MADRAS SCHOOL OF SOCIAL WORK (Autonomous) (Affiliated to the University of Madras) 32, Casa Major Road, Egmore, Chennai- 08 STRATEGIC


-Global and Indian perspective

Done by: R. Dhilip Kumar Professor in-charge: Dr. V.A.Vijayaraghavan Class: II MSE (Aided) Regn No: 09 /MSWH/ 26 Date of submission: 09/ 04/ 2011 Signature:

MERGERS & ACQUISITIONS -GLOBAL AND INDIAN PERSPECTIVES Introduction: Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or tracking stocks. Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or even billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, leading an M&A can represent the highlight of a whole career. And it is no wonder we hear about so many of these transactions; they happen all the time. Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this question, this tutorial discusses the forces that drive companies to buy or merge with others, or to split-off or sell parts of their own businesses. Once you know the different ways in which these deals are executed, you'll have a better idea of whether you should cheer or weep when a company you own buys another company - or is bought by one. You will also be aware of the tax consequences for companies and for investors. Synopsis:
1. Definition 2. Main idea 3. Synergy 4. Types 5. Acquisitions 6. Cost involved in M & a 7. Impact of M & A 8. M & A in India 9. Preventing failures in M & A 10. Conclusion & references

As every employee knows. mergers tend to mean job losses. Mergers also translate into improved purchasing power to buy equipment or office supplies . Strong companies will act to buy other companies to create a more competitive. Whether it's purchasing stationery or a new corporate IT system. Acquiring new technology . The companies will come together hoping to gain a greater market share or to achieve greater efficiency. This rationale is particularly alluring to companies when times are tough. the companies hope to benefit from the following: • Staff reductions . The Main Idea: One plus one makes three: this equation is the special alchemy of a merger or an acquisition. selling and combining of different companies that can aid. cost-efficient company. a large company can maintain or develop a competitive edge.Yes. who typically leaves with a compensation package. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies . companies need to stay on top of technological developments and their business applications. Synergy takes the form of revenue enhancement and cost savings.when placing larger orders.Definition: The phrase mergers and acquisitions (abbreviated M&A) is defined as aspect of corporate strategy. least. a bigger company placing the orders can save more on costs. size matters. • • . target companies will often agree to be purchased when they know they cannot survive alone. Economies of scale . marketing and other departments. Job cuts will also include the former CEO. Consider all the money saved from reducing the number of staff members from accounting. By merging. Synergy: Synergy is the magic force that allows for enhanced cost efficiencies of the new business. that's the reasoning behind M&A. Because of these potential benefits. or help a growing company in a given industry grow rapidly without having to create another business entity. By buying a smaller company with unique technologies. companies have a greater ability to negotiate prices with their suppliers. corporate finance and management dealing with the buying.To stay competitive.

there ought to be economies of scale when two businesses are combined. Vertical merger . A merge may expand two companies' marketing and distribution. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones. achieving synergy is easier said than done . synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. giving them new sales opportunities. however. there is a whole host of different mergers. the CEO and investment bankers who have much to gain from a successful M&A deal . Market-extension merger . Here are a few is not automatically realized once two companies merge. distinguished by the relationship between the two companies that are merging: • Horizontal merger . • • • • . Product-extension merger . Sure. Sadly.will try to create an image of enhanced value.Two companies selling different but related products in the same market. Think of a cone supplier merging with an ice cream maker.Two companies that are in direct competition and share the same product lines and markets.A customer and company or a supplier and company. Where there is no value to be created. In many cases.Companies buy companies to reach new markets and grow revenues and earnings.Two companies that sell the same products in different markets. one and one add up to less than two. That said. Conglomeration . eventually sees through this and penalizes the company by assigning it a discounted share price.• Improved market reach and industry visibility . but sometimes a merger does just the opposite.Two companies that have no common business areas. We'll talk more about why M&A may fail in a later section of this tutorial. The market. Types of Mergers: From the perspective of business structures.

a brand new company is formed and both companies are bought and combined under the new entity. Acquisitions are often congenial. reducing taxes payable by the acquiring company. Company Y becomes merely a shell and will eventually liquidate or enter another area of business. all acquisitions involve one firm purchasing another . . a company can buy another company with cash. and all parties feel satisfied with the deal. In fact. and together they become an entirely new public corporation with tradable shares. efficiencies and enhanced market visibility.With this merger. Another possibility. usually one with no business and limited assets. Each has certain implications for the companies involved and for investors:  Purchase Mergers . Unlike all mergers. The tax terms are the same as those of a purchase merger. acquisitions are more hostile. the sale is taxable.There are two types of mergers that are distinguished by how the merger is financed. Company X buys all of Company Y's assets for cash. In an acquisition. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly-listed shell company. this kind of merger occurs when one company purchases another. it may be different in name only. is for one company to acquire all the assets of another company. Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Like mergers. and the difference between the book value and the purchase price of the assets can depreciate annually. Other times. which is common in smaller deals. if they had debt before). stock or a combination of the two. as in some of the merger deals we discuss above. a deal that enables a private company to get publicly-listed in a relatively short time period. acquisitions are actions through which companies seek economies of scale. We will discuss this further in part four of this tutorial. Acquired assets can be written-up to the actual purchase price.there is no exchange of stock or consolidation as a new company. which means that Company Y will have only cash (and debt. Of course. Another type of acquisition is a reverse merger. The purchase is made with cash or through the issue of some kind of debt instrument. Consolidation Mergers .As the name suggests. The private company reverse merges into the public company.   Acquisitions: As you can see. an acquisition may be only slightly different from a merger.

The information about organization. products/services.   Database of prospective buyers are searched. 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. Structured Marketing Process This is merger and acquisition process involves marketing of the business entity. facilities and ownerships are reviewed. as well as tax issues and business issues are considered before making exit planning. royalties. The form of compensation (such as cash. secured notes. debt resolution etc. stock.  Seller also presents Memorandum and Profiles. Various issues like estate planning. While doing the marketing. convertible bonds. Buyer also needs to sign a Non-Disclosure agreement.Process of Mergers and Acquisitions: The process of merger and acquisition has the following steps: Market Valuation Before you go for any merger and acquisition. continuing business involvement. future earnings share.) also plays a major role here in determining the exit planning. The structure of the deal largely depends upon the available options. Following are the features of this phase.  Seller agrees on the disseminated materials in advance. . Serious buyers are also identified and then encouraged during the process. it is of utmost important that you must know the present market value of the organization as well as its estimated future financial performance. its history. Sales organization and marketing approaches are also taken into consideration. or buy back opportunities etc. consulting agreements. Assessment and screening of buyers are done. selling price is never divulged to the potential buyers. which factually showcases the business.

Definitive Purchase Agreement Finally Definitive Purchase Agreement are made. based on which. Issues like price and terms. a Definitive Purchase Agreement is prepared. product liability issues. Non-solicitation agreement. pre closing tax liabilities. deciding on due diligence period. earn out provisions liability obligations. Buyer Due Diligence This is the phase in the merger and acquisition process where seller makes its business process open for the buyer. you firstly need to find out the way to accelerate your strategic business plan through the M&A. in merger and acquisition strategies.  Special focuses are given on he personal needs of the seller during structuring of deals. accountants. Final letter of intent is developed after a phase of negotiation. Letter of Intent Both. purchase price adjustments. . deal structure. However. post closing insurance policies. representations and warranties. and indemnification issues etc. so that it can make an in-depth investigation on the business as well as its attorneys. Breakup fees and no shop provisions. are negotiated in the Letter of Intent. So. ISRA and ERISA issues. merger and acquisition strategies have got some distinct process. tad advisors etc. which states the transaction details including regulatory approvals. bankers. After reviewing. 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. financing sources and other conditions of sale Strategic Process of Mergers and Acquisition: The merger and acquisition strategies may differ from company to company and also depend a lot on the policy of the respective organization. the strategies are devised. Determine Business Plan Drivers Merger and acquisition strategies are deduced from the strategic business plan of the organization.

earn outs etc. the skills and resources that you would require. minority investments. PIPEs. You also need to develop summary profile for every company. . or untapped equity. the estimated returns etc. you can go ahead with the merger or acquisition. the products and technologies that you would require. the geographic locations where you would operate your business in. the amount of new equity and new debt that your organization can raise etc. debt. Many organizations have their own formats for presenting preliminary valuation. you need to find out if there are any financial constraints for supporting the acquisition. referrals from board members. Build Preliminary Valuation Models this stage is to calculate the initial estimated acquisition cost. You need to consider a few facts like the availability of untapped credit facilities. Rate/Rank Acquisition Candidates Rate or rank the acquisition candidates according to their impact on business and feasibility of closing the deal. agree with it or not. investors and attorneys. If everyone gives their nods on the strategies. Develop Acquisition Candidate List now you have to identify the specific companies (private and public) that you are eyeing for acquisition. investment bankers. Determine Acquisition Financing Constraints Now. the market share that you are eyeing for in each market. public and private equities. You also need to calculate the amount of returns that you must achieve. public stock research. Funds for acquisitions may come through various ways like cash. and the risk amount etc. you need to consider the points like the markets of your intended business. Review and Approve the Strategy this is the time to review and approve your merger and acquisition strategies. You need to find out whether all the critical stakeholders like board members. investors etc. and even recommendations from your employees. This process will help you in understanding the relative impacts of the acquisitions. the financial targets. surplus cash. You can identify those by market research.While chalking out strategies.

The acquiring company offers to buy all these from the target company at the given cost. Before going for any merger or acquisition. Based on the calculation. both the companies may have different theories about the worth of the target company. Estimated Cash Flow = Net Income + Depreciation/Amortization . Valuation in M & A There are a number of methods used in mergers and acquisition valuations. organization's Weighted Average Costs of Capital (WACC) is used for the calculation. Discounted Cash Flow (DCF) Method Discounted Cash Flow (DCF) method is one of the major valuation tools in mergers and acquisitions.Costs involved in M & A: Costs of mergers and acquisitions are an important and integral part of mergers and acquisitions process. . DCF method is one of the strongest methods of valuation. cost of replacing the target company is calculated and acquisitions are based on that. Replacement cost method isn't applicable to service industry. There are a number of legitimate methods for valuation of companies. where key assets (people and ideas) are hard to value. Here. The seller tries to project the value of the company high. they decide whether they should go with the deal or not. whereas buyer will try to seal the deal at a lower price. It calculates the current value of the organization according to the estimated future cash flows. Here the value of all the equipments and staffing costs are taken into consideration. In mergers and acquisitions. both the companies calculate the costs of mergers and acquisitions to find out the viability and profitability of the deal. Some of those can be listed as: Replacement Cost Method In Replacement Cost Method.Capital Expenditures Change in Working Capital These estimated cash flows are discounted to a present value.

Enterprise-Value-to-Sales Ratio (EV/Sales) Here. acquiring company offers multiple of the revenues. those who are working would also see some changes in the corporate culture. based on which they put forward their offers. acquiring company offers multiple of the target company's earnings. Due to the changes in the operating environment and business procedures. the value of the organization is calculated by summing up the amount of capital invested and a premium equal to the current value of the value created every year moving forward. Here.Economic Profit Model In this model. layoffs are quite inevitable. If the merged company is pretty sufficient in terms of business capabilities.(Invested Capital x Weighted Average Cost of Capital) Value = Invested Capital + Current Value of Estimated Economic Profit Price-Earnings Ratios (P/E Ratio) This is one of the comparative methods adopted by the acquiring companies. it doesn't need the same amount of employees that it previously had to do the same amount of business. employees may also suffer from emotional and physical problems. In fact. mergers and acquisitions could be pretty difficult for the employees as there could always be the possibility of layoffs after any merger or acquisition. Economic Profit = Invested Capital x (Return on Invested Capital . .Weighted Average Cost of Capital) Economic Profit = Net Operating Profit Less Adjusted Taxes . Impact of M & A: Impacts on Employees Mergers and acquisitions may have great economic impact on the employees of the organization. It also keeps a tab on the price-tosales ratio of other companies. Besides. As a result.

Distinction between Mergers and Acquisitions: Although they are often uttered in the same breath and used as though they were synonymous. Different industry has different level of competitions after the mergers and acquisitions. change of powers can also be observed among the market players. For example. on behalf of their superiors. was created. the competition in the financial services industry is relatively constant. the shareholders of the acquired company get highly benefited from the acquisition as the acquiring company pays a hefty amount for the acquisition. It involves high level of stress." Both companies' stocks are surrendered and new company stock is issued in its place. the terms merger and acquisition mean slightly different things. Impact on Competition Mergers and acquisitions have different impact as far as market competitions are concerned.Impact on Management The percentage of job loss may be higher in the management level than the general employees. need to implement the corporate policies that they might not agree with. a merger happens when two firms. the target company ceases to exist. In the pure sense of the term. DaimlerChrysler. Impact on Shareholders Impact of mergers and acquisitions also include some economic impact on the shareholders. the buyer "swallows" the business and the buyer's stock continues to be traded. From a legal point of view. the shareholders of the acquiring company suffer some losses after the acquisition due to the acquisition premium and augmented debt load. This kind of action is more precisely referred to as a "merger of equals. the purchase is called an acquisition. Due to change in corporate culture of the organization. many managerial level professionals. often of about the same size. On the other hand. . When one company takes over another and clearly established itself as the new owner. and a new company. agree to go forward as a single new company rather than remain separately owned and operated. For example. On the other hand. both Daimler-Benz and Chrysler ceased to exist when the two firms merged. If it is a purchase. The reason behind this is the corporate culture clash.

which ceases to exist. even if it's technically an acquisition. Being bought out often carries negative connotations. Reddy's Labs acquired Betapharm through an agreement amounting $597 million. Usually. Merger The case when two companies (often of same size) decide to move forward as a single new company instead of operating business separately. A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the agreement is hostile. deal makers and top managers try to make the takeover more palatable. one company will buy another and. For example. therefore. while new stocks are issued afresh. actual mergers of equals don't happen very often. In other words. Though the two words mergers and acquisitions are often spoken in the same breath and are also used in such a way as if they are synonymous. known as Glaxo SmithKline. simply allow the acquired firm to proclaim that the action is a merger of equals. A buyout agreement can also be known as a merger when both owners mutually decide to combine their business in the best interest of their firms.that is.In practice. or when the target firm is unwilling to be bought. Dr. it is considered as an is always regarded as an acquisition. . by describing the deal as a merger. as part of the deal's terms. The buyer company “swallows” the business of the target company. however. however. The stocks of both the companies are surrendered. employees and shareholders. there are certain differences between mergers and acquisitions. But when the deal is unfriendly . the real difference lies in how the purchase is communicated to and received by the target company's board of directors. Glaxo Wellcome and SmithKline Beehcam ceased to exist and merged to become a new company. Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. when the target company does not want to be purchased . Acquisition The case when one company takes over another and establishes itself as the new owner of the business.

 .Mergers and Acquisitions in India: The practice of mergers and acquisitions has attained considerable significance in the contemporary corporate scenario which is broadly used for reorganizing the business entities. steel. making it a vital premeditated option. since the introduction of Indian economic reform in 1991. Indian industries were exposed to plethora of challenges both nationally and internationally. 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. 2007. 2007. Indian telecom major Bharti Airtel is all set to merge with its South African counterpart MTN. According to the agreement Bharti Airtel would obtain 49% of Ten Biggest M & A deals in India: Tata Steel acquired 100% stake in Corus Group on January 30. with a deal worth USD 23 billion.1 billion on February 11. The cut-throat competition in international market compelled the Indian firms to opt for mergers and acquisitions strategies. construction. etc. It was an all cash deal which cumulatively amounted to $12. the future of M&A deals in India looks promising. telecommunications.2 billion.  Vodafone purchased administering interest of 67% owned by Hutch-Essar for a total worth of $11. In spite of the massive downturn in 2009. ITES. IT. 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 stability “ready to experiment” attitude of Indian industrialists Sectors like pharmaceuticals.

the procedure remains chiefly court driven. The approval of the High Court is highly desirable for the commencement of any such process and the proposal for any merger or acquisition should be sanctioned by a 3/4th of the shareholders or creditors present at the General Board Meetings of the concerned firm.India Aluminium and copper giant Hindalco Industries purchased Canada-based firm Novelis Inc in February 2007. Although mergers and acquisitions may be instigated through mutual agreements between the two firms. Suzlon Energy obtained the Germany-based wind turbine producer Repower.8% of London based companies' shareholders acknowledged the buyout proposal. The allotted time period is clearly different from the minimum obligatory stay period for claimants. the M&A deal amounted to $1.7 billion. According to the law.5 billion.  India's financial industry saw the merging of two prominent banks .3 billion. The deal took place in February 2008 for $2.8 billion making it ninth biggest-ever M&A agreement involving an Indian company.8 billion and was considered as one of the biggest takeovers after 96.  Indian pharma industry registered its first biggest in 2008 M&A deal through the acquisition of Japanese pharmaceutical company Daiichi Sankyo by Indian major Ranbaxy for $4.4 billion. The deal amounted to $2. 1956.  In November 2008 NTT DoCoMo.7 billion.  Laws governing M & A in India: Mergers and Acquisitions in India are governed by the Indian Companies Act. The total worth of the deal was $6-billion.  Tata Motors acquired Jaguar and Land Rover brands from Ford Motor in March 2008. the obligatory time frame for claimants can either be 210 days commencing from the filing of the notice or acknowledgment of the Commission's order. under Sections 391 to 394.  2009 saw the acquisition Asarco LLC by Sterlite Industries Ltd's for $1.  The Oil and Natural Gas Corp purchased Imperial Energy Plc in January 2009.  .  In May 2007. the Japan based telecom firm acquired 26% stake in Tata Teleservices for USD 2. The 10th largest in India. The deal amounted to $2.  Indian antagonism law permits the utmost time period of 210 days for the companies for going ahead with the process of merger or acquisition.HDFC Bank and Centurion Bank of Punjab.

There have been recent modifications in the Competition Act.  In case of “foreign company mergers”. Out of 106 nations which have formulated competition laws. the law strictly order them opt for de-merging of the business identity. either Indian or foreign. The entry limits are allocated in context of asset worth or in context of the company's annual incomes. the international earnings by an Indian firm would fall under the category of 'scope of income' for the Indian firm. To qualify the allocation. 2002.  . these mergers or de-mergers are required to full the requirements related to section 2(19AA) and section 2(1B) of the Indian Income Tax Act as per the pertinent state of affairs. a different set of guidelines are allotted.The entry limits for companies merging under the Indian law are considerably high. the firm. only 9 are acclaimed with a voluntary announcement system. qualifies for certain tax exemptions from the capital profits during the transfers of shares.   The Indian M&A laws also permit the combination of any Indian firm with its international counterparts. It has replaced the voluntary announcement system with a mandatory one. Voluntary announcement systems are often correlated with business ambiguities and if the companies are identified for practicing monopoly after merging. The entry limits in India are higher than the European Union and are twofold as compared to the United Kingdom.  As per the clauses mentioned under section 5(1) of the Indian Income Tax Act. Hence the share allocation in the targeted foreign business identity would be acknowledged as a transfer and would be chargeable under the Indian tax law.  Under the “Indian I-T tax Act”. Provisions under M & A laws in India: Provision for tax allowances for mergers or de-mergers between two business identities is allocated under the Indian Income tax Act. providing the cross-border firm has its set up in India. a situation where two foreign firms are merged and the new formed identity is owned by an Indian firm.

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  .  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.  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.  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. During this process a fraction of the firm may break up and establish itself as a new business identity.  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.out – The procedure of trading a small part of the firm as an Initial Public Offering is known as carve-out.  Macaroni Defense – Macaroni Defense is an approach that is implemented by the firms to protect them from any hostile subjugation.  Demerger or Spin off – Demerger refers to the practice of corporate reorganization.   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.  Carve .  Grey Knight – A firm that acquires another under ambiguous conditions or without any comprehensible intentions is known as a grey knight. A company can prevent itself by issuing bonds that can be exchanged at a higher price.  Black Knight – The term generally refers to the firm which takes over the target firm in a hostile manner.Important terminology related to M & A: 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.

organizations also go for mergers just to imitate others. Following could be the reasons behind the failure of mergers and acquisitions. . they do not introspect themselves. Why M & A fail? There could be several reasons behind the failure of mergers and acquisitions. Companies often go for mergers and acquisitions getting influenced by the booming stock market.  Failures in M & A: Despite the highest degree of strategy and planning and investments of hundreds of crores.takeover. who often have been the competitors. Before an organization can go for mergers and acquisitions. Many company look mergers and acquisitions as the solution to their problems. Flawed Intention Flawed intentions often become the main reason behind the failure of mergers and acquisitions. McKinsey also found that only 23% acquisitions ended in a positive note on investment. lawyers and other advisers who earn hefty fees from the clients. This practice is prevalent among the British and American firms. some of them are still against hostile subjugations. In all these cases. Let's find out why majority of the mergers and acquisitions fail. There are several explanations for failure of mergers and acquisitions. the outcome can be too encouraging. which in turn ensure the downturn of the organization. viz. The mismatch of culture leads to deterring working environment. However. Cultural Difference One of the major reasons behind the failure of mergers and acquisitions is the cultural difference between the organizations. the majority of the mergers and acquisitions cannot create a value and fail miserably. Michael Porter found that around 50% to 60% of the mergers and acquisitions ended in a failure. Management Buy Out – A management buy out refers to the process in which the management buys a firm in collaboration with its undertaking entrepreneurs. Both the parties. In 2004. buyer and seller need to do proper research and analysis before going for mergers and acquisitions. But before going for merger and acquisition. Sometimes. it needs to consider a lot. In 1987. the professor of Harvard. Often the ego of the executive can become the cause of unsuccessful merger. Top executives often tend to go for mergers under the influence of bankers. It often becomes very tough to integrate the cultures of two different companies.

mergers create synergies and economies of scale. stakeholders.Mergers can also happen due to generalized fear. de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. At least in theory. The incidents like technological advancement or change in economic scenario can make an organization to go for a change. By contrast. Following are those: Continuous communication is of utmost necessary across all levels – employees. How to prevent failure? Several initiatives can be undertaken in order to prevent the failure of mergers and acquisitions. managers often need to concentrate and invest time to the deal. As a result. they can win the trust of the employees and others and maintain a healthy environment. Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. Meanwhile. separating the public ownership of a subsidiary or business segment offers more advantages. Management must retain those talents. the work gets hampered. Additional capital can fund growth organically or through acquisition.  Conclusion: One size doesn't fit all. For others. Due to mergers. .  Managers have to be transparent and should always tell the truth.  During the merger process. they often get diverted from their work and start neglecting their core business. They need to be very patient in hearing the concerns of other people and employees. higher management professionals must be ready to greet a new or modified culture. By this way. Hence. suppliers and government leaders. expanding operations and cutting costs. investors benefit from the improved information flow from de-merged companies. Investors can take comfort in the idea that a merger will deliver enhanced market power. The employees may also get emotionally confused in the new environment after the merger. The organization may end up in going for a merger. customers.  Management need to identify the talents in both the organizations who may play major roles in the restructuring of the organization.

M&A comes in all shapes and sizes. The functions of synergy allow for the enhanced cost efficiency of a new entity made from two smaller ones .org/wiki/Mergers_and_acquisitions .such as the P/E and P/S ratios . An acquisition always involves the purchase of one company by another. and investors need to consider the complex issues involved in M&A. Break up or de-merger strategies can provide companies with opportunities to raise additional equity funds unlock hidden shareholder value and sharpen management focus.replacement cost or discounted cash flow analysis.asp 2.      References: 1. Some of these methods are based on comparative ratios .synergy is the logic behind mergers and acquisitions. carve-outs spinoffs or tracking stocks. the inability to overcome practical challenges and loss of revenue momentum from a neglect of dayto-day operations. An M&A deal can be executed by means of a cash transaction. De-mergers can occur by means of divestitures. http://www. Acquiring companies use various methods to value their targets. Summary:  A merger can happen when two companies decide to combine into one entity or when one company buys another. A transaction struck with stock is not taxable.wikipedia. Mergers can fail for many reasons including a lack of management foresight. stock-forstock transaction or a combination of both. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals.

com/finance/mergers-acquisitions/mergers-and- acquisitions.mapsofindia. http://business.html .3.

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