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Business
S.Rajagopalan
Mergers &Acquisitions (M&A) -Current
Status
2
Major Users of the Acquisition
Mechanisms Were Indian
Companies, Accounting for 85% of
the Total Takeovers.
- “Impact of Takeover Code Regulations on
Corporate Sector in India”
5
Mergers and Acquisitions happened
in electrical equipment, in
chemicals,in pharmaceuticals,in
steel,in automobiles,in computers, in
cement, in foods,in fashion – No
business is immune from this process
!!!
M&A’s in Indian Business Scene
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Restructuring of Corporate India -
M&A as a tool
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Mergers and Acquisitions
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Mergers and Acquisitions (M & A)
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Mergers and Acquisitions (M & A)
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M&A’s - Outcomes
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M&A’s - Shareholder Value
Consequences
Even a hostile acquisition involving a
high premium could add to shareholder
value if there is opportunity for
synergistic and efficiency gains
e.G Aditya Birla group’s acquisition of
Indian rayons
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Acquisitions - impact on
shareholder value
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Strategic Initiatives in M&A’s
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Strategic Initiatives in M&A’s
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Strategic Initiatives in M&A’s
Economies of scale:
When the industry reaches the maturity stage or
is in recession, there is a consolidation in the
industry to cut costs. In this case big players
acquire fragmented players or some big firms
merging together.
India cements acquired Rasi cements and
Visaka cements;
Nicholas labs purchased Roche, Rhone
Phulone,Sumitra Pharma to consolidate its
position in Pharma sector.
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Strategic Initiatives in M&A’s
Tax advantages:
some acquisitions are made with sole intention
to get a tax shield. This is more so in case of
acquiring sick companies where the acquirer
gets the tax shield in the form of unclaimed
depreciation and carry forward losses.
Tax advantage was one of the reasons which
prompted the take over of Allwyn by Voltas.
21
Strategic Initiatives in M&A’s
Market entry:
A number of MNC’s has used the acquisition
route to enter/strengthen their presence in India,
to cut down beurocratic delays and long time
involved in setting manufacturing, distribution
facilities as well as in market development in a
Greenfield venture route.
HJ Heinz’s Rs 2100 million acquisition of Glaxo
India’s family food business.
Wirlpool’s buying into Kelvinator India ltd.
Acquisition of SRF finance by GE capital.
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Mergers and Amalgamations
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Mergers and Amalgamations
Illustrations :
ICICI bank with other ICICI companies
Escorts tractors with escorts ltd.
TVS whirlpool with whirlpool of India.
Mafatlal fine spinning with Mafatlal
industries ltd.
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Financial Mergers - Illustrations
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Amalgamations - Illustrations
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Global Mergers
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M&A’s Success – Valuation Issue
Acquirer’s perspective
Sellers perspective
Lender’s perspective
Investor’s perspective
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Acquirers Perspective
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Sellers Perspective
Good price.
Better business relationship.
Better management and employee care.
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Lender’s Perspective
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Investor’s Perspective
Addition of wealth.
Potential growth of merged entity / predator
firm.
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Valuations - Illustrations
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Valuations - Illustrations
Whirlpool corporation has paid 330 crores for its
51% stake in Kelvinator India which is the average
share price for previous six months.
Khaitans of Williamson Magor paid a price of Rs
290 crore to union carbide for Eveready battery
business ( 150 crores for future earnings, 100 cr
for brand value and 40 crores for giving the
management stake in the company ).
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M&A – Implementation Issues
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M&A – People Issues
Unfocused leadership.
Leaving stakeholders in the dark.
Failure to develop a plan for retaining key
employees.
Losing external focus.
Ignoring – or avoiding – the cultural issues.
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Mergers & Acquisitions
Takeover process
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SEBI Takeover code Nov’1994
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The M&A Game :Attacking moves
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The M&A Game :Attacking moves
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The M&A Game : Defensive moves
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The M&A Game : Defensive moves
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It’s smart to shop for companies…
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Successful Takeovers
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Takeover Bids
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Takeover – Strategic Options
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Takeover – Strategic Options
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Takeover – Strategic Options
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Takeover –How best to play this game ?
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How to identify a target company ?
Look for companies where promoter’s stake is less than
20%. Shortlist those where you have more than one group
each having less than 10%.
Search for state owned companies , where its holdings are
less than 26% and rest is widely held.
Look for companies with high growth potential; large assets
; low capital bases with fully depreciated assets ; or with
large tracts of real estates or securities ;
Match the ownership criteria with performance criteria to
home on the ideal target.
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How to Zero on the right take over target ?
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Mounting a secondary market raid
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Mounting a secondary market raid
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