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MERGER AND ACQUISITION

MERGER AND ACQUISITION. I N T R O D U C T I O N. Mergers and acquisitions are increasingly becoming strategic choice for organizational growth, and achievement of business goals including profit , empire building, market dominance and long

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MERGER AND ACQUISITION

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  1. MERGER AND ACQUISITION

  2. INTRODUCTION Mergers and acquisitions are increasinglybecoming strategic choice for organizational growth, and achievement of business goals including profit, empire building, market dominance andlong term survival. The ultimate goal of this is however maximization of shareholdervalue. The phenomenon of rising M&A activity is observed world over across variouscontinents, although, it has commenced much earlierin developed countries (as early as 1895 in US and 1920s in Europe), and is relatively recent in developingcountries.

  3. Mergers and acquisitions (M&A) are defined as consolidation ofcompanies. WHAT IS MERGERS AND ACQUISITION?

  4. Mergers is the combination of two companies to form one newcompany. • The combination of the twocompanies involves a transfer ofownership. • Both companies surrender theirstock and issue new stock as a new company.

  5. WAYS OFMERGER • A MERRGER CAN TAKES PLACE IN FOLLOWING WAY: • BUY PURCHASING OFASSETS • BUY PURCHASING COMMONSHARES • BY EXCHANGING SHARES FORASSETS • BY EXCHANGING SHARES FORSHARES

  6. HorizontalMergers VerticalMergers ConglomerateMergers ConcentricMergers

  7. 1.HORIZONTALMERGERS A Merger occurring between companies in the sameindustry

  8. 2.VERTICALMERGER When twocompaniesproduce samegoods and services for one specificproduct

  9. 3.CONGLOMERATEMERGERS A merger between firm involved in totally unrelated business activity

  10. 4.CONCENTRICMERGERS The mergeroffirms which areinto similar type ofbusiness

  11. AQUISITION

  12. WHAT ISACQUISITION? When one company takes over another and clearlyestablished itself as a new owner , the purchase is called anacquisition

  13. TYPES OFACQUISITION? Friendlyacquisition Reverseacquisition Back flipacquisition Hostileacquisition

  14. 1.FRIENDLYACQUISITION Both the companies approve the acquisition under friendlyterms. EXAMPLE: Biotechnology 1.75 billion euro's ($2.37billion)

  15. 2.REVERSEACQUISITION A private company takes over apublic company. EXAMPLE:

  16. 3.BACK FLIPACQUISITION The purchasing company becomes a subsidiary of the purchasedcompany. EXAMPLE:

  17. Here, the entire process is done byforce. EXAMPLE: 4.HOSTILEACQUISITION $10.3billion

  18. DIFFERENCES BETWEENM&A BASISMERGERSACQUISITION Fusion of two ormore companies voluntarily form a newcompany When one entity purchases thebusiness of otherentity MEANING Formation ofnew firm yes no To decrease competition & increase operational efficiency Forinstantaneous growth purpose Size of merging companies is moreor lesssame Size of the acquiringcompany is bigger than acquired company Size ofbusiness No. ofcompanies involved 3 2

  19. MERGERS:WHY & WHYNOT • PROBLEM WITHMERGER • Class of corporatecultures • Increasedbusiness complexity • Employees may beresistant tochange • WHY IS ITIMPORTANT • Increase marketshare • Economies ofscale • Profit for researchand • development • Reduction ofcompetition

  20. ACQUISITION:WHY & WHYNOT • WHY IS ITIMPORTANT • Increase marketshare. • Increaseddiversification. • excessivecompetition • and costmaximization • PROBLEM WITHACQUISITION • Inadequate valuationof • target. • Inability toachieve synergy. • Finance by taking huge debt

  21. MOTIVES FOR MERGERS &ACQUISITION • Economies of large scalebusiness: • Enjoys both internal and externaleconomies. • Elimination ofcompetition: • Iteliminates intense & wasteful expenditure bydifferent competingorganization. • Desire to enjoy monopolypower: • M&A leads to monopolistic control in themarket. • Adoption of moderntechnology: • corporate organization require largeresources.

  22. Greater valuegeneration: • M&A generally succeed in generating costefficiency through the implementation of economies ofscale. • Gaining costefficiency: • The joint companies benefits in terms of cost efficiency. as 2 firms form new biggercompany. • Increase in market share: • An increase in market share is one of the possible benefits ofM&A. • Gain highercompetitiveness: • The new firm is usually more cost-efficient and competitive as compared to its financially weak parent organization.

  23. PROBLEMS OF MERGERS &ACQUISITION • Integrationdifficulties • Large or extraordinarydebt • Managers overly focused onacquisition • Overlydiversified

  24. STRATEGIES OF MERGER AND ACQUISITION • There is an important need to assess the market by deciding the growth factors through future market opportunities. • The integration process should be taken in line with consent of management from both the companies venturing into themerger. • Restructuring and future parameters should be decided with exchange of information and knowledge from bothends.

  25. TOP 5 MERGER AND ACQUISITIONDEALS

  26. 1.TATA STEEL–CORUS: ($12.2billion) COMPANY TATASTEELCORUS India UnitedKingdom • January30,2007 • Largest IndianTakeover • After the deal TATA’S became the5th • largest STEELcompany IMAGE: Mutharaman, Tata SteelMD Ratan Tata, Tata Chairman J.Leng, Corus Chairman Varin, CorusCEO • 100 % stake in CORUS paying Rs 428/- pershare

  27. 2.VODAFONE-HUTCHISON ESSAR: ($11.1billion) COMPANY VODAFONE HUTCHISONESSAR • UnitedKingdomIndia • TELECOMsector • 11 February2007 IMAGE: ARUN SARIN, CEO of Vodafone and ASIM GHOSH, MD of HutchisonEssar • 2nd Largest takeoverdeal • 7 % stake holdings inHutch

  28. 3.HINDALCO-NOVELIS: ($6billion) COMPANY HINDALCONOVELIS • June2008 • Hindalco aquirednoviles • Hindalco entered fortune-500 listing of worlds largest companies bysales • revenue IMAGE: KUMAR MANGALAM, Aditya Birla Group Chairman. STEVE FISHER, Novelis Chairman.

  29. 4.RANBAXY- DAIICHI SANKYO($4.5billion) COMPANY RANBAXY DAIICHISANKYO • India Japan • Pharmaceuticalssector. • June2008. • Largest ever deal in the indianpharma. IMAGE: MALVINDER SINGH, ex CEO of Ranbaxy. TAKASHI SHODA, President & CEO of DaiichiSankyo. • Daiichi sankyo has mejarity stake of more than 50 % in ranboxy. • 15th biggest drugmaker.

  30. 5.ONGC–IMPERIAL ENERGY: ($2.8billion) COMPANY ONGC IMPERIALENERGY UnitedKingdom India • January2009. • Imperial energy company is one of the biggest UKcompany. • ONGC has 97 % of stake in Imperial energy. • ONGC wanted to tap Siberianmarket. IMAGE: CHRISTOPHER HOPKINSON, Imperial ENERGY,CEO. DINEDH KUMAR SARRAF, MD and chairmen, ONGC.

  31. CONCLUSION • LEARN FROM MISTAKE OFOTHERS. • Example: $10.2billion • DEFINE YOUR OBJECTIVESCLEARLY. • Example: $164billion • ACQUIRE EXPERTISE TO INTERPRETCHANGES. • SWOT ANALYSIS FOR THE MERGED FIRM-AMUST.

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