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Mergers Acquisitions and Corporate Restructuring-II

Mergers Acquisitions and Corporate Restructuring-II

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Published by: PRAO6005 on May 08, 2010
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06/18/2014

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MERGERS MODULE 1
## Mergers and Acquisition : Important terms.Merger:
the share holders of two companies deciding to pool the resources of thecompanies under a common entity to do the business activity is called merger.
Two companies agree to go forward as a single company rather thanseparately owned and operated.
Both companies stocks are surrendered and new stock is issued in its place.
TATA-CORUS-$13 Billion
Daimler- Benz & Chrysler -> Daimler Chrysler.
It is also called as Amalgamation.##
Mergers or amalgamation may take two forms
Merger through absorption: absorption is a combination of 2 or morecompanies into an existing co. All co’s except one lose their identity in amerger through absorption.
Ex: Absorption of Tata Fertilizer Ltd (TFL) by Tata Chemicals LTd (TCL)
 TCL an acquiring co (buyer); survived after merger while TFL an acquired co( a seller) ceased to exist.
 TFL transferred its assets, liabilities and shares to TCL under the scheme of merger.##
Mergers through consolidationConsolidation:
 
two or more companies combine to form a new company. In this form of merger all companies are legally dissolved and a new entity is created.
In a consolidation, the acquired company transfers its assets, liabilities andshares to the new company for cash or exchange of share.
Ex : Merger or amalgamation of Hindustan Computers Ltd, HindustanInstruments Ltd, Indian software co Ltd and Indian Reprographics ltdin 1986 to an entirely new co, called HCL ltd.##Amalgamation:
is used when two or more companies carries on similar business go intoliquidation and a new company is formed to take over their business.
Takeover:
a takeover generally involves the acquisition of a certain stake in the equitycapital of a company which enables the acquirer to exercise control over theaffairs of the company.
Ex: HINDALCO took over INDAL by acquiring a 54% stake in INDAL from itsoverseas parent, Alcan. However, INDAL was merged into HINDALCO.##
WHAT IS CORPORATE RESTRUCTURING
Corporate restructuring refers to a broad array of activities that expand or contracta firm’s operations or substantially modify its financial structure or bring about asignificant change in its organisational structure and internal functioning.
 
Inter alia, it includes activities such as mergers, purchases of business units,takeovers, slump sales, demergers, leveraged buyouts, organizational restructuring,and performance improvement initiatives.We will refer to these activities collectively as mergers, acquisitions, andrestructuring (a widely used, though not a very accurate, term) or just corporaterestructuring.Sacrificing some rigour, these activities may be classified as shown next##
Top ten acquisition made by Indian companies.
Acquirer Target co Country targeted Deal value $ million IndustriesTata steel Corus group UK 12000 steelHindal co Novels Canada 5982 steelVideo con Daewoo elec co. Korea 729 steelDr. reddyslabsBeta pharmatical German 597 pharmaticalSuzlonenergyHansen group Belgium 565 EnergyHPCL Kenya petroleumrefinery LtdKenya 500 Oil gasRambaxylabsTerapia S A Romania 324 pharmaticalTata steel Nat steel singapore 293 steelVideo con Thomson SA france 290 electronicsVSNL Teleg lobe canada 239 telecon
Near $4500 million. More than double the amount involved in US companiesacquisition of Indian companies.
 
CO
Categories of Mergers:
 1. Horizontal . 3. Conglomerate.2. Vertical.
##Horizontal merger
 This is a combination of two or more firms in similar type of production,distribution or area of business.
Horizontal merger involves two firms operating and competing in the samekind of business activity.
MOTIVES:
1.Elimination or reduction in competition2.Putting an end to price cutting3.Economies of scale in production4.Research and development5.Marketing and management.Ex: combining of book publishers or two mufg co’s to gain dominant mkt share.(Mittal’s Strategy)The acquisition of American Motors by Chrysler in 1987 represents a horizontalcombination or merger.Horizontal merger increase monopoly power of the combined firm.##
Vertical mergers

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