africa and China and countries in the Middle East,
Southeast Asia and Eastern Europe.
Areas of business
TDCV has a product portfolio of over 75 types of trucks in the commercial vehicles
segment. Its product range includes flat beds, dumpers, mixers, tractors, arm-roll trucks,
refrigeration trucks and special-purpose trucks.
Location
The company¶s headquarters and plant are in Gunsan, South Korea. It has an office in
Incheon and sales offices across the country

TATA MOTORS:

The Tata Group's history can be traced back to 1868 when Jamsetji Tata, established a
textile mill at Nagpur in Maharashtra. The Group set up the first steel mill in the country,
as also the first luxury hotel and the first airlines service in India. By 2004, Tata Group's
turnover was $14.25 billion, contributing 2.6% of the country's gross domestic product.
The Group has 91 companies under its fold with operations spanning varied sectors like
Engineering, Materials, Energy, Chemicals, Consumer Products & Services to
Communications and Information Systems. Tata Motors is the biggest company of the
group and ranks as the fifth largest commercial vehicle manufacturer in the world.
The history of Tata Motors, earlier Tata Engineering & Locomotive Company Ltd.
(Telco), can be traced back to the early 1920s. The Telco plant at Jamshedpur,
originally belonged to Peninsular Locomotive Company (Peninsular), which was
established in 1923.
In 1927, Peninsular was taken over by East India Railway to manufacture passenger
carriage underframes for the Indian Railways.
In 1945, Tata Sons purchased the plant from the Government of India and used it to
manufacture steam locomotive boilers and other engineering products, under the name
Telco. The company also entered into collaborations with Marshal Sons (UK) to
manufacture steam road rollers, and with Krauss Maffei (West Germany) to
manufacture steam locomotives.
In 1954, the company entered into a technical collaboration with Daimler-Benz to
manufacture automotive vehicles.
The association with Daimler-Benz helped the company build up a strong in-house R&D
center (Engineering Research Center-ERC) at Pune, Maharashtra. By 1961, it was
manufacturing construction equipment. Over the years, the company acquired up-to-
date technology from several collaborations and co-operation agreements with
international companies. In 1961, Telco produced its first crane in collaboration with M/s
Pawling & Harnischfeger (P&H), USA. In 1966, it acquired Investa Machine Tools Co
and set up a machine tools division at Pune. In the same year, it started its Press Tool
Division and vehicle manufacture facilities at Pimpri and Chinchwad (pune).

TATA Group on B|G Matrix-

Acquisition challenges

The Tata group with revenues in 2005-06 of Rs 97,000 crore has operations in over 40
countries. The group companies have been acquiring firms overseas ² in fields as
diverse as automobiles to steel to information technology to hotels. Each overseas
venture, be it an acquisition or a greenfield plant, brings with it challenges ² that of
integrating the operations with the parent company's goals, communicating the vision to
the employees of the acquired company, making the local population comfortable with
the intentions of the company doing the acquisition and getting the employees to
become part of the society they are in.

The challenges are not just managerial, but cultural too. That is why a group like the
Tatas conducts what it calls a cultural due diligence ² different from the financial due
diligence that precedes any acquisition ² to ensure that the company to be acquired
fits in with the group's overall goal.

This was the thrust of Mr Gopalakrishnan's speech at the "Captains of Industry"

conference at the Global Entrepolis at Singapore recently. Dealing with the theme
"Entering new markets and becoming international ² the Tata experience," he summed
up the lessons the Tata group had learned from its overseas operations into five. They
are: The connection between the domestic core business and the overseas expansion
should be clear, defined and pursued with persistence; the post-merger integration and
processes must be consistent with the strategic intent of the acquisition; the absolute
core and non-negotiable values of the acquiring company should be made explicit to the
acquired company; the positioning of the business of the host country, positioning into
society, the economy and with decision makers should be harmonious with the actual
action on the ground; and, it is important to engage with the society in which the
business is located, irrespective of whether it is a rich country or a poor nation.

Tata Motors, a group company, acquired Daewoo Commercial Vehicles Company,

Korea's second largest truck manufacturer, in 2004. Any acquisition must look for an
equation beyond the obvious. The fit between the two companies seemed perfect. India
was a market for low horsepower trucks because of the way its highways had
developed. Korea, on the other hand, was a market that demanded high horsepower
trucks due to the built-up infrastructure. "One of the advantages was we could give
something to the acquired company and take something from it as well," pointed out Mr
Gopalakrishnan. Heavy commercial vehicles designed by Tata Daewoo Commercial
Vehicles Company, as the Korean company has been renamed, have been introduced
in India while medium commercial vehicles ² a segment in which Daewoo did not have
any product on its own ² designed by Tata Motors have been launched by the Korean
subsidiary. "It is the self-evident things that one tends to miss while doing cross-border
acquisitions."

There are two broad models of acquisition ² the prescriptive and the adaptive. In the
former, more an Anglo-Saxon way of dealing with acquisitions, the acquiring company
takes all the decisions ² where to have outlets and how many to have, for example.
The latter model - the adaptive approach ² is not one that the Western world is used
to. "In an adaptive model, you have entered the market with an idea and you have to
develop that idea and figure out how is that you can make the idea deliver economic
value."

For example, Tata Chemicals took over a British company Brunner Mond. The two
companies sat together and discussed how the best practices could be shared. Among
other things, this resulted in cost savings for the two companies, which, more or less,
paid for the acquisition itself ² a bonus as far as the original intent of the acquisition
was concerned.
CASE

A|
SITION OF RANBAXY AND DAII|I

The Japanese pharma major now holds a 63.92% stake in Ranbaxy and the Singh
family now cease to be the promoters.The third largest drugmaker of Japan, Daiichi
Sankyo, on Tuesday posted a record annual net loss of $3.5 billion for the year ended
March 31, 2008, mainly on account of sharp erosion in the share price of Ranbaxy
Laboratories Ltd. Daiichi acquired 64% stake in June last year for $4.9 billion.

The fourth-quarter net loss of the Japanese pharma giant amounts to $390.1 million,
which has been attributed to the acquisition of Ranbaxy.The company said it has
booked µextraordinary losses due to one-time write-down of goodwill¶ worth $ 3.59 billion
on Ranbaxy shares.

Daiichi Sankyo had bought a majority stake in Ranbaxy last year with an eye to
establish dominance in the global generics drug market. But the stake lost more than
two-thirds of its value by the end of the financial year in comparison to the period (June
2008) when the acquisition was made. For instance, Ranbaxy¶s average share price in
June 2008, when the acquisition took place, was Rs 523, which dipped to around Rs
166 in April 2009.

The erosion in value is attributed primarily to the import ban of around 30 Ranbaxy
products by the United States Food and Drug Administration (US FDA), crippling its
sales in the US drug marke. The value also fell owing to sharp decline in equity markets
and currency fluctuation.

Much of Ranbaxy¶s troubles began when the US FDA, last September, banned import
of more than 30 generic drugs produced by Ranbaxy, citing problems in their
production at two of its manufacturing facilities in Dewas and Paonta Sahib. ³If the
resolution of this issue were to become protracted or the FDA imposed additional
restrictions on Ranbaxy, this could have a severe impact on Ranbaxy¶s business
prospects in the US market,´ Daiichi said in a statement.

Daiichi Sankyo also said that it has established a joint taskforce of Ranbaxy
management and industry experts to resolve issues related to the USFDA.

Daiichi expects to earn a net profit of around $400 million during the current financial
year even as it expects the global market environment to remain harsh due to the
economic downturn and government restrictions on medical spending to continue.

According to further disclosures by Daiichi, the currency hedges by Ranbaxy would cost
the Japanese drugmaker around $122 million this financial year. Ranbaxy Laboratories
Ltd, while announcing its first quarter earnings last month, had said that it anticipates a
loss of $150 million on sales of $1.4 billion
|ASE

STERLITE IND
STRIES (INDIA) LTD WILL A|
IRE TE OPERATING ASSETS

OF ASAR|O LL| A T
|SON-BASED MINING SMELTING AND REFINING
|OMPANY FOR $ 2.6 BILLION.

Asarco, formerly known as American Smelting and Refining Company, is the third
largest copper producer in the US. It produced 235,000 tonnes of refined copper in
2007. Asarco¶s mines have estimated reserves of 5 million tonnes of copper.

For the year ended December 31, 2007, Asarco¶s total revenues stood at $1.9 billion.

Sterlite, the subsidiary of Vedanta Resources Plc, said the asset acquisition would be
financed through a mix of debt and cash.

The metals major stated that the integrated assets to be acquired included three open-
pit copper mines and a copper smelter in Arizona and a copper refinery, rod and cake
plant and precious metals plant in Texas.

The asset acquisition is on a cash-free and debt-free basis. Sterlite will assume
operating liabilities but not legacy liabilities for asbestos and environmental claims for
ceased operations.

Asarco had filed for bankruptcy and it faces environment-related liabilities.

However, Sterlite would not be subject to these liabilities, sources said, adding that the
company was only buying its assets.

³We are delighted to have reached an agreement on this important acquisition, which is
a significant milestone for our group. This is in line with our stated strategy of leveraging
our established skills,´ Anil Agarwal, chairman of Sterlite, said.

Justifying the acquisition, Sterlite said Asarco was a logical and strategic fit with its
existing copper business and was expected to create significant long-term value for the
stakeholders by leveraging its operational and project skills to develop and optimise
Asarco¶s mines and plants.

Sterlite will have access to long-lasting mining assets and it will enable geographic
diversification in the North American market.

Sterlite was pitted against other bidders who submitted offers in late April and the
selection of the highest and best bid occurred on May 23.

The selection process followed a procedure supported by Asarco¶s creditors and

approved by the US Bankruptcy Court. An independent court-appointed examiner
closely observed the bidding process.
Earlier this year, Agarwal had said the group would enhance existing capacities across
various non-ferrous metals that include copper, aluminium and zinc to one million
tonnes annually.
|ON|L
SION
One size doesn't fit all. Many companies find that the best way to get ahead is
to expand ownership boundaries through mergers and acquisitions. For others,
separating the public ownership of a subsidiary or business segment offers more
advantages. At least in theory, mergers create synergies and economies of scale,
expanding operations and cutting costs. Investors can take comfort in the idea that a
merger will deliver enhanced market power.
By contrast, de-merged companies often enjoy improved operating performance thanks
to redesigned management incentives. Additional capital can fund growth organically or
through acquisition. Meanwhile, investors benefit from the improved information flow
from de-merged companies.

M&A comes in all shapes and sizes, and investors need to consider the complex issues
involved in M&A. The most beneficial form of equity structure involves a complete
analysis of the costs and benefits associated with the deals.