Project: Merger & Acquisition Process in India

Roll No.64 MFM Semester V TIMSR

TITLE: MERGER & ACQUISTION IN INDIA

A PROJECT SUBMITTED IN PART COMPLETION OF MASTER IN FINANCIAL MANAGEMENT TO THAKUR INSTITUTE OF MANAGEMENT STUDIES & REASEARCH

BY JATIN PRABHUDAS MEVADA

UNDER THE GUIDANCE OF PROFESSOR: MS. GITIKA MAYANK

THAKUR INSTITUTE OF MANAGEMENT STUDIES & RESEARCH (TIMSR) MFM BATCH: 2008-2011 THAKUR EDUCATION COMPLEX, THAKUR VILLAGE, KANDIVALI (E) MUMBAI

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Project: Merger & Acquisition Process in India

Roll No.64 MFM Semester V TIMSR

CERTIFICATE

This is to certify that the study presented by JATIN PRABHUDAS MEVADA (ROLL NO.64) to THAKUR INSTITUTE OF MANAGEMENT STUDIES & RESEARCH (TIMSR) in part completion of MASTERS IN FINANCIAL MANAGEMENT under MERGER & ACQUISITION IN INDIA has been done under my guidance in the year 2008-2011 (Batch) The Project is in the nature of original work that has not so far been submitted for any other course in this institute or any other institute. Reference of work and relative sources of

information have been given at the end of the project

Signature of the Student Name of Student: Jatin Prabhudas Mevada

Forwarded through the Research Guide

Signature of the Guide Name of Professor: Ms. Gitika Mayank

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Project: Merger & Acquisition Process in India

Roll No.64 MFM Semester V TIMSR

ACKNOWLEDGEMENT

First and foremost, I would like to thank Thakur Institute of Management Studies And Research for giving me this opportunity to work on the project ´Merger & Acquisition Process in India µ

I am also grateful to Prof. Ms. Gitika Mayank for her valuable support and guidance, which helped me to complete my project in the given period during my minimum exposure period.

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Project: Merger & Acquisition Process in India

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EXECUTIVE SUMMARY

We have been learning about the companies coming together to form another company and companies taking over the existing companies to expand their business.

With recession taking toll of many Indian businesses and the feeling of insecurity surging over our businessmen, it is not surprising when we hear about the immense numbers of corporate restructurings taking place, especially in the last couple of years. Several companies have been taken over and several have undergone internal restructuring, whereas certain companies in the same field of business have found it beneficial to merge together into one company.

In this context, it would be essential for us to understand what corporate restructuring and mergers and acquisitions are all about.

All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs, tender offers, & other forms of corporate restructuring. Thus important issues both for business decision and public policy formulation have been raised. No firm is regarded safe from a takeover possibility. On the more positive side Mergers & Acquisitions may be critical for the healthy expansion and growth of the firm. Successful entry into new product and geographical markets may require Mergers & Acquisitions at some stage in the firm's development.

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Project: Merger & Acquisition Process in India

Roll No.64 MFM Semester V TIMSR

OBJECTIVE

The objectives of my project can be described as:

To understand the pros and cons of Mergers and Acquisitions. To understand the legal formalities undertaken in the acquisition process To understand the case of Merger & Acquisition of Jaguar & Land Rover by Tata Group

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Project: Merger & Acquisition Process in India

Roll No.64 MFM Semester V TIMSR

CONTENT LIST

Sr. No. 1.

Particulars Introduction to Merger & Acquisition Merger Acquisition Takeover

Page no. 07 09 11 12 15 18 22 25 37 41 42 43 45 47 51 55

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

History of merger & acquisition Procedure for takeover & acquisition Purpose of merger& acquisition Types of merger Advantage of merger & acquisition Distinction between merger & acquisition Merger & Acquisition in India Merger & Acquisition in across Indian sector Merger & Acquisition in banking sector Merger & Acquisition in telecommunication sector Merger & Acquisition in pharmaceutical sector Changes in scenario of Banking sector

Case study (Acquisition of Jaguar & Land Rover by Tata 57 Group)

15. 16.

Conclusion Bibliography

102 103

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Project: Merger & Acquisition Process in India

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Merger & Acquisition in India

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Project: Merger & Acquisition Process in India

Roll No.64 MFM Semester V TIMSR

Introduction to Mergers and Acquisition

We have been learning about the companies coming together to from another company and companies taking over the existing companies to expand their business.

With recession taking toll of many Indian businesses and the feeling of insecurity surging over our businessmen, it is not surprising when we hear about the immense numbers of corporate restructurings taking place, especially in the last couple of years. Several companies have been taken over and several have undergone internal restructuring, whereas certain companies in the same field of business have found it beneficial to merge together into one company.

In this context, it would be essential for us to understand what corporate restructuring and mergers and acquisitions are all about. The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.

Thus important issues both for business decision and public policy formulation have been raised. No firm is regarded safe from a takeover possibility. On the more positive side Mergers & Acquisitions may be critical for the healthy expansion and growth of the firm. Successful entry into new product and geographical markets may require Mergers & Acquisitions at some stage in the firm's development.

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Project: Merger & Acquisition Process in India

Roll No.64 MFM Semester V TIMSR

Successful competition in international markets may depend on capabilities obtained in a timely and efficient fashion through Mergers & Acquisitions. Many have argued that mergers increase value and efficiency and move resources to their highest and best uses, thereby increasing shareholder value. To opt for a merger or not is a complex affair, especially in terms of the technicalities involved. We have discussed almost all factors that the management may have to look into before going for merger.

Considerable amount of brainstorming would be required by the managements to reach a conclusion. e.g. a due diligence report would clearly identify the status of the company in respect of the financial position along with the net worth and pending legal matters and details about various contingent liabilities. Decision has to be taken after having discussed the pros & cons of the proposed merger & the impact of the same on the business, administrative costs benefits, addition to shareholders' value, tax implications including stamp duty and last but not the least also on the employees of the Transferor or Transferee Company.

Merger Merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, the surviving company is the buyer, which retains its identity, and the extinguished company is the seller. Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of:

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Project: Merger & Acquisition Process in India

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y y y y

Equity shares in the transferee company, Debentures in the transferee company, Cash, or A mix of the above modes. In business or economics a merger is a combination of two companies into

one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is done purely for political or marketing reasons. Merger is a financial tool that is used for enhancing long-term profitability by expanding their operations. Mergers occur when the merging companies have their mutual consent as different from acquisitions, which can take the form of a hostile takeover. The business laws in US vary across states and hence the companies have limited options to protect themselves from hostile takeovers. One way a company can protect itself from hostile takeovers is by planning shareholders rights, which is alternatively known as ´poison pill. If we trace back to history, it is observed that very few mergers have actually added to the share value of the acquiring company and corporate mergers may promote monopolistic practices by reducing costs, taxes etc. Managers are concerned with improving operations of the company, managing the affairs of the company effectively for all round gains and growth of the company which will provide them better deals in raising their status, perks and fringe benefits.

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Acquisition An Acquisition usually refers to a purchase of a smaller firm by a larger one. Acquisition, also known as a takeover or a buyout, is the buying of one company by another. Acquisitions or takeovers occur between the bidding and the target company. There may be either hostile or friendly takeovers. Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company.

Methods of Acquisition: An acquisition may be affected by (a) agreement with the persons holding majority interest in the company management like members of the board or major shareholders commanding majority of voting power; (b) purchase of shares in open market; (c) to make takeover offer to the general body of shareholders; (d) purchase of new shares by private treaty; (e) Acquisition of share capital through the following forms of considerations viz. means of cash, issuance of loan capital, or insurance of share capital.

There is different type of acquisition:A. Reverse takeover: - Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover.

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Project: Merger & Acquisition Process in India

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a. Reverse takeover occurs when the target firm is larger than the bidding firm. In the course of acquisitions the bidder may purchase the share or the assets of the target company. b. In the former case, the companies cooperate in negotiations; in the latter case, the

takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. B. Reverse merger: - A deal that enables a private company to get publicly a short time period. a. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets. b. Achieving acquisition success has proven to be very difficult, while various listed in

studies have showed that 50% of acquisitions were unsuccessful. The acquisition process is very complex, with many dimensions influencing its outcome.

Takeover: In business, a takeover is the purchase of one company (the target) by another (the acquirer, or bidder). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.

A ¶takeover· is acquisition and both the terms are used interchangeably. Takeover differs from merger in approach to business combinations i.e. the process of takeover, transaction involved in takeover, determination of share exchange or cash

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Project: Merger & Acquisition Process in India

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price and the fulfillment of goals of combination all are different in takeovers than in mergers. For example, process of takeover is unilateral and the offer or company decides about the maximum price. Time taken in completion of transaction is less in takeover than in mergers, top management of the offered company being more cooperative

There are different types of takeover:1. Friendly takeovers 2. Hostile takeovers 3. Reverse takeovers

1. Friendly takeovers Before a bidder makes an offer for another company, it usually first informs that company's board of directors. If the board feels that accepting the offer serves shareholders better than rejecting it, it recommends the offer be accepted by the shareholders. In a private company, because the shareholders and the board are usually the same people or closely connected with one another, private acquisitions are usually friendly. If the shareholders agree to sell the company, then the board is usually of the same mind or sufficiently under the orders of the shareholders to cooperate with the bidder. This point is not relevant to the UK concept of takeovers, which always involve the acquisition of a public company. Hostile takeovers

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Project: Merger & Acquisition Process in India

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2. Hostile takeovers A hostile takeover allows a suitor to bypass a target company's management unwilling to agree to a merger or takeover. A takeover is considered "hostile" if the target company's board rejects the offer, but the bidder continues to pursue it, or the bidder makes the offer without informing the target company's board beforehand. A hostile takeover can be conducted in several ways. A tender offer can be made where the acquiring company makes a public offer at a fixed price above the current market price. Tender offers in the USA are regulated with the Williams Act. An acquiring company can also engage in a proxy fight, whereby it tries to persuade enough shareholders, usually a simple majority, to replace the management with a new one which will approve the takeover. Another method involves quietly purchasing enough stock on the open market, known as a creeping tender offer, to effect a change in management. In all of these ways, management resists the acquisition but it is carried out anyway. 1. Reverse takeovers A reverse takeover is a type of takeover where a private company acquires a public company. This is usually done at the instigation of the larger, private company, the purpose being for the private company to effectively float itself while avoiding some of the expense and time involved in a conventional IPO. However, under

AIM rules, a reverse take-over is an acquisition or acquisitions in a twelve month period which for an AIM company would:
y y

exceed 100% in any of the class tests; or result in a fundamental change in its business, board or voting control; or

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y

in the case of an investing company, depart substantially from the investing strategy stated in its admission document or, where no admission document was produced on admission, depart substantially from the investing strategy stated in its pre-admission announcement or, depart substantially from the investing strategy

History of Mergers and Acquisitions

Tracing back to history, merger and acquisitions have evolved in five stages and each of these are discussed here. As seen from past experience mergers and acquisitions are triggered by economic factors.

The macroeconomic environment, which includes the growth in GDP, interest rates and monetary policies play a key role in designing the process of mergers or acquisitions between companies or organizations.

First Wave Mergers

The first wave mergers commenced from 1897 to 1904. During this phase merger occurred between companies, which enjoyed monopoly over their lines of production like railroads, electricity etc.

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Project: Merger & Acquisition Process in India

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The first wave mergers that occurred during the aforesaid time period were mostly horizontal mergers that took place between heavy manufacturing industries.

End of 1st Wave Merger Majority of the mergers that were conceived during the 1st phase ended in failure since they could not achieve the desired efficiency. The failure was fuelled by the slowdown of the economy in 1903 followed by the stock market crash of 1904. The legal framework was not supportive either. The Supreme Court passed the mandate that the anticompetitive mergers could be halted using the Sherman Act. Second Wave Mergers The second wave mergers that took place from 1916 to 1929 focused on the mergers between oligopolies, rather than monopolies as in the previous phase. The economic boom that followed the post World War I gave rise to these mergers. Technological developments like the development of railroads and transportation by motor vehicles provided the necessary infrastructure for such mergers or acquisitions to take place. The government policy encouraged firms to work in unison. This policy was implemented in the 1920s. The 2nd wave mergers that took place were mainly horizontal or conglomerate in nature. Te industries that went for merger during this phase were producers of primary metals, food products, petroleum products, transportation equipments and chemicals. The investments banks played a pivotal role in facilitating the mergers and acquisitions.

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End of 2nd Wave Mergers The 2nd wave mergers ended with the stock market crash in 1929 and the great depression. The tax relief that was provided inspired mergers in the 1940s.

Third Wave Mergers The mergers that took place during this period (1965-69) were mainly conglomerate mergers. Mergers were inspired by high stock prices, interest rates and strict enforcement of antitrust laws. The bidder firms in the 3rd wave merger were smaller than the Target Firm. Mergers were financed from equities; the investment banks no longer played an important role.

End of the 3rd Wave Merger The 3rd wave merger ended with the plan of the Attorney General to split conglomerates in 1968. It was also due to the poor performance of the conglomerates. Some mergers in the 1970s have set precedence. The most prominent ones were the INCO-ESB merger; United Technologies and OTIS Elevator Merger are the merger between Colt Industries and Garlock Industries.

Fourth Wave Merger The 4th wave merger that started from 1981 and ended by 1989 was characterized by acquisition targets that wren much larger in size as compared to the 3rd wave merger. Mergers took place between the oil and gas industries,

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pharmaceutical industries, banking and airline industries. Foreign takeovers became common with most of them being hostile takeovers. The 4th Wave mergers ended with anti takeover laws, Financial Institutions Reform and the Gulf War.

Fifth Wave Merger The 5th Wave Merger (1992-2000) was inspired by globalization, stock market boom and deregulation. The 5th Wave Merger took place mainly in the banking and telecommunications industries. They were mostly equity financed rather than debt financed. The mergers were driven long term rather than short term profit motives. The 5th Wave Merger ended with the burst in the stock market bubble. Hence we may conclude that the evolution of mergers and acquisitions has been long drawn. Many economic factors have contributed its development.

Procedure for Takeover and Acquisition

Public announcement: To make a public announcement an acquirer shall follow the following procedure:

1. Appointment of merchant banker: The acquirer shall appoint a merchant banker registered as category ² I with SEBI to advise him on the acquisition and to make a public announcement of offer on his behalf.

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2.Use of media for announcement: Public announcement shall be made at least in one national English daily one Hindi daily and one regional language daily newspaper of that place where the shares of that company are listed and traded.

3. Timings of announcement: Public announcement should be made within four days of finalization of negotiations or entering into any agreement or memorandum of understanding to acquire the shares or the voting rights.

4. Contents of announcement: Public announcement of offer is mandatory as required under the SEBI Regulations.

Therefore, it is required that it should be prepared showing there in the following information: (1) Paid up share capital of the target company, the number of fully paid up and partially paid up shares.

(2) Total number and percentage of shares proposed to be acquired from public subject to minimum as specified in the sub-regulation (1) of Regulation 21 that is: a) The public offer of minimum 20% of voting capital of the company to the shareholders;

b) The public offer by a raider shall not be less than 10% but more than 51% of shares of voting rights. Additional shares can be had @ 2% of voting rights in any year.

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(3) The minimum offer price for each fully paid up or partly paid up share.

(4) Mode of payment of consideration;

(5) The identity of the acquirer and in case the acquirer is a company, the identity of the promoters and, or the persons having control over such company and the group, if any, to which the company belong;

(6) The existing holding, if any, of the acquirer in the shares of the target company, including holding of persons acting in concert with him;

(7) Salient features of the agreement, if any, such as the date, the name of the seller, the price at which the shares are being acquired, the manner of payment of the consideration and the number and percentage of shares in respect. Which the acquirer has entered into the agreement to acquire the shares or the consideration, monetary or otherwise, for the acquisition of control over the target company, as the case may be;

(8) The highest and the average paid by the acquirer or persons acting in concert with him for acquisition, if any, of shares of the target company made by him during the twelve month period prior to the date of the public announcement.

(9) Objects and purpose of the acquisition of the shares and the future plans of the acquirer for the target company, including disclosers whether the acquirer proposes to dispose of or otherwise encumber any assets of the target company:

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Provided that where the future plans are set out, the public announcement shall also set out how the acquirers propose to implement such future plans;

(10) The ¶specified date· as mentioned in regulation 19.

(11) The date by which individual letters of offer would be posted to each of the shareholders.

(12) The date of opening and closure of the offer and the manner in which and the date by which the acceptance or rejection of the offer would be communicated to the share holders.

(13) The date by which the payment of consideration would be made for the shares in respect of which the offer has been accepted.

(14) Disclosure to the effect that firm arrangement for financial resources required to implement the offer is already in place, including the details regarding the sources of the funds whether domestic i.e. from banks, financial institutions, or otherwise or foreign i.e. from Non-resident Indians or otherwise.

(15) Provision for acceptance of the offer by person who own the shares but are not the registered holders of such shares.

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(16) Statutory approvals required to obtain for the purpose of acquiring the shares under the Companies Act, 1956, the Monopolies and Restrictive Trade Practices Act, 1973, and/or any other applicable laws.

Purpose of Mergers and Acquisition The purpose for an offer or company for acquiring another company shall be reflected in the corporate objectives. It has to decide the specific objectives to be achieved through acquisition. The basic purpose of merger or business combination is to achieve faster growth of the corporate business. Faster growth may be had through product improvement and competitive position.

Other possible purposes for acquisition are short listed below: -

(1) Procurement of supplies: 1. to safeguard the source of supplies of raw materials or intermediary product; transportation costs, overhead costs in buying department, etc.; 3. To share the benefits of suppliers economies by standardizing the materials.

2. to obtain economies of purchase in the form of discount, savings in

(2)Revamping production facilities: 1. to achieve economies of scale by amalgamating production facilities through more intensive utilization of plant and resources; 2. to standardize product specifications, improvement of quality of product, expanding 3. market and aiming at consumers satisfaction through strengthening after sale 4. services; 5. to obtain improved production technology and know-how from the offered company 6. to reduce cost, improve quality and produce competitive products to retain and

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Project: Merger & Acquisition Process in India

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7. Improve market share.

(3) Market expansion and strategy:

1. to eliminate competition and protect existing market; 2. to obtain a new market outlets in possession of the offered; 3. to obtain new product for diversification or substitution of existing products and to enhance the product range; 4. strengthening retain outlets and sale the goods to rationalize distribution; 5. to reduce advertising cost and improve public image of the offered company; 6. Strategic control of patents and copyrights.

(4) Financial strength:

1. to improve liquidity and have direct access to cash resource; 2. to dispose of surplus and outdated assets for cash out of combined enterprise; 3. to enhance gearing capacity, borrow on better strength and the greater assets backing; 4. to avail tax benefits; 5. To improve EPS (Earning per Share).

(5) General gains:

1. to improve its own image and attract superior managerial talents to manage its affairs; 2. To offer better satisfaction to consumers or users of the product.

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(6) Own developmental plans: The purpose of acquisition is backed by the offer or company·s own developmental plans. A company thinks in terms of acquiring the other company only when it has arrived at its own development plan to expand its operation having examined its own internal strength where it might not have any problem of taxation, accounting, valuation, etc. It has to aim at suitable combination where it could have opportunities to supplement its funds by issuance of securities; secure additional financial facilities eliminate competition and strengthen its market position.

(7) Strategic purpose: The Acquirer Company view the merger to achieve strategic objectives through alternative type of combinations which may be horizontal, vertical, product expansion, market extensional or other specified unrelated objectives depending upon the corporate strategies. Thus, various types of combinations distinct with each other in nature are adopted to pursue this objective like vertical or horizontal combination.

(8) Corporate friendliness: Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve performance heights through business combinations. The combining corporate aim at circular combinations by pursuing this objective.

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Types of merger

Merger or acquisition depends upon the purpose of the offer or company it wants to achieve. Based on the offer or objectives profile, combinations could be vertical, horizontal, circular and conglomeratic as precisely described below with reference to the purpose in view of the offer or company. Merger types can be broadly classified into the following five subheads as described below.

1. Horizontal Merger: - refers to the merger of two companies who are direct competitors of one another. They serve the same market and sell the same product.

2. Conglomeration: - refers to the merger of companies, which do not either sell any related products or cater to any related markets. Here, the two companies entering the merger process do not possess any common business ties.

3. Vertical Merger: - is effected either between a company and a customer or between a company and a supplier.

4. Product-Extension Merger: - is executed among companies, which sell different products of a related category. They also seek to serve a common market. This type of merger enables the new company to go in for a pooling in of their products so as to serve a common market, which was earlier fragmented among them.

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5. Market-Extension Merger: - occurs between two companies that sell identical products in different markets.

It basically expands the market base of the product. 1. Certified Mergers and Acquisitions 2. Horizontal Mergers 3. Vertical Mergers 4. Market Extension Merger and Product Extension Merger 5. Conglomerate Mergers

1. Certified Mergers and Acquisitions

There are a number of certified mergers and acquisitions advisory programs available at the present time. With the help of these programs, a lot of commercial entities are getting involved in merger and acquisition activities. These programs are offered by numerous merger and acquisition consultants and agencies. Some of them are also conducting educational programs and seminars for the purpose of educating financial professionals about the nuances of certified mergers and acquisitions and growing the knowledge base of the merger and acquisition professionals.

One of the most important certified merger and acquisition advisory programs is the Certified Valuation Manager Program offered by the American Academy of Financial Management (AAFM). The American Academy of Financial

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Management is also hosting a number of Certified Valuation Manager Training Conferences throughout the year.

The certified mergers and acquisitions agencies help commercial enterprises or business corporations in acquiring or taking over other companies and also in significant issues related to mergers and acquisitions. These agencies also help business entities regarding management buyouts (MBOs), finding acquisition lookup, sources of equity and debt financing, as well as valuation of businesses.

In this modern-day world, the power of globalization, market liberalization and technological advancement has contributed towards the formation of an increasingly competitive and active commercial world, where mergers and acquisitions are more and more utilized for achieving optimization of firm value and competitive benefits.

With the help of certified merger and acquisition advisory services, the clients can enjoy instant accessibility to:

y

A large number of certified business purchasers, which include multinational or transnational corporations who are seeking to buy profitable companies

y

A platform of the merger and acquisition professionals, sources of funding, transaction makers, intermediaries and tax professionals

y

Knowledgeable principals

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y

Advices on pricing and valuation

y

Forward-looking transaction formation, which will lead to value addition The certified mergers and acquisition advisory services can be broadly categorized into the following types:

y

Business Valuation Services

y

Funding

Services

(Acquisition

financing,

recapitalizations,

financial

reconstruction)

y

Asset Disposal Services

y

Acquisition Lookup

y

Management Buyouts (MBOs)

y

Certified Equipment and Machinery Estimation

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2. Horizontal Mergers y It is a merger of two competing firms which are at the same stage of industrial process. The acquiring firm belongs to the same industry as the target company.

y

The main purpose of such mergers is to obtain economies of scale in production by eliminating duplication of facilities and the operations and broadening the product line, reduction in investment in working capital, elimination in competition concentration in product, reduction in advertising.

y

Costs, increase in market segments and exercise better control on market.

y

Horizontal mergers are those mergers where the company·s manufacturing similar kinds of commodities or running similar type of businesses merge with each other.

y

Two companies that are in direct competition and share similar product lines and markets. In the context of marketing, horizontal merger is more prevalent in comparison to horizontal merger in the context of production or manufacturing.

y

The principal objective behind this type of mergers is to achieve economies of scale in the production procedure through carrying off duplication of installations, services and functions, widening the line of products, decrease in working capital and fixed assets investment, getting rid of competition, minimizing the advertising expenses, enhancing the market capability and to get more dominance on the market.

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y

Never the less, the horizontal mergers do not have the capacity to ensure the market about the product and steady or uninterrupted raw material supply.

y

Horizontal mergers can sometimes result in monopoly and absorption of economic power in the hands of a small number of commercial entities.

y

According to strategic management and microeconomics, the expression horizontal merger delineates a form of proprietorship and control. It is a plan, which is utilized by a corporation or commercial enterprise for marketing a form of commodity or service in a large number of markets.

Horizontal Integration Sometimes, horizontal merger is also called as horizontal integration. It is totally opposite in nature to vertical merger or vertical integration.

Horizontal Monopoly A monopoly formed by horizontal merger is known as a horizontal monopoly. Normally, a monopoly is formed by both vertical and horizontal mergers.

Horizontal merger is that condition where a company is involved in taking over or acquiring another company in similar form of trade. In this way, a competitor is done away with and a wider market and higher economies of scale are accomplished. In the process of horizontal merger, the downstream purchasers and upstream suppliers are also controlled and as a result of this, production expenses can be decreased.

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Horizontal Expansion An expression which is intimately connected to horizontal merger is horizontal expansion. This refers to the expansion or growth of a company in a sector that is presently functioning. The aim behind a horizontal expansion is to grow its market share for a specific commodity or service. Examples of Horizontal Mergers:Following are the important examples of horizontal mergers: y The formation of Brook Bond Lipton India Ltd. through the merger of Lipton India and Brook Bond

y

The merger of Bank of Mathura with ICICI (Industrial Credit and Investment Corporation of India) Bank

y

The merger of BSES (Bombay Suburban Electric Supply) Ltd. with Orissa Power Supply Company

y

The merger of ACC (erstwhile Associated Cement Companies Ltd.) with Damodar Cement

3. Vertical merger A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker.

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Vertical mergers refer to a situation where a product manufacturer merges with the supplier of inputs or raw materials. In can also be a merger between a product manufacturer and the product's distributor.

A company would like to take over another company or seek its merger with that company to expand espousing backward integration to assimilate the resources of supply and forward integration towards market outlets.

The acquiring company through merger of another unit attempts on reduction of inventories of raw material and finished goods, implements its production plans as per the objectives and economizes on working capital investments. In other words, in vertical combinations, the merging undertaking would be either a supplier or a buyer using its product as intermediary material for final production.

The following main benefits accrue from the vertical combination to the acquirer company i.e.

(1) it gains a strong position because of imperfect market of the intermediary products, scarcity of resources and purchased products;

(2) Has control over products specifications.

Vertical mergers may violate the competitive spirit of markets. It can be used to block competitors from accessing the raw material source or the distribution

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channel. Hence, it is also known as "vertical foreclosure". It may create a sort of bottleneck problem. As per research, vertical integration can affect the pricing incentive of a downstream producer. It may also affect a competitor·s incentive for selecting input suppliers.

There are multiple reasons, which promote the vertical integration by firms. Some of them are discussed below. y The prime reason being the reduction of uncertainty regarding the availability of quality inputs as also the uncertainty regarding the demand for its products.

y

Firms may also enter vertical mergers to avail the plus points of economies of integration.

y

Vertical merger may make the firms cost-efficient by streamlining its distribution and production costs. It is also meant for the reduction of transactions costs like marketing expenses and sales taxes. It ensures that a firm's resources are used optimally.

4. Market-extension merger Two companies that sell the same products in different markets. As per definition, market extension merger takes place between two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base.

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Example of Market Extension Merger A very good example of market extension merger is the acquisition of Eagle Bancshares Inc by the RBC Century. Eagle Bancshares is headquartered at Atlanta, Georgia and has 283 workers. It has almost 90,000 accounts and looks after assets worth US $1.1 billion. Eagle Bancshares also holds the Tucker Federal Bank, which is one of the ten biggest banks in the metropolitan Atlanta region as far as deposit market share is concerned. One of the major benefits of this acquisition is that this acquisition enables the RBC to go ahead with its growth operations in the North American market.

With the help of this acquisition RBC has got a chance to deal in the financial market of Atlanta, which is among the leading upcoming financial markets in the USA. This move would allow RBC to diversify its base of operations.

5. Product-extension merger Two companies selling different but related products in the same market. According to definition, product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits. Example of Product Extension Merger The acquisition of Mobilink Telecom Inc. by Broadcom is a proper example of product extension merger. Broadcom deals in the manufacturing Bluetooth personal area network hardware systems and chips for IEEE 802.11b wireless LAN.

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Mobilink Telecom Inc. deals in the manufacturing of product designs meant for handsets that are equipped with the Global System for Mobile Communications technology.

It is also in the process of being certified to produce wireless networking chips that have high speed and General Packet Radio Service technology. It is expected that the products of Mobilink Telecom Inc. would be complementing the wireless products of Broadcom.

6. Conglomeration Two companies that have no common business areas. As per definition, a conglomerate merger is a type of merger whereby the two companies that merge with each other are involved in different sorts of businesses. The importance of the conglomerate mergers lies in the fact that they help the merging companies to be better than before.

Types of Conglomerate Mergers

There are two main types of conglomerate mergers:1. pure conglomerate merger 2. Mixed conglomerate merger.

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1. pure conglomerate merger The pure conglomerate merger is one where the merging companies are doing businesses that are totally unrelated to each other.

2. Mixed conglomerate merger The mixed conglomerate mergers are ones where the companies that are merging with each other are doing so with the main purpose of gaining access to a wider market and client base or for expanding the range of products and services that are being provided by them There are also some other subdivisions of conglomerate mergers like the financial conglomerates, the concentric companies, and the managerial conglomerates.

Reasons of Conglomerate Mergers There are several reasons as to why a company may go for a conglomerate merger. Among the more common reasons are adding to the share of the market that is owned by the company and indulging in cross selling. The companies also look to add to their overall synergy and productivity by adopting the method of conglomerate mergers.

Benefits of Conglomerate Mergers There are several advantages of the conglomerate mergers. One of the major benefits is that conglomerate mergers assist the companies to diversify. As a result of conglomerate mergers the merging companies can also bring down the levels of their exposure to risks.

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Advantages of mergers and acquisition

Mergers and takeovers are permanent form of combinations which vest in management complete control and provide centralized administration which are not available in combinations of holding company and its partly owned subsidiary.

Shareholders in the selling company gain from the merger and takeovers as the premium offered to induce acceptance of the merger or takeover offers much more price than the book value of shares. Shareholders in the buying company gain in the long run with the growth of the company not only due to synergy but also due to ´boots trapping earningsµ.

Motivations for mergers and acquisitions Mergers and acquisitions are caused with the support of shareholders, manager·s ad promoters of the combing companies. The factors, which motivate the shareholders and managers to lend support to these combinations and the resultant consequences they have to bear, are briefly noted below based on the research work by various scholars globally.

(1) From the standpoint of shareholders:Investment made by shareholders in the companies subject to merger should enhance in value.

The sale of shares from one company·s shareholders to another and holding investment in shares should give rise to greater values i.e. the opportunity gains in

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alternative investments. Shareholders may gain from merger in different ways viz. from the gains and achievements of the company i.e. through (a) realization of monopoly profits;

(b) economies of scales; (c) diversification of product line;

(d) acquisition of human assets and other resources not available otherwise; (e) Better investment opportunity in combinations.

One or more features would generally be available in each merger where shareholders may have attraction and favors merger.

(2) From the standpoint of managers

Managers are concerned with improving operations of the company, managing the affairs of the company effectively for all round gains and growth of the company which will provide them better deals in raising their status, perks and fringe benefits.

Mergers where all these things are the guaranteed outcome get support from the managers. At the same time, where managers have fear of displacement at the hands of new management in amalgamated company and also resultant depreciation from the merger then support from them becomes difficult.

(3) Promoter·s gains

Mergers do offer to company promoters the advantage of increasing the size of their company and the financial structure and strength. They can convert a closely held and

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private limited company into a public company without contributing much wealth and without losing control.

(4) Benefits to general public

Impact of mergers on general public could be viewed as aspect of benefits and costs to: (a) (b) (c) Consumer of the product or services; Workers of the companies under combination; General public affected in general having not been user or consumer or the worker in the companies under merger plan.

(a) Consumers The economic gains realized from mergers are passed on to consumers in the form of lower prices and better quality of the product which directly raise their standard of living and quality of life. The balance of benefits in favors of consumers will depend upon the fact whether or not the mergers increase or decrease competitive economic and productive activity which directly affects the degree of welfare of the consumers through changes in price level, quality of products, after sales service, etc.

(b) Workers community The merger or acquisition of a company by a conglomerate or other acquiring company may have the effect on both the sides of increasing the welfare in

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the form of purchasing power and other miseries of life. Two sides of the impact as discussed by the researchers and academicians are:

1. Mergers with cash payment to shareholders provide opportunities for them to invest this money in other companies which will generate further employment and growth to uplift of the economy in general. 2. Any restrictions placed on such mergers will decrease the growth and investment activity with corresponding decrease in employment. Both workers and communities will suffer on lessening job opportunities, preventing the distribution of benefits resulting from diversification of production activity.

(c) General public Mergers result into centralized concentration of power. Economic power is to be understood as the ability to control prices and industries output as monopolists. Such monopolists affect social and political environment to tilt everything in their favors to maintain their power ad expand their business empire. These advances result into economic exploitation. But in a free economy a monopolist does not stay for a longer period as other companies enter into the field to reap the benefits of higher prices set in by the monopolist. This enforces competition in the market as consumers are free to substitute the alternative products. Therefore, it is difficult to generalize that mergers affect the welfare of general public adversely or favorably. Every merger of two or more companies has to be viewed from different angles in the business practices which protects the interest of the shareholders in the merging company and also serves the national purpose to add to the welfare of the employees, consumers and does not create hindrance in administration of the Government polices.

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Distinction between Mergers and Acquisitions Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things: When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition.  When merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals".  Both companies' stocks are surrendered and new company stock is issued in its place. 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 deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition. This is challengeable.  An acquisition can be either friendly or hostile. An example of a recent friendly takeover was when Microsoft bought Fast Search and Transfer (OSE Stock Exchange, Ticker FAST).CEO of the acquired company (FAST) revealed that they had been working with Microsoft for more than 6 months to get the deal which was announced in January, 2008.

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Mergers and Acquisitions in India

The process of mergers and acquisitions has gained substantial importance in today's corporate world. This process is extensively used for restructuring the business organizations.

In India, the concept of mergers and acquisitions was initiated by the government bodies. Some well known financial organizations also took the necessary initiatives to restructure the corporate sector of India by adopting the mergers and acquisitions policies.

The Indian economic reform since 1991 has opened up a whole lot of challenges both in the domestic and international spheres. The increased competition in the global market has prompted the Indian companies to go for mergers and acquisitions as an important strategic choice.

The trends of mergers and acquisitions in India have changed over the years. The immediate effects of the mergers and acquisitions have also been diverse across the various sectors of the Indian economy.

India has emerged as one of the top countries with respect to merger and acquisition deals. In 2007, the first two months alone accounted for merger and acquisition deals worth $40 billion in India.

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Mergers and Acquisitions across Indian Sectors

Among the different Indian sectors that have resorted to mergers and acquisitions in recent times, telecom, finance, FMCG, construction materials, automobile industry and steel industry are worth mentioning. With the increasing number of Indian companies opting for mergers and acquisitions, India is now one of the leading nations in the world in terms of mergers and acquisitions.

The merger and acquisition business deals in India amounted to $40 billion during the initial 2 months in the year 2007. The total estimated value of mergers and acquisitions in India for 2007 was greater than $100 billion. It is twice the amount of mergers and acquisitions in 2006.

Mergers and Acquisitions in India: The Latest Trends Till recent past, the incidence of Indian entrepreneurs acquiring foreign enterprises was not so common. The situation has undergone a sea change in the last couple of years. Acquisition of foreign companies by the Indian businesses has been the latest trend in the Indian corporate sector.

There are different factors that played their parts in facilitating the mergers and acquisitions in India. Favorable government policies, buoyancy in economy, additional liquidity in the corporate sector, and dynamic attitudes of the Indian entrepreneurs are the key factors behind the changing trends of mergers and acquisitions in India.

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The Indian IT and ITES sectors have already proved their potential in the global market. The other Indian sectors are also following the same trend. The increased participation of the Indian companies in the global corporate sector has further facilitated the merger and acquisition activities in India.

Major Mergers and Acquisitions in India

Recently the Indian companies have undertaken some important acquisitions. Some of those are as follows: 

Hindalco acquired Canada based Novelis. The deal involved transaction of $5,982 million.  Tata Steel acquired Corus Group plc. The acquisition deal amounted to $12,000 million.  Dr. Reddy's Labs acquired Betapharm through a deal worth of $597 million.  Ranbaxy Labs acquired Terapia SA. The deal amounted to $324 million.  Suzlon Energy acquired Hansen Group through a deal of $565 million.  The acquisition of Daewoo Electronics Corp. by Videocon involved transaction of $729 million.  HPCL acquired Kenya Petroleum Refinery Ltd. The deal amounted to $500 million.  VSNL acquired Teleglobe through a deal of $239 million.

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When it comes to mergers and acquisitions deals in India, the total number was 287 from the month of January to May in 2007. It has involved monetary transaction of US $47.37 billion. Out of these 287 merger and acquisition deals, there have been 102 cross country deals with a total valuation of US $28.19 billion.

Mergers and Acquisitions in Banking Sector

Mergers and acquisitions in banking sector have become familiar in the majority of all the countries in the world.

A large number of international and domestic banks all over the world are engaged in merger and acquisition activities. One of the principal objectives behind the mergers and acquisitions in the banking sector is to reap the benefits of economies of scale. With the help of mergers and acquisitions in the banking sector, the banks can achieve significant growth in their operations and minimize their expenses to a considerable extent.

Another important advantage behind this kind of merger is that in this process, competition is reduced because merger eliminates competitors from the banking industry. Mergers and acquisitions in banking sector are forms of horizontal merger because the merging entities are involved in the same kind of business or commercial activities. Sometimes, non-banking financial institutions are also merged with other banks if they provide similar type of services.

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In the context of mergers and acquisitions in the banking sector, it can be reckoned that size does matter and growth in size can be achieved through mergers and acquisitions quite easily.

Growth achieved by taking assistance of the mergers and acquisitions in the banking sector may be described as inorganic growth. Both government banks and private sector banks are adopting policies for mergers and acquisitions. In many countries, global or multinational banks are extending their operations through mergers and acquisitions with the regional banks in those countries.

These mergers and acquisitions are named as cross-border mergers and acquisitions in the banking sector or international mergers and acquisitions in the banking sector. By doing this, global banking corporations are able to place themselves into a dominant position in the banking sector, achieve economies of scale, as well as garner market share. Mergers and acquisitions in the banking sector have the capacity to ensure efficiency, profitability and synergy. They also help to form and grow shareholder value.

In some cases, financially distressed banks are also subject to takeovers or mergers in the banking sector and this kind of merger may result in monopoly and job cuts. Deregulation in the financial market, market liberalization, economic reforms, and a number of other factors have played an important function behind the growth of mergers and acquisitions in the banking sector. Nevertheless, there are many challenges that are still to be overcome through appropriate measures. Mergers and acquisitions in banking sector are controlled or regulated by the apex financial authority of a particular

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country. For example, the mergers and acquisitions in the banking sector of India are overseen by the Reserve Bank of India (RBI).

Mergers and Acquisitions in Telecom Sector

The number of mergers and acquisitions in Telecom Sector has been increasing significantly. Telecommunications industry is one of the most profitable and rapidly developing industries in the world and it is regarded as an indispensable component of the worldwide utility and services sector. Telecommunication industry deals with various forms of communication mediums, for example mobile phones, fixed line phones, as well as Internet and broadband services. Currently, a slew of mergers and acquisitions in Telecom Sector are going on throughout the world.

The aim behind such mergers is to attain competitive benefits in the telecommunications industry. The mergers and acquisitions in Telecom Sector are regarded as horizontal mergers simply because of the reason that the entities going for merger or acquisition are operating in the same industry that is telecommunications industry.

In the majority of the developed and developing countries around the world, mergers and acquisitions in the telecommunications sector have become a necessity. This kind of mergers also assists in creation of jobs. Both transnational and

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domestic telecommunications services providers are keen to try merger and acquisition options because this will help them in many ways.

They can cut down on their expenses, achieve greater market share and accomplish market control. Mergers and acquisitions in the telecommunications sector have been showing a prosperous trend in the recent past and the economists are advocating that they will continue to do so.

The majority of telecommunication services providers have understood that in order to grow globally, strategic alliances and mergers and acquisitions are the principal devices.

Private sector investment and FDI (Foreign Direct Investment) have also boosted the growth of mergers and acquisitions in the telecommunications sector. Over the last few years, a phenomenal growth has been witnessed in the number of mergers and acquisitions taking place in the telecommunications industry.

The reasons behind this development include the following: y y y Deregulation Introduction of sophisticated technologies (Wireless land phone services) Innovative products and services (Internet, broadband and cable services)

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Economic reforms have spurred the growth in the mergers and acquisitions industry of the telecommunications sector to a satisfactory level. Mergers and acquisitions in Telecom Sector can also have some negative effects, which include monopolization of the telecommunication products and services, unemployment and others.

However, the governments of various countries take appropriate steps to curb these problems. In countries like India, mergers and acquisitions have increased to a considerable level from the mid 1990s. In the United States, the mergers and acquisitions in the telecommunications sector are going on in a fullfledged manner.

The mergers and acquisitions in the telecommunications sector are governed or supervised by the regulatory authority of the telecommunication industry of a particular country, for instance the Telecom Regulatory Authority of India or TRAI. The regulatory authorities always keep a tab on the

telecommunications industry so that no monopoly is formed.

Significant Mergers and Acquisitions in Telecom Sector

Following are the important mergers and acquisitions that took place in the telecommunications sector: y The takeover of Mobilink Telecom by Broadcom. This can also be described as a suitable example of product extension merger

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y y y

AT&T Inc. taking over BellSouth The acquisition of Scription Inc. by Nuance Communications Inc. The taking over of Hutchison Essar by the Vodafone Group. Now it has become Vodafone Essar Limited

y

China Communications Services Corporation Ltd. taking over China International Telecommunication Construction Corporation

y

The acquisition of Ameritech Corporation by SBC (Southwestern Bell Corporation) Communications

y y y

The merger of GTE (General Telephone and Electronics) with Bell Atlantic The acquisition of US West by Qwest Communications The merger of MCI Communications Corporation with WorldCom

Following are the benefits provided by the mergers and acquisitions in the telecommunications industry: y y y y y y Building of infrastructure in a more convenient way Licensing options for mergers and acquisitions are often found to be easier Mergers and acquisitions offer extensive networking advantages Brand value Bigger client base Wide array of products and services

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Mergers and Acquisitions in Pharmaceutical Sector

There are several causes of mergers and acquisitions in the global pharmaceutical industry. Among them are the absence of proper research and development facilities, gradual expiry of patents and competition within specific pharmaceutical genres. The high profile product recalls have also played a major role in the continuing mergers and acquisitions in the industry.

Mergers and Acquisitions in Indian Pharmaceutical Sector In the Indian pharmaceutical market there are a number of companies that have entered into merger and acquisition agreements in the context of the global market scenario. These companies would be selling off the non-core business divisions like Over-the-Counter. This is expected to further the consolidation in the mid-tier as far as the pharmaceutical industry in Europe is concerned.

The sheer number of companies acquiring parts of other companies has shown that the Indian pharmaceutical industry is ready to be a dominant force in this scenario. In the recent times Nicholas Piramal has taken the ownership of 17% of Biosyntech that is a major pharmaceutical packing organization in Canada.

Torrent has got the ownership of Heumann Pharma, a general drug making company and, formerly, a subsidiary of Pfizer. Matrix has acquired Docpharma, a major pharmaceutical company of Belgium.

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Sun

Pharmaceutical

Industries

is

set

to

make

acquisitions

in

pharmaceutical companies in the US and has set aside $450 million to execute these plans. In Bengaluru, Strides Arcolab has aimed at acquiring 70 percent in a pharmaceutical facility in Italy that is worth $10 million. Opportunities for Pharmaceutical Companies There are a number of opportunities for the major pharmaceutical products and services providers in the Indian pharmaceutical sector as the price controls have been relaxed and there have been significant changes in the medicinal requirements of the Indians.

The manufacturing base in India is also strong enough to support the major international pharmaceutical companies from the performance perspective.

This may be said as the Indian pharmaceutical market is varied as well as economical. It is expected that in the coming years the Indian pharmaceutical companies would be executing more mergers and acquisitions. It is expected that the regulated pharmaceutical markets in the United States and Europe would be the main areas of operation.

In the recent years the Indian pharmaceutical companies have been venturing into mergers and acquisitions so that they can gain access to the big names of the international pharmaceutical scenario.

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Patterns of Mergers and Acquisitions in Pharmaceutical Sector

One of the major features of the mergers and acquisitions in the pharmaceutical sector of the Asia-Pacific region has been the integration of the local pharmaceutical companies. This has happened especially in India and China. Acquisition has made it convenient for a number of companies to do business in various pharmaceutical markets. Previously the pharmaceutical markets of Europe were closed to the companies of other countries due to the difference in language. There were also other problems for companies like the trade barriers for instance. Figures of Mergers and Acquisitions in Pharmaceutical Sector

As per the figures of mergers and acquisitions in pharmaceutical sector, from the year 2004, there have been more mergers and acquisitions in the pharmaceutical sector in the Asia-Pacific region compared to North America. The combined financial value of the mergers and acquisitions in Asia-Pacific region has been greater than North America. One of the major merger and acquisition deals in the Asia-Pacific region in the recent years has been the merger of Fujisawa and Yamanouchi in Japan.

This deal was worth $7.9 billion. In the same period the Asia-Pacific region has experienced the highest percentage of growth in the mergers and acquisitions in pharmaceutical sector. In the same period the rate of growth in the Asia-Pacific region has been 37%. In Western Europe the rate of growth has been 11% and in North America it has been 20%. The pharmaceutical market in Eastern Europe has not experienced any increase in the rate of mergers and acquisitions.

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Mergers and Acquisitions in Global Pharmaceutical Sector

Since the year 2004 there has been an increase in the mergers and acquisitions in the global pharmaceutical sector. This was reflective of the increase in the mergers and acquisitions in other industries at the same period. There was 20% increase in the number of deals, which stood at 1,808. There were eight deals with the value of more than $1 billion. This was three more than 2003. The total financial value of the deals was $112 billion and this was an increase of 53%. However, these figures do not include the acquisition of Aventis by Sanofi-Synthelabo that was worth $60 billion. This is the biggest acquisition in the pharmaceutical industry after the merger of Pharmacia and Pfizer in 2002.

Recent Mergers and Acquisitions

Mergers and Acquisitions have been very common incidents since the turn of the 20th century. These are used as tools for business expansion and restructuring.

Through mergers the acquiring company gets an expanded client base and the acquired company gets additional lifeline in the form of capital invested by the purchasing company.

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Change in scenario of Banking Sector

1. The first mega merger in the Indian banking sector that of the HDFC Bank with Times Bank, has created an entity which is the largest private sector bank in the country.

2. The merger of the city bank with Travelers Group and the merger of Bank of America with Nation Bank have triggered the mergers and acquisition market in the banking sector worldwide.

3. Europe and Japan are also on their way to restructure their financial sector thought merger and acquisitions. Merger will help banks with added money power, extended geographical reach with diversified branch Network, improved product mix, and economies of scale of operations. Merger will also help banks to reduced them borrowing cost and to spread total risk associated with the individual banks over the combined entity. Revenues of the combine entity are likely to shoot up due to more effective allocation of bank funds.

4. ICICI Bank has initiated merger talks with Centurion Bank but due to difference arising over swap ration the merger didn·t materialized. Now UTI Bank is egeing Centurion Bank.

The proposed merger of UTI Bank and Centurion Bank will make them third largest private banks in terms of size and market Capitalization State Bank of India has also

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planned to merge seven of its associates or part of its long-term policies to regroup and consolidate its position. Some of the Indian Financial Sector players are already on their way for mergers to strengthen their existing base.

5. In India mergers especially of the PSBS may be subject to technology and trade union related problem. The strong trade union may prove to be big obstacle for the PSBS mergers. Technology of the merging banks to should complement each other NPA management. Management of efficiency, cost reduction, tough competition from the market players and strengthen of the capital base of the banks are some of the problem which can be faced by the merge entities. Mergers for private sector banks will be much smoother and easier as again that of PSBS.

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CASE STUDY

Acquisition of Jaguar & Land Rover by Tata Motors

INTRODUCTION

We have been learning about the companies coming together to form another company and companies taking over the existing companies to expand their business.

With recession taking toll of many Indian businesses and the feeling of insecurity surging over our businessmen, it is not surprising when we hear about the immense numbers of corporate restructurings taking place, especially in the last couple of years. Several companies have been taken over and several have undergone internal restructuring, whereas certain companies in the same field of business have found it beneficial to merge together into one company.

In this context, it would be essential for us to understand what corporate restructuring and mergers and acquisitions are all about.

All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs, tender offers, & other forms of corporate restructuring. Thus important issues both for business decision and public policy formulation have been raised. No firm is regarded safe from a takeover possibility. On the more positive side Mergers & Acquisitions may be critical for the healthy expansion and growth of the firm. Successful entry into new product and geographical markets may require Mergers & Acquisitions at some stage in the firm's development.

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The objectives of our caselet can be described as:

1. To understand the pros and cons of Mergers and Acquisitions. 2. To understand the legal formalities undertaken in the acquisition process.

WHAT IS LAW? 

Law denotes rules and principles either enforced by an authority or self imposed by the members of a society to control and regulate people·s behavior with a view to securing justice, peaceful living and social security.  Mercantile law is that branch of law which comprises law concerning trade, industry and commerce.

INDIAN CONTRACT ACT, 1872

A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law. Section 2(h) defines a contract as an agreement enforceable by law. Contract= Agreement + Enforceability at law Section2 (e) defines every promise and every set of promise forming consideration for each other as an agreement. Agreement= Offer+ Acceptance And, Agreement=Social agreement + Legal agreement

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Offer and Acceptance Legal Formalities Possibility of performance Certainty of object

Legal Relationship Lawful Consideration Competency Capacity Free Consent

Essential Elements of Merger & Acquisition

Legality of object

MERGER

Merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, the surviving company is the buyer, which retains its identity, and the extinguished company is the seller. Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of:

y y y y

Equity shares in the transferee company, Debentures in the transferee company, Cash, or A mix of the above modes.

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ACQUISITON

Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company. Methods of Acquisition: An acquisition may be affected by: (f) agreement with the persons holding majority interest in the company management like members of the board or major shareholders commanding majority of voting power; (g) purchase of shares in open market; (h) to make takeover offer to the general body of shareholders; (i) purchase of new shares by private treaty; Acquisition of share capital through the following forms of considerations viz. means of cash, issuance of loan capital, or insurance of share capital

ACQUISITION PROCESS

The acquisition process can be divided into a planning stage and an implementation stage. The planning stage consists of the development of the business and the acquisition plans. The implementation stage consists of the search, screening, contacting the target, negotiation, integration. Process of acquisition can be in the following steps:

1. Developing the business plan A merger or acquisition decision is a strategic choice. The acquisition strategy should fit the company·s strategic goals of increasing the cash flows and reduce risk.

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Business plan communicates a mission or a vision for the firm and a strategy for achieving that mission.

Business plan consists of the following activities:

y

Determining where to compete i.e. the industry or the market in which the firm desires to compete.

y

Determining how to compete. An external analysis can be made to determine how the firm can most effectively compete in its chosen market.

y

Self assessment of the firm by conducting an internal analysis of the firm·s strengths and weaknesses relative to the competition.

y

Defining the mission statement by summarizing where and how the firm has chosen to compete

y

Setting objectives by developing competitive measures of performance.

y

Selecting the most likely strategy to achieve the objectives within a reasonable time period subject to the constraints in the self assessment.

The strategic planning process identifies the company·s competitive position and sets objectives to exploit its relative strengths while minimizing the effects of its weaknesses.

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2. The Search Process The search for the potential acquisition takes place in two stages:-

y

It involves establishing a primary screening process. The primary criteria based on which the search process is based include factors like the industry, size of the transaction and the geographic location. The size of the transaction is best defined in terms of the maximum purchase price of a firm is willing to pay.

y

This involves developing the search strategy. It uses computerized database and directory services to identify the prospective candidates.

The screening process the screening process starts with the reduction of the initial list of potential candidates identified by using the primary criteria such as the size and the type of industry.

First contact it involves meeting the acquisition candidate and putting forward the proposal of acquisition. It depends on the size of the company and whether it is publicly or privately held.

3. Preliminary legal documents y y Confidentiality agreement Letter of intent

4. Negotiation Process consists of many activities conducted simultaneously by various members of the acquisition team. The actual purchase consideration is determined during this phase.

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Defining the purchase price: The purchase consideration can be defined in y y y The total consideration Total purchase price The net purchase price

5. Structuring the deal It involves meeting the needs of both parties by dealing with issues of risk and reward by legal, tax and accounting structures. Due diligence required by law

y

According to Cadbury report, the due diligence report is required for acquisitions because the full board of directors of the purchasing company should review significant acquisitions.

y

In India, a merchant banker has to conduct due diligence to ensure the acquirer·s financial position and chance of implementation of terms of merger condition by the parties by giving a due diligence certificate to the SEBI.

y

In a merger, both the parties will conduct due diligence. Due diligence can be conducted from different perspectives.

Financial ² historical records, review of management and systems. Legal- various contractual acts in the country Commercial ²market conditions Tax- existing tax levels, liabilities and arrangements.

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Management ²mgmt quality, organizational structure

6. Closing the Deal

Closing is the final legal procedure where the company changes hands. It consists of all necessary shareholder, regulatory and third party. All the necessary approvals are attained at this stage. Conditions for closing Certain pre conditions set in the definitive agreement have to meet before the close of the contract. The pre conditions include the assumption that the seller would abide by the representations and warranties and will live up to the obligations.

Documents required completing the transaction of a merger or an acquisition is:-

y y y y y y

Loan agreements, trademarks and trade names Supplier and customer contracts Distributor and sales representative agreements Insurance policies and claim pending Articles of incorporation, bylaws and corporate seals. Employee incentive programs

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TATA GETS JAGUAR AND ROVER UNDER ITS PAW!

ABSTRACT

Creating history, India·s top corporate Tata·s on Wednesday acquired luxury auto brands³ Jaguar and Land Rover³from Ford Motors for $ 2.3 billion, stamping their authority as a takeover tycoon. Beating compatriot Mahindra and Mahindra for the prestigious brands on 2nd June 2008 announced the deal they signed with Ford, which on its part would chip in $600 million towards JLR·S pension plan. ´We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive businessµ, Group Chairman Ratan Tata said after making the deal public. Tata Motors' acquisition of two iconic British brands - Jaguar and Land Rover - was finally completed. Well, it is true that their immediate previous owners were American, but the flavor of the two companies continues to be very Brit. Tata has acquired the two companies for about half the price that Ford paid their original owners when the latter acquired them in 1989. Though that sounds like a good deal, it is not going to be all rosy for Tata Motors after the acquisition. The real work starts now for this global Indian, trying to pull together the two brands and making them more profitable while still being weighed down by their historical issues. Jaguar and Land Rover are both special, super premium brands that have a huge fan

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following. The ownership of the two brands has changed hands, but the brands themselves will remain untarnished. And Tata Motors itself has just become more global. Calls to separate the passenger car business from the rest of the company will only get shriller now.

Tata Motors is now officially the proud parent of the Jaguar, and its sister Land Rover. The deal is a fulfillment of Mr. Tata·s personal vision and is intended to catapult Tata Motors, the owner of the cute li·l Nano, into the global big league of auto majors. It will also reinforce the global perception of India Inc as a leader in international business, and not just in IT. Yet, the final lap of Group Tata·s long-drawn-out bid to acquire Jaguar-Land Rover (JLR) from Ford for $2.3 billion in cash was a bit of an anti-climax. Compared with the Corus deal, this was almost hush-hush. In open-for-business Britain, the headlines are already calling the Tata·s the ¶Corus owners·, and not the ¶Indian auto company·. The key challenge for the new owner of Jaguar and Land Rover will be to grow and maintain sales of the two brands in a global downturn and credit crunch. Tata Motors will have to commit significant managerial and financial resources to engineer a turnaround. It will have to significantly step up its R&D budget as well as increase operating expenditure and capital expenditure to meet JLR·s requirements. Auto analysts tracking the development say the acquisition was just the first step; the real challenge lies in running JLR. The acquisition cost of $2.3 billion is financed by a bridge loan, which will be raised through a syndicate of banks. The bridge money will be replaced by a combination of long-term debt and equity at an appropriate time. The company will raise funds to finance its equity contribution by selling a portion of its stake in some of its subsidiaries in the next few months. Largest crossborder auto takeover SOURCES indicate that initially two joint ventures with Hitachi for axles and transmission³ HVAL and HVTL³and auto component maker TACO are some of the subsidiary companies Tata Motors is looking to divest. Citigroup and JPMorgan are the lead advisors to the deal, which is the largest cross-border auto acquisition by an Indian company. The deal is expected to close by the end of June 2008, subject

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to regulatory approvals and the achievement of financial closure. The transaction is significant for a number of reasons. Coming as it does amidst a global freeze in credit markets; it shows that top-notch Indian companies have the ability to raise large amounts of money at reasonably low rates of interest.

Besides the two US banks, the bridge loan is being underwritten by a consortium of eight banks ³ State Bank of India, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, ING, Mizuho and Standard Chartered. The loan has been structured in the form of step-up financing: for the first six months, the interest charge would be Libor (London Inter-Bank Offered Rate) plus 70 basis points and for the next six months, it would be 140 basis points over the benchmark rate. The six-month Libor is currently at 2.63%. The bridge loan is being raised by a special purpose vehicle ³ Tata Motors UK, which will own these two brands, banking sources said. Tata Motors UK is 100% owned by Tata Motors.

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THE COMPANY PROFILE:

TATA

Tata Motors Limited is India·s largest automobile company, with revenues of Rs. 35651.48 crores (USD 8.8 billion) in 2007-08. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world·s fourth largest truck manufacturer, and the world·s second largest bus manufacturer. The company·s 23,000 employees are guided by the vision to be ´best in the manner in which we operate best in the products we deliver and best in our value system and ethics.µ Established in 1945, Tata Motors· presence indeed cuts across the length and breadth of India. Over 4 million Tata vehicles ply on Indian roads, since the first rolled out in 1954. The company·s manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh) and Pantnagar

(Uttarakhand). Following a strategic alliance with Fiat in 2005, it has set up an industrial joint venture with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and Tata cars and Fiat powertrains. The company is establishing two new plants at Dharwad (Karnataka) and Sanand (Gujarat). The company·s dealership, sales,

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services and spare parts network comprises over 3500 touch points; Tata Motors also distributes and markets Fiat branded cars in India. Tata Motors, the first company from India·s engineering sector to be listed in the New York Stock Exchange (September 2004), has also emerged as an international automobile company. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand and Spain. Among them is Jaguar Land Rover, a business comprising the two iconic British brands that was acquired in 2008. In 2004, it acquired the Daewoo Commercial Vehicles Company, South Korea·s second largest truck maker. The rechristened Tata Daewoo Commercial Vehicles Company has launched several new products in the Korean market, while also exporting these products to several international markets. Today two-thirds of heavy commercial vehicle exports out of South Korea are from Tata Daewoo. In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish bus and coach manufacturer, with an option to acquire the remaining stake as well. Hispano·s presence is being expanded in other markets. In 2006, it formed a joint venture with the Brazil-based Marcopolo, a global leader in body-building for buses and coaches to manufacture fully-built buses and coaches for India and select international markets. In 2006, Tata Motors entered into joint venture with Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market the company·s pickup vehicles in Thailand. The new plant of Tata Motors (Thailand) has begun production of the Xenon pickup truck, with the Xenon having been launched in Thailand at the Bangkok Motor Show 2008. Tata Motors is also expanding its international footprint, established through exports since 1961. The company·s commercial and passenger vehicles are already being marketed in several countries in Europe, Africa, the Middle East, South East Asia, South Asia and South America. It has franchisee/joint venture assembly operations in Kenya, Bangladesh, Ukraine, Russia and Senegal.

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The foundation of the company·s growth over the last 50 years is a deep understanding of economic stimuli and customer needs, and the ability to translate them into customer-desired offerings through leading edge R&D. With over 2,500 engineers and scientists, the company·s Engineering Research Centre, established in 1966, and has enabled pioneering technologies and products. The company today has R&D centers in Pune, Jamshedpur, Lucknow, in India, and in South Korea, Spain, and the UK. It was Tata Motors, which developed the first indigenously developed Light Commercial Vehicle, India·s first Sports Utility Vehicle and, in 1998, the Tata Indica, India·s first fully indigenous passenger car. Within two years of launch, Tata Indica became India·s largest selling car in its segment. In 2005, Tata Motors created a new segment by launching the Tata Ace, India·s first indigenously developed mini-truck In January 2008, Tata Motors unveiled its People·s Car, the Tata Nano, which India and the world have been looking forward to. A development, which signifies a first for the global automobile industry, the Nano brings the comfort and safety of a car within the reach of thousands of families. When launched in India later in 2008, the car will be available in both standard and deluxe versions. The standard version has been priced at Rs.100,000 (excluding VAT and transportation cost). Designed with a family in mind, it has a roomy passenger compartment with generous leg space and head room. It can comfortably seat four persons. Its mono-volume design will set a new benchmark among small cars. Its safety performance exceeds regulatory requirements in India. Its tailpipe emission performance too exceeds regulatory requirements. In terms of overall pollutants, it has a lower pollution level than twowheelers being manufactured in India today. The lean design strategy has helped minimize weight, which helps maximize performance per unit of energy consumed and delivers high fuel efficiency. The high fuel efficiency also ensures that the car has low carbon dioxide emissions, thereby providing the twin benefits of an affordable transportation solution with a low carbon footprint.

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The years to come will see the introduction of several other innovative vehicles, all rooted in emerging customer needs. Besides product development, R&D is also focusing on environment-friendly technologies in emissions and alternative fuels. Through its subsidiaries, the company is engaged in engineering and automotive solutions, construction equipment manufacturing, automotive vehicle components manufacturing and supply chain activities, machine tools and factory automation solutions, high-precision tooling and plastic and electronic components for automotive and computer applications, and automotive retailing and service operations. True to the tradition of the Tata Group, Tata Motors is committed in letter and spirit to Corporate Social Responsibility. It is a signatory to the United Nations Global Compact, and is engaged in community and social initiatives on labor and environment standards in compliance with the principles of the Global Compact. In accordance with this, it plays an active role in community development, serving rural communities adjacent to its manufacturing locations. With the foundation of its rich heritage, Tata Motors today is etching a refulgent future.

Tata Code of Conduct This comprehensive document serves as the ethical road map for Tata employees and companies, and provides the guidelines by which the group conducts its businesses. Clause: 1 National interest

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The Tata group is committed to benefit the economic development of the countries in which it operates. No Tata company shall undertake any project or activity to the detriment of the wider interests of the communities in which it operates. A Tata company·s management practices and business conduct shall benefit the country, localities and communities in which it operates, to the extent possible and affordable, and shall be in accordance with the laws of the land. A Tata company, in the course of its business activities, shall respect the culture, customs and traditions of each country and region in which it operates. It shall conform to trade procedures, including licensing, documentation and other necessary formalities, as applicable.

Clause: 2 Financial reporting and records

A Tata company shall prepare and maintain its accounts fairly and accurately and in accordance with the accounting and financial reporting standards which represent the generally accepted guidelines, principles, standards, laws and regulations of the country in which the company conducts its business affairs. Internal accounting and audit procedures shall reflect, fairly and accurately, all of the company·s business transactions and disposition of assets, and shall have internal controls to provide assurance to the company·s board and shareholders that the transactions are accurate and legitimate. All required information shall be accessible to company auditors and other authorized parties and government agencies. There shall be no willful omissions of any company transactions from the books and records, no advance-income recognition and no hidden bank account and funds.

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Any willful, material misrepresentation of and / or misinformation on the financial accounts and reports shall be regarded as a violation of the Code, apart from inviting appropriate civil or criminal action under the relevant laws. No employee shall make, authorize, abet or collude in an improper payment, unlawful commission or bribing.

Clause: 3 Competition

A Tata company shall fully support the development and operation of competitive open markets and shall promote the liberalization of trade and investment in each country and market in which it operates. Specifically, no Tata company or employee shall engage in restrictive trade practices, abuse of market dominance or similar unfair trade activities. A Tata company or employee shall market the company·s products and services on their own merits and shall not make unfair and misleading statements about competitors· products and services. Any collection of competitive information shall be made only in the normal course of business and shall be obtained only through legally permitted sources and means.

Clause: 4 Equal opportunities employer

A Tata company shall provide equal opportunities to all its employees and all qualified applicants for employment without regard to their race, caste, religion, color, ancestry, marital status, gender, sexual orientation, age, nationality, ethnic origin or disability.

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Human resource policies shall promote diversity and equality in the workplace, as well as compliance with all local labour laws, while encouraging the adoption of international best practices. Employees of a Tata company shall be treated with dignity and in accordance with the Tata policy of maintaining a work environment free of all forms of harassment, whether physical, verbal or psychological. Employee policies and practices shall be administered in a manner consistent with applicable laws and other provisions of this Code, respect for the right to privacy and the right to be heard, and that in all matters equal opportunity is provided to those eligible and decisions are based on merit.

Clause: 5 Gifts and donations

A Tata company and its employees shall neither receive nor offer or make, directly or indirectly, any illegal payments, remuneration, gifts, donations or comparable benefits that are intended, or perceived, to obtain uncompetitive favors for the conduct of its business. The company shall cooperate with governmental authorities in efforts to eliminate all forms of bribery, fraud and corruption. However, a Tata company and its employees may, with full disclosure, accept and offer nominal gifts, provided such gifts are customarily given and are of a commemorative nature. Each company shall have a policy to clarify its rules and regulations on gifts and entertainment, to be used for the guidance of its employees.

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Clause: 6 Government agencies

A Tata company and its employees shall not, unless mandated under applicable laws, offer or give any company funds or property as donation to any government agency or its representative, directly or through intermediaries, in order to obtain any favorable performance of official duties. A Tata company shall comply with government procurement regulations and shall be transparent in all its dealings with government agencies.

Clause: 7 Political Non-alignment

A Tata company shall be committed to and support the constitution and governance systems of the country in which it operates. A Tata company shall not support any specific political party or candidate for political office. The company·s conduct shall preclude any activity that could be interpreted as mutual dependence / favour with any political body or person, and shall not offer or give any company funds or property as donations to any political party, candidate or campaign.

Clause: 8 Health, safety and environment

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A Tata company shall strive to provide a safe, healthy, clean and ergonomic working environment for its people. It shall prevent the wasteful use of natural resources and be committed to improving the environment, particularly with regard to the emission of greenhouse gases, and shall Endeavour to offset the effect of climate change in all spheres of its activities. A Tata company, in the process of production and sale of its products and services, shall strive for economic, social and environmental sustainability.

Clause: 9 Quality of products and services

A Tata company shall be committed to supply goods and services of world class quality standards, backed by after-sales services consistent with the requirements of its customers, while striving for their total satisfaction. The quality standards of the company·s goods and services shall meet applicable national and international standards. A Tata company shall display adequate health and safety labels, caveats and other necessary information on its product packaging.

Clause: 10 Corporate citizenship

A Tata company shall be committed to good corporate citizenship, not only in the compliance of all relevant laws and regulations but also by actively assisting in the

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improvement of quality of life of the people in the communities in which it operates. The company shall encourage volunteering by its employees and collaboration with community groups. Tata companies are also encouraged to develop systematic processes and conduct management reviews, as stated in the Tata ¶corporate sustainability protocol·, from time to time so as to set strategic direction for social development activity. The company shall not treat these activities as optional, but should strive to incorporate them as an integral part of its business plan.

Clause:11 Cooperation of Tata companies

A Tata company shall cooperate with other Tata companies including applicable joint ventures, by sharing knowledge and physical, human and management resources, and by making efforts to resolve disputes amicably, as long as this does not adversely affect its business interests and shareholder value. In the procurement of products and services, a Tata company shall give preference to other Tata companies, as long as they can provide these on competitive terms relative to third parties.

Clause: 12 Public representation of the company and the group

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The Tata group honors the information requirements of the public and its stakeholders. In all its public appearances, with respect to disclosing company and business information to public constituencies such as the media, the financial community, employees, shareholders, agents, franchisees, dealers, distributors and importers, a Tata company or the Tata group shall be represented only by specifically authorized directors and employees. It shall be the sole responsibility of these authorized representatives to disclose information about the company or the group.

Clause: 13 Third party representation

Parties which have business dealings with the Tata group but are not members of the group, such as consultants, agents, sales representatives, distributors, channel partners, contractors and suppliers, shall not be authorized to represent a Tata company without the written permission of the Tata company, and / or if their business conduct and ethics are known to be inconsistent with the Code. Third parties and their employees are expected to abide by the Code in their interaction with, and on behalf of, a Tata company. Tata companies are encouraged to sign a nondisclosure agreement with third parties to support confidentiality of information.

Clause: 14 Use of the Tata brand

The use of the Tata name and trademark shall be governed by manuals, codes and agreements to be issued by Tata Sons. The use of the Tata brand is defined in and

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regulated by the Tata Brand Equity and Business Promotion Agreement. No third party or joint venture shall use the Tata brand to further its interests without specific authorization.

Clause:15 Group policies

A Tata company shall recommend to its board of directors the adoption of policies and guidelines periodically formulated by Tata Sons.

Clause: 16 Shareholders

A Tata company shall be committed to enhancing shareholder value and complying with all regulations and laws that govern shareholder rights. The board of directors of a Tata company shall duly and fairly inform its shareholders about all relevant aspects of the company·s business, and disclose such information in accordance with relevant regulations and agreements.

Clause:17 Ethical conduct

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Every employee of a Tata company, including full-time directors and the chief executive, shall exhibit culturally appropriate deportment in the countries they operate in, and deal on behalf of the company with professionalism, honesty and integrity, while conforming to high moral and ethical standards. Such conduct shall be fair and transparent and be perceived to be so by third parties. Every employee of a Tata company shall preserve the human rights of every individual and the community, and shall strive to honor commitments. Every employee shall be responsible for the implementation of and compliance with the Code in his / her environment. Failure to adhere to the Code could attract severe consequences, including termination of employment.

Clause: 18 Regulatory compliance

Employees of a Tata company, in their business conduct, shall comply with all applicable laws and regulations, in letter and spirit, in all the territories in which they operate. If the ethical and professional standards of applicable laws and regulations are below that of the Code, then the standards of the Code shall prevail.

Clause: 19 Concurrent employment

Consistent with applicable laws, an employee of a Tata company shall not, without the requisite, officially written approval of the company, accept employment or a position

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of responsibility (such as a consultant or a director) with any other company, nor provide freelance services to anyone, with or without remuneration. In the case of a full-time director or the chief executive, such approval must be obtained from the board of directors of the company.

Clause: 20 Conflict of interest

An employee or director of a Tata company shall always act in the interest of the company, and ensure that any business or personal association which he / she may have does not involve a conflict of interest with the operations of the company and his / her role therein. Independent directors of a Tata company shall comply with applicable laws and regulations of all the relevant regulatory and other authorities. As good governance practice they shall safeguard the confidentiality of all information received by them by virtue of their position, but they need not be bound by all other conflicts that are applicable to employees or executive directors, as indicated below. An employee, including the executive director (other than independent director) of a Tata company, shall not accept a position of responsibility in any other non-Tata company or not-for-profit organization without specific sanction. The above shall not apply to (whether for remuneration or otherwise): a) Nominations to the boards of Tata companies, joint ventures or associate companies. b) Memberships / positions of responsibility in educational / professional bodies, wherein such association will benefit the employee / Tata Company.

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c) Nominations / memberships in government committees / bodies or organizations. d) Exceptional circumstances, as determined by the competent authority. Competent authority, in the case of all employees, shall be the chief executive, who in turn shall report such exceptional cases to the board of directors on a quarterly basis. In case of the chief executive and executive directors, the Group Corporate Centre shall be the competent authority. An employee or a director of a Tata company shall not engage in any business, relationship or activity which might conflict with the interest of his / her company or the Tata group. A conflict of interest, actual or potential, may arise where, directly or indirectly« a) An employee of a Tata company engages in a business, relationship or activity with anyone who is party to a transaction with his / her company. b) An employee is in a position to derive an improper benefit, personally or to any of his / her relatives, by making or influencing decisions relating to any transaction. c) An independent judgment of the company·s or groups best interest cannot be exercised. The main areas of such actual or potential conflicts of interest shall include the following: a) An employee or a full-time director of a Tata company conducting business on behalf of his / her company or being in a position to influence a decision with regard to his / her company·s business with a supplier or customer where his / her relative is a principal officer or representative, resulting in a benefit to him / her or his / her relative.

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b) Award of benefits such as increase in salary or other remuneration, posting, promotion or recruitment of a relative of an employee of a Tata company, where such an individual is in a position to influence decisions with regard to such benefits. c) The interest of the company or the group can be compromised or defeated. Notwithstanding such or any other instance of conflict of interest that exist due to historical reasons, adequate and full disclosure by interested employees shall be made to the company·s management. It is also incumbent upon every employee to make a full disclosure of any interest which the employee or the employee·s immediate family, including parents, spouse and children, may have in a family business or a company or firm that is a competitor, supplier, customer or distributor of or has other business dealings with his / her company. Upon a decision being taken in the matter, the employee concerned shall be required to take necessary action, as advised, to resolve / avoid the conflict. If an employee fails to make the required disclosure and the management of its own accord becomes aware of an instance of conflict of interest that ought to have been disclosed by the employee, the management shall take a serious view of the matter and consider suitable disciplinary action against the employee.

Clause: 21 Securities transactions and confidential information

An employee of a Tata company and his / her immediate family shall not derive any benefit or counsel, or assist others to derive any benefit, from access to and possession

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of information about the company or group or its clients or suppliers that is not in the public domain and, thus, constitutes unpublished, price-sensitive insider information. An employee of a Tata company shall not use or proliferate information that is not available to the investing public, and which therefore constitutes insider information, for making or giving advice on investment decisions about the securities of the respective Tata company, group, client or supplier on which such insider information has been obtained. Such insider information might include (without limitation) the following:
y y y y y y y y

Acquisition and divestiture of businesses or business units. Financial information such as profits, earnings and dividends. Announcement of new product introductions or developments. Asset revaluations. Investment decisions / plans. Restructuring plans. Major supply and delivery agreements. Raising of finances.

An employee of a Tata company shall also respect and observe the confidentiality of information pertaining to other companies, their patents, intellectual property rights, trademarks and inventions; and strictly observe a practice of non-disclosure.

Clause: 22 Protecting company assets

The assets of a Tata company shall not be misused; they shall be employed primarily and judiciously for the purpose of conducting the business for which they are duly

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authorized. These include tangible assets such as equipment and machinery, systems, facilities, materials and resources, as well as intangible assets such as information technology and systems, proprietary information, intellectual property, and

relationships with customers and suppliers.

Clause: 23 Citizenship

The involvement of a Tata employee in civic or public affairs shall be with express approval from the chief executive of his / her company, subject to this involvement having no adverse impact on the business affairs of the company or the Tata group.

Clause: 24 Integrity of data furnished

Every employee of a Tata company shall ensure, at all times, the integrity of data or information furnished by him/her to the company. He/she shall be entirely responsible in ensuring that the confidentiality of all data is retained and in no circumstance transferred to any outside person/party in the course of normal operations without express guidelines from or, the approval of the management.

Clause: 25 Reporting concerns

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Every employee of a Tata company shall promptly report to the management, and / or third-party ethics helpline, when she / he becomes aware of any actual or possible violation of the Code or an event of misconduct, act of misdemeanor or act not in the company·s interest. Such reporting shall be made available to suppliers and partners, too. Any Tata employee can choose to make a protected disclosure under the whistleblower policy of the company, providing for reporting to the chairperson of the audit committee or the board of directors or specified authority. Such a protected disclosure shall be forwarded, when there is reasonable evidence to conclude that a violation is possible or has taken place, with a covering letter, which shall bear the identity of the whistleblower. The company shall ensure protection to the whistleblower and any attempts to intimidate him / her would be treated as a violation of the Code.

The TATA - Values and purpose

Purpose

At the Tata group our purpose is to improve the quality of life of the communities we serve. We do this through leadership in sectors of economic significance, to which the group brings a unique set of capabilities. This requires us to grow aggressively in focused areas of business.

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Our heritage of returning to society what we earn evokes trust among consumers, employees, shareholders and the community. This heritage is being continuously enriched by the formalization of the high standards of behavior expected from our employees and companies. The Tata name is a unique asset representing leadership with trust. Leveraging this asset to enhance group synergy and becoming globally competitive is our chosen route to sustained growth and long-term success.

Core values

The Tata group has always been a values-driven organization. These values continue to direct the group's growth and businesses. The five core Tata values underpinning the way we do business are:
y

Integrity: We must conduct our business fairly, with honesty and transparency. Everything we do must stand the test of public scrutiny.

y

Understanding: We must be caring, show respect, compassion and humanity for our colleagues and customers around the world, and always work for the benefit of the communities we serve.

y

Excellence: We must constantly strive to achieve the highest possible standards in our day-to-day work and in the quality of the goods and services we provide.

y

Unity: We must work cohesively with our colleagues across the group and with our customers and partners around the world, building strong relationships based on tolerance, understanding and mutual cooperation.

y

Responsibility: We must continue to be responsible, sensitive to the countries, communities and environments in which we work, always ensuring that what comes from the people goes back to the people many times over.

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Company Profile:

The Ford Motor Company (NYSE: F) is an American multinational corporation and the world's fourth largest automaker based on worldwide vehicle sales, following Toyota, General Motors, and Volkswagen. Based in Dearborn, Michigan, a suburb of Detroit, the automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford, Lincoln, and Mercury brands, Ford also owns Volvo Cars of Sweden, and a small stake in Mazda of Japan and Aston Martin of England. Ford's former UK subsidiaries Jaguar and Land Rover were sold to Tata Motors of India in March 2008. In 2007, Ford fell from the second-ranked automaker to the third-ranked automaker in US sales for the first time in 56 years, behind General Motors and Toyota. Based on 2007 global sales, Ford fell to the fourth-ranked spot behind Volkswagen. Ford is the seventh-ranked overall American-based company in the 2007 Fortune 500 list, based on global revenues in 2007 of $172.5 billion. In 2007, Ford produced 6.553 million automobiles and employed about 245,000 employees at around 100 plants and facilities worldwide. Also in 2007, Ford received more initial quality survey awards from J. D. Power and Associates than any other automaker. Five of Ford's vehicles ranked at the top of their categories and fourteen vehicles ranked in the top three.

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Ford introduced methods for large-scale manufacturing of cars and large-scale management of an industrial workforce using elaborately engineered manufacturing sequences typified by moving assembly lines. Henry Ford's methods came to be known around the world as Fordism by 1914. Corporate governance: Members of the board as of early 2007 are: Chief Sir John Bond, Richard Manoogian, Stephen Butler, Ellen Marram, Kimberly Casiano, Alan Mulally (President and CEO), Edsel Ford II, Homer Neal, William Clay Ford Jr., Jorma Ollila, Irvine Hockaday Jr., John L. Thornton and William Clay Ford (Director Emeritus).[7] The main corporate officers are: Lewis Booth (Executive Vice President, Chairman (PAG) and Ford of Europe), Mark Fields (Executive Vice President, President of The Americas), Donat Leclair (Executive Vice President and CFO), Mark A. Schulz (Executive Vice President, President of International Operations) and Michael E. Bannister (Group Vice President; Chairman & CEO Ford Motor Credit). Paul Mascarenas (Vice President of Engineering, the Americas Product Development).

Our Progress We get it. We need a new way of doing business. You'll be glad to know Ford has been making great progress « we're sure you will agree.

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Ford Motor Company, Honda Motors and Toyota Motors quality ratings are in a dead heat.

Our cars, trucks and SUVs deliver fuel economy that's competitive with that of all other automakers.

EVENTS OF THE TATA-FORD DEAL

1. FORD STARTS FACING PROBLEM WITH PENSION COSTS AND FALLING SALES IN NORTH AMERICA.

Ford has been forced to sell two company·s based at Solihill and Castle Bromwich in the West Midlands and Halewood on Merseyside in order to concentrate on it·s lossmaking core US car business, which it hopes to turn around in the next two years. The largest loss of a $127 billion, overseen by Allan Mullay, who took over as a Chief Executive Officer in the same year, decided to sell its iconic Aston Martin Brand to a U.K based investment consortium in a deal worth $955.2 million in 2007. Ford mission became to integrate the Ford brand globally, and create a strong Ford motor company that delivers profitable growth to all.

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2. FORD INDICATES THAT IT MIGHT LOOK FOR BUYERS FOR JAGUAR AND LAND ROVER MARQUES

After the losses drained out cash and resources out of the Ford Company, Ford Motor gave a lucid indication for buyers of its two other brands- Jaguar and Land Rover, as luxury car sales went down across the globe. Jaguar sales dropped 33% in the US and Europe in the first two months of the year while Land Rover sales fell 13% in the US and 7.7% in Europe during the period. Ford bought Jaguar for $2.5 billion in 1989 and Land Rover for $2.7 billion in 2000. But it has been struggling and wants to focus on its main brands. It has now sold the marques for less than what it paid then.

3. TATA CONFIRMS THE NEWS TO PARTICIPATE IN THE BID The head of India's Tata conglomerate confirmed Friday that his group was interested in bidding for luxury UK car brands Jaguar and Land Rover, in an interview with an Indian news channel. Tata Motors, India's biggest car company, has appointed advisors to evaluate a bid and signed a confidentiality agreement with Ford to access financial details of the two brands which have a combined British workforce of 19,000, the Business Standard daily quoted unnamed sources as saying last month. The move would be in keeping with Tata group's growing appetite for overseas acquisitions.

4. MAHINDRA-MAHINDRA FAILED TO MAKE IN TO BID Mahindra & Mahindra has pulled out of the race to acquire iconic British brands Jaguar and Land Rover, which have been put on the block by Ford, citing complexities in the way the deal was structured. The development strengthened the case for Tata Motors, which is now pitted against private equity firm One Equity Partners that has roped in

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former Ford boss Jacques Nasser as an advisor. Sources close to the negotiations said M&M ³ though a serious contender in the beginning ³ decided against pursuing the deal as there were concerns related to Intellectual Property Rights (IPR) associated with the two brands. "The whole deal was considered to be very complex, prompting the company not to pursue it," a source said. M&M thought that it would have to go back to Ford on many crucial issues related to use of technology even after bagging the two brands. Crucial IPRs related to the brands are locked in with the US auto major, making it difficult for the eventual winner to "derive full benefits unhindered and Ford's continuing involvement was a crucial concern".

5. FORD ANNOUNCES TATA AS ´PREFERRED BUYERµ. On 1 January 2008, Ford made a formal announcement which declared Tata as the preferred bidder. Tata Motors also received endorsements from the Transport and General Worker's Union (TGWU)-Amicus combine as well as from Ford. According to the rules of the auction process, this announcement would not automatically disqualify any other potential suitor. However, Ford (as well as representatives of Unite) would now be able to enter into more focused and detailed discussions with Tata to iron out issues ranging from labour concerns (job security and pensions), technology (IT systems and engine production) and intellectual property as well as the final sale price. Ford would also open its books for a more comprehensive diligence by Tata. On 18 March 2008, Reuters reported that American bankers Citigroup and JP Morgan shall be due underwriting a loan of USD 3 billion in order to finance the deal.

6. EUROPEAN COMMISION CLEARS ACQUISITION OF JAGUAR AND LAND ROVER BY INDIAN COMPANY, TATA MOTORS.

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On 26th April 2008, The European Commission (EC), the executive panel of the 27member European Union, cleared the acquisition of the Jaguar and Land Rover business (JLR) of US-based Ford Motor Company by India's Tata Motors Ltd the EC announced in Brussels. That it has granted clearance under the EU Merger Regulation Procedure.

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THE DEAL

The definitive agreement was agreed by Tata Motor·s Ltd., on 26th March 2008 to acquire luxury British marquees, Jaguar and Land Rover.

The all-cash deal, which was agreed in March, includes all necessary intellectual property rights, manufacturing plants, two advanced design centers in the UK and a worldwide network of sales companies. Included in the deal were the rights to three other British brands, Jaguar's own Daimler, as well as two dormant brands Lanchester and Rover. On 2 June 2008 the sale to Tata was completed by both parties

TRANSITION SUPPORT

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Other areas of transition support from Ford include IT, accounting and access to test facilities. The companies will also cooperate in areas such as design and development through sharing of platforms and joint development of hybrid technologies and power train engineering, Tata Motors said. TIMELINE OF THE HISTORIC DEAL

2005

Ford starts facing problems with pension and health care costs and falling sales in North America. Starts reporting losses from the second quarter

2006

Alan Mullaly takes over as chief executive and oversees a $12.7 billion loss, the largest in the company's history Ford decides to sell its Aston Martin brand

May, 2007

Ford closes the Aston Martin sale for $848 million

June, 2007

Ford indicates that it might look at buyers for Jaguar and

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Land Rover marquees

July, 2007

Ford receives preliminary bids for the brands. Reports say that TPG Inc., Cerberus Capital Management Lp. Ripplewood Holdings, One Equity Partners Llc are in the fray, along with Tata Motors Ltd and Mahindra & Mahindra

August, 2007

Ratan Tata, chairman of Tata Motors Ltd, confirms that his company was bidding for the premium car Makers

November, 2007

Investment bankers say that Apollo Alternative Assets is teaming up with Mahindra & Mahindra Reports say that Ford has shortlisted three bidders³Tata, Mahindra and One Equity³for further negotiations with its trade unions Unite, the trade union representing Land Rover and Jaguar workers, says it supports Tata Motors' bid

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December, 2007

The three bidders submit their bid

January , 2008

Ford names Tata as "preferred buyer"

March, 2008

Tata, Ford sign deal

June, 2008

Deal finally completed by both the parties.

STUDENT·S ANALYSIS

y

OFFER AND ACCEPTANCE

Offer and acceptance: there must be two parties to an agreement, i.e., one party making the offer and the other party accepting it. The terms of the offer must be definite and the acceptance of the offer must be absolute and unconditional. The acceptance must also be according to the mode prescribed and must be communicated to the offeror. The deal was offered by Tata and finally accepted on 2nd June 2008 by William Clay Ford (Chairman of Ford) and Allan Mulally (CEO of Ford)

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OFFER BY TATA

ACCEPTANCE BY FORD

y

LEGAL RELATIONSHIP

Intention to create legal relationship: When the two parties enter into an agreement, their intention must be to create a legal relationship between them. If there is no such intention on the part of the parties, there is no contract between them. Both the parties have the intention to create legal Relationship between them and were agreed to legalize the deal in written

y

LAWFUL CONSIDERATION

1. Lawful consideration: An agreement to be enforceable by law must be supported by consideration. ¶Consideration· means an advantage or benefit moving from one party to another. It is the essence of a bargain. In simple words, it means ¶something in return·. The agreement is legally enforceable only when both the parties give something and get something in return. Consideration need not necessarily be in cash or kind. It may be an act, abstinence, or promise to do or not to do something. It may be past, present or future. But it must be real and lawful. Consideration is lawful in the deal. Mr. Ratan Tata (Chairman of Tata) gets the Ford Company as his consideration.

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y

CAPACITY OR COMPETENCY OF PARTIES

Capacity of parties- competency: The parties to the agreement must be capable of entering into a valid contract. Every person is competent to contract if he (a) is the age of majority, (b) is of sound mind, and (c) is not disqualified from contracting by any law to which he is subject.

There are three conditions that are required for a party to become competent to contract were fulfilled:-Both the parties attains the age of majority at the time of contract. -Both the parties are of sound mind -Both Tata and Ford were not disqualified by any law from signing any contract.

y

FREE CONSENT

Free and genuine consent: It is essential to the creation of every contract that there must be free and genuine consent of the parties to the agreement. The consent of the parties is said to be free when they are of the same mind on all the material terms of the contract. The parties are said to be of the same mind when they agree about the subject matter of the contract in the same sense and at the same time. There is absence of free consent if the agreement is induced by coercion, undue influence, fraud, misinterpretation, etc.

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In this case the consent of both the parties are free i.e. It is not caused by‡ Coercion ‡ Undue Influence ‡ Fraud ‡ Misrepresentation ‡ Mistake

Thus the contract is genuine.

y

LEGALITY OF OBJECT

Lawful object: The object of the agreement must be lawful. In other words, it means that the object must not be (a) illegal, (b) immoral, or (c) opposed to public policy. If an agreement suffers from any legal flaw, it would not be enforceable by law.

In Tata Ford deal nothing was illegal, immoral or opposed to public policy hence legality of object criteria also got fulfilled.

y

POSSIBILITY OF PERFORMANCE

Certainty and possibility of performance: The agreement must be certain and not vague or indefinite. If it is vague and it is not possible to ascertain its meaning, it

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cannot be enforced. The term of the agreement must also be such as are capable of performance. Agreement to do an act impossible in itself cannot be enforced. In this deal both the parties were perform their respective promises so the deal is successful.

y

LEGAL FORMALITIES

Legal formalities: A contract may be made by words spoken or written. As regards the legal effects, there is no difference between a contract by writing and a contract made by word of mouth. It is in the interest of the parties that the contract should be in the writing. There are some other formalities also which have to be complied with in order to make an agreement legally enforceable. In some cases, the document in which the contract is incorporated is to be stamped. In some other cases, a contract, besides being a written one, has to be registered. Thus, where there is a statutory requirement that a contract should be made in writing or should be made in the presence of witnesses or registered, the required statutory formalities must be compiled with. In this deal all the legal formalities like registration etc. are fulfilled hence the deal is successful.

Thus, all the elements which are essential for an agreement to become a contract are present.

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Conclusions

The following conclusions have been drawn from the study: 1. Post- liberalization, most Indian business houses are undergoing major structural changes, the level of restructuring activity is increasing rapidly and the consolidations through M&A have reached every corporate boardroom.

2. Most of the mergers that took place in India during the last decade seemed to have followed the consequence of mergers in India corroborate the conclusions of research work in U.S. with most of the M&A are taking place in India to improve the size to withstand international competition which they have been exposed to in the Post-liberalization regime.

3. The M&A activity is undertaken with the objective of financial restructuring and to avail of the benefits of financial restructuring. Nowadays, before financial restructuring, it has become a pre-requisite that companies need to merge or acquire. Moreover, financial restructuring becomes easier because of M&A. the small companies cannot approach international markets without becoming big i.e. without merging or acquiring.

4. Market capitalalisation of a company sometimes is found to be going up or down without any corresponding change in the EVA and MVA since the stock may be strong because of the general bullish scenario in the market, s is observed in most of the cases in our study.

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BIBLIOGRAPHY

Books: - Merger, Acquisition and corporate restructuring in India (Rachna Jawa)

Financial services 3rd edition (M.Y.khan)

Website:

www.google.com www.wikipedia.com www.icicidirect.com www.mergersindia.com www.mergerdigest.com www.deustchbank.com

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