Presented by

Chamkaur Singh
L-2k9-BS-04-MBA
 What is Merger?

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
A transaction where two firms agree to integrate their
operations an a relatively coequal basis because they have
resources and capabilities that together may create a
stronger competitive advantage.
 M&A

Merging companies are called Amalgamated

companies
New company is called Amalgamated Company
Mergers occurs in two ways
merger through absorption
Merger through consolidation
 Merger through Absorption

An absorption is the combination of two or more

companies into an existing companies
All companies except one lose their identity
Examples:
Western Union bank merged with IDBI
New Bank of India merged with PNB
Bank of New York with Mellon Financial
 Merger through consolidation
A consolidation is a combination of two or more
companies into a new company
All companies are dissolved to form a new company
Examples :
HCL LTD
Hindustan Computers Ltd
Hindustan Instrument Ltd.
 Types of merger?
Horizontal merger
Vertical merger
Conglomerate merger
Concentric merger
 Types of merger…
1.Horizontal Merger 2.Vertical Merger
Combination of two or Combination of two firms
more firms operating in that operate in different
the same stage of stages of production.
production. Textiles firm merges raw
materials firm
 Types of merger…

3.Conglomerate Mergers 4. Concentric Mergers

Merger of firms in unrelated Merger of two firms that are
lines of business that are so related that there is a
neither competitors nor carryover of specific
potential or actual customers management functions
or suppliers of each other. (research, manufacturing,
Buying and selling ability to finance, marketing, etc.)
manage Example: Citigroup
Example: General Electric (principally a bank) buying
buying NBC television Salomon Smith Barney (an
investment banker/stock
brokerage operation)
 What is Acquisition?
An acquisition also known as a takeover or a buyout, is
the buying of one company (target) by another.
An acquisition may be friendly or hostile.
In the former case, the companies cooperate in
negotiations; in the later case, the takeover target is
unwilling to be bought or the target’s board has no prior
knowledge of the offer.
Acquisition usually refers to a purchase of a smaller firm
by a large one.
Contd…
Sometimes, however, a smaller firm will acquire
management control of a larger or longer established
company and keep its name for the combined entity.
This is known as a reverse take over.
Another type of acquisition is reverse merger, a deal
that enables a private company to get publicly listed
in a 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.
 Reasons for Acquisitions
Increased market power
Learning and Developing new capabilities
Overcoming entry barriers
Cost of new product development
Increase speed to market
Lower risk than developing new products
Increased diversification
Avoid excessive competition
Economies of scale
 Problems in Achieving success
Integration difficulties
Inadequate evaluation of target
large or extraordinary debt
Inability to achieve synergy
Too much diversification
Managers overly focused on acquisition
Too large
 Process of M&A

Mergers and acquisitions are parts of corporate strategies that

deal with buying / selling or combining of business entities,
which in turn, help a company to grow quickly.
However, merger and acquisition process is quite a complex
process that consists of a few steps.
Before going for any merger and acquisition, both the
companies need to consider a few points and also need to go
through some distinct steps.
The merger and acquisition process is also a big point of
concern for the companies involved in the deal, as the process
could be full of risk and uncertainty.
However, prior effective planning and research could make the
process easy and simple.
 Steps of M&A process

Market Valuation
Before you go for any merger and acquisition, it is of
utmost important that you must know the present market
value of the organization as well as its estimated future
financial performance.
The information about organization, its history,
products/services, facilities and ownerships are reviewed.
Sales organization and marketing approaches are also
taken into consideration.
Exit Planning

The decision to sell business largely depends upon the future

plan of the organization – what does it target to achieve and
how is it going to handle the wealth etc.
 Various issues like estate planning, continuing business
involvement, debt resolution etc. as well as tax issues and
business issues are considered before making exit planning.
 The structure of the deal largely depends upon the available
options.
The form of compensation (such as cash, secured notes, stock,
convertible bonds, royalties, future earnings share, consulting
agreements, or buy back opportunities etc.) also plays a major
role here in determining the exit planning.
Structured Marketing Process
This is merger and acquisition process involves marketing of
the business entity. While doing the marketing, selling price is never
divulged to the potential buyers. Serious buyers are also identified
and then encouraged during the process. Following are the features
of this phase.
Seller agrees on the disseminated materials in advance. Buyer also
needs to sign a Non-Disclosure agreement.
Seller also presents Memorandum and Profiles, which factually
showcases the business.
Database of prospective buyers are searched.
Assessment and screening of buyers are done.
Special focuses are given on he personal needs of the seller during
structuring of deals.
Final letter of intent is developed after a phase of negotiation.
Letter of Intent

Both, buyer and seller take the letter of intent to their

respective attorneys to find out whether there is any scope of
further negotiation left or not.
Issues like price and terms, deciding on due diligence period,
deal structure, purchase price adjustments, earn out provisions
liability obligations, and ERISA issues, Non-solicitation
agreement, Breakup fees and no shop provisions, pre closing
tax liabilities, product liability issues, post closing insurance
policies, representations and warranties, and indemnification
issues etc. are negotiated in the Letter of Intent.
After reviewing, a Definitive Purchase Agreement is prepared.
Buyer Due Diligence

This is the phase in the merger and acquisition process

where seller makes its business process open for the
buyer, so that it can make an in-depth investigation on the
business as well as its attorneys, bankers, accountants, tad
advisors etc.

Definitive Purchase Agreement

Finally Definitive Purchase Agreement are made, which

states the transaction details including regulatory
approvals, financing sources and other conditions of sale.
 Why Mergers and Acquisitions in India?

The factors responsible for making the merger and acquisition deals
favorable in India are:

Dynamic government policies
 Corporate investments in industry

Economic growth

“ready to experiment” attitude of Indian industrialists
Sectors like pharmaceuticals, IT, ITES, telecommunications, steel,
construction, etc, have proved their worth in the international
scenario and the rising participation of Indian firms in signing M&A
deals has further triggered the acquisition activities in India.
Attributes of effective Acquisitions
Complementary Assets or Resources
Friendly acquisitions
Careful selection process
Low-to-moderate Debt
Flexibility
Emphasize Innovation
 Difference between two
Merger Acquisition

The case when two companies (often The case when one company
of same size) decide to move forward takes over another and
as a single new company instead of establishes itself as the new
operating business separately. owner of the business.

The stocks of both the companies are The buyer company “swallows”
surrendered, while new stocks are the business of the target
issued afresh. company, which ceases to exist.

For example, Glaxo Welcome and Dr. Reddy's Labs acquired

SmithKline Beehcam ceased to exist Betapharm through an
and merged to become a new agreement amounting $597
company, known as Glaxo SmithKline. million.
1. 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.
2. 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%.
3. Hindalco-Novelis: $6 billion
Aluminium and copper major Hindalco Industries, the Kumar
Mangalam Birla-led Aditya Birla Group flagship, acquired
Canadian company Novelis Inc in a $6-billion, all-cash deal in
February 2007.
Till date, it is India's third-largest M&A deal.
The acquisition would make Hindalco the global leader in
aluminium rolled products and one of the largest aluminium
producers in Asia. With post-acquisition combined revenues in
excess of $10 billion, Hindalco would enter the Fortune-500
listing of world's largest companies by sales revenues.
4. Ranbaxy-Daiichi Sankyo: $4.5
billion
Marking the largest-ever deal in the Indian pharma
industry, Japanese drug firm Daiichi Sankyo in June 2008
acquired the majority stake of more than 50 per cent in
domestic major Ranbaxy for over Rs 15,000 crore ($4.5
billion).
The deal created the 15th biggest drug maker globally,
and is India's 4th largest M&A deal to date.
5. ONGC-Imperial Energy: $2.8 billion

The Oil and Natural Gas Corp took control of Imperial

Energy Plc for $2.8 billion, in January 2009, after an
overwhelming 96.8 per cent of London-listed firm's total
shareholders accepted its takeover offer.
Speaking about India's fifth largest M&A deal, ONGC
chairman R S Sharma said the company owed the
acquisition to government support, which has seen OVL
in the past seven years increase its number of projects to
39 in 17 countries, from just a single project in Vietnam.
6. NTT DoCoMo-Tata Tele: $2.7 billion

Japanese telecom giant NTT DoCoMo picked up a 26 per cent

equity stake in Tata Teleservices for about Rs 13,070 crore
($2.7 billion) in November 2008.
This is the 6th-largest M&A deal involving an Indian
company.
With a subscriber base of 25 million in 20 circles DoCoMo
paid Rs 20,107 per subscriber to acquire the stake. DoCoMo
picked up the equity through a combination of fresh issuance
of equity and acquisition of shares from the existing promoters.
7. 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.
The acquisition was also India's 7th largest ever.
 8. Tata Motors-Jaguar Land Rover: $2.3
billion
Creating history, one of India's top corporate entities, Tata
Motors, in March 2008 acquired luxury auto brands -- Jaguar
and Land Rover -- from Ford Motor for $2.3 billion, stamping
their authority as a takeover tycoon.
Beating compatriot Mahindra and Mahindra for the prestigious
brands, just a year after acquiring steel giant Corus for $12.1
billion, the Tatas signed the deal with Ford, which on its part
chipped in with $600 million towards JLR's pension plan.
Tata Motors' buyout of JLR is India's 8th-largest in history. 
9. Sterlite-Asarco: $1.8 billion

Anil Agarwal-led Sterlite Industries Ltd's $1.8 billion Asarco

LLC buyout deal is the ninth biggest-ever merger and
acquisitions deal involving an Indian firm, and the largest so
far in 2009.
This is despite the deal size falling by almost $1 billion, from a
projected estimate of $2.6 billion in May 2008, due to
devaluation of mining assets and a sharp fall in copper prices.
Sterlite, the Indian arm of the London-based Vedanta
Resources Plc, acquired Asarco in March 2008.
10. Suzlon-RePower: $1.7 billion

Wind power major Suzlon Energy in May 2007 acquired

the German wind turbine manufacturer REpower for $1.7
billion. The deal now ranks as the country's 10th largest
corporate takeover.
REpower is one of Germany's leading manufacturers of
wind turbines, with a 10-per cent share of the overall
market.
Suzlon is now the largest wind turbine maker in Asia and
the fifth largest in the world.
Why alliance?
Strategic Alliance
New market entry
Shaping of industry evolution
Learning and applying new technologies
Rounding out a product line
Outline
Commercialisation of IP

License Strategic Alliance

Co-Development Co-Marketing

Passive Partnership
Types of strategic alliance
Licensing arrangement
The least sophisticated and easiest-to-manage type of
alliance
Joint Ventures
The creation of a third entity representing the
interests and capital of the partners
Consortia and Networks
Highly complex linkages among groups of companies
Licensing Arrangements
Primary reasons for entry
A need for help in commercializing a new
technology
Global expansion of a brand franchise or
marketing image
Passive features of a license
Licensor grants exploitation
rights to a licensee Licensor
Licensee pays royalties and
other remuneration to the IP
Licensor
$
Licensor is passive
Has no further exploitation Licensee
rights
Licensor has no need to
actively do anything
Licensor passively sits by
and collects royalties
Joint Venture
A contractual agreement joining together two or
more parties for the purpose of executing a particular
business undertaking.
Primary reasons for entry
Vertical integration
Learning a partner’s skills
Upgrading and improving skills
Shaping industry evolution
Examples
Hero Motors and Honda Joint venture to form Hero
Honda
Maruti and Suzuki joint venture to form Maruti
Suzuki.
Sony Ericson joint venture
Consortia and Networks
Multi-partner Consortia
Multi-partner alliances designed to share an underlying
technology
Cross-Holding Consortia
Formal groups of companies that own large cross-
holdings and equity stakes in each other
Industry-Spanning Alliance Networks
Firms sharing knowledge, costs, and risks
Strategic Alliance
Strategic Partner Strategic Partner

In a strategic alliance both parties contribute to their joint

venture their respective resources and capability
Aim is to add greater value to their respective positions
By doing so, to
 Increase their financial return
 To access the capability of their partner which they themselves
lack
 To acquire skills that they themselves may lack
Co-Development Agreements
Co-Marketing Agreements
Co-Development Agreement
 Partners collaborate scientifically to further develop the IP
 Take the IP further along the development path
 Licensor increase the value of the IP as a result of the
collaboration

Co-Marketing Agreement
 Partners co-market the products of their alliance
 One may manufacture only, and the other may sell products
only
 They may sell products competitively in the same territory
 Or, they may sell in different territories
 Licensor retains some marketing rights, achieving greater
financial upside
Motorola And In-Focus Join To Route The Japanese:

•Motorola and In-Focus Systems saw an opportunity to gain a

share in the burgeoning worldwide market for high-
performance video display panels.
•Motorola purchased a 20% interest in In-Focus for $20
million.
•In-Focus got the capital it needed, a key customer, and
access to Motorola's international distribution
manufacturing capabilities.
•Motorola locked in a strategic technology that it was unable
to develop internally.
•The technology permits Motorola to leapfrog past rival
Japanese competitors. It also created a captive customer for
its integrated chips while getting an equity that could rocket
in value.
Alliances and Ethics
Two Critical Issues
Balancing collaboration and competition within the
alliance
The issue of loyalty among personnel assigned to the
alliance
Risks and Costs of Alliances
Rising incompatibility

Risk of knowledge or skill leakage

Risk of dependence

Strategic control costs

 Automotive Joint Venture Fades

Ford
Ford Volkswagen
Volkswagen

Autolatina

•Impasse on strategy to face General Motors

• Reluctance to share design, marketing ideas
Balancing Cooperation and
Competition
Understand the firm’s knowledge and skill base
Choose complementary partners
Keep alliance personnel long-term
Strategic alliance success
Keep the trust
 people to people
 with accountability
 regular communication
 visible milestones
 build successes
Trends in M&A

 NEW DELHI - Corporate India announced merger and acquisition (M&A)

deals worth $601 million in the month of September taking the year-to-date
total to over $42 billion, a report by consultancy firm Grant Thornton said.

The top five M&A deals accounted for 71 per cent of the total deals value,
Grant Thornton said.
Though the number of merger and acquisition deals in the country more
than doubled in the month of September, from 23 to 57, the total deal value
remained more or less the same.
According to Grant Thornton's latest Deal Tracker, there were as many as
57 merger and acquisition transactions worth $601 million, while in the
year-ago period there were 23 deals worth $597 million.
Contd…
 "Inspite of the high level of activity in M&A closing 57 deals in September 2010, the deal
values have been significantly lower at $600 million, compared to increased momentum
seen during the first seven months of the year," Grant Thornton's Partner (Specialist
Advisory Services) C G Srividya said.

The deal sizes have been small or negligible and there have been only two M&A deals
reported valued at over $50 million. Most of the action has been in hospitality, power &
energy and infrastructure related sectors

The total value of 82 deals, including (M&A, private equity and qualified institutional
placement) announced in September 2010 was $1.49 billion.

Domestic merger and acquisition deals were the flavour of the month with transactions
worth $380 million. The total value of outbound deals -- wherein Indian companies
acquired businesses outside India amounted to $210 million, while in inbound deals,
wherein foreign companies acquired Indian businesses amounted to $10 million.
Contd…
Giving further details the report said there were 15 outbound deals worth
$210 million, compared to $10 million through nine deals in September
2009.
In September 2009, there were 11 domestic deals worth $580 million, while
inbound deals constituted only a minuscule chunk with $4 million worth of M&A
deals through three deals.
The top merger and acquisition deal in September this year, was Reliance Industries'
14.12 per cent acquisition in EIH Ltd for $217.23 million.
Other major deals include KEC International's acquisition of SAE Towers for $95
million, followed by Reliance ADAG's 15 per cent stake buy in KGS Developers for
$47.87 million.
A sector wise analysis shows that hospitality was the most targeted sector, as it
attracted deals worth $224.47 million followed by power and energy ($95 million),
IT & ITeS ($86.65 million), real estate ($47.87 million) and banking and financial
services ($31.79 million), the report said. 
Source: Economic Times 
Contd…
 Grey Knight – A firm that acquires another under ambiguous conditions or without
any comprehensible intentions is known as a grey knight.
 Macaroni Defense – Macaroni Defense is an approach that is implemented by the
firms to protect them from any hostile subjugation. A company can prevent itself by
issuing bonds that can be exchanged at a higher price.
 Management Buy In – This term refers to the process where a firm buys and
invests in another and employs their managers and officials to administer the new
established business identity. 
 Hostile Takeover – Unfriendly or Hostile acquisitions takes place when the
management of the target firm does not have any prior knowledge about it or does
not mutually agree for the proposal. The disagreements between the chief executives
of the target firm may not be long-lasting and the hostile subjugation may take up
the form of friendly takeover. This practice is prevalent among the British and
American firms. However, some of them are still against hostile subjugations. 
 Management Buy Out – A management buy out refers to the process in which the
management buys a firm in collaboration with its undertaking entrepreneurs.
 Dawn Raid – The process of purchasing shares of the target firm
anticipating the decline in market costs till the completion of the takeover is
known as Dawn Raid
 Important Terminology Related to Mergers and
Acquisitions
 Asset Stripping – Asset Stripping is the process in which a firm takes over another firm
and sells its asset in fractions in order to come up with a cost that would match the total
takeover expenditure. 
 Demerger or Spin off – Demerger refers to the practice of corporate reorganization.
During this process a fraction of the firm may break up and establish itself as a new
business identity. 
 Black Knight – The term generally refers to the firm which takes over the target firm in
a hostile manner. 
 Carve - out – The procedure of trading a small part of the firm as an Initial Public
Offering is known as carve-out. 
 Poison Pill or Suicide Pill Defense – Poison Pill is an approach which is adopted by the
target firm to present itself as less likable for an unfriendly subjugation. The shareholders
have full privilege to exchange their bonds at a premium if the buyout takes place.
 Greenmail – Greenmail refers to the state of affairs where the target firm buys back its
own assets or shares from the bidding firm at a greater cost. 
 .  
Thank You