Mergers And Acquisitions

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Mergers And Acquisitions
MERGERS
&
ACQUISITION
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Contents
Chapters Page No.
Chapter 1. Introduction to Mergers and Acquisition. 2-5
Chapter 2. Purpose of merger and acquisition. 6-8
Chapter 3. Types of Mergers. -!"
Chapter 4. Ad#antages of mergers and ta$eo#ers. !!-!%
Chapter 5. Consideration of Merger and Ta$eo#er. !5-!
Chapter 6. &e#erse Merger. 2"-2%
Chapter 7. Procedure of Merger and Acquisition. 25-28
Chapter 8. '(y Mergers fai)*. 2-2
Chapter 10. Case +tudies.
GlaxoSmithlime the successful merger,
eutsche ! res"#er $a#% the merger that faile",
Sta#"Chart&Gri#"la's( )here Sta#"Chart ta%es o*er
Gri#"la's,
+ata&+etle'( the co#tro*ersial issue of success a#" failure.
,"-,8
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Introduction to Mergers and
Acquisition
,e ha*e -ee# lear#i#g a-out the compa#ies comi#g together to from a#other compa#' a#"
compa#ies ta%i#g o*er the existi#g compa#ies to expa#" their -usi#ess.
,ith recessio# ta%i#g toll of ma#' .#"ia# -usi#esses a#" the feeli#g of i#securit' surgi#g o*er
our -usi#essme#, it is #ot surprisi#g )he# )e hear a-out the imme#se #um-ers of corporate
restructuri#gs ta%i#g place, especiall' i# the last couple of 'ears. Se*eral compa#ies ha*e -ee# ta%e#
o*er a#" se*eral ha*e u#"ergo#e i#ter#al restructuri#g, )hereas certai# compa#ies i# the same fiel" of
-usi#ess ha*e fou#" it -e#eficial to merge together i#to o#e compa#'.
.# this co#text, it )oul" -e esse#tial for us to u#"ersta#" )hat corporate restructuri#g a#"
mergers a#" ac/uisitio#s are all a-out.
0ll our "ail' #e)spapers are fille" )ith cases of mergers, ac/uisitio#s, spi#&offs, te#"er offers, 1
other forms of corporate restructuri#g. +hus importa#t issues -oth for -usi#ess "ecisio# a#" pu-lic
polic' formulatio# ha*e -ee# raise". 2o firm is regar"e" safe from a ta%eo*er possi-ilit'. 3# the more
positi*e si"e 4ergers 1 0c/uisitio#5s ma' -e critical for the health' expa#sio# a#" gro)th of the firm.
Successful e#tr' i#to #e) pro"uct a#" geographical mar%ets ma' re/uire 4ergers 1 0c/uisitio#5s at
some stage i# the firm6s "e*elopme#t. Successful competitio# i# i#ter#atio#al mar%ets ma' "epe#" o#
capa-ilities o-tai#e" i# a timel' a#" efficie#t fashio# through 4ergers 1 0c/uisitio#6s. 4a#' ha*e
argue" that mergers i#crease *alue a#" efficie#c' a#" mo*e resources to their highest a#" -est uses,
there-' i#creasi#g sharehol"er *alue. .
+o opt for a merger or #ot is a complex affair, especiall' i# terms of the tech#icalities i#*ol*e".
,e ha*e "iscusse" almost all factors that the ma#ageme#t ma' ha*e to loo% i#to -efore goi#g for
merger. Co#si"era-le amou#t of -rai#stormi#g )oul" -e re/uire" -' the ma#ageme#ts to reach a
co#clusio#. e.g. a "ue "ilige#ce report )oul" clearl' i"e#tif' the status of the compa#' i# respect of the
fi#a#cial positio# alo#g )ith the #et)orth a#" pe#"i#g legal matters a#" "etails a-out *arious co#ti#ge#t
lia-ilities. ecisio# has to -e ta%e# after ha*i#g "iscusse" the pros 1 co#s of the propose" merger 1 the
impact of the same o# the -usi#ess, a"mi#istrati*e costs -e#efits, a""itio# to sharehol"ers6 *alue, tax
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implicatio#s i#clu"i#g stamp "ut' a#" last -ut #ot the least also o# the emplo'ees of the +ra#sferor or
+ra#sferee Compa#'.
Merger-
4erger is "efi#e" as com-i#atio# of t)o or more compa#ies i#to a si#gle compa#' )here o#e
sur*i*es a#" the others lose their corporate existe#ce. +he sur*i*or ac/uires all the assets as )ell as
lia-ilities of the merge" compa#' or compa#ies. Ge#erall', the sur*i*i#g compa#' is the -u'er, )hich
retai#s its i"e#tit', a#" the exti#guishe" compa#' is the seller.
4erger is also "efi#e" as amalgamatio#. 4erger is the fusio# of t)o or more existi#g compa#ies.
0ll assets, lia-ilities a#" the stoc% of o#e compa#' sta#" tra#sferre" to tra#sferee compa#' i#
co#si"eratio# of pa'me#t i# the form of(
7/uit' shares i# the tra#sferee compa#',
e-e#tures i# the tra#sferee compa#',
Cash, or
0 mix of the a-o*e mo"es.
Acquisition-
0c/uisitio# i# ge#eral se#se is ac/uiri#g the o)#ership i# the propert'. .# the co#text of -usi#ess
com-i#atio#s, a# ac/uisitio# is the purchase -' o#e compa#' of a co#trolli#g i#terest i# the share capital
of a#other existi#g compa#'.
Methods of Acquisition:
0# ac/uisitio# ma' -e affecte" -'
8a9 agreeme#t )ith the perso#s hol"i#g ma:orit' i#terest i# the compa#' ma#ageme#t li%e mem-ers
of the -oar" or ma:or sharehol"ers comma#"i#g ma:orit' of *oti#g po)er;
8-9 purchase of shares i# ope# mar%et;
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8c9 to ma%e ta%eo*er offer to the ge#eral -o"' of sharehol"ers;
8"9 purchase of #e) shares -' pri*ate treat';
8e9 0c/uisitio# of share capital through the follo)i#g forms of co#si"eratio#s *i<. mea#s of cash,
issua#ce of loa# capital, or i#sura#ce of share capital.
Ta$eo#er-
0 =ta%eo*er5 is ac/uisitio# a#" -oth the terms are use" i#tercha#gea-l'.
+a%eo*er "iffers from merger i# approach to -usi#ess com-i#atio#s i.e. the process of ta%eo*er,
tra#sactio# i#*ol*e" i# ta%eo*er, "etermi#atio# of share excha#ge or cash price a#" the fulfillme#t of
goals of com-i#atio# all are "iffere#t i# ta%eo*ers tha# i# mergers. >or example, process of ta%eo*er is
u#ilateral a#" the offeror compa#' "eci"es a-out the maximum price. +ime ta%e# i# completio# of
tra#sactio# is less i# ta%eo*er tha# i# mergers, top ma#ageme#t of the offeree compa#' -ei#g more co&
operati*e.
.e-merger or corporate sp)its or di#ision-
e&merger or split or "i*isio#s of a compa#' are the s'#o#'mous terms sig#if'i#g a mo*eme#t i#
the compa#'.
What will it take to succeed?
>u#"s are a# o-*ious re/uireme#t for )oul"&-e -u'ers. ?aisi#g them ma' #ot -e a pro-lem for
multi#atio#als a-le to tap resources at home, -ut for local compa#ies, fi#a#ce is li%el' to -e the si#gle
-iggest o-stacle to a# ac/uisitio#. >i#a#cial i#stitutio# i# some 0sia# mar%ets are -a##e" from lea"i#g
for ta%eo*ers, a#" "e-t mar%ets are small a#" illi/ui", "eterri#g i#*estors )ho fear that the' might #ot -e
a-le to sell their hol"i#gs at a later "ate. +he cre"it s/uee<es a#" the "epresse" state of ma#' 0sia#
e/uit' mar%ets ha*e o#l' ma"e a# alrea"' "ifficult situatio# )orse. >u#"s apart, a successful 4ergers 1
0c/uisitio# gro)th strateg' must -e supporte" -' three capa-ilities( "eep local #et)or%s, the a-ilities to
ma#age u#certai#t', a#" the s%ill to "isti#guish )orth)hile targets. Compa#ies that rush i# )ithout them
are li%el' to -e stum-le.
Assess target quality:
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+o sa' that a compa#' shoul" -e )orth the price a -u'er pa's is to state the o-*ious. $ut
assessi#g compa#ies i# 0sia ca# -e fraught )ith pro-lems, a#" se*eral "eals ha*e go#e -a"l' )ro#g
-ecause -u'ers faile" to "ig "eepl' e#ough. +he attractio# of %#oc%"o)# price tag ma' tempt
compa#ies to s%ip crucial chec%s. Co#ceale" high "e-t le*els a#" "eferre" co#ti#ge#t lia-ilities ha*e
resulte" i# large "eals "estro'i#g *alue. $ut i# other cases, )here -u'ers ha*e u#"erta%e# "etaile" "ue
"ilige#ce, the' ha*e -ee# a-le to #egotiate prices as lo) as half of the i#itial figure.
ue "ilige#ce ca# -e "ifficult -ecause "isclosure practices are poor a#" compa#ies ofte# lac% the
i#formatio# -u'er #ee". 4oreo*er, most 0sia# co#glomerates still "o #ot prese#t co#soli"ate" fi#a#cial
stateme#ts, lea*i#g the possi-ilities that the sales a#" the profit figures might -e -loate" -' tra#sactio#s
-et)ee# affiliate" compa#ies. +he fi#a#cial recor"s that are a*aila-le are ofte# u#relia-le, )ith "iffere#t
pro:ectio#s ma"e -' "iffere#t "epartme#ts )ithi# the same compa#', a#" "iffere#t pro:ectio#s ma"e for
"iffere#t au"ie#ces. $a#%s a#" i#*estors, #aturall', are li%el' to -e sho)# optimistic forecasts.

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Purpose of Mergers
and Acquisition
+he purpose for a# offeror compa#' for ac/uiri#g a#other compa#' shall -e reflecte" i# the
corporate o-:ecti*es. .t has to "eci"e the specific o-:ecti*es to -e achie*e" through ac/uisitio#. +he
-asic purpose of merger or -usi#ess com-i#atio# is to achie*e faster gro)th of the corporate -usi#ess.
>aster gro)th ma' -e ha" through pro"uct impro*eme#t a#" competiti*e positio#.
3ther possi-le purposes for ac/uisitio# are short liste" -elo)( &
/!0Procurement of supp)ies-
1. to safeguar" the source of supplies of ra) materials or i#terme"iar' pro"uct;
2. to o-tai# eco#omies of purchase i# the form of "iscou#t, sa*i#gs i# tra#sportatio# costs,
o*erhea" costs i# -u'i#g "epartme#t, etc.;
3. to share the -e#efits of suppliers eco#omies -' sta#"ar"i<i#g the materials.
/20&e#amping production faci)ities-
1. to achie*e eco#omies of scale -' amalgamati#g pro"uctio# facilities through more
i#te#si*e utili<atio# of pla#t a#" resources;
2. to sta#"ar"i<e pro"uct specificatio#s, impro*eme#t of /ualit' of pro"uct, expa#"i#g
3. mar%et a#" aimi#g at co#sumers satisfactio# through stre#gthe#i#g after sale
4. ser*ices;
5. to o-tai# impro*e" pro"uctio# tech#olog' a#" %#o)&ho) from the offeree compa#'
6. to re"uce cost, impro*e /ualit' a#" pro"uce competiti*e pro"ucts to retai# a#"
7. impro*e mar%et share.
/,0 Mar$et e1pansion and strategy-
1. to elimi#ate competitio# a#" protect existi#g mar%et;
2. to o-tai# a #e) mar%et outlets i# possessio# of the offeree;
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3. to o-tai# #e) pro"uct for "i*ersificatio# or su-stitutio# of existi#g pro"ucts a#" to e#ha#ce the
pro"uct ra#ge;
4. stre#gthe#i#g retai# outlets a#" sale the goo"s to ratio#ali<e "istri-utio#;
5. to re"uce a"*ertisi#g cost a#" impro*e pu-lic image of the offeree compa#';
6. strategic co#trol of pate#ts a#" cop'rights.
/%0 2inancia) strengt(-
1. to impro*e li/ui"it' a#" ha*e "irect access to cash resource;
2. to "ispose of surplus a#" out"ate" assets for cash out of com-i#e" e#terprise;
3. to e#ha#ce geari#g capacit', -orro) o# -etter stre#gth a#" the greater assets -ac%i#g;
4. to a*ail tax -e#efits;
5. to impro*e 7@S 87ar#i#g @er Share9.
/50 3enera) gains-
1. to impro*e its o)# image a#" attract superior ma#agerial tale#ts to ma#age its affairs;
2. to offer -etter satisfactio# to co#sumers or users of the pro"uct.
/60 45n de#e)opmenta) p)ans-
+he purpose of ac/uisitio# is -ac%e" -' the offeror compa#'5s o)# "e*elopme#tal pla#s.
0 compa#' thi#%s i# terms of ac/uiri#g the other compa#' o#l' )he# it has arri*e" at its o)#
"e*elopme#t pla# to expa#" its operatio# ha*i#g exami#e" its o)# i#ter#al stre#gth )here it
might #ot ha*e a#' pro-lem of taxatio#, accou#ti#g, *aluatio#, etc. -ut might feel resource
co#strai#ts )ith limitatio#s of fu#"s a#" lac% of s%ill ma#agerial perso##el5s. .t has to aim at
suita-le com-i#atio# )here it coul" ha*e opportu#ities to suppleme#t its fu#"s -' issua#ce of
securities, secure a""itio#al fi#a#cial facilities, elimi#ate competitio# a#" stre#gthe# its mar%et
positio#.
/60 +trategic purpose-
+he 0c/uirer Compa#' *ie) the merger to achie*e strategic o-:ecti*es through alter#ati*e t'pe
of com-i#atio#s )hich ma' -e hori<o#tal, *ertical, pro"uct expa#sio#, mar%et exte#sio#al or
other specifie" u#relate" o-:ecti*es "epe#"i#g upo# the corporate strategies. +hus, *arious t'pes
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of com-i#atio#s "isti#ct )ith each other i# #ature are a"opte" to pursue this o-:ecti*e li%e
*ertical or hori<o#tal com-i#atio#.
/80 Corporate friend)iness-
0lthough it is rare -ut it is true that -usi#ess houses exhi-it "egrees of cooperati*e spirit "espite
competiti*e#ess i# pro*i"i#g rescues to each other from hostile ta%eo*ers a#" culti*ate situatio#s
of colla-oratio#s shari#g goo")ill of each other to achie*e performa#ce heights through -usi#ess
com-i#atio#s. +he com-i#i#g corporates aim at circular com-i#atio#s -' pursui#g this o-:ecti*e.
/0 .esired )e#e) of integration-
4ergers a#" ac/uisitio# are pursue" to o-tai# the "esire" le*el of i#tegratio# -et)ee# the t)o
com-i#i#g -usi#ess houses. Such i#tegratio# coul" -e operatio#al or fi#a#cial. +his gi*es -irth to
co#glomerate com-i#atio#s. +he purpose a#" the re/uireme#ts of the offeror compa#' go a lo#g
)a' i# selecti#g a suita-le part#er for merger or ac/uisitio# i# -usi#ess com-i#atio#s.

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Types of ergers
4erger or ac/uisitio# "epe#"s upo# the purpose of the offeror compa#' it )a#ts to achie*e.
$ase" o# the offerors5 o-:ecti*es profile, com-i#atio#s coul" -e *ertical, hori<o#tal, circular a#"
co#glomeratic as precisel' "escri-e" -elo) )ith refere#ce to the purpose i# *ie) of the offeror
compa#'.
/A0 7ertica) com8ination-
0 compa#' )oul" li%e to ta%eo*er a#other compa#' or see% its merger )ith that compa#' to expa#"
espousi#g -ac%)ar" i#tegratio# to assimilate the resources of suppl' a#" for)ar" i#tegratio#
to)ar"s mar%et outlets. +he ac/uiri#g compa#' through merger of a#other u#it attempts o# re"uctio#
of i#*e#tories of ra) material a#" fi#ishe" goo"s, impleme#ts its pro"uctio# pla#s as per the
o-:ecti*es a#" eco#omi<es o# )or%i#g capital i#*estme#ts. .# other )or"s, i# *ertical com-i#atio#s,
the mergi#g u#"erta%i#g )oul" -e either a supplier or a -u'er usi#g its pro"uct as i#terme"iar'
material for fi#al pro"uctio#.
+he follo)i#g mai# -e#efits accrue from the *ertical com-i#atio# to the ac/uirer compa#' i.e.
819 it gai#s a stro#g positio# -ecause of imperfect mar%et of the i#terme"iar' pro"ucts, scarcit' of
resources a#" purchase" pro"ucts;
829 has co#trol o*er pro"ucts specificatio#s.
/90 :ori;onta) com8ination -
.t is a merger of t)o competi#g firms )hich are at the same stage of i#"ustrial process. +he
ac/uiri#g firm -elo#gs to the same i#"ustr' as the target compa#'. +he mail purpose of such mergers
is to o-tai# eco#omies of scale i# pro"uctio# -' elimi#ati#g "uplicatio# of facilities a#" the
operatio#s a#" -roa"e#i#g the pro"uct li#e, re"uctio# i# i#*estme#t i# )or%i#g capital, elimi#atio#
i# competitio# co#ce#tratio# i# pro"uct, re"uctio# i# a"*ertisi#g costs, i#crease i# mar%et segme#ts
a#" exercise -etter co#trol o# mar%et.
/C0 Circu)ar com8ination-
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Compa#ies pro"uci#g "isti#ct pro"ucts see% amalgamatio# to share commo# "istri-utio# a#"
research facilities to o-tai# eco#omies -' elimi#atio# of cost o# "uplicatio# a#" promoti#g mar%et
e#largeme#t. +he ac/uiri#g compa#' o-tai#s -e#efits i# the form of eco#omies of resource shari#g
a#" "i*ersificatio#.
/.0 Cong)omerate com8ination-
.t is amalgamatio# of t)o compa#ies e#gage" i# u#relate" i#"ustries li%e C4 a#" 4o"i .#"ustries.
+he -asic purpose of such amalgamatio#s remai#s utili<atio# of fi#a#cial resources a#" e#larges "e-t
capacit' through re&orga#i<i#g their fi#a#cial structure so as to ser*ice the sharehol"ers -' i#crease"
le*eragi#g a#" 7@S, lo)eri#g a*erage cost of capital a#" there-' raisi#g prese#t )orth of the
outsta#"i#g shares. 4erger e#ha#ces the o*erall sta-ilit' of the ac/uirer compa#' a#" creates
-ala#ce i# the compa#'5s total portfolio of "i*erse pro"ucts a#" pro"uctio# processes.

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Ad!antages of ergers
and takeo!ers
4ergers a#" ta%eo*ers are perma#e#t form of com-i#atio#s )hich *est i# ma#ageme#t complete
co#trol a#" pro*i"e ce#trali<e" a"mi#istratio# )hich are #ot a*aila-le i# com-i#atio#s of hol"i#g
compa#' a#" its partl' o)#e" su-si"iar'. Sharehol"ers i# the selli#g compa#' gai# from the merger a#"
ta%eo*ers as the premium offere" to i#"uce accepta#ce of the merger or ta%eo*er offers much more price
tha# the -oo% *alue of shares. Sharehol"ers i# the -u'i#g compa#' gai# i# the lo#g ru# )ith the gro)th
of the compa#' #ot o#l' "ue to s'#erg' -ut also "ue to A-oots trappi#g ear#i#gsB.
Moti!ations for ergers and acquisitions
4ergers a#" ac/uisitio#s are cause" )ith the support of sharehol"ers, ma#ager5s a" promoters of
the com-i#g compa#ies. +he factors, )hich moti*ate the sharehol"ers a#" ma#agers to le#" support to
these com-i#atio#s a#" the resulta#t co#se/ue#ces the' ha*e to -ear, are -riefl' #ote" -elo) -ase" o#
the research )or% -' *arious scholars glo-all'.
/!0 2rom t(e standpoint of s(are(o)ders
.#*estme#t ma"e -' sharehol"ers i# the compa#ies su-:ect to merger shoul" e#ha#ce i# *alue.
+he sale of shares from o#e compa#'5s sharehol"ers to a#other a#" hol"i#g i#*estme#t i# shares shoul"
gi*e rise to greater *alues i.e. the opportu#it' gai#s i# alter#ati*e i#*estme#ts. Sharehol"ers ma' gai#
from merger i# "iffere#t )a's *i<. from the gai#s a#" achie*eme#ts of the compa#' i.e. through
8a9 reali<atio# of mo#opol' profits;
8-9 eco#omies of scales;
8c9 "i*ersificatio# of pro"uct li#e;
8"9 ac/uisitio# of huma# assets a#" other resources #ot a*aila-le other)ise;
8e9 -etter i#*estme#t opportu#it' i# com-i#atio#s.
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3#e or more features )oul" ge#erall' -e a*aila-le i# each merger )here sharehol"ers ma' ha*e
attractio# a#" fa*our merger.
/20 2rom t(e standpoint of managers
4a#agers are co#cer#e" )ith impro*i#g operatio#s of the compa#', ma#agi#g the affairs of the
compa#' effecti*el' for all rou#" gai#s a#" gro)th of the compa#' )hich )ill pro*i"e them -etter "eals
i# raisi#g their status, per%s a#" fri#ge -e#efits. 4ergers )here all these thi#gs are the guara#tee"
outcome get support from the ma#agers. 0t the same time, )here ma#agers ha*e fear of "isplaceme#t at
the ha#"s of #e) ma#ageme#t i# amalgamate" compa#' a#" also resulta#t "epreciatio# from the merger
the# support from them -ecomes "ifficult.
/,0 Promoter<s gains
4ergers "o offer to compa#' promoters the a"*a#tage of i#creasi#g the si<e of their compa#'
a#" the fi#a#cial structure a#" stre#gth. +he' ca# co#*ert a closel' hel" a#" pri*ate limite" compa#'
i#to a pu-lic compa#' )ithout co#tri-uti#g much )ealth a#" )ithout losi#g co#trol.
/%0 9enefits to genera) pu8)ic
.mpact of mergers o# ge#eral pu-lic coul" -e *ie)e" as aspect of -e#efits a#" costs to(
8a9 Co#sumer of the pro"uct or ser*ices;
8-9 ,or%ers of the compa#ies u#"er com-i#atio#;
8c9 Ge#eral pu-lic affecte" i# ge#eral ha*i#g #ot -ee# user or co#sumer or the )or%er i#
the compa#ies u#"er merger pla#.
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/a0 Consumers
+he eco#omic gai#s reali<e" from mergers are passe" o# to co#sumers i# the form of
lo)er prices a#" -etter /ualit' of the pro"uct )hich "irectl' raise their sta#"ar" of li*i#g
a#" /ualit' of life. +he -ala#ce of -e#efits i# fa*our of co#sumers )ill "epe#" upo# the
fact )hether or #ot the mergers i#crease or "ecrease competiti*e eco#omic a#"
pro"ucti*e acti*it' )hich "irectl' affects the "egree of )elfare of the co#sumers through
cha#ges i# price le*el, /ualit' of pro"ucts, after sales ser*ice, etc.
/80 'or$ers community
+he merger or ac/uisitio# of a compa#' -' a co#glomerate or other ac/uiri#g compa#'
ma' ha*e the effect o# -oth the si"es of i#creasi#g the )elfare i# the form of purchasi#g
po)er a#" other miseries of life. +)o si"es of the impact as "iscusse" -' the researchers
a#" aca"emicia#s are( first)y= mergers )ith cash pa'me#t to sharehol"ers pro*i"e
opportu#ities for them to i#*est this mo#e' i# other compa#ies )hich )ill ge#erate
further emplo'me#t a#" gro)th to uplift of the eco#om' i# ge#eral. +econd)y= a#'
restrictio#s place" o# such mergers )ill "ecrease the gro)th a#" i#*estme#t acti*it' )ith
correspo#"i#g "ecrease i# emplo'me#t. $oth )or%ers a#" commu#ities )ill suffer o#
lesse#i#g :o- opportu#ities, pre*e#ti#g the "istri-utio# of -e#efits resulti#g from
"i*ersificatio# of pro"uctio# acti*it'.
/c0 3enera) pu8)ic
4ergers result i#to ce#trali<e" co#ce#tratio# of po)er. 7co#omic po)er is to -e
u#"erstoo" as the a-ilit' to co#trol prices a#" i#"ustries output as mo#opolists. Such
mo#opolists affect social a#" political e#*iro#me#t to tilt e*er'thi#g i# their fa*our to
mai#tai# their po)er a" expa#" their -usi#ess empire. +hese a"*a#ces result i#to
eco#omic exploitatio#. $ut i# a free eco#om' a mo#opolist "oes #ot sta' for a lo#ger
perio" as other compa#ies e#ter i#to the fiel" to reap the -e#efits of higher prices set i#
-' the mo#opolist. +his e#forces competitio# i# the mar%et as co#sumers are free to
su-stitute the alter#ati*e pro"ucts. +herefore, it is "ifficult to ge#erali<e that mergers
affect the )elfare of ge#eral pu-lic a"*ersel' or fa*ora-l'. 7*er' merger of t)o or more
compa#ies has to -e *ie)e" from "iffere#t a#gles i# the -usi#ess practices )hich protects
the i#terest of the sharehol"ers i# the mergi#g compa#' a#" also ser*es the #atio#al
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Mergers And Acquisitions
purpose to a"" to the )elfare of the emplo'ees, co#sumers a#" "oes #ot create hi#"ra#ce
i# a"mi#istratio# of the Go*er#me#t polices.

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Mergers And Acquisitions
Consideration of
Merger and Takeo!er
4ergers a#" ta%eo*ers are t)o "iffere#t approaches to -usi#ess com-i#atio#s. 4ergers are
pursue" u#"er the Compa#ies 0ct, 1C56 vide sectio#s 3C1D3C4 thereof or ma' -e e#*isage" u#"er the
pro*isio#s of .#come&tax 0ct, 1C61 or arra#ge" through $.>? u#"er the Sic% .#"ustrial Compa#ies 0ct,
1C85 )hereas, ta%eo*ers fall solel' u#"er the regulator' frame)or% of the S7$. ?egulatio#s, 1CC7.
Minority shareholders rights
S7$. regulatio#s "o #ot pro*i"e i#sight i# the e*e#t of mi#orit' sharehol"ers #ot agreei#g to the
ta%eo*er offer. Eo)e*er sectio# 3C5 of the Compa#ies 0ct, 1C56 pro*i"es for the ac/uisitio# of shares
of the sharehol"ers. 0ccor"i#g to sectio# 3C5 of the Compa#ies 0ct, if the offerer has ac/uire" at least
C0F i# *alue of those shares ma' gi*e #otice to the #o#&accepti#g sharehol"ers of the i#te#tio# of
-u'i#g their shares. +he C0F accepta#ce le*el shall #ot i#clu"e the share hel" -' the offerer or it5s
associates. +he proce"ure lai" "o)# i# this sectio# is -riefl' #ote" -elo).
1. .# or"er to -u' the shares of #o#&accepti#g sharehol"ers the offerer must ha*e reache" the C0F
accepta#ce le*el )ithi# 4 mo#ths of the "ate of the offer, a#" #otice must ha*e -ee# ser*e" o#
those sharehol"ers )ithi# 2 mo#ths of reachi#g the C0F le*el.
2. +he #otice to the #o#&accepti#g sharehol"ers must -e i# a prescri-e" ma##er. 0 cop' of a #otice
a#" a statutor' "eclaratio# -' the offerer 8or, if the offerer is a compa#', -' a "irector9 i# the
prescri-e" form co#firmi#g that the co#"itio#s for gi*i#g the #otice ha*e -ee# satisfie" must -e
se#t to the target.
3. 3#ce the #otice has -ee# gi*e#, the offerer is e#title" a#" -ou#" to ac/uire the outsta#"i#g
shares o# the terms of the offer.
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5
Mergers And Acquisitions
4. .f the terms of the offer gi*e the sharehol"ers a choice of co#si"eratio#, the #otice must gi*e
particulars of optio#s a*aila-le a#" i#form the sharehol"ers that he has six )ee%s from the "ate
of the #otice to i#"icate his choice of co#si"eratio# i# )riti#g.
5. 0t the e#" of the six )ee%s from the "ate of the #otice to the #o#&accepti#g sharehol"ers the
offerer must imme"iatel' se#" a cop' of #otice to the target a#" pa' or tra#sfer to the target the
co#si"eratio# for all the shares to )hich the #otice relates. Stoc% tra#sfer forms execute" o#
-ehalf of the #o#&accepti#g sharehol"ers -' a perso# appoi#te" -' the offerer must also -e se#t.
3#ce the compa#' has recei*e" stoc% tra#sfer forms it must register the offerer as the hol"er of
the shares.
6. +he co#si"eratio# mo#e', )hich is recei*e" -' the target, shoul" -e hel" o# trust for the perso#
e#title" to shares i# respect of )hich the sum )as recei*e".
7. 0lter#ati*el', if the offerer "oes #ot )ish to -u' the #o#&accepti#g sharehol"er5s shares, it must
still )ithi# o#e mo#th of compa#' reachi#g the C0F accepta#ce le*el gi*e such sharehol"ers
#otice i# the prescri-e" ma##er of the rights that are exercisa-le -' them to re/uire the offerer to
ac/uire their shares. +he #otice must state that the offer is still ope# for accepta#ce a#" specif' a
"ate after )hich the right ma' #ot -e exercise", )hich ma' #ot -e less tha# 3 mo#ths from the
e#" of the time )ithi# )hich the offer ca# -e accepte". .f the offerer fails to se#" such #otice it
8a#" it5s officers )ho are i# "efault9 are lia-le to a fi#e u#less it or the' too% all reaso#a-le steps
to secure complia#ce.
8. .f the sharehol"er exercises his rights to re/uire the offerer to purchase his shares the offerer is
e#title" a#" -ou#" to "o so o# the terms of the offer or o# such other terms as ma' -e agree". .f a
choice of co#si"eratio# )as origi#all' offere", the sharehol"er ma' i#"icate his choice )he#
re/uiri#g the offerer to ac/uire his shares. +he #otice gi*e# to sharehol"er )ill specif' the choice
of co#si"eratio# a#" )hich co#si"eratio# shoul" appl' i# "efault of a# electio#.
C. 3# applicatio# ma"e -' a# happ' sharehol"er )ithi# six )ee%s from the "ate o# )hich the
origi#al #otice )as gi*e#, the court ma' ma%e a# or"er pre*e#ti#g the offerer from ac/uiri#g the
shares or a# or"er specif'i#g terms of ac/uisitio# "ifferi#g from those of the offer or ma%e a#
or"er setti#g out the terms o# )hich the shares must -e ac/uire".
.# certai# circumsta#ces, )here the ta%eo*er offer has #ot -ee# accepte" -' the re/uire" C0F i#
*alue of the share to )hich offer relates the court ma', o# applicatio# of the offerer, ma%e a# or"er
- 18
Mergers And Acquisitions
authori<i#g it to gi*e #otice u#"er the Compa#ies 0ct, 1C85, sectio# 42C. .t )ill "o this if it is satisfie"
that(
a. the offerer has after reaso#a-le e#/uir' -ee# u#a-le to trace o#e or more sharehol"ers to )hom
the offer relates;
-. the shares )hich the offerer has ac/uire" or co#tracte" to ac/uire -' *irtue of accepta#ce of the
offerer, together )ith the shares hel" -' u#tracea-le sharehol"ers, amou#t to #ot less tha# C0F i#
*alue of the shares su-:ect to the offer; a#"
c. the co#si"eratio# offere" is fair a#" reaso#a-le.
+he court )ill #ot ma%e such a# or"er u#less it co#si"ers that it is :ust a#" e/uita-le to "o so,
ha*i#g regar", i# particular, to the #um-er of sharehol"er )ho has -ee# trace" )ho "i" accept the offer.
Alternati!e odes of acquisition
+he terms use" i# -usi#ess com-i#atio#s carr' ge#erall' s'#o#'mous co##otatio#s a#" ca# -e
use" i#tercha#gea-l'. 0ll the "iffere#t terms carr' o#e si#gle mea#i#g of AmergerB -ut each term ca##ot
-e gi*e# e/ual treatme#t i# the "iscussio# -ecause la) has create" a "i*i"i#g li#e -et)ee# =ta%e&o*er5
a#" ac/uisitio#s -' )a' of merger, amalgamatio# or reco#structio#. @articularl' the ta%eo*er
?egulatio#s for su-sta#tial ac/uisitio# of shares a#" ta%eo*ers %#o)# as S7$. 8Su-sta#tial 0c/uisitio#
of Shares a#" +a%eo*ers9 ?egulatio#s, 1CC7 *i"e sectio# 3 exclu"es a#' attempt of merger "o#e -' )a'
of a#' o#e or more of the follo)i#g mo"es(
8a9 -' allotme#t i# pursua#t of a# applicatio# ma"e -' the sharehol"ers for right issue a#" u#"er
a pu-lic issue;
8-9 prefere#tial allotme#t ma"e i# pursua#ce of a resolutio# passe" u#"er sectio# 818109 of the
Compa#ies 0ct, 1C56;
8c9 allotme#t to the u#"er)riters pursua#t to u#"er)riters agreeme#ts;
8"9 i#ter&se&tra#sfer of shares amo#gst group, compa#ies, relati*es, .#"ia# promoters a#" >oreig#
colla-orators )ho are sharehol"ersDpromoters;
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Mergers And Acquisitions
8e9 ac/uisitio# of shares i# the or"i#ar' course of -usi#ess, -' registere" stoc% -ro%ers, pu-lic
fi#a#cial i#stitutio#s a#" -a#%s o# o)# accou#t or as ple"ges;
8f9 ac/uisitio# of shares -' )a' of tra#smissio# o# successio# or i#herita#ce;
8g9 ac/uisitio# of shares -' go*er#me#t compa#ies a#" statutor' corporatio#s;
8h9 tra#sfer of shares from state le*el fi#a#cial i#stitutio#s to co&promoters i# pursua#ce to
agreeme#ts -et)ee# them;
8i9 ac/uisitio# of shares i# pursua#ce to reha-ilitatio# schemes u#"er Sic% .#"ustrial Compa#ies
8Special @ro*isio#s9 0ct, 1C85 or schemes of arra#geme#ts, mergers, amalgamatio#, e&
merger, etc. u#"er the Compa#ies 0ct, 1C56 or a#' other la) or regulatio#, .#"ia# or >oreig#;
8:9 ac/uisitio# of shares of compa#' )hose shares are #ot liste" o# a#' stoc% excha#ge.
Eo)e*er, this exemptio# i# #ot a*aila-le if the sai" ac/uisitio# results i#to co#trol of a liste"
compa#';
8%9 such other cases as ma' -e exempte" from the applica-ilit' of Chapter ... of S7$.
regulatio#s -' S7$..
+he -asic logic -ehi#" su-sta#tial "isclosure of ta%eo*er of a compa#' through ac/uisitio# of
shares is that the commo# i#*estors a#" sharehol"ers shoul" -e ma"e a)are of the larger fi#a#cial sta%e
i# the compa#' of the perso# )ho is ac/uiri#g such compa#'5s shares. +he mai# o-:ecti*e of these
?egulatio#s is to pro*i"e greater tra#spare#c' i# the ac/uisitio# of shares a#" the ta%eo*ers of
compa#ies through a s'stem of "isclosure of i#formatio#.
"scrow account
+o e#sure that the ac/uirer shall pa' the sharehol"ers the agree" amou#t i# re"emptio# of his
promise to ac/uire their shares, it is a ma#"ator' re/uireme#t to ope# escro) accou#t a#" "eposit therei#
the re/uire" amou#t, )hich )ill ser*e as securit' for performa#ce of o-ligatio#.
+he 7scro) amou#t shall -e calculate" as per the ma##er lai" "o)# i# regulatio# 28829.
0ccor"i#gl'(
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Mergers And Acquisitions
>or offers )hich are su-:ect to a mi#imum le*el of accepta#ce, a#" the ac/uirer "oes )a#t to
ac/uire a mi#imum of 20F, the# 50F of the co#si"eratio# pa'a-le u#"er the pu-lic offer i# cash shall
-e "eposite" i# the 7scro) accou#t.
Payent of consideration
Co#si"eratio# ma' -e pa'a-le i# cash or -' excha#ge of securities. ,here it is pa'a-le i# cash
the ac/uirer is re/uire" to pa' the amou#t of co#si"eratio# )ithi# 21 "a's from the "ate of closure of the
offer. >or this purpose he is re/uire" to ope# special accou#t )ith the -a#%ers to a# issue 8registere" )ith
S7$.9 a#" "eposit therei# C0F of the amou#t l'i#g i# the 7scro) 0ccou#t, if a#'. Ee shoul" ma%e the
e#tire amou#t "ue a#" pa'a-le to sharehol"ers as co#si"eratio#. Ee ca# tra#sfer the fu#"s from 7scro)
accou#t for such pa'me#t. ,here the co#si"eratio# is pa'a-le i# excha#ge of securities, the ac/uirer
shall e#sure that securities are actuall' issue" a#" "ispatche" to sharehol"ers i# terms of regulatio# 2C of
S7$. +a%eo*er ?egulatio#s.

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Mergers And Acquisitions
#e!erse Merger
Ge#erall', a compa#' )ith the trac% recor" shoul" ha*e a less profit ear#i#g or loss ma%i#g -ut
*ia-le compa#' amalgamate" )ith it to ha*e -e#efits of eco#omies of scale of pro"uctio# a#" mar%eti#g
#et)or%, etc. 0s a co#se/ue#ce of this merger the profit ear#i#g compa#' sur*i*es a#" the loss ma%i#g
compa#' exti#guishes its existe#ce. $ut i# ma#' cases, the sic% compa#'5s sur*i*al -ecomes more
importa#t for ma#' strategic reaso#s a#" to co#ser*e commu#it' i#terest. +he la) pro*i"es
e#courageme#t through tax relief for the compa#ies that are profita-le -ut get merge" )ith the loss
ma%i#g compa#ies. .#fact this t'pe of merger is #ot a #ormal or a routi#e merger. .t is, therefore, calle"
as a &e#erse Merger.
+he allureme#t for such mergers is the tax sa*i#gs u#"er the .#come&tax 0ct, 1C61. Sectio# 720
of the 0ct e#sures the tax relief )hich -ecomes attracti*e for amalgamatio#s of sic% compa#' )ith a
health' a#" profita-le compa#' to ta%e the a"*a#tage of carr' for)ar" losses. +a%i#g a"*a#tage of the
pro*isio#s of sectio# 720 through merger or amalgamatio# is %#o)# as re*erse merger, )hich gi*es
sur*i*al to the sic% u#it -' mergi#g it )ith the health' u#it. +he health' u#it exti#cts loosi#g its #ame
a#" the sur*i*i#g sic% compa#' retai#s its #ame. Compa#ies to ta%e a"*a#tage of the sectio# follo) this
route -ut after a 'ear or so cha#ge their #ames to the o#e of the health' compa#' as )ere "o#e amo#gst
others -' Girlos%ar @#eumatics Ht". +he compa#' merge" )ith Girlos%ar +ractors Ht", a sic% u#it a#"
i#itiall' lost its #ame -ut after o#e 'ear it cha#ge" its #ame as )as prior to merger.
&e#erse Merger under Ta1 >a5s
Sectio# 720 of the .#come&tax 0ct, 1C61 is mea#t to facilitate re:u*e#atio# of sic% i#"ustrial
u#"erta%i#g -' mergi#g )ith healthier i#"ustrial compa#ies ha*i#g i#ce#ti*e i# the form of tax sa*i#gs
"esig#e" )ith the sole i#te#tio# to -e#efit the ge#eral pu-lic through co#ti#ue" pro"ucti*e acti*it',
i#crease" emplo'me#t a*e#ues a#" ge#eratio# of re*e#ue.
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Mergers And Acquisitions
/!0 9ac$ground
I#"er the existi#g pro*isio#s of the .#come&tax 0ct, so much of the -usi#ess loss of a 'ear as
ca##ot -e set off -' him agai#st the profits of the follo)i#g 'ear from a#' -usi#ess carrie" o# -' him. .f
the loss ca##ot -e so )holl' set off, the amou#t #ot so set off ca# -e carrie" for)ar" to the #ext
follo)i#g 'ear a#" so o#, up to a maximum of eight assessme#t 'ears imme"iatel' succee"i#g the
assessme#t 'ear for )hich the loss )as first compute". +he -e#efit of carr' for)ar" a#" set off of
-usi#ess loss is, ho)e*er, #ot a*aila-le u#less the -usi#ess i# )hich the loss )as origi#all' sustai#e" is
co#ti#ue" to -e carrie" o# -' the assessee. >urther, o#l' the assessee )ho i#curre" the loss -' his
pre"ecessor. Similarl', if a -usi#ess carrie" o# o#e assessee is ta%e# o*er -' a#other, the u#a-sor-e"
"epreciatio# allo)a#ce "ue to the pre"ecessor i# -usi#ess a#" set off agai#st his profits i# su-se/ue#t
'ears. .# *ie) of these pro*isio#s, the accumulate" -usi#ess loss a#" u#a-sor-e" "epreciatio# allo)a#ce
of a compa#' )hich merges )ith a#other compa#' u#"er a scheme of amalgamatio# ca##ot -e carrie"
for)ar" a#" set off -' the latter compa#' agai#st its profits.
+he *er' purpose of sectio# 720 is to re*i*e the -usi#ess of a# u#"erta%i#g, )hich is fi#a#ciall'
#o#&*ia-le a#" to -ri#g it -ac% to health. Sic%#ess amo#g i#"ustrial u#"erta%i#gs is a matter of gra*e
#atio#al co#cer#. 7xperie#ce has sho)# that ta%i#g o*er of such u#its -' Go*er#me#t is #ot al)a's the
most satisfactor' or the most eco#omical solutio#. +he more effecti*e course suggeste" )as to facilitate
the amalgamatio# of sic% i#"ustrial u#its )ith sou#" o#es -' pro*i"i#g i#ce#ti*es a#" remo*i#g
impe"ime#ts i# the )a' of such amalgamatio#. +o sa*e the Go*er#me#t from social costs i# terms of
loss of pro"uctio# a#" emplo'me#t a#" to relie*e the Go*er#me#t of the u#eco#omical -ur"e# of ta%i#g
o*er a#" ru##i#g sic% i#"ustrial u#its is o#e of the moti*ati#g factors i# i#tro"uci#g sectio# 720. +o
achie*e this o-:ecti*e so as to facilitate the merger of sic% i#"ustrial u#its )ith sou#" o#e, the ge#eral
rule of carr' for)ar" a#" set off of accumulate" losses a#" u#a-sor-e" "epreciatio# allo)a#ce of
amalgamati#g compa#' -' the amalgamate" compa#' )as statutoril' relate". $' a "eemi#g fictio#, the
accumulate" loss or the u#a-sor-e" "epreciatio# of the amalgamati#g is treate" to -e the loss or, as the
case ma' -e, allo)a#ce for "epreciatio# of the amalgamate" compa#' for the pre*ious 'ear i# )hich
amalgamatio# )as effecte".
+here are three statutor' co#"itio#s )hich are to -e fulfille" u#"er sectio# 720819 for the
-e#efits prescri-e" therei# to -e a*aila-le to the amalgamate" compa#', #amel' !
8i9 +he amalgamati#g compa#' )as, imme"iatel' -efore such amalgamatio#, fi#a#ciall' #o#&*ia-le
-' reaso# of its lia-ilities, losses a#" other rele*a#t factors;
8ii9 +he amalgamatio# is i# the pu-lic i#terest;
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Mergers And Acquisitions
8iii9 Such other co#"itio#s as the Ce#tral Go*er#me#t ma' -' #otificatio# i# the 3fficial Ga<ette,
specif', to e#sure that the -e#efit u#"er this sectio# is restricte" to amalgamatio#, )hich )oul"
facilitate the reha-ilitatio# or re*i*al of the -usi#ess of amalgamati#g compa#'.
/20 &e#erse merger
0s it ca# -e #o) u#"erstoo", a re*erse merger is a metho" a"opte" to a*oi" the stri#ge#t
pro*isio#s of Sectio# 720 -ut still -e a-le to claim all the losses of the sic% u#it. >or "oi#g so, i# case of
a re*erse merger, i#stea" of a health' u#it ta%i#g o*er a sic% u#it, the sic% u#it ta%es o*erD amalgamates
)ith the health' u#it.
Eigh Court "iscusse" 3 tests for re*erse merger(
a. assets of tra#sferor compa#' -ei#g greater tha# tra#sferee compa#';
-. e/uit' capital to -e issue" -' the tra#sferee compa#' pursua#t to the ac/uisitio#
excee"i#g its origi#al issue" capital, a#"
c. the cha#ge of co#trol i# the tra#sferee compa#' clearl' i#"icate" that the prese#t
arra#geme#t )as a# arra#geme#t, )hich )as a t'pical illustratio# of ta%eo*er -' re*erse
-i".
Court hel" that prime facie the scheme of mergi#g a prosperous u#it )ith a sic% u#it coul" #ot -e
sai" to -e offe#"i#g the pro*isio#s of sectio# 720 of the .#come +ax 0ct, 1C61 si#ce the o-:ect
u#"erl'i#g this pro*isio# )as to facilitate the merger of sic% i#"ustrial u#it )ith a sou#" o#e.
/,0 +a)ient features of re#erse merger under section 62A
1. 0malgamatio# shoul" -e -et)ee# compa#ies a#" #o#e of them shoul" -e a firm of part#ers or
sole&proprietor. .# other )or"s, part#ership firm or sole&proprietar' co#cer#s ca##ot get the
-e#efit of tax relief u#"er sectio# 720 merger.
2. +he compa#ies e#teri#g i#to amalgamatio# shoul" -e e#gage" i# either i#"ustrial acti*it' or
shippi#g -usi#ess. .# other )or"s, the tax relief u#"er sectio# 720 )oul" #ot -e ma"e
a*aila-le to compa#ies e#gage" i# tra"i#g acti*ities or ser*ices.
3. 0fter amalgamatio# the Asic%B or Afi#a#ciall' u#*ia-le compa#'B shall sur*i*e a#" other
i#come ge#erati#g compa#' shall exti#ct. .# other )or"s esse#tial co#"itio# to -e fulfille" is
- 24
Mergers And Acquisitions
that the ac/uiri#g compa#' )ill -e a-le to re*i*e or reha-ilitate ha*i#g co#sume" the health'
compa#'.
4. 3#e of the merger part#er shoul" -e fi#a#ciall' u#*ia-le a#" ha*e accumulate" losses to
/ualif' for the merger a#" the other merger part#er shoul" -e profit ear#i#g so that tax relief to
the maximum exte#t coul" -e ha". .# other )or"s the compa#' )hich is fi#a#ciall' u#*ia-le
shoul" -e tech#icall' sou#" a#" feasi-le, commerciall' a#" eco#omicall' *ia-le -ut
fi#a#ciall' )ea% -ecause of fi#a#cial stri#ge#c' or lac% of fi#a#cial recourses or its lia-ilities
ha*e excee"e" its assets a#" is o# the -ri#% of i#sol*e#c'. +he seco#" re/uisite /ualificatio#
associate" )ith fi#a#cial u#a*aila-ilit' is the accumulatio# of losses for past fe) 'ears.
5. 0malgamatio# shoul" -e i# the pu-lic i#terest i.e. it shoul" #ot -e agai#st pu-lic polic', shoul"
#ot "efeat -asic te#ets of la), a#" must safeguar" the i#terest of emplo'ees, co#sumers,
cre"itors, customers a#" sharehol"ers apart from promoters of compa#' through the re*i*al of
the compa#'.
6. +he merger must result i#to follo)i#g -e#efit to the amalgamate" compa#' i.e. (a) carr'
for)ar" of accumulate" -usi#ess loses of the amalgamate" compa#'; (b) carr' for)ar" of
u#a-sor-e" "epreciatio# of the amalgamati#g compa#' a#" (c) accumulate" loss )oul" -e
allo)e" to -e carrie" for)ar" set of for eight su-se/ue#t 'ears.
7. 0ccumulate" loss shoul" arise from A@rofits a#" Gai#s from -usi#ess or professio#B a#" #ot
-e loss u#"er the hea" ACapital Gai#sB or ASpeculatio#B.
8. >or /ualif'i#g carr' for)ar" loss, the pro*isio#s of sectio# 72 shoul" ha*e #ot -ee#
co#tra*e#e".
C. Similarl' for carr' for)ar" of u#a-sor-e" "epreciatio# the co#"itio#s of sectio# 32 shoul" #ot
ha*e -ee# *iolate".
10. Specifie" authorit' has to -e satisfie" of the eligi-ilit' of the compa#' for the relief u#"er
sectio# 72 of the .#come +ax 0ct. .t is o#l' o# the recomme#"atio#s of the specifie" authorit'
that Ce#tral Go*er#me#t ma' allo) the relief.
- 25
Mergers And Acquisitions
11. +he compa#' shoul" ma%e a# applicatio# to a Aspecifie" authorit'B for re/uisite
recomme#"atio# of the case to the Ce#tral Go*er#me#t for gra#ti#g or allo)i#g the relief.
12. @roce"ure for merger or amalgamatio# to -e follo)e" i# such cases is same as i# a#' other
cases. Specifie" 0uthorit' ma%es recomme#"atio# after ta%i#g i#to co#si"eratio# the court5s
"irectio# o# scheme of amalgamatio#.

- 26
Mergers And Acquisitions
Procedure for
Takeo!er
and Acquisition
Pu$lic announceent%
+o ma%e a pu-lic a##ou#ceme#t a# ac/uirer shall follo) the follo)i#g proce"ure(
!. Appointment of merc(ant 8an$er-
+he ac/uirer shall appoi#t a mercha#t -a#%er registere" as categor' ! . )ith S7$. to a"*ise him
o# the ac/uisitio# a#" to ma%e a pu-lic a##ou#ceme#t of offer o# his -ehalf.
2. ?se of media for announcement-
@u-lic a##ou#ceme#t shall -e ma"e at least i# o#e #atio#al 7#glish "ail' o#e Ei#"i "ail' a#"
o#e regio#al la#guage "ail' #e)spaper of that place )here the shares of that compa#' are liste" a#"
tra"e".
,. Timings of announcement-
@u-lic a##ou#ceme#t shoul" -e ma"e )ithi# four "a's of fi#ali<atio# of #egotiatio#s or e#teri#g
i#to a#' agreeme#t or memora#"um of u#"ersta#"i#g to ac/uire the shares or the *oti#g rights.
- 27
Chapte
r
7
Mergers And Acquisitions
%. Contents of announcement-
@u-lic a##ou#ceme#t of offer is ma#"ator' as re/uire" u#"er the S7$. ?egulatio#s. +herefore,
it is re/uire" that it shoul" -e prepare" sho)i#g therei# the follo)i#g i#formatio#(
819 pai" up share capital of the target compa#', the #um-er of full' pai" up a#" partiall'
pai" up shares.
829 +otal #um-er a#" perce#tage of shares propose" to -e ac/uire" from pu-lic su-:ect
to mi#imum as specifie" i# the su-&regulatio# 819 of ?egulatio# 21 that is(
a9 +he pu-lic offer of mi#imum 20F of *oti#g capital of the compa#' to the
sharehol"ers;
-9 +he pu-lic offer -' a rai"er shall #ot -e less tha# 10F -ut more tha# 51F of
shares of *oti#g rights. 0""itio#al shares ca# -e ha" J 2F of *oti#g rights i# a#'
'ear.
839 +he mi#imum offer price for each full' pai" up or partl' pai" up share;
849 4o"e of pa'me#t of co#si"eratio#;
859 +he i"e#tit' of the ac/uirer a#" i# case the ac/uirer is a compa#', the i"e#tit' of the
promoters a#", or the perso#s ha*i#g co#trol o*er such compa#' a#" the group, if
a#', to )hich the compa#' -elo#g;
869 +he existi#g hol"i#g, if a#', of the ac/uirer i# the shares of the target compa#',
i#clu"i#g hol"i#g of perso#s acti#g i# co#cert )ith him;
879 Salie#t features of the agreeme#t, if a#', such as the "ate, the #ame of the seller, the
price at )hich the shares are -ei#g ac/uire", the ma##er of pa'me#t of the
co#si"eratio# a#" the #um-er a#" perce#tage of shares i# respect of )hich the
ac/uirer has e#tere" i#to the agreeme#t to ac/uirer the shares or the co#si"eratio#,
mo#etar' or other)ise, for the ac/uisitio# of co#trol o*er the target compa#', as the
case ma' -e;
- 28
Mergers And Acquisitions
889 +he highest a#" the a*erage pai" -' the ac/uirer or perso#s acti#g i# co#cert )ith
him for ac/uisitio#, if a#', of shares of the target compa#' ma"e -' him "uri#g the
t)el*e mo#th perio" prior to the "ate of the pu-lic a##ou#ceme#t;
8C9 3-:ects a#" purpose of the ac/uisitio# of the shares a#" the future pla#s of the
ac/uirer for the target compa#', i#clu"i#g "isclosers )hether the ac/uirer proposes to
"ispose of or other)ise e#cum-er a#' assets of the target compa#'(
@ro*i"e" that )here the future pla#s are set out, the pu-lic a##ou#ceme#t shall
also set out ho) the ac/uirers propose to impleme#t such future pla#s;
8109 +he =specifie" "ate5 as me#tio#e" i# regulatio# 1C;
8119 +he "ate -' )hich i#"i*i"ual letters of offer )oul" -e poste" to each of the
sharehol"ers;
8129 +he "ate of ope#i#g a#" closure of the offer a#" the ma##er i# )hich a#" the "ate -'
)hich the accepta#ce or re:ectio# of the offer )oul" -e commu#icate" to the share
hol"ers;
8139 +he "ate -' )hich the pa'me#t of co#si"eratio# )oul" -e ma"e for the shares i#
respect of )hich the offer has -ee# accepte";
8149 isclosure to the effect that firm arra#geme#t for fi#a#cial resources re/uire" to
impleme#t the offer is alrea"' i# place, i#clu"i#g the "etails regar"i#g the sources of
the fu#"s )hether "omestic i.e. from -a#%s, fi#a#cial i#stitutio#s, or other)ise or
foreig# i.e. from 2o#&resi"e#t .#"ia#s or other)ise;
8159 @ro*isio# for accepta#ce of the offer -' perso# )ho o)# the shares -ut are #ot the
registere" hol"ers of such shares;
8169 Statutor' appro*als re/uire" to o-tai#e" for the purpose of ac/uiri#g the shares u#"er
the Compa#ies 0ct, 1C56, the 4o#opolies a#" ?estricti*e +ra"e @ractices 0ct, 1C73,
a#"Dor a#' other applica-le la)s;
8179 0ppro*als of -a#%s or fi#a#cial i#stitutio#s re/uire", if a#';
- 29
Mergers And Acquisitions
8189 ,hether the offer is su-:ect to a mi#imum le*el of accepta#ces from the
sharehol"ers; a#"
81C9 Such other i#formatio# as is esse#tial fort the sharehol"ers to ma%e a# i#forme"
"esig# i# regar" to the offer.

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Mergers And Acquisitions
Why Mergers fail?
Why Mergers &ail?
?e*e#ue "eser*es more atte#tio# i# mergers; i#"ee", a failure to focus o# this importa#t factor ma'
explai# )h' so ma#' mergers "o#5t pa' off. +oo ma#' compa#ies lose their re*e#ue mome#tum as the'
co#ce#trate o# cost s'#ergies or fail to focus o# post merger gro)th i# a s'stematic ma##er. Ket i# the
e#", halte" gro)th hurts the mar%et performa#ce of a compa#' far more tha# "oes a failure to #ail costs.

- 31
Chapte
r
8
Mergers And Acquisitions
Case 'tudies
CA+@ +T?.A !
GlaxoSmithGli#e @harmaceuticals Himite", .#"ia 8 Merger
Success 9.
4um-ai && Glaxo .#"ia Himite" a#" SmithGli#e $eecham @harmaceuticals 8.#"ia9 Himite" ha*e
legall' merge" to form GlaxoSmithKline harmaceuticals !imited i# .#"ia 8GSG). .t ma' -e recalle"
here that the glo-al merger of the t)o compa#ies came i#to effect i# ecem-er 2000.
Comme#ti#g o# the prospects of GSG i# .#"ia, Lice Chairma# a#" 4a#agi#g irector,
GlaxoSmithGli#e @harmaceuticals Himite", .#"ia, 4r. L +h'agara:a# sai", "#he t$o companies that
have merged to become GlaxoSmithKline in %ndia have a great heritage & a fact that gets reflected in
their products $ith strong brand equity'( Ee a""e", "#he t$o companies have a long history of
commitment to %ndia and en)oy a very good reputation $ith doctors* patients* regulatory authorities and
trade bodies' At GSK it $ould be our endeavor to leverage these strengths to further consolidate our
mar+et leadership'(
(la)o'ith*line+ India
+he merger i# .#"ia -ri#gs together t)o stro#g compa#ies to create a formi"a-le prese#ce i# the
"omestic mar%et )ith a mar%et share of a-out 7 per ce#t.
,ith this merger, GlaxoSmithGli#e has i#crease" its reach sig#ifica#tl' i# .#"ia. ,ith a fiel"
force of o*er 2,000 emplo'ees a#" more tha# 5,000 stoc%iest, the compa#'5s pro"ucts are a*aila-le
- 32
Chapte
r
9
Mergers And Acquisitions
across the cou#tr'. +he e#ha#ce" -as%et of pro"ucts of GlaxoSmithGli#e, .#"ia )ill help ser*e patie#ts
-etter -' stre#gthe#i#g the ha#"s of "octors -' offeri#g superior treatme#t a#" healthcare solutio#s.
(la)o'ith*line+ Worldwide
3)a1o+mit(B)ine p)c is the )orl"5s lea"i#g research&-ase" pharmaceutical a#" healthcare
compa#'. ,ith a# ?1 -u"get of o*er M2.3 -illio# 8?s.16, 130 crores9, GlaxoSmithGli#e has a
po)erful research a#" "e*elopme#t capa-ilit', e#compassi#g the applicatio# of ge#etics, ge#omics,
com-i#atorial chemistr' a#" other lea"i#g e"ge tech#ologies.
0 trul' glo-al orga#i<atio# )ith a )i"e geographic sprea", GlaxoSmithGli#e has its corporate
hea"/uarters i# the ,est Ho#"o#, IG. +he compa#' has o*er 100,000 emplo'ees a#" supplies its
pro"ucts to 140 mar%ets arou#" the )orl". .t has o#e of the largest sales a#" mar%eti#g operatio#s i# the
glo-al pharmaceutical i#"ustr'.
- 33
Mergers And Acquisitions
CA+@ +T?.A 2
eutsche ! res"#er $a#% 8 Merger ,ailure 9
+he merger that )as a##ou#ce" o# march 7, 2000 -et)ee# eutsche $a#% a#" res"#er $a#%,
Germa#'5s largest a#" the thir" largest -a#% respecti*el' )as co#si"ere" as Germa#'5s respo#se to
i#creasi#gl' tough competitio# mar%ets.
+he merger )as to create the most po)erful -a#%i#g group i# the )orl" )ith the -ala#ce sheet
total of #earl' 2.5 trillio# mar%s a#" a stoc% mar%et *alue arou#" 150 -illio# mar%s. +his )oul" put the
merge" -a#% for ahea" of the seco#" largest -a#%i#g group, I.S. -ase" citigroup, )ith a -ala#ce sheet
total amou#ti#g to 1.2 trillio# mar%s a#" also i# fro#t of the pla##e" Napa#ese -oo% mergers of
Sumitomo a#" Su%ura $a#% )ith 1.7 trillio# mar%s as the -ala#ce sheet total.
+he #e) -a#%i#g group i#te#"e" to spi# off its retail -a#%i#g )hich )as #ot ma%i#g much profit
i# -oth the -a#%s a#" costl', exte#si*e #et)or% of -a#% -ra#ches associate" )ith it.
+he merge" -a#% )as to retai# the #ame eutsche $a#% -ut a"opte" the res"#er $a#%5s gree#
corporate color i# its logo. +he future core -usi#ess li#es of the #e) merge" $a#% i#clu"e" i#*estme#t
$a#%i#g, asset ma#ageme#t, )here the #e) -a#%i#g group )as hope" to outsi"e the tra"itio#all'
"omi#a#t S)iss $a#%, Securit' a#" loa# -a#%i#g a#" fi#all' fi#a#ciall' corporate clie#ts ra#gi#g from
ma:or i#"ustrial corporatio# to the mi"&scale compa#ies.
,ith this %i#" of merger, the #e) -a#% )oul" ha*e reache" the #o.1 positio# of the IS a#"
create #e) "ime#sio#s of aggressi*e#ess i# the i#ter#atio#al mergers.
$ut -arel' 2 mo#ths after a##ou#ci#g their agreeme#t to form the largest -a#% i# the )orl", #egotiatio#s
for a merger -et)ee# eutsche a#" res"#er $a#% faile" o# 0pril 5, 2000.
+he mai# issue of the failure )as res"#er $a#%5s i#*estme#t arm, Glei#)ort $e#so#, )hich the
executi*e committee of the -a#% "i" #ot )a#t to reli#/uish u#"er a#' circumsta#ces.
.# the prelimi#ar' #egotiatio#s it ha" -ee# agree" that Glei#)ort $e#so# )oul" -e i#tegrate"
i#to the merge" -a#%. $ut from the outset these co#si"eratio#s e#cou#tere" resista#ce from the asset
ma#ageme#t "i*isio#, )hich )as eutsche $a#%5s i#*estme#t arm.
- 34
Mergers And Acquisitions
eutsche $a#%5s asset ma#ageme#t ha" o#l' i#tegrate" )ith Ho#"o#5s i#*estme#t group 4orga#
Gre#fell a#" the 0merica# $a#%er5s trust. +his "i*isio# alo#e co#tri-ute" o*er 60F of eutsche $a#%5s
profit. +he top people at the asset ma#ageme#t )ere #ot rea"' to u#"erta%e a #e) process of i#tegratio#
)ith Glei#)ort $e#so#. So there )as o#l' o#e optio# left )ith the res"#er $a#% i.e. to sell Glei#)ort
$e#so# completel'. Eo)e*er ,alter, the chairma# of the res"#er $a#% )as #ot prepare" for this. +his
le" to the )ith"ra)al of the res"#er $a#% from the merger #egotiatio#s.
.# eco#omic a#" political circles, the pla##e" merger )as cele-rate" as Germa#'5s a"*a#ce i#to
the premier league of the i#ter#atio#al fi#a#cial mar%ets. $ut the failure of the merger le" to the "isaster
of Germa#' as the fi#a#cial ce#ter.
- 35
Mergers And Acquisitions
CA+@ +T?.A ,
Sta#"ar" Chartere" Gri#"la'5s 8 Acquisition Success 9
.t has -ee# a hectic 'ear at Ho#"o#&-ase" Sta#"ar" Chartere" $a#%, goi#g -' its ac/uisitio#
spree across the 0sia&@acific regio#. 0t the helm of affairs, glo-all', is ?a#a +al)ar, group C73. +he
/ui#tesse#tial ge#eral, he %#e) )hat he )as up agai#st )he# he propou#"e" his 6emergi#g stro#ger6
strateg' & of gro)th through co#soli"atio# of emergi#g mar%ets & for the tur# of the 4ille##ium( loa"s of
scepticism. +he ce#tral issue( Sta# Chart5s 0ugust 2000 ac/uisitio# of 02O Gri#"la's $a#%, for P1.3
-illio#.
7*er'o#e %#o)s that ac/uisitio# is the eas' part, mergi#g operatio#s is #ot. 0#" rece#t histor' has
sho)# that -a#%i#g mergers a#" ac/uisitio#s 847?G7?S 1 0CQI.S.+.325s9, i# particular, are #ot as
simple to execute as u#if'i#g -ala#ce sheets. Ca# Sta# Chart5s propose" merger )ith 02O Gri#"la's -e
a#' "iffere#tR
+he 616 refers to the #e) e#tit', )hich )ill -e .#"ia6s 2o 1 foreig# -a#% o#ce the i#tegratio# is
complete". +his shoul" ta%e arou#" 18 mo#ths; till the#, 02O Gri#"la's )ill exist separatel' as
Sta#"ar" Chartere" Gri#"la's 8SCG9. +he 626 a#" 636 are Citi-a#% a#" Eo#g Go#g a#" Sha#ghai $a#%i#g
Corp 8ES$C9, .#"ia6s seco#" a#" thir" largest foreig# -a#%s, respecti*el'.
+hat ma%es the #e) e#tit' the )orl"6s -iggest 6emergi#g mar%ets6 -a#%. $' )a' of stre#gths, it
)ill ha*e treasur' operatio#s that )ill pro-a-l' go u#challe#ge" as the cou#tr'6s most sophisticate".
$est of all, it )ill -e a "'#amic -a#%. +ha#%s to pre&merger i#itiati*es ta%e# -' -oth -a#%s, it coul" per&
haps -oast of the cou#tr'6s fastest gro)i#g retail&-a#%i#g -usi#ess.

Sta#Chart is rate" highl' o# other parameters too. .t is curre#tl' targeti#g glo-al cost&sa*i#gs of
P108 millio# i# 2001, ha*i#g reporte" a profit&-efore&tax of P650 millio# i# the first half of 2000, up 31
per ce#t from the same perio" last 'ear. 2et re*e#ue i#crease" 6 per ce#t to P2 -illio# for the same
perio". Co#sumer -a#%i#g, a t'picall' lo)&profit -usi#ess )hich accou#te" for less tha# 40 per ce#t of
its glo-al operati#g profits till four 'ears ago, #o) -ri#gs i# 55 per ce#t of profits. So the compa#'6s
glo-al report car" loo%s fairl' goo".

- 36
Mergers And Acquisitions
Sta#Chart %#o)s it must#6t let its e#erg' "issipate. .t has -ee# gro)i#g at a claime" a##ual rate of
25 per ce#t i# the last t)o 'ears, )ell o*er the i#"ustr' a*erage of -elo) 10 per ce#t. $ut mai#tai#i#g
this pace )o#6t pro*e eas', )ith Citi-a#% a#" ES$C :ust )aiti#g to s#ip at it. +he 02O Gri#"la's
ac/uisitio# ha" happe#e" :ust -efore that, though the process starte" i# earl' 1CCC, at Sta# Chart5s
hea"/uarters i# Ho#"o#. 0t first, it )as :ust tal% of a strategic tie&up )ith 02O Gri#"la's, )hich ha" the
same colo#ial $ritish a#tece"e#ts.

$ut this pla# )as a-a#"o#e" )he# it -ecame e*i"e#t that all "ecisio#&ma%i#g )oul" *acillate
-et)ee# 4el-our#e a#" Ho#"o#, )here the t)o are hea"/uartere". $' ecem-er, 02O ha" expresse" a
)illi#g#ess to sell out, a#" Sta#Chart i#itiate" the "ue&"ilige#ce procee"i#gs. .t )as#6t u#til 4arch that a
fe) se#ior .#"ia# -a#% executi*es )ere let i#to the secret. 2o), it6s time to get goi#g. 0 #e) *ehicle,
#a*igators i# place, e#gi#es re**i#g a#" map charte", the roa" ahea" is challe#gi#g a#" full of promise.
+o steer clear of trou-le is the o#l' cautio# a"*ise" -' i#"ustr' a#al'sts, as the t)o -a#%s i#tegrate their
-usi#esses. Sceptics "o#6t see ho) Sta#Chart ca# reall' -e greater tha# the sum of its parts.


+he aggressio#, though, is #ot as ra) as it sou#"s. $ehi#" it all is a strateg' that e*er'o#e at
Sta#Chart seems to -e i# s'#chro#' )ith. 0#" -ehi#" that strateg' is +al)ar, *er' much the origi#ator of
the oft&repeate" phrase uttere" -' e*er' executi*e & Sgetti#g the right footpri#tS. +he other %e' )or"s
that te#" to fi#" their )a' i#to e*er' "iscussio# are 6focus6 a#" 6gro)th6.

Sta#Chart .#"ia6s #et #o#&performi#g loa#s, as a perce#tage of #et total a"*a#ces, is reporte" at
:ust 2 per ce#t for 1CCC&2000. .# terms of capital a"e/uac' too, the -a#%s are "oi#g fi#e. Sta#Chart has
a capital -ase of C.5 per ce#t of its ris%&)eighte" assets, )hile SCG has 10.C per ce#t. So, )ith or
)ithout a safet' #et pro*i"e" -' the glo-al group, the .#"ia# operatio#s are o# firm grou#".
- 37
Mergers And Acquisitions
CA+@ +T?.A %
+0+0 ! +7+H7K 8 -ontroversial %ssue over Success And
,ailure 9.
+he +ata group )as i#fusi#g a fresh 30 millio# pou#"s i#to +ata tea that ha" -ee# use" to -u' a#
85.7F sta%e i# the IG&-ase" +etle' last 'ear. 0lrea"' high o# a hea"' -re) of a fresh -u' a#" caffei#e,
most misse" )hat Grish#a Gumar6s stateme#t mea#t.
+ata +ea5s much h'pe" ac/uisitio# of +etle', o#e of the )orl"5s -iggest tea -ra#"s, is#5t
procee"i#g accor"i#g to the pla#. 15 mo#ths ago, the Gol%ata -ase" ?s C13 crore +ata +ea5s -u'out of
the pri*atel' hel" +he +etle' Group for ?s 1843 crore ha" stu##e" corporate )atchers a#" i#*estme#t
-a#%ers ali%e. .t )as a coupT 0# .#"ia# compa#' ha" use" a le*erage" -u'out to s#ag o#e of the
$ritai#5s -iggest e*er -ra#"s. .t )as -' far, the -iggest e*er le*erage" -u'out -' a# .#"ia# compa#'.
+ata +ea "i"#5t pa' cash upfro#t. .#stea", it i#*este" 70 millio# pou#"s as e/uit' capital to set up
+ata +ea. .t -orro)e" 235 millio# to -u' the +etle' sta%e. +he pla# )as that +etle'5s cash flo)s )oul"
-e i#sulate" from the "e-t -ur"e#.
,he# +ata +ea too% the -ig gam-le to -u' +etle', its i#te#t )as *er' clear. +he compa#' ha"
esta-lishe" a firm foothol" i# the "omestic mar%et a#" ha" a co#trolli#g positio# i# gro)i#g tea. Goi#g
glo-al loo%e" li%e the o-*ious thi#g to "o. ,ith +etle', the seco#" largest -ra#" after Hipto# i# its -ag,
+ata +ea loo%e" rea"' to set the +hames o# fire.
?ight from the start, +etle' )as #e*er a eas' -u'. .# 1CC6, 0llie" omec/, the li/uor a#" retail
co#glomerate, ha" put +etle' o# the -loc%. 7*e# the# +ata +ea, #estle, I#ile*er a#" Sara lee ha" put i#
-i"s, all u#"er 200 millio# pou#"s. 0llie" )a#te" to cash o# the ta-le. +ata +ea "i"#5t ha*e e#ough of its
o)#. +he others -i"s also "i" #ot go through. 7*e#tuall', +etle' group together )ith a co#sortium of
fi#a#cial i#*estors li%e @ru"e#tial a#" Schro"ers, -ought the e#tire e/uit' sta%e for 1C0 millio# pou#"s
i# all cash "eal. +)o 'ears later, +etle' )e#t for a# .@3, hopi#g to raise 350&400 millio# pou#"s. $ut the
.@3 #e*er too% place. Soo# after)ar"s, the i#*estors -ega# loo%i#g for exit optio#s. +etle' )as o#ce
agai# o# the -loc%.
- 38
Mergers And Acquisitions
.t )as u#til >e- 2000 that the "ue "ilige#ce )as complete". $' this time, the +ata6s )ere rea"'
)ith their offer. +he' )oul" pa' 271 millio# pou#"s to -u' the e#tire +etle' e/uit' a#" the fu#"s )oul"
go to)ar"s first pa'i#g off +etle'5s 106 millio# "e-t. +he -ala#ce )oul" go the o)#ers.
+he offer price "i" #ot i#clu"e rights to +etle' coffee -usi#ess, )hich )as sol" to the IS&-ase"
?o)la#" Coffee ?oasters a#" 4other @ar%er5s +ea a#" Coffee i# >e- 2000 for 55 millio# pou#"s.
>or +etle' #e) o)#ers, too, the pro-lems )ere o#l' :ust -egi##i#g. +he "eal hi#ge" o# +etle'5s
a-ilit', o*er a#" a-o*e co*eri#g its o)# "e-ts, to ser*ice the loa#s +ata +ea ha" ta%e# for the ac/uisitio#.
+hat5s )here realit' -ites.
Co#si"er the facts. ,he# +ata +ea ac/uire" +etle' through +ata +ea, it su#% i# 70 millio# pou#"s
as e/uit' a#" -orro)e" 235 millio# pou#"s fro ma co#sortium to fi#a#ce the "eal. .mplicit i# the H$3
)as that +etle'5s future cash flo)s )oul" fu#" the S@L5s i#terest a#" pri#cipal repa'me#t re/uireme#ts.
0t a# a*erage i#terest rate of 11.5F, +etle' #ee"e" to ge#erate 22 millio# pou#"s i# i#terest alo#e o# a
loa# o 1C0 millio# pou#"s. 0"" to this the i#terest o# the high cost *e#"or loa# #otes of 30 millio#
pou#"sUit )or%e" out to -e 4.5 millio# a#" the charges o# the )or%i#g capital portio#, amou#ti#g to 2
millio# pou#"s per a##um. 0ll this )or%s out to a-out 28 millio# pou#"s i# i#terest alo#e per 'ear.
0t the same time, it also has to pa' -ac% the pri#cipal of 110 millio# pou#"s o*er a #ice perio"
through half 'earl' i#stallme#ts. +his )or%s out to 12 millio# pou#"s per 'ear. .f 'ou )ere to assume
that "epreciatio# a#" restructuri#g charges )ere pegge" at last 'ear5s le*els, the -ill tots up to 48 millio#
pou#"s a 'ear. .# >K 1CCC, the +etle'5s cash flo)s )ere 2C millio# pou#"s.
Some of the pro-lems coul" ha*e -ee# o-*iate" if +etle'5s cash flo)s ha" i#crease" -' 40 F i#
>K 2001 o*er the pre*ious 'ear. +hat )a', the compa#' )oul" ha*e co*ere" -oth its o)# commitme#ts
as )ell as of the +ata6s. $ut the situatio# )orse#e". 4a:or IG retailers clampe" "o)# o# grocer' prices
last 'ear. +hat su-sta#tiall' re"uce" +etle'5s prici#g flexi-ilit'.
$esi"es, the IG tea mar%ets ha*e -ee# u#"er pressure for some time #o). 0ccor"i#g to the IG
go*er#me#t5s #atio#al foo" sur*e', there has -ee# a su-sta#tial fall i# the co#sumptio# of mai#stream
teas& tea&-ag -lac% teas "ru#% )ith mil% a#" sugar. 0lso the tea "ri#%i#g populatio# i# IG has come
"o)# from 77.1F to 68.3F i# 1CCC. 3# the other ha#", #atural :uices a#" coffee ha*e co#siste#tl'
i#crease" their mar%et share.
- 39
Mergers And Acquisitions
So, )he# it )as co#fro#te" -' +etle'5s sli"i#g performa#ce, )hat optio#s "i" +ata +ea ha*eR 3#
its o)#, it coul" #ot "o much. +he last 'ear has -ee# o#e of the )orst 'ears for the .#"ia# tea i#"ustr'
a#" +ata +ea has also -ee# affecte". +he "rop i# tea prices a#" a proliferatio# of smaller -ra#"s i# the
orga#i<e" segme#t ha*e ta%e# toll o# +ata +ea5s performa#ce. .# >K 2001, +ata +ea5s #et profit fell -'
1C.5CF from ?s 124.63 crore to ?s 100.21 crore. .#come from operatio#s "ecli#e" -' 8.72F.
$ut letti#g +etle' si#% u#"er the )eight of the i#terest -ur"e# )oul" ha*e -ee# a# u#thi#%a-le
optio#, gi*e# the prestige attache" to the "eal.
+hus from the a-o*e case )e i#fer that +ata ha" to shell out a lot of mo#e' to co*er all the "e-ts
of +etle' )hich )as fou#" #ot )orth' e#ough -' the ge#eral pu-lic.
,ut Tata still calls it to $e a success whereas in reality it is a failure.

- 40
Mergers And Acquisitions
NOTES
Ta8)e 5- Acquisitions in t(e Ce5 +eries Industries.
.#
"u
str
'
0c/uirerD$i""er +arget ate 4oti*e
Ad#er
tising
Agenc
y
,@@ Group plc 7/uus Nu#e 1CC6 7#tr' i# .#"ia# mar%et
4cCa##&7ric%so#
,orl")i"e
4cGa## 7ri%so# .#"ia 4arch 1CC8 $u'out :oi#t *e#ture part#er
,@@ Group plc Ei#"usta# +hompso#
0ssociates
Nu#e 1CC8 $u'out :oi#t *e#ture part#er
$ates ,orl")i""e $ates Cario# Na# 2000 $u'out :oi#t *e#ture part#er
Tra#e
)
Agenc
y
Carlso# ,ago#lit .#" +ra*els 0ugust 1CCC 7#tr' i# .#"ia# mar%et
Guo#i,
S)it<erla#"
Sita +ra*els Na# 2000 7#tr' i# .#"ia# mar%et
Guo#i +ra*el S3+C 4a' 1CC7 .#crease sta%e
9usin
ess
+er#ic
es
Nar"i#e >lemmi#g Gar*' Co#sulta#ts 0pril 1CC6 7#tr' i# .#"ia# mar%et
Coopers a#"
Ha'-ra#"
S$ $illimoria Nu#e 1CC6 7#tr' i# .#"ia# mar%et
7r#st a#" Kou#g S? $atli-oi Na# 1CC7 $u'out :oi#t *e#ture part#er
,atso# ,'att ,'att .#"ia 4arch 1CC8 $u'out :oi#t *e#ture part#er
Pu8)i
s(ing
4acmilla# IG 4acmilla# .#"ia 4a' 1CC7 .#crease sta%e
4cGra) Eill +ata 4cGra) Eill 0pril 1CC6 $u'out :oi#t *e#ture part#er
@ol'gram
.#ter#atio#al
Eol"i#g $*
@ol'gram .#"ia Nu#e 1CCC $u'out :oi#t *e#ture part#er
+oft5
are
$ari#g .#"ia
.#*estme#ts,
4auritius
$>H Soft)are Nu#e 1CC8 7#tr' i# .#"ia# mar%et
$ari#g @ri*ate
7/uit' @art#ers
8.#"ia9
S'#erg' Hog&.# S'stems 0pril 1CCC 7#tr' i# .#"ia# mar%et
4arte% Eol"i#gs
.#corporatio#
4asco# Glo-al Ht". Nul' 1CCC 7#tr' i# .#"ia# mar%et
.$4 .$4 Glo-al Ser*ices Sept 1CCC $u'out :oi#t *e#ture part#er
.$4 +ata .$4 Sept 1CCC $u'out :oi#t *e#ture part#er
- 41
Mergers And Acquisitions
NOTES
+a-le 1( Share of 4 a#" 05s i# >.
Inf)o5s in India.
Kear >. .#flo)s
8P millio#9
4 a#" 0 >u#"s
8P millio#9
Share of 4 a#" 0
>u#"s i# .#flo)s
8@erce#t9
1CC7 3200 1300 40.6
1CC8 2C00 1000 34.5
1CCC
8Na#&4ar9 1400 500 35.7
+otal 7100 2800 3C.4
Source: Economic Times December 23,1998 and June 21,1999
Ta8)e 2- MC@ &e)ated M and A<s in India.
Kear 4ergers 0c/uisitio#s +otal
1CC3&C4 4 C 13
1CC4&C5 & 7 7
1CC5&C6 & 12 12
1CC6&C7 2 46 48
1CC7&C8 4 61 65
1CC8&CC 2 30 32
1CCC&2000
8up to Na# 20009 5 74 7C
+otal 17 23C 256
Source: Kumar based on RIS-ICDRC Database
Ta8)e ,- Consideration in#o)#ed in +e)ect
MC@ &e)ated Acquisition.
+otal
Co#si"eratio#
8?s. 4illio#9
@erce#t
Share
0ll "eals 8879 8744C 100.00
+op 10 "eals 50371 66.75
+op 20 "eals 6CCC 80.04
$ottom 20 "eals 773 00.7C
Source: Kumar based on RIS-ICDRC Database
- 42
Mergers And Acquisitions
Ta8)e %- A#erage si;e of Acquisition
.ea)s
+'pes of
0c/uirer
2um-er 0mou#t
8?s. 4illio#9
0*erage per "eal
8?s. 4illio#9
7xisti#g 427
affiliates 1C 13,661 718
>oreig#
corporatio#s 36 37,360 1,038
>oreig# pare#ts
of existi#g
affiliates 32 36,420 1,138
0ll cases 87 87,440 1,005
Source: Kumar based on RIS-ICDRC Database
- 43
Mergers And Acquisitions
NOTES
- 44