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MERGERS
AND
ACQUISTION
 MERGER
A merger is when you integrate the business
with another and share control of the
combined businesses with other owner. A
merger involves the mutual decision of two
companies to combine and become one entity.

Merger: 2 firms combine all Assets and Liabilities

Acquirer Target
Usually take a new name
 Types of Mergers
Horizontal Merger
Combination of two or more firms
operating in the same stage of production.
Example: The merger of ACC with
Damodar Cements.
Vertical Merger
Combination of two firms that operate in
different stages of production.
 Types of Mergers
Example: Cement manufacturing company
acquires a company engaged in civil
construction.

Conglomerate Merger
Merger of firms in unrelated lines of
business that are neither competitors nor
potential or actual customers or suppliers
of each other.
 Types of Mergers
Example: General Electric buying NBC television.

Product Extension Merger It

is executed among companies which sell different
products of a related category.

Market Extension Merger

It occurs between two companies that sell identical
products in different markets.
 ACQUISITION
Acquisition may be defined as an act
of acquiring effective control over
assets or management of a company
by another company without any
combination of businesses or
companies.
 Types of Acquisition
Friendly Acquisition
The acquisition of a target company that is
willing to be taken over.
Hostile Acquisition
A takeover in which the target has no
desire to be acquired and actively rebuffs
the acquirer and refuses to provide any
confidential information.
 Parties in the Acquisition
Holding company – It is a company that
holds more than half of the nominal value
of the equity capital of another company,
or controls the composition of its Board of
Directors.

Subsidiary company – The company

with the lesser number of share is called
subsidiary company.
Divestitures and Restructurings
Divestiture – company sells a piece of itself to another
company
Equity carve-out – company creates a new company out of
a subsidiary and then sells a minority interest to the public
through an IPO
Spin-off – company creates a new company out of a
subsidiary and distributes the shares of the new company to
the parent company’s stockholders
Split-up – company is split into two or more companies and
shares of all companies are distributed to the original firm’s
shareholders
 Financing M&A
Cash: Payment by cash. Such transactions are usually
termed acquisitions rather than mergers because the
shareholders of the target company are removed from the
picture and the target comes under the (indirect) control of
the bidder's shareholders alone.

Financing: Financing capital may be borrowed from a

bank, or raised by an issue of bonds. Alternatively, the
acquirer's stock may be offered as consideration.
Hybrids: An acquisition can involve a
combination of cash and debt or of cash
and stock of the purchasing entity.
 Motives & Benefits of M&A
Economies of large scale: Pooling of resources
definitely will bring about the economies of scale. The
combination of two or more companies will result in large
volume of operations and it will result in economies of
scale.

Increased Revenue/ Increased Market Share: This

motive assumes that the company will be absorbing the
major competitor and thus increase its power (by
capturing increased market share) to set prices. 
Synergy: If the resources of one company are capable
of merging with the resources of another company
effortlessly, resulting in higher productivity.

Taxes: A profitable can buy a loss maker to use the

target’s tax right off i.e. wherein a sick company is
bought by giants.

Expansion and Growth: It is less time consuming and

more cost effective if allowed by the government.

Surplus Resource: To obtain additional mileage from an

existing resource, this may offer a good potential.
Wider customer base and increase in
market share
Product , services and business
diversification
Reducing competition
 Reasons for M&A
# Accessing new markets 
# maintaining growth momentum
# acquiring visibility and international brands 
# buying cutting edge technology rather than
importing it 
# taking on global competition
# improving operating margins and efficiencies
# developing new product mixes
 Problems of M&A
Integration Difficulties: Differing
financial and control systems can make
integration of firms difficult.

Inadequate Evaluation of Target:

Acquirer to overpay for firm.

Large or Extraordinary Debt: Costly

debt can create burden on cash outflows.
Inability to Achieve Synergy: Justifying
acquisition can increase estimate of expected
benefits.

Overly Diversified: Acquirer doesn’t have

expertise required to manage unrelated
businesses.

Managers Overly Focused on Acquisition:

Managers may fail to objectively assess the value
of outcome achieved through the firm’s acquisition
strategy.

Too Large: Large bureaucracy reduces innovation

and flexibility.
Regulations governing Merger
and Acquisition in India
The provision of the Companies
Act,1956.
The Foreign Exchange Management
Act,1999.
The Income Tax Act,1961 and
The Securities and Controls
(Regulations) Act,1956.
 Legal procedures
Permission for merger: Two or more
companies can amalgamate only when the
amalgamation is permitted under their
memorandum of association. Also, the acquiring
company should have the permission in its object
clause to carry on the business of the acquired
company. In the absence of these provisions in the
memorandum of association, it is necessary to
seek the permission of the shareholders, board of
directors and the Company Law Board before
affecting the merger.
Information to the stock exchange: The acquiring and the
acquired companies should inform the stock exchanges (where they
are listed) about the merger.

Approval of board of directors: The board of directors of the

individual companies should approve the draft proposal for
amalgamation and authorize the managements of the companies to
further pursue the proposal.

Application in the High Court: An application for approving the

draft amalgamation proposal duly approved by the board of
directors of the individual companies should be made to the High
Court.
Shareholders' and creditors' meetings: The
individual companies should hold separate meetings of their
shareholders and creditors for approving the amalgamation
scheme. At least, 75 percent of shareholders and creditors in
separate meeting, voting in person or by proxy, must accord
their approval to the scheme.

Sanction by the High Court: After the approval of the

shareholders and creditors, on the petitions of the companies,
the High Court will pass an order, sanctioning the
amalgamation scheme after it is satisfied that the scheme is
fair and reasonable. The date of the court's hearing will be
published in two newspapers, and also, the regional director
of the Company Law Board will be intimated.
Filing of the Court order: After the Court order, its
certified true copies will be filed with the Registrar of
Companies.

Transfer of assets and liabilities: The assets and

liabilities of the acquired company will be transferred to the
acquiring company in accordance with the approved
scheme, with effect from the specified date.

Payment by cash or securities: As per the

proposal, the acquiring company will exchange shares and
debentures and/or cash for the shares and debentures of
the acquired company. These securities will be listed on the
stock exchange.
Distinction between mergers
and acquisitions
When one company takes over another and clearly
establishes itself as the owner, the purchase is called an
acquisition. From a legal point of view, the target company
ceases to exist, the buyer “ swallows” the business and the
buyer’s stock continues to be traded.
In the pure sense of the term, a merger happens when two
firms, often of about the same size agree to go forward as a
single new company rather than remain separately owned
and operated. This kind of action is more precisely referred
to as a “merger of equals”. Both companies’ stock are
surrendered and new company stock is issued in its place.
 Some M&A in India
The proposed merger between Bharti Airtel
and South Africa's MTN would be India's
biggest-ever M&A deal. The potential value of
the Bharti Airtel-MTN deal would amount to
$23 billion. As per the exploring agreement,
MTN and its shareholders would acquire
around 36 per cent economic interest in
Bharti Airtel, while, the Sunil Mittal -
promoted Bharti Airtel would acquire 49 per
cent stake in South African telecom giant
MTN.
Tata Steel-Corus: $12.2 billion

On January 30, 2007, Tata Steel purchased a

100% stake in the Corus Group at 608 pence
per share in an all cash deal, cumulatively
valued at $12.2 billion.The deal is the largest
Indian takeover of a foreign company till date
and made Tata Steel the world's fifth-largest
steel group.
Vodafone-Hutchison Essar: $11.1
billion
On February 11, 2007, Vodafone agreed to buy
out the controlling interest of 67% held by Li Ka
Shing Holdings in Hutch-Essar for $11.1 billion.
This is the second-largest M&A deal ever
involving an Indian company.
Vodafone Essar is owned by Vodafone 52%,
Essar Group 33% and other Indian nationals
15%.
HDFC Bank-Centurion Bank of
Punjab: $2.4 billion

HDFC Bank approved the acquisition of

Centurion Bank of Punjab for Rs 9,510 crore
($2.4 billion) in one of the largest mergers in
the financial sector in India in February, 2008.
CBoP shareholders got one share of HDFC Bank
for every 29 shares held by them. Post-
acquisition, HDFC Bank became the second-
largest private sector bank in India.
THANK
YOU