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4/23/11

Mergers and
Acquisitions
4/23/11
MEANING 4/23/11

Merger
•A transaction where two firms agree to integrate their
operations on a relatively co-equal basis because
they have resources and capabilities that together
may create a stronger competitive advantage.
•The combining of two or more companies, generally

by offering the stockholders of one company


securities in the acquiring company in exchange for
the surrender of their stock
•Example: Company A+ Company B= Company C.
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4/23/11
ACQUISITION
§ A transaction where one firms buys another firm with
the intent of more effectively using a core
competence by making the acquired firm a
subsidiary within its portfolio of business
§ It also known as a takeover or a buyout
§ It is the buying of one company by another.
§ In acquisition two companies are combine together
to form a new company altogether.
§ Example: Company A+ Company B= Company A.
DIFFERENCE BETWEEN MERGER
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ACQUISITION:
§ MERGER § ACQUISITION

i. Merging of two organization in i. Buying one organization by


to one. another.
ii. It is the mutual decision. ii. It can be friendly takeover or
hostile takeover.
iii. Merger is expensive than
acquisition(higher legal cost). iii. Acquisition is less expensive
than merger.
iv. Through merger shareholders
can increase their net worth. iv. Buyers cannot raise their
enough capital.
v. It is time consuming and the
company has to maintain so v. It is faster and easier
much legal issues. transaction.

vi. Dilution of ownership occurs vi. The acquirer does not


in merger. experience the dilution of
ownership.
MERGER:WHY & WHY NOT
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§ WHY IS IMPORTANT § PROBLEM WITH MERGER

i. Increase Market Share.


ii. Economies of scale i. Clash of corporate cultures

iii. Profit for Research and ii. Increased business complexity


development. iii. Employees may be resistant to
change
iv. Benefits on account of tax
shields like carried forward
losses or unclaimed
depreciation.
v. Reduction of competition.

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ACQUISITION:WHY & WHY4/23/11
NOT
§ WHY IS IMPORTANT § PROBLEM WITH ACUIQISITION

i. Increased market share.


Increased speed to
ii.

market
i. Inadequate
valuation of target.
iii. Lower risk comparing to
develop new products. ii. Inability to achieve
iv. Increased diversification synergy.
v. Avoid excessive iii. Finance by taking
competition huge debt.

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EXPERIENCES IN M&A 4/23/11
§ Learn from mistakes of others
§ Define your objectives clearly
§ Complete strategy to achieve goal.
§ SWOT analysis for the merged business - a must

§ Conservative attitude necessary at evaluation

deskstrong arguments to support project


§ Pick holes in strategy to get the best

§ Will merged units be able to work at efficient / ideal

level?
§ Acquire expertise to interprete changes
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TOP 11
M&A DEALS…
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§ January 30, 2007

§ Largest Indian take-over

1. Tata Steel-Corus: $12.2


After the deal TATA’S
§

billion became the 5th largest


STEEL co.

§ 100 % stake in CORUS


paying Rs 428/- per share

Image: B Mutharaman, Tata Steel


MD; Ratan Tata, Tata chairman; J
Leng, Corus chair;
and P Varin, Corus CEO.
2. Vodafone-Hutchison4/23/11
Essar: $11.1 billion
§ TELECOM sector
§ 11th February 2007
§ 2nd largest
takeover deal
§ 67 % stake holding
in hutch

Image: The then CEO of


Vodafone Arun Sarin visits
Hutchison
Telecommunications head
3. Hindalco-Novelis: $64/23/11
billion June 2008 §

§ Hindalco Acquired Novelis


§ Hindalco entered the
Fortune-500 listing of world's
largest companies by sales
revenues
§ Aluminium and copper
sector

Image: Kumar Mangalam


Birla (center), chairman of
Aditya Birla Group.
4. Ranbaxy-Daiichi Sankyo: $4.5
b 4/23/11

§ Pharmaceuticals sector
§ June 2008
§ Acquisition deal
§ largest-ever deal in the
Indian pharma industry
§ Daiichi Sankyo acquired
the majority stake of more
than 50 % in Ranbaxy for
Rs 15,000 crore
§ 15th biggest drugmaker
Image: Malvinder Singh (left), ex-CEO
of Ranbaxy, and Takashi Shoda,
president and CEO of Daiichi Sankyo.
5. ONGC-Imperial Energy:
4/23/11
$2.8billion § January 2009
§ Acquisition deal
§ Imperial energy is a
biggest chinese co.
§ ONGC paid 880 per
share to the
shareholders of imperial
energy
§ ONGC wanted to tap the
siberian market
Image: Imperial Oil
CEO Bruce
March.
4/23/11

§ November 2008
§ Telecom sector
§ Acquisition deal
Japanese telecom giant
§

NTT DoCoMo
6. NTT DoCoMo-Tata Tele:26 per cent
acquired
equity stake in Tata
$2.7 b Teleservices for about
Rs 13,070 cr.

Image: A man walks past a signboard of


Japan's biggest mobile phone operator
NTT Docomo Inc. in Tokyo.
7. HDFC Bank-Centurion
4/23/11

Bank of Punjab: $2.4 billion


§ February, 2008
§ Banking sector
§ Acquisition deal
§ CBoP shareholders
got one share of HDFC
Bank for every 29
shares held by them.
§ 9,510 crore
Image: Rana Talwar (rear)
Centurion Bank of Punjab
chairman, Deepak Parekh,
HDFC Bank chairman.
4/23/11

§ March 2008 (just a


year after acquiring
Corus)
§ Automobile sector
8. Tata Motors-Jaguar Land
Acquisition
§ deal
Rover: $2.3 billion
Gave tuff competition to
§

M&M after signing the


deal with ford

Image: A Union flag flies


behind a Jaguar car emblem
outside a dealership in
10. Suzlon-RePower: $1.7
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billion May 2007 §

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

Image: Tulsi Tanti, chairman


&
M.D of Suzlon Energy
4/23/11

Why India?

§ Dynamic government policies


§ Corporate investments in industry
§ Economic stability
§ “Ready to experiment” attitude of
Indian industrialists
PROCESS OF MERGER & ACQUISITION
4/23/11 IN INDIA:

The process of merger and acquisition has the following steps:


i. Approval of Board of Directors
ii. Information to the stock exchange
iii. Application in the High Court
iv. Shareholders and Creditors meetings
v. Sanction by the High Court
vi. Filing of the court order
vii. Transfer of assets or liabilities
viii. Payment by cash and securities

Maximum Waiting period:210 days from the filing of notice(or the order of the
commission - whichever earlier).
4/23/11
Why Mergers and Acquisitions
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Fails Fail?
§
Cultural Difference

§
Flawed Intention

§
No guiding principles

§
No ground rules

§
No detailed investigating

§
Poor stake holder outreach
4/23/11
How to Prevent the Failure
§ Continuous communication – employees,
stakeholders, customers, suppliers and government
leaders.

§ Transparency in managers operations

§ Capacity to meet new culture higher management


professionals must be ready to greet a new or modified
culture.

§ Talent management by the management


RECENT M&A 4/23/11

HAPPENINGS…
§ India Inc runs up an M&A bill of Rs 1.8 lakh cr in H1
§ M&A deals touch $14 billion in June
§ Value of telecom M&A deals touched USD 23 billion in
Q1: Assocham.
§ Godrej acquires Argentine firm
§ Oil India eyes shale gas acquisition overseas
§ RIL acquires Pioneer stake for $1.32 bn
§ Indian hunger for new technology fuels foreign
acquisitions
contd… 4/23/11

§ Dabur completes merger of Fem Care


§ Ebay India ties up with Adidas for FIFA World Cup.
§ Abbott buys Piramal unit, tops table
§ Eurocopter signs two joint ventures with Pawan Hans
§ Mahindra to buy out Renault’s stake in India, revive
Logan sales.
Amongst BRIC Nations, India second
4/23/11
most
targeted country for Mergers &
Acquisitions(2010):
MERGER & ACQUISITION(2009-10)4/23/11
:

2727
ICICI BANK & BANK OF RAJASTHAN(19th
4/23/11
MAY,2010):
ADVANTAGES FROM THIS MERGER:
4/23/11

§ This amalgamation would substantially enhance ICICI


Bank's branch network (23 % increase apprx).
§ Strengthen ICICI bank’s presence in northern and
western India.
§ ICICI has now moved to a branch-led business model.
§ The acquisition will help ICICI increase CASA (current
and savings account) flows, as also help in cross-
selling products.
§ Both banks working on the same platform, integration
will also be less taxing.
SUCCESS & FAILURE RATE(2009-10):
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3030
4/23/11