Q1. What are the basic steps in strategic planning for a merger.

Ans:Mergers & Acquisitions are strategic decisions which are taken by the management of any company after through examination of many important facts and considerations. Since decisions regarding Mergers & Acquisitions, like capital budgeting decisions are irreversible in nature it is very important that due attention must be paid to some basic issues before planning about it. Hence the strategic planning can be broken down into five steps: Step 1: Pre Acquisition Review The first step is related with the assessment of company's own situation to determine if a Merger & Acquisition strategy should be implemented or is there any other alternative? If a company expects difficulty in the future when it comes to maintaining growth, core competencies, market share, return on capital, or other key performance variable, then a Merger & Acquisition (M & A) program may be necessary. If a company is undervalued or fails to protect its valuation, it may find itself the target of a merger. Therefore, the pre-acquisition review will include issues like the projected growth rate, inability of the company to sustain its market share in the future because of the potential threat from its competitor firms, under valuation of the company etc. The company must address to a fundamental question. Would the Merger help improve the situation regarding the above or not? Will it affect the valuation in a positive manner? Step 2: Searching and Screening of the targets The second step in the Merger & Acquisition process is to search for those companies which can be the potential takeover candidates. It is important for the merging company to see whether the company to be acquired has strategic compatibility with the acquiring company or not. Compatibility and fit should be assessed across a range of criteria size, kind of business, capital structure, core competencies, etc.

Searching and screening process should and must be performed by the management of the Acquiring Company without taking the help of any outside agency. Dependence on external firms should be kept minimum however if it is important to take the help of any outside agency. Step 3: Valuation of the target company The third step in the Merger & Acquisition process is to perform a thorough and detailed analysis of the target company. Acquiring company must confirm that the Target Company is truly a good fit with the acquiring company. This requires a thorough review of operational, strategic, financial, and other aspects of the Target Company. This detail review is called "due diligence." Due diligence is the process of identifying and confirming or disconfirming the business reasons for the proposed capital transaction. Various factors like, customer needs, strategic fit, shareholder value etc is at the core of the analysis. Several functions are involved in due diligence related to potential acquisitions, including strategy, finance, legal, marketing, operations, human resources, and internal audit services. The direction of due diligence efforts depends on what the company expects to gain from the transaction: employees, customers, processes, products, or services. Due Diligence is initiated once a target company has been selected. The main objective is to identify various synergy values that can be realized through an M & A of the Target Company. A key aspect of due diligence is the valuation of the target company. In the preliminary phases of M & A. Total value of the company is calculated keeping in mind the value of the synergy expected from the combination and costs involved in the transaction. An example should give an idea of the calculation involved. Value of Acquiring Company = Rs. 500 lakh Value of Target Company = Rs. 250 lakh Value of Synergies as per Phase I Due Diligence = Rs. 150 lakh M & A Costs = Rs. 60 lakh Total Value of Combined Company = Value of the acquiring company + Value of the target company + Value of the Synergy M & A cost

Hence Total value of the combined company = 500 + 250 + 150 60 = Rs 840 lakh. Step 4: Negotiation After selecting the target company it's time to start the process of negotiating. A negotiation plan is developed based on several key questions: How much resistance Acquiring Company is expected to encounter from the Target Company? What are the benefits of the Merger for the Target Company? What will be the acquiring company's bidding strategy? How much acquiring company should offer in the first round of bidding? The most common approach to acquire a company is for both companies to reach an agreement concerning the Merger & Acquisition. The idea is to go for a negotiated merger. The negotiated merger should be the preferred approach to a M & A since when both the company's agree to the deal then there are chances that the process will be a smooth one and will go a long way in making the merger a successful one. Step 5: Post Merger Integration If everything goes as per planning, the two companies announce an agreement to merge the two companies. This leads to the fifth and final phase within the M & A Process, the integration of the two companies. Every company is different in terms of operations, in terms of structure, in terms of culture, in terms of strategies etc. The Post Merger Integration Phase is the most difficult phase within the M & A Process. It is the responsibility of the management of the two companies to bring the two companies together and make the whole thing work. This requires extensive planning and design throughout the combined organization. If post merger integration is successful, then it should result in the generation of synergy and that is the final objective of any Merger & Acquisition program.

Q.2 What are the sources of operating synergy. Ans:-- Operating synergies are those synergies that allow firms to
increase their operating income from existing assets, increase growth or both. Operating synergies sources can be categorised into four types. 1. Economies of scale: Economies of scale may arise from the merger, allowing the combined firm to become more cost efficient and profitable. Economies of scales can be seen in mergers of firms in the same business (horizontal mergers). For example, two banks combining together to create a larger bank. Merger of HDFC bank with Centurian bank of Punjab can be taken as an example of cost reducing operating synergy. Both the banks after combination can expect to cut costs considerably on account of sharing of their resources and thus avoiding duplication of facilities available. 2. Greater pricing power: Greater pricing power from reduced competition and higher market share, should result in higher profit margins and operating income. This synergy is also more likely to show up in mergers of firms which are in the same line of business and should be more likely to yield benefits when there are relatively few firms in the business. When there are more firms in the industry ability of firms to exercise relatively higher price reduces and in such a situation the synergy does not seem to work as desired. An example of limiting competition to increase pricing power is the acquisition of Universal luggage by Blow Plast. The two companies were in the same line of business and were in direct competition with each other leading to a severe price war and increased marketing costs. After the acquisition Blow past acquired a strong hold on the market and operated under near monopoly situation. Another example is the acquisition of Tomco by Hindustan Lever.

3. Higher growth: Higher growth in new or existing markets arising from the combination of the two firms. This can be the case, for example, when a firm acquires an emerging market firm with an established distribution network and brand name recognition, and uses these strengths to increase sales of its products. 4. Combination of different functional strengths: Combination of different functional strengths may enhance the revenues of each merger partner thereby enabling each company to expand its revenues. The phenomenon can be understood in cases where one company with an established brand name lends its reputation to a company with upcoming product line or a company. A company with strong distribution network merges with a firm that has products of great potential but is unable to reach the market before its competitors can do so. In other words the two companies should get the advantage of the combination of their complimentary functional strengths. Synergy results from complementary activities. This can be understood with the following examples. Example Consider a situation where there are two firms A and B. Firm A is having substantial amount of financial resources (having enough surplus cash that can be invested somewhere) while firm B is having profitable investment opportunities ( but is lacking surplus cash). If A and B combine with each other both can utilise each other strengths, for example here A can invest its resource (cash) in the opportunities available to B. Note that this can happen only when the two firms are combined with each other or in other words they must act in a way as if they are one.

Q.3 Explain the process of a leveraged buyout. Ans:-- In the realm of increased globalized economy, mergers and
acquisitions have assumed significant importance both within the country as well as across the boarders. Such acquisitions need huge amount of finance to be provided. In search of an ideal mechanism to finance an acquisition, the concept of Leveraged Buyout (LBO) has emerged. LBO is a financing technique of purchasing a private company with the help of borrowed or debt capital. The leveraged buy outs are cash transactions in nature where cash is borrowed by the acquiring firm and the debt financing represents 50% or more of the purchase price. Generally the tangible assets of the target company are used as the collateral security for the loans borrowed by acquiring firm in order to finance the acquisition. Some times, a proportionate amount of the long term financing is secured with the fixed assets of the firm and in order to raise the balance amount of the total purchase price, unrated or low rated debt known as junk bond financing is utilized. 1 Modes of purchase There are a number of types of financing which can be used in an LBO. These include, for example, the following (in order of their risk): a. Senior debt: This is the debt which ranks ahead of all other debt and equity capital in the business. Bank loans are typically structured in up to three trenches: A, B and C. The debt is usually secured on specific assets of the company, which means the lender can automatically acquire these assets if the company breaches its obligations under the relevant loan agreement; therefore it has the lowest cost of debt. These obligations are usually quite stringent. The bank loans are usually held by a syndicate of banks and specialized funds. Typically, the terms of

senior debt in an LBO will require repayment of the debt in equal annual installments over a period of approximately 7 years. b. Subordinated debt: This debt ranks behind senior debt in order of priority on any liquidation. The terms of the subordinated debt are usually less stringent than senior debt. Repayment is usually required in one bullet payment at the end of the term. Since subordinated debt gives the lender less security than senior debt, lending costs are typically higher. An increasingly important form of subordinated debt is the high yield bond, often listed on Indian markets. High yield bonds can either be senior or subordinated securities that are publicly placed with institutional investors. They are fixed rate, publicly traded, long term securities with a looser covenant package than senior debt though they are subject to stringent reporting requirements. c. Mezzanine finance: This is usually high risk subordinated debt and is regarded as a type of intermediate financing between debt and equity and an alternative to high yield bonds. An enhanced return is made available to lenders by the grant of an equity kicker (e.g. warrants, options and shares), which crystallizes upon an exit. A form of this is called a PIK, which reflects interest Paid In Kind, or rolled up into the principal, and generally includes an attached equity warrant (for larger financings) d. Loan stock: This can be a form of equity financing if it is convertible into equity capital. The question of whether loan stock is tax deductible should be investigated thoroughly with the companys advisers e. Preference share: This forms part of a companys share capital and usually gives preference shareholders a fixed dividend and fixed share of the companys equity (subject to there being sufficient available profits)

f. Ordinary shares: This is the riskiest part of a LBOs capital structure. However, ordinary shareholders will enjoy majority of the upside if the company is successful.

2 Governance aspects of leveraged buyouts Every restructuring programme must generate some additional values for the business, owners, shareholders etc. So an LBO exercise also creates certain additional values for various groups involved in such an operation. The sources of value generated are as follows: (a) Reduction in agency cost is the most important sources of value in an LBO. An LBO refers to take a public corporation to private. In case of a public corporation, the management is different from owners. In practice, however, the management sometimes takes some suboptimal decisions without the prior approval of its owners, which are proved to be costly and detrimental to the growth of the firm and beneficial to the management. (b) The second source of value gain is associated with efficiency. It is argued that a private firm is much more efficient in taking decisions relating to a changing environment than that of a public corporation, where every decision is not required to be ratified by the general body before implementation. Thus, action can be taken more speedily since major new programmes do not have to be justified by detailed studies and reports to the board of directors. It is this efficiency in decisionmaking that creates value for an LBO. (c) Another source of value gain in case of an LBO is tax benefits as in such an operation; the interest obligation of the private firm is expected to certain tax benefits. The concept of stepping up of

assets for depreciation as an ingredient of LBO calls for additional tax advantages. (d) Finally, it is understood that management or investors in an LBO deal have more information on the value of the firm, than the ordinary shareholders. Because of this information, a buy out proposal gives indication to the market that the post buy out scenario would certainly provide more operating incomes than previously expected or that the firm is less risky than perceived by the public at present. It is this asymmetric information, which adds value to an LBO and because of this value; the buy out investors do not mind paying large premiums on such deals. The value so created through an LBO exercise are exclusively meant for shareholders of restructured firm and partly for the specialists engaged in such an operation. Basically, this is considered as a wealth transfer mechanism in a sense that because of the financial leverage, the gain achieved by the shareholders came at the expense of the firms debt holders. 3 Leveraged buyouts and corporate governance LBO firms today are seeking to build value in acquired companies by improving profitability, pursuing growth including roll-up strategies (in which an acquired company serves as a platform for additional acquisitions of related businesses to achieve critical mass and generate economies of scale), and improving corporate governance to better align management incentives with those of shareholders. As a general rule, funds raised by private equity firms have a number of fairly standard provisions: (a) Minimum commitment: Prospective limited partners are required to commit a minimum amount of equity. Limited partners make a capital commitment, which is then drawn down (a takedown or capital call) by the general partner in order to make investments with the funds equity.

(b) Investment or commitment period: During the term of the commitment period, limited partners are obligated to meet capital calls upon notice by the general partner by transferring capital to the fund within an agreed-upon period of time (often 10 days). The term of the commitment period usually lasts for either five or six years after the closing of the fund or until 75 to 100% of the funds capital has been invested, whichever comes first. (c) Term: The term of the partnership formed during the fundraising process is usually ten to twelve years, the first half of which represents the commitment period (defined above), the second half of which is reserved for managing and exiting investments made during the commitment period. (d) Diversification: Most funds partnership agreements stipulate that the partnership may not invest more than 25% of the funds equity in any single investment.

4 Stages of leveraged buyouts operation Four distinct but related stages are envisaged for the proper implementation of LBO programs, which are described below. 1st stage: Arrangement of finance: The first stage of the operation consists raising the cash required for the buy outs and working out a management incentive system. The equity base of the new firm consists of around 10 percent of cash put up by the company's top management or buy out specialists. Outside Investors like merchant bankers, venture capitalists and commercial banks then arrange to provide the remaining equity. Usually 50 per cent of the cash is raised by borrowings against company's assets in secured bank acquisition loans from commercial banks. Rest of the cash is obtained by issuing certain debts in a private placement, usually with pension funds, insurance companies, venture capital firms or

public offerings through high-risk high-yield junk bonds. Private placements and and junk bonds are subordinated forms of debts (often referred to as mezzanine money') and they secure a place in between the secured debts from banks and risky residual claims of share holders. 2nd stage: Going private: In this stage, the organizing or sponsoring group purchases all the outstanding shares of the target company and takes it private through stock purchases format or purchase all assets through asset purchasing format. For the latter case, the purchasing group forms another new, privately held corporation. To reduce the debt by paying off a part of bank loans, the new owners sometimes sell off part of the corporation and may begin disposing of the inventory. 3rd stage: Restructuring: In this stage, the new management would try to enhance the generation of profit and cash flows by reducing certain operating costs and changing the marketing strategy. For this operation, it may adopt any or all of the below given policies: viz. (a) Consolidation and reorganization of existing production facilities; (b) Changing the product mix (thereby changing the quality of the product) and changing the policy relating to customer services and pricing. (c) Trimming employment through attrition; (d) Phasing out employees in turn and reduction on spending on research and development, new plants and equipments, etc., so long as there is a need toredeem the fresh acquired debts; (e) Extraction and implementation of better terms from various suppliers. However, while undertaking the above stated restructuring activities due attention should be given for the approval of genuine capital expenditure programs for the growth of the firm, otherwise, the long term growth of the firm would hamper.

4th stage: Reverse leveraged buyouts: Under this stage, the investor group may take the company to public again, if the already restructured company emerges stronger and the goals set by the LBO groups have already been achieved. This is known as the process of 'Reverse LBO' or the process of 'Going Public', where the process it effected through public equity offerings. The sole purpose of this exercise is to create liquidity for existing shareholders. This type of reverse LBO is executed mostly by ex-post successful LBO companies

Q 4. What are the cultural aspects involved in a merger. Ans:-- Cultural compatibility is one of the most significant
determinants of a successful M&A transaction. Acknowledging whether cultural compatibility can exist should be a factor in determining whether to pursue a given deal. Integration can never be attaining and growth strategies never realized if two companies are worlds apart culturally. This alignment of cultures can be achieved through information sharing, emphasizing similarities and mitigating dissimilarities through effective communication. Organizational culture has been identified by some analysts as a key determinant of the outcomes achieved as a result of Daimler-Benz's acquisition of Chrysler Corporation. In speaking to risks associated with this acquisition, one analyst suggested that "when it comes to downside risks, the greatest is certainly culture. Beyond the fact of both being carmakers, the two companies differ in just about everything: language, markets, work traditions and governance. And in the executive suite, how will Chrysler's sky-high American salaries and stock options fit with the German structure of employee representation and a supervisory board?" However, a position articulated by Jurgen Schrempp, the chairman of Daimler-Benz, in a discussion of his firm's acquisition of Chrysler indicated an awareness of culture as a key component of organizational fit and the acquisition's success. In Schrempp's words, "We are set to build a truly global culture." Robert Eaton, Chrysler's former chairman, supported this intention by observing that "this is precisely one of the reasons we immediately agreed to run the business initially together. We both believe that integrating and merging cultures is possibly the greatest art of management." Thus, there appears to be a commitment between the top executives of the acquiring and acquired firm to take definitive actions to prevent organizational culture from having a negative effect on the acquisition. In some countries, the host government provides strong incentives to foreign firms to use joint ventures as a mode of entry into their markets. Another reason to form joint ventures is to gain rapid access to new markets. Learning is another objective behind many international joint

ventures. By partnering with local companies instead of entering a market on their own, foreign firms can more quickly develop their ability to operate effectively in the host country. IJVs also provide a means for competitors within an industry to leverage new technology and reduce costs.

Q5. Study a particular merger that you have read about and discuss the synergy effect of the merger. Ans:-Recent merger:

TATA STEELS ACQUISITION OF CORUS India inc. is on a foreign acquisition spree and tata steel is leading the pack. The India steel major has successfully bagged quite a few companies in asia. Recently, it has aquired corus, the biggest steel company in the uk. Corus was formed after the merger between british steel and dutch group hoogovens in the year 1999. corus is the ninth largest steel company globally and leads the market position in construction and packaging in Europe. Tata steel initially offered $7.64 bn in cash for the acquisition of the uks largest steel company. But corus has accepted the deal at euro 4.3bn [$8.1bn]. tata has offered 455 pence per share and pledged to contribute euro126 mn to the corus pension fund as part of the deal. They will also increase the annual contributions to the british steel fund. There are a few risks in this deal. The foremost risk is that tata steel will have to pay off huge debt of euro bn ,if there is an economic downturn in future. Tata group have taken euro1bn of the debt for buying corus. The fast changing global steel industry is witneesing the increasing trend of consolidation and this take over is done at the right time with the right partner for right terms. ARCELOR Arcelor was formed on February 19,2001 with the merger of the three European group: the French usinor, Spanish aceralia and the Luxembourg arbed. It is registered in Luxembourg and listed on various stock exchanges on February 18,2002. in order to maximize the generation of cash and to ensure the sustained profitability,it designed its businees model by mainly focusing on building position in high margin products. WITHIN four year of its establishment, arcelor has not only crossed its targets but also bolstered its position in the fieldof production and supply of high value-added steel. It became the lead supplier of steel to the automotive, house appliances, construction, packaging sector and

general industries. It has strengthened its position in carbon steel,especially more so in automotive steel. The key strategy of arcelor in international development is to maintain balance between high growth emerging markets and supporting multinational clients. INDUSTRY BACKGROUND More than a hundred year old steel industries has grown strongly and steadily through the decades steel industry witnessed a significant restructuring in the last 15 years mainly due to decline in the demand from the central and eastern Europe. During the 1990s, the industry observed restructuring with the marked regional consolidation among European union producers. The saga of arcelor-mittal merger On January 27,2006 mittal stunned the global steel industry with the launch of a surprise bid for its nearest rival arcelor with an unsolicited offer of euro18.6bn. mittal made an offer of 4 mittal shares plus 35.25cashfor every five shares of arcelor. The alternative offer were stock offer of 16 mittal shares for 15 arcelor shares or cash offer 28.21 for each arcelor share and the proration of aggregate consideration was 25%cash and 75% stock. Mittal kept few conditions in his offer that there should be a minimum accepted of more than 50%and also no change in the arcelor substance during the offer. In addition to these condition, mittal also wanted to sell dofasco to thyssenkrupp for 3.8 bn. Mittal was ready to reimburse the payment of break fee by arcelor to dofasco and the earning of dofasco before its sale will be transferred to the combined group. The latest bid offers 13Mittal shares plus 150.6 cash for 12 Arcelor share with an option to recive more cash or shares subject to 13 % cash and 69% stock in aggregate. However ,both the companies have not yet come to a consent regarding Canadian steel maker Dafosco that arcelor acquired in January 2006. Under the agreement, the marged firm will be called Arcelor Mittal . Arcelir investors retain 50.5% ownership . Mittal family, which held875 share capital and a lock-upperod of five years, subject to certain exceptions.

Regardless of holding period, all the shareholders will have identical voting and economic rights,i.e. one vote for one share. Kinsch of arcelor will becom the chairman and LN Mittal will be the president of the arcelor Mittal wherein, LN Mittal will be from Mittal Steel, three representatives of Arcelor shareholders and three representatives of employees. After three years, the shareholders will be elacting thair Bord of directors. The management board will be comprised of seven executive among which, four executives will be from Arcelor, three executives will be frome Mittle Steel and the chairman of the new company will propose the CEO. The Best Combination Arcor is the number one steel number one steel company by revenue whereas Mittal is the number one steel company in terms of shipments . the combination of thease two top companies leades the consoldination to new to new level making Arcelor Mittal as the Numero Uno. The combaind company will immediatelyachive industry ledership by dwarfing other steel makers with the production capacity of over 120 million tons ayear whish is approximately 10% of globle steel production . It will produse three times more than capitalization of $46 bn. The new company with ites 61 plantes in 27 countries will lead the major markets like North America , South America, Western Europe,Estern Europe and Africa. Mittal Steel and Arcelor are quite complimentary in their business leading to a minimal overlap in geographic and product fit.In the US Mittal steel is the leading supplier to the packaing, appliances and automotive sector with strong R&D and in the European market arcelor enjoys the similar position . Mittal Steels mills produse lowerquality steel that is generally sold in open market while Arcelor focuse on high-quality steel for long-term costomers. Conclusion From the above project we conclude that: The merger of Mittal Steeland Arclor is bound to bring a steel change in the consolidation of steel industry. The combination is expected to offer unparalleled scale of production coupled with strong globle presence, thus providing unigue platform for groth and value creation.

Q 6. What are the motives for a joint venture, explain with an example of a joint venture Ans:-- Given below are the key motives behind the joint ventures:
To augment insufficient financial or technical ability to enter a particular line or business. To share technology & generic management skills in organization, planning & control. To diversify risk To obtain distribution channels or raw materials supply To achieve economies of scale To extend activities with smaller investment than if done independently To take advantage of favorable tax treatment or political incentives (particularly in foreign ventures). Joint ventures are new enterprises owned by two or more participants. They are typically formed for special purposes for a limited duration. It is a combination of subsets of assets contributed by two (or more) business entities for a specific business purpose and a limited duration. Each of the venture partners continues to exist as a separate firm, and the joint venture represents a new business enterprise. It is a contract to work together for a period of time each participant expects to gain from the activity but also must make a contribution. For example: GMToyota JV: GM hoped to gain new experience in the management techniques of the Japanese in building high-quality, low-cost compact & subcompact cars. Whereas, Toyota was seeking to learn from the management traditions that had made GE the no. 1 auto producer in the world and In addition to learn how to operate an auto company in the environment under the conditions in the US, dealing with contractors, suppliers, and workers. DCM group and Daewoo motors entered in to JV to form DCM DAEWOO Ltd. to manufacture automobiles in India..

Q.1 What are the basis for valuation of a target company. Ans:-- Overview of Acquisition Valuation Methods
There are a number of acquisition valuation methods. While the most common is discounted cash flow, it is best to evaluate a number of alternative methods, and compare their results to see if several approaches arrive at approximately the same general valuation. This gives the buyer solid grounds for making its offer. Using a variety of methods is especially important for valuing newer target companies with minimal historical results, and especially for those growing quickly all of their cash is being used for growth, so cash flow is an inadequate basis for valuation. Valuation Based on Stock Market Price If the target company is publicly held, then the buyer can simply base its valuation on the current market price per share, multiplied by the number of shares outstanding. The actual price paid is usually higher, since the buyer must also account for the control premium. The current trading price of a companys stock is not a good valuation tool if the stock is thinly traded. In this case, a small number of trades can alter the market price to a substantial extent, so that the buyers estimate is far off from the value it would normally assign to the target. Most target companies do not issue publicly traded stock, so other methods must be used to derive their valuation. When a private company wants to be valued using a market price, it can adopt the unusual ploy of filing for an initial public offering while also being courted by the buyer. By doing so, the buyer is forced to make an offer that is near the market valuation at which the target expects its stock to be traded. If the buyer declines to bid that high, then the target still has the option of going public and realizing value by selling shares to the general public. However, given the expensive control measures mandated by the Sarbanes-Oxley Act and the stock lockup periods required for many new public companies, a targets shareholders are

usually more than willing to accept a buyout offer if the price is reasonably close to the targets expected market value. Valuation Based on a Multiple Another option is to use a revenue multiple or EBITDA multiple. It is quite easy to look up the market capitalizations and financial information for thousands of publicly held companies. The buyer then converts this information into a multiples table, which itemizes a selection of valuations within the consulting industry. The table should be restricted to comparable companies in the same industry as that of the seller, and of roughly the same market capitalization. If some of the information for other companies is unusually high or low, then eliminate these outlying values in order to obtain a median value for the companys size range. Also, it is better to use a multiday average of market prices, since these figures are subject to significant daily fluctuation. The buyer can then use this table to derive an approximation of the price to be paid for a target company. For example, if a target has sales of $100 million, and the market capitalization for several public companies in the same revenue range is 1.4 times revenue, then the buyer could value the target at $140 million. This method is most useful for a turn-around situation or a fast growth company, where there are few profits (if any). However, the revenue multiple method only pays attention to the first line of the income statement and completely ignores profitability. To avoid the risk of paying too much based on a revenue multiple, it is also possible to compile an EBITDA (i.e., earnings before interest, taxes, depreciation, and amortization) multiple for the same group of comparable public companies, and use that information to value the target. Better yet, use both the revenue multiple and the EBITDA multiple in concert. If the revenue multiple reveals a high valuation and the EBITDA multiple a low one, then it is entirely possible that the target is essentially buying revenues with low-margin products or services, or extending credit to financially weak customers. Conversely, if the revenue multiple yields a lower valuation than the EBITDA multiple,

this is more indicative of a late-stage company that is essentially a cash cow, or one where management is cutting costs to increase profits, but possibly at the expense of harming revenue growth. If the comparable company provides one-year projections, then the revenue multiple can be re-named a trailing multiple (for historical 12-month revenue), and the forecast can be used as the basis for a forward multiple (for projected 12-month revenue). The forward multiple gives a better estimate of value, because it incorporates expectations about the future. The forward multiple should only be used if the forecast comes from guidance that is issued by a public company. The company knows that its stock price will drop if it does not achieve its forecast, so the forecast is unlikely to be aggressive. Revenue multiples are the best technique for valuing high-growth companies, since these entities are usually pouring resources into their growth, and have minimal profits to report. Such companies clearly have a great deal of value, but it is not revealed through their profitability numbers. However, multiples can be misleading. When acquisitions occur within an industry, the best financial performers with the fewest underlying problems are the choicest acquisition targets, and therefore will be acquired first. When other companies in the same area later put themselves up for sale, they will use the earlier multiples to justify similarly high prices. However, because they may have lower market shares, higher cost structures, older products, and so on, the multiples may not be valid. Thus, it is useful to know some of the underlying characteristics of the companies that were previously sold, to see if the comparable multiple should be applied to the current target company. Valuation Based on Enterprise Value Another possibility is to replace the market capitalization figure in the table with enterprise value. The enterprise value is a companys market capitalization, plus its total debt outstanding, minus any cash on hand. In essence, it is a companys theoretical takeover price, because the buyer would have to buy all of the stock and pay off existing debt, while pocketing any remaining cash.

Valuation Based on Comparable Transactions Another way to value an acquisition is to use a database of comparable transactions to determine what was paid for other recent acquisitions. Investment bankers have access to this information through a variety of private databases, while a great deal of information can be collected online through public filings or press releases. Valuation Based on Real Estate Values The buyer can also derive a valuation based on a targets underlying real estate values. This method only works in those isolated cases where the target has a substantial real estate portfolio. For example, in the retailing industry, where some chains own the property on which their stores are situated, the value of the real estate is greater than the cash flow generated by the stores themselves. In cases where the business is financially troubled, it is entirely possible that the purchase price is based entirely on the underlying real estate, with the operations of the business itself being valued at essentially zero. The buyer then uses the value of the real estate as the primary reason for completing the deal. In some situations, the prospective buyer has no real estate experience, and so is more likely to heavily discount the potential value of any real estate when making an offer. If the seller wishes to increase its price, it could consider selling the real estate prior to the sale transaction. By doing so, it converts a potential real estate sale price (which might otherwise be discounted by the buyer) into an achieved sale with cash in the bank, and may also record a one-time gain on its books based on the asset sale, which may have a positive impact on its sale price. Valuation Based on Product Development Costs If a target has products that the buyer could develop in-house, then an alternative valuation method is to compare the cost of in-house development to the cost of acquiring the completed product through the target. This type of valuation is especially important if the market is expanding rapidly right now, and the buyer will otherwise forego sales if

it takes the time to pursue an in-house development path. In this case, the proper valuation technique is to combine the cost of an in-house development effort with the present value of profits foregone by waiting to complete the in-house project. Interestingly, this is the only valuation technique where most of the source material comes from the buyers financial statements, rather than those of the seller. Valuation Based on Liquidation Value The most conservative valuation method of all is the liquidation value method. This is an analysis of what the selling entity would be worth if all of its assets were to be sold off. This method assumes that the ongoing value of the company as a business entity is eliminated, leaving the individual auction prices at which its fixed assets, properties, and other assets can be sold off, less any outstanding liabilities. It is useful for the buyer to at least estimate this number, so that it can determine its downside risk in case it completes the acquisition, but the acquired business then fails utterly. Valuation Based on Replacement Cost The replacement value method yields a somewhat higher valuation than the liquidation value method. Under this approach, the buyer calculates what it would cost to duplicate the target company. The analysis addresses the replacement of the sellers key infrastructure. This can yield surprising results if the seller owns infrastructure that originally required lengthy regulatory approval. For example, if the seller owns a chain of mountain huts that are located on government property, it is essentially impossible to replace them at all, or only at vast expense. An additional factor in this analysis is the time required to replace the target. If the time period for replacement is considerable, the buyer may be forced to pay a premium in order to gain quick access to a key market. While all of the above methods can be used for valuation, they usually supplement the primary method, which is the discounted cash flow method.

Q2. Discuss the factors in post-merger integration process. Ans:-- Some important factors that can contribute to success or failure
in mergers and acquisitions are : Due Diligence : Lack of due diligence has caused many merger failures. It involves comprehensive analysis of firm characteristics such as financial condition, management capabilities, physical assets and intangible assets. Financing : Manageable debt levels should be ensured. Complementary Resources : Occurs when the primary resources of the acquiring and target firms are somewhat different, yet simultaneously supportive of one another. This tends to create economic value to a greater value that exists when the merging firms have identical or unrelated resources. Friendly/Hostile Acquisitions : Friendly acquisitions tend to create greater economic value. A hostile acquisition can reduce the transfer of information during due diligence and merger integration, and increase turnover of key executives in the firm being acquired. Synergy Creation : Four foundations to creation of synergy are strategic fit, organizational fit, managerial actions and value creation. Organizational Learning : Many people should participate in the acquisition process to ensure knowledge about acquisitions is being spread throughout the firm, and isnt lost if one of the key people typically involved leaves. The learning process should be managed, with steps taken to study and learn from acquisitions, with the information gained recorded. Focus on Core Business : Cultural and management differences are more greatly magnified the less firms have in common, therefore constraining the sharing of resources and capabilities. Result is that

positive benefits from financial synergy are not enough to offset the negative effects of diversification.; Emphasis on Innovation : Innovation is critical to organizational competitiveness. Companies that innovate enjoy the first-mover advantages of acquiring a deep knowledge of new markets and developing strong relationships with key stakeholders in those markets. Ethical Concerns/Opportunism : Risk in mergers and acquisitions are that the information received may be incorrect, misleading or deceptive. Steps should be taken to ensure that the information is accurate and hasnt been manipulated by management with the aim to making performance appear higher than it is.

Q3. List out the defense strategies in the face of a hostile takeover bid. Ans:-Raid Techniques

Techniques used in raids are such as Techniques of raid takeover bid and tender offer. The procedure for organizing takeovers includes collection of relevant information and its analysis, examine shareholders' profile, investigation of title and searches into indebtedness, examining of articles of association etc,. Defence against takeover bid may be in the form of advance preventive measures for defence such as - joint holdings or joint voting agreement, interlocking shareholdings or cross shareholdings, issue of block of shares to friends and associates, defensive merger apart from other things. Tactical defence' strategies include friendly purchase of shares, emotional attachment, loyalty and patriotism, recourse to legal action, operation White Knights', "Golden Parachutes" etc,. Four basic tactics or schemes can be carved out when we study the practice of corporate raiding which are bankruptcy, corporate, litigation, and land schemes to be the most widespread apart from the other supplementary tactics such as the creation and presentation of false evidence in civil litigation. At least three causes can be identified, first is the general uncertainty of property rights resulting from the privatization of state assets, second cause is poor corporate governance and final cause of raiding is the fact that the legal system is simply not yet equipped to deal with this novel form of crime. The court structure, the inadequacy of criminal law, the flaws in criminal investigation, the problems of good faith purchaser and the verification of corporate documents are also among the loopholes that can be identified. In order to address this problem, a new bankruptcy law must be imposed with more stringent screening and ethical requirements for trustees, expanding the time for judges to consider and take decisions, and also expand debtors' rights to contest creditors' petitions.

The corrupt acquisition of control over the target company usually by falsifying internal corporate documents and/or corruptly obtaining control over a significant portion of the voting stock or the board of directors of the target company is common in nature. The raider may create a false power of attorney or other document authorizing him or a co-conspirator to enter into transactions on behalf of the target company and then transfer the target's assets to himself or affiliated companies or the raider bribes officials at state registration agencies to alter the target company's registration documents to give him and/or his confederates faux control over the target company. He then uses this control to drain off the target's assets. Another important tactic that may be used by raider is the creation and presentation of false evidence in civil litigation. For example, in answering claims by victims, raiders typically offer false evidence, such as fabricated contracts and corporate resolutions, to "prove" the alleged legitimacy of their acquisitions. There are certain measures that businesses can take to protect themselves. These measures include retaining qualified legal counsel to draft and review all incorporation documents and contracts, retaining corporate investigation firms to investigate partners and major customers, and, above always complying with all relevant laws and regulations. The term takeover' is nowhere defined in the Companies Act 1956 (Act) or in Securities and Exchange Board of India Act, 1992 (SEBI Act), or in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover Code). In the absence of a legal definition, the term takeover has to be understood from its commercial usage. In commercial parlance, the term takeover denotes the act of a person or group of persons (acquirer) acquiring shares or acquiring voting rights or both of a company (target company), from its shareholders, either through private negotiations with majority shareholders, or by a public offer in the open market with an intention to gain control over its management. A takeover is considered hostile' when the management of the target company resists the attempted takeover.

The basic principle is that when acquisition becomes a takeover, the Takeover Code becomes applicable besides other provisions of the Act. In other words, in case of a takeover, compliance of both the Takeover Code as well as that of the Act is necessary, while in case of acquisition, compliance of only the Act is required. Further, if an acquisition results in a combination', then the provisions of the Competition Act 2002 also become applicable, and the approval of the Competition Commission of India is required. If the acquisition results in either inflow or outflow of funds, to or from India, then the provisions of the Foreign Exchange Management Act 1999 would become applicable and in such a case, the permission from either the Reserve Bank of India or the Central Government may be required. The objective behind the Takeover Code is to bring transparency in takeover and acquisition transactions in public listed companies and to ensure that if minority shareholders are not given a raw deal through price fixation. The Takeover Code lays down the mandatory and compulsory disclosure of an acquisition if the acquirer intends to do. The procedure in case an investor wants to takeover has been clearly laid down in the Companies Act, 1956, the Takeover Code etc,. These regulatory mechanisms also lays down the offences, penalties in case of any violation, obligations and restrictions upon the merchant bankers, acquirers, the company itself etc,. Acquisition for the purpose of combination is not only the acquisition of shares or voting rights or control of management, but also acquisition of or control of assets of the target company. Thus, for the purposes of Competition Act, 2002, acquisition of shares, voting rights, assets and control of management have to be considered. In Any combination that would result in appreciable adverse effect on competition, within the relevant market in India, would be declared null and void and such an effect is to be enquired by the CCI for which the powers and the procedure is laid down under the Competition Act, 2002. However, the era of the corporate raider appears to be largely over. In the later 1980s the famous raiders suffered from a number of bad purchases that lost money (for their backers, primarily) and the credit lines dried up. In addition, corporations became more adept at fighting hostile takeovers through mechanisms such as the poison pill.

Finally the overall price of the stock market increased, which reduced the number of situations in which a company's share price was low with respect to the assets that it controlled Defence techniques Preventive measures Preventive measures against hostile takeovers are much more effective than reactive measures implemented once takeover attempts have already been launched. The first step in a companys defence, therefore, is for management and controlling shareholders to begin their preparations for a possible fight long before the battle is joined. There are several principal weapons in the hands of target management to prevent takeovers, some of which are described below. Control over the register The raider needs to know who the shareholders of the target are in order to approach them with the offer to sell their shares. With joint stock companies this information is contained in the share register. In particular, the share register provides for the possibility to identify the owners of the shares, quantity, nominal value and type of shares held by shareholders. So it is very important to ensure that non-authorized persons do not have access to the share register of the company by taking the following steps: Careful consideration is needed when choosing the registrar; the preference should be given to a reputable registrar; Check the track record of the share registrar in regards to its involvement in hostile takeovers in the past; Check who controls the registrar company. In case of transfer of shares to a nominee holder (custodian or depository) information on the beneficiary owners of shares is not stated in the share register. Instead, the share register contains information on the nominee holders. This makes it much more difficult for the raider to identify who is the real owner of the shares.

Control over debts Creditor indebtedness of the company may be used by a raider as the principal or auxiliary tool in the process of hostile takeover. In particular, the raider may employ so-called contract bankruptcy in order to acquire the assets of the target. In connection with this the following cautionary measures should be taken: Monitor the creditors of company carefully; Prevent overdue debts; If there is indirect evidence that a bankruptcy procedure is about to be launched, the company should do its best to pay all outstanding debts; Accumulate all the debts and risks relating to commercial activity of the company on a special purpose vehicle that does not hold any substantial assets. Cross shareholding Several subsidiaries of a company (at least three) have to be established, where the parent company owns 100% of share capital in each subsidiary. The parent transfers to subsidiaries the most valuable assets as a contribution to the share capital. Then the subsidiaries issue more shares. The amount of these should be more than four times the initial share capital. Subsidiaries then distribute the shares among themselves. The result of such an operation is that the parent owns less that 25% of the share capital of each subsidiary. In other words the parent company does not even have a blocking shareholding. When implementing this Golden parachute This measure discourages an unwanted takeover by offering lucrative benefits to the current top executives, who may lose their job if their company is taken over by another fi rm. The triggering events that enable the golden parachute clause are change of control over the company and subsequent dismissal of the executive by a raider provided that this dismissal is outside the executives control (for instance, reduction in workforce2 or dismissal of the head of the board of directors due to the

decision of the general meeting of shareholders provided such additional ground for dismissal is stated in the labour contract with the head of the board3). Benefits written into the executives contracts may include items such as stock options, bonuses, hefty severance pay and so on. Golden parachutes can be prohibitively expensive for the acquiring firm and, therefore, may make undesirable suitors think twice before acquiring a company if they do not want to retain the targets management nor dismiss them at a high price. The golden parachute defence is widely used by American companies. The presence of golden parachute plans at Fortune 1000 companies increased from 35% in 1987 to 81% in 2001, according to a survey by Executive Compensation Advisory Services. Notable examples include ex- Mattel CEO Jill Barads USD 50 million departure payment, and Citigroup Inc. John Reeds USD 30 million in severance and USD 5 million per year for life. Change of control clauses (Shark Repellents) The company may include in loan agreements or some other agreements conditional covenants that in the event of the company passing under the control of a third party, the other party to the agreement has the right to accelerate the debt or terminate the contract. The result of such agreements is that a potential raider may not be sure whether it will be able to benefit from important advantages enjoyed by the target. Although one of the effects of change of control clauses is to discourage raiders, their purpose is legitimate: to protect creditors from being placed in a worse position than they visualised.

Q4. What are the legal compliance issues a company has to adhere to in case of a merger. Explain through an example. Ans:-There are only seven sections from section 390 to 396 in the Companies act 1956 which are related to the matters pertaining to Mergers and Acquisitions and have been given in Chapter V under the heading Arbitration, Compromises, Arrangements and Reconstruction. The Act lays down the legal procedures for mergers or acquisitions : 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 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 creators 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 meetings, 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 courts 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.

Q5. Explain the advantages of any particular corporate restructuring exercise you have come across. Ans:-Meaning of Corporate Restructuring

Corporate restructuring is the process of redesigning one or more aspects of a company. The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, survive a currently adverse economic climate, or poise the corporation to move in an entirely new direction. Here are some examples of why corporate restructuring may take place and what it can mean for the company. Restructuring a corporate entity is often a necessity when the company has grown to the point that the original structure can no longer efficiently manage the output and general interests of the company. For example, a corporate restructuring may call for spinning off some departments into subsidiaries as a means of creating a more effective management model as well as taking advantage of tax breaks that would allow the corporation to divert more revenue to the production process. In this scenario, the restructuring is seen as a positive sign of growth of the company and is often welcome by those who wish to see the corporation gain a larger market share. Characteristics of Corporate Restructuring The given below are the key characteristics of corporate restructuring: 1. To improve the companys Balance sheet, (by selling unprofitable division from its core business). 2. To accomplish staff reduction (by selling/closing of unprofitable portion) 3. Changes in corporate mgt 4. Sale of underutilized assets, such as patents/brands.

5. Outsourcing of operations such as payroll and technical support to a more efficient 3rd party. 6. Moving of operations such as manufacturing to lower-cost locations. 7. Reorganization of functions such as sales, marketing, & distribution 8. Renegotiation of labor contracts to reduce overhead 9. Refinancing of corporate debt to reduce interest payments. 10. A major public relations campaign to reposition the co., with consumers. Benefits of Corporate Restructuring The benefits of Corporate Restructuring will be explained through 2 corporate examples: A.B Group and the merger between Dabur and Balsara. The Aditya Birla group merged group companies, Indo Gulf Fertilizers and Birla Global Finance into Indian Rayon & Industries. The company has been renamed Aditya birla Nuvo. The benefits of the above restructuring are stated below:1. It created shareholder value. 2. It created a company that captures opportunities in the evolving Indian economy through leadership in focused value businesses and driving high growth business. 3. It provided the shareholders of Indo Gulf Fertilizers so far restricted in its growth due to regulatory uncertainties a broader canvas to participate in the value creation. 4. It also extended the participation of Birla Global Finance shareholders beyond mutual funds into life insurance. 5. With such strong financials, Indian Rayon would be in a better position to tap possible new opportunities.

6. In the emerging environment of consolidation in the mutual funds industry, Indian Rayons strong balance sheet will help it compete better. Another most important acquisition that happened the acquisition of Balsara group by Dabur.

The benefits of this Restructuring are as follows: 1. It strengthened Daburs position in oral care: Balsaras were the pioneers in herbal oral care products launched in the seventies. Balsaras herbal oral care range (promise, babool and meswak) is a good strategic fit for Dabur whose products are also positioned on the herbal platform. 2. Added a new avenue of growth Household care: Balsara had a diverse portfolio of brands in extremely attractive categories. The acquisition enabled Dabur to enter the Rs.20 billion household care business through well entrenched brands. 3. Enabled Dabur to expand regional presence: 45% of Balsara revenues were from west & south. This complemented Daburs regional saliency. 4. Economies of scale from combined business: The acquisition provided several synergies to Dabur on the manufacturing and marketing front. Combined business provided economies of scale in marketing, sales and distribution. Backend synergies in supply chain, operation, purchase, IT, etc. The acquisition also marked Daburs entry into niche segments of household care products providing it completely new area of growth.

Q6. What is the motive for a divestiture, explain with an example. Ans:-Divesture is a transaction through which a firm sells a portion of its assets or a division to another company. It involves selling some of the assets or division for cash or securities to a third party which is an outsider. Divestiture is a form of contraction for the selling company, means of expansion for the purchasing company. It represents the sale of a segment of a company (assets, a product line, a subsidiary) to a third party for cash and or securities. Mergers, assets purchase and takeovers lead to expansion in some way or the other. They are based on the principle of synergy which says 2 + 2 = 5! , divestiture on the other hand is based on the principle of anergy which says 5 3 = 3! Among the various methods of divestiture, the most important ones are partial sell-off, de merger (spin-off & split-off) and equity carve out. Some scholars define divestiture rather narrowly as partial sell off and some scholars define divestiture more broadly to include partial sell offs, de mergers and so on. Reasons for divesture Divestitures reflect continuous efforts by companies to adjust to changing economic political and legal environment. The reasons and rationale for divestiture activity are many and diverse. Some of these are: Poor fit of division The parent company may want to move out of a particular line of business that it feels no longer fits into its plans or in which it is unable to operate profitably. This simply means that the buying firm, with greater expertise in this line of business, can profitably manage the division's assets. Sometimes these sales come as a result of the prior acquisition of a company that had divisions that did not fit as well with the acquirer as other divisions. For example:

Selling off of IBM products centres to Nynex: In 1986 IBM sold 81 IBM Products Centres, its US retailing operations, to Nynex, one of the regional telephone companies created in the AT&T court-directed divestiture. In 1988 IBM sold most of its US copier business to Eastman Kodak. Reverse synergy One motivational factor associated with Mergers and Acquisitions is synergy. Synergy refers to the additional gains that may be derived when two forms combine. When synergy exists, the combined entity is worth more than the sum of the parts valued separately. In other words, 2 + 2 = 5. Reverse synergy means that the parts are worth more separately than they are within the parent company's corporate structure. In other words, 4 1 = 5. In such cases, an outside bidder might be able to pay more for a division than what the division is worth to the parent company. For instance, a large parent company is not able to operate a division profitably, whereas a smaller firm, or even the division by itself, might operate more efficiently and therefore earn a higher rate of return. Cash flow factors Cash inflow is another immediate benefits of a sell off. Companies that are under financial distress are often forced to sell off valuable assets to enhance cash flows. Facing the threat of bankruptcy in the early 1980s, Chrysler Corporation was forced to sell off its coveted tank division in an effort to ward off bankruptcy. International Harvester sold its profitable Solar Turbines International Division to caterpillar tractor company, Inc. to realize the immediate proceeds of $505 million. These funds were used to cut Harvester's short-term debt in half.

Abandoning the core business The selling of a core business is often motivated by management's desire to leave an area that it believes has matured and presents few growth opportunities. This is a phenomenon that is least heard of, with reference to selloff. An example of the sale of a core business was the sale of its bus business in 1987 by Greyhound. The firm in such a case usually diversifies into other more profitable areas, and the sale of the core business helps finance the expansion of these more productive activities. Reaping the benefits of past successes Some divestitures take place in order to reap the benefits from past acquisitions, often stimulated by favourable market conditions. Here the purpose is to make financial and managerial resources available for developing other opportunities. Such divestitures represent successes rather than failures (or mistakes). Hanson PLC is said to make a business of this activity. Other examples are hotel sales by Hilton and Marriott. Financing prior acquisitions A number of divestitures also regularly follow major acquisitions for financing reasons. Campeau Corp., which acquired Allied Stores in 1986, stated that it would sell 16 Allied divisions to pay down bank debt. Similarly, after its $6.5 billion acquisition of Federated Department Stores, Campeau engaged in a programme of divestitures beginning in late 1988. Other similar patterns followed Beazer PLC's acquisition of Koppers Co. and Maxwell Communications' takeover of Macmillan Inc. Earlier Du Pont, which acquired Conoco, in 1981, had sold off $2 billion of Conoco's assets by 1984.

Discouraging takeovers Divestitures many a times function as a takeover defence by removing the crown jewel that attracted the takeover threat. An example is the sale by Brunswick Corp. of its medical division in 1982 to American Home Products when Brunswick Corp. faced a takeover threat from Whittaker. The proceeds to Brunswick from the sale of the division were $100 million more than Whittaker had offered for the entire company. Faced with a similar threat in 1989, Whittaker sold its chemical and technology operations. Meeting government norms Divestments often occur in order to comply with the government rules and norms. Such divestitures are called involuntary divestitures. In USA Santa Fe had merged with Southern Pacific railway systems in 1983. The combined railway was operated together while awaiting an antitrust analysis and ruiling from the ICC (Interstate Commerce Commision) which had antitrust jurisdiction for such kind of merger. After the ruiling came Santa Fe-Southern Pacific had to divest resulting in a depressing effect on share price of Sata Fe. In general, the government may require divestitures as a condition for approval when a combination includes segments with competing products.