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SUBMITTED BY: CHETAN OSWAL MFM SEM - V (2010-2011) ROLL NO. 30
PROJECT GUIDE: PROF. ASHOK RAINA
LALA LAJPATRAI INSTITUE OF MANAGEMENT, MUMBAI
SUBMITTED TO: UNIVERSITY OF MUMBAI (2010 ² 2011)
PROJECT GUIDE CERTIFICATE FORM
This is to certify that the dissertation submitted in partial fulfillment of the requirement for the award of MFM of the University of Mumbai is a result of the bonafide work carried out by Mr. Oswal Chetan Amar under my supervision and guidance no part of this report has been submitted for award of any other degree, diploma fellowship or other similar titles or prizes. The work has also not been published in any scientific journals/ magazines.
Date: Place: Mumbai
Name: Oswal Chetan Amar Roll No.: M.F.M-30
I would like to express my since re gratitude to my internal guide Prof. Ashok Raina, for his continuing support during and after my field study. I
would also like to thank my Co-ordinator Prof. M.L.Narendran, and Director of our College, for creating confidence in me and the management of, for supporting me in my Endeavour towards education. I would also like to thank all the contributors for my project from various sources for providing me with this stimulating opportunity and encouragement to explore and study practical aspects on analytical study on working of Merger & Acquisition.
(Chetan A. Oswal)
NO. LATEST NEWS ON MERGERS & ACQUISATIONS -3- . 5²9 10 ² 18 19 ² 34 35 ² 43 5.CONTENTS SR. 3. 2. CASE STUDY A) DAILMER BENZ & CHRYSTER B) RENAULT & VOLVO C) FORD & VOLVO 44 ² 51 52 ² 57 58 ² 65 66 6. PARTICULARS EXECUTIVE SUMMARY CLASSIFICATION OF MERGER MOTIVE BEHIND MERGER & ACQUISATION WHY MERGERS & ACQUISATIONS DO NOT SUCEED? PAGE NO. 1. 4.
1. PARTICULARS STAGES OF MERGER MAGIC CIRCLE FOR A SUCESSFUL MERGER MOTOR VEHICLE & PARTS MANUFACTURING FOR CROSS BORDER MERGER & ACQUISATION PAGE NO. 3. 2.LIST OF TABLES SR. NO. 2. PARTICULARS LARGEST MERGER & ACQUISATION TOP 10 ACQUISATIONS PAGE NO. 22 26 43 -4- . NO. 1. 39 40 LIST OF CHARTS SR.
One form of protection against a hostile takeover is the shareholder rights plan. In the United States. Such stories only confirm the popularity of this vehicle. otherwise known as the "poison pill". Mergers and acquisitions (M&A) have emerged as an important tool for growth for Indian corporates in the last five years. Merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. -5- . licensing and synergising of energies. Acquisitions can also happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market against the wishes of the target's board.EXECUTIVE SUMMARY Industrial maps across the world have been constantly redrawn over the years through various forms of corporate restructuring. including joint ventures. There are 15 different types of actions that a company can take when deciding to move forward using M&A. There are stories of successes and failures in mergers and acquisitions. with companies looking at acquiring companies not only in India but also abroad. The term "mergers & acquisitions (M&As)" encompasses a widening range of activities. Usually mergers occur in a consensual (occurring by mutual consent) setting where executives from the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. Industries facing excess capacity problems witness merger as means for consolidation. Industries with growth opportunities also experience M&A deals as growth strategies. business laws vary from state to state whereby some companies have limited protection against hostile takeovers. The most common method of such restructuring is Mergers and Acquisitions (M&A).
In an acquisition there are clear winners or losers. where one company splits into two. or a combination of cash and stock of the purchasing entity. or just cash. The terms "demerger.INTRODUCTION The words Mergers and Acquisitions are often used as an interchangeable term. whereas an acquisition is the straightforward purchase of a target company by another company. power is not negotiable. `Those who hold the title also hold the pen to draw the organisational chart'. What is a Merger? A "merger" or "merger of equals" is often financed by an all stock deal (a stock swap). but is immediately surrendered to the new parent on completion of the deal. or just stock. a convenient but inaccurate usage. An acquisition occurs when an organization acquires sufficient shares to gain control/ownership of another organization. An acquisition (of un-equals. Acquisitions can also happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market against the wishes of the target's board. -6- . one large buying one small) can involve a cash and debt combination. An all stock deal occurs when all of the owners of the outstanding stock of either company get the same amount (in value) of stock in the new combined company. Merger is a legal process and one or more of the companies lose their identity. What is an Acquisition? In a layman·s language an ´acquisitionµ is one company acquiring a controlling interest in another company. the second often being a separately listed stock company if the parent was a stock company." "spin-off" or "spin-out" are sometimes used to indicate the effective opposite of a merger. Mergers refer to deals where two or more companies take virtually equal stakes in each other·s businesses.
The target Revlon was worth 5 times the acquirer. a company may acquire another company by issuing high -yield debt (high interest yield. Demerger It means hiving off or selling off a part of the company. Pantry Pride had to issue 2. Takeovers A takeover bid is the acquisition of shares carrying voting rights in a compa ny with a view to gaining control over the management. The combined company will be the borrower of the high -yield debt and it will be on its balance sheet. in a merger one of the two merged entities retains its identity whereas in the case of consolidation an entire new company is formed. The reason the debt carry a high yield is the risk involved. "junk" rated bonds) to raise funds (often referred to as a leveraged buyout).High-yield In some cases. but third party companies are willing to finance the deal for a high cost of capital (a high interest yield). Consolidation Technically speaking consolidation is the fusion of two existing companies into a new company in which both the existing companies extinguish. Examples In a 1985 merger between Pantry Pride and Revlon.1 billion dollars of high-yield debt to buy Revlon. It is a vertical split as a result of which one company gets split into two or more. The takeover process is unilateral and the offer or company decides the maximum price. -7- . The owner can not or does not want to risk his own money in the deal. Merger and Consolidation can be differentiated on the basis that. This may result in the combined company having a low shareholders' equity to loan capital ratio (equity ratio).
agree to go forward as a single new company rather than remain separately owned and operated. 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. even if it's technically an acquisition. DISTINCTION BETWEEN MERGERS AND ACQUISITIONS Although they are often uttered in the same breath and used as though they were synonymous. one company will buy another and. When one company takes over another and clearly established itself as the new owner. the purchase is called an acquisition. But when the deal is unfriendly . Being bought out often carries negative connotations.it is always regarded as an acquisition. as part of the deal's terms. both Daimler-Benz and Chrysler ceased to exist when the two firms merged. however. often of about the same size. In practice. In the pure sense of the term. was created.Amalgamation Halsbury·s Laws of England describe amalgamation as a blending of two or more existing undertaking into one undertaking." Both companies' stocks are surrendered and new company stock is issued in its place. and a new company. a merger happens when two firms. deal makers and top managers try to make the takeover more palatable. the target company ceases to exist.that is. simply allow the acquired firm to proclaim that the action is a merger of equals. the buyer "swallows" the business and the buyer's stock continues to be traded. the terms merger and acquisition mean slightly different things. by describing the deal as a merger. therefore. For example. actual mergers of equals don't happen very often. This kind of action is more precisely referred to as a "merger of equals. the shareholders of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertaking. DaimlerChrysler. Usually. when the target company does not want to be purchased . -8- . From a legal point of view.
Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words. -9- . the real difference lies in how the purchase is communicated to and received by the target company's board of directors. employees and shareholders.
The categories are: Horizontal Merger It is a merger of two or more competing companies. which are at the same stage of industrial process. Different motives can also be attached to these mergers.CLASSIFICATIONS OF MERGERS Mergers are generally classified into 5 broad categories. This also includes some group companies trying to restructure their operations by acquiring some of the activities of other group companies. The basis of this classification is the business in which the companies are usually involved. .10 - . implying that they are firms in the same business or industry.
Apart from cost reduction it also helps firms in industries like pharmaceuticals. they may cause stabilization in profit stream. where huge amounts are spent on R & D to achieve critical mass and reduce unit development costs. There is little evidence to dispute the claim that properly executed horizontal mergers lead to significant reduction in costs.The main motives behind this are to obtain economies of scale in production by eliminating duplication of facilities and operations. Vertical Mergers It is a merger of one company with another. cars. gain control over scarce raw materials supplies and in some case to avoid sales tax. enlarge debt capacity and to reduce risk by diversification. Conglomerate Mergers It is an amalgamation of 2 companies engaged in the unrelated industries.11 - . increase profitability by gaining the margins of the previous supplier/ distributor. which is involved. The main motives are to ensure ready take off of the materials. increase in market segments and exercise better control over the market. etc. in a different stage of production and/ or distribution process thus enabling backward integration to assimilate the sources of supply and / or forward integration towards market outlets. A horizontal merger brings about all the benefits that accrue with an increase in the scale of operations. The motive is to ensure better utilization of financial resources. gain control over product specifications. research. Economic gain arising out of a conglomerate is not clear. The argument in its favour is that in spite of the absence of economies of scale and complimentaries. . Much of the traditional analysis relating to economies of scale in production. elimination of competition. distribution and management is not relevant for conglomerates. It has evinced particular interest among researchers because of the general curiosity about the nature of gains arising out of them.
Market-extension merger Two companies that sell the same products in different markets. so as to bring some stability to cash flows. some amount of diversification is required. In such a merger. i.Even if one agrees that diversification results in risk reduction. Consolidation Mergers: It involves a merger of a subsidiary company with its parent.e. i. A concentric merger brings all the advantages of conglomeration without the side effects..arguments. as in production. especially in industries which follow cyclical patterns. etc.e. Concentric merger is also called product extension merger. In spite of the arguments and counter. Reasons behind such a merger are to stabilize cash flows and to make funds available for the subsidiary. Product-extension merger Two companies selling different but related products in the same market. the question that arises is at what level should the diversification take place. research. . Concentric Mergers This is a mild form of conglomeration. there is also transfer of specific management skills. in addition to the transfer of general management skills. in order to reduce risk should the company diversify or should the investor diversify his portfolio? Some feel that diversification by the investor is more cost effective and will not hamper the company·s core competence. with a concentric merger it is possible to reduce risk without venturing into areas that the management is not competent in. marketing. It is the merger of one company with another which is engaged in the production / marketing of an allied product. Others argue that diversification by the company is also essential owing to the fact that the combination of the financial resources of the two companies making up the merger reduces the lenders risk while combining each of the individual shares of the two companies in the investor·s portfolio does not.12 - . which have been used in a different line of business.
frequently (but not always) over the opposition of the target company·s management 4 ) Proxy Fight An attempt to gain control of a firm by soliciting stockholders to vote for a new management team. "poison pill". acquisitions and takeovers have been a part of the business world for centuries. In today's dynamic economic environment. 3 ) Tender offer The offer of one firm to buy the stock of another by going directly to the stockholders. mergers and acquisitions are the resultant proceedings. Owning stock in a company means you are part owner.after all. THE WHACKY WORLD OF M&A·S Terms like "dawn raid". but there's nothing fictional about them .13 - .they are part of the world of mergers and acquisitions (M&A). companies are often faced with decisions concerning these actions . Mergers. Usually such mergers have a high probability of success 2 ) Hostile merger A merger in which the target firms· management resists the acquisition or merger. So it is important to know what these terms mean for your holdings. the job of management is to . and "shark repellent" might seem like they belong in James Bond movies.WAYS OF HANDLING A MERGER OR AN ACQUISITION There are 4 ways in which a merger can be handled 1 ) Friendly merger A merger whose terms are approved by the management of both companies. and as we see more and more sector-wide consolidation.
mutually agree to join forces and merge. Because this is done early in the morning. the target firm usually doesn't get informed about the purchases until it is too late. affecting employee morale at the targeted firm.. In the U.14 - . While there are examples of hostile takeovers working. The acquirer then builds up a substantial stake in its target at the current stock market price. and sometimes replacing management with their own representatives. ´Did you hear they are axing a few dozen people in our finance department«µ can be heard by the water cooler. they are generally tougher to pull off than a friendly merger. Hostile Takeover This is an unfriendly takeover attempt by a company or raider that is strongly resisted by the management and the board of directors of the target firm. . During a dawn raid. There are several ways that two or more companies can combine their efforts. These types of takeovers are usually bad news. Dawn Raid This is a corporate action more common in the United Kingdom. Grumblings like. or one company can outright acquire another company. which can quickly turn to animosity against the acquiring firm. and the acquirer now has controlling interest. It·s this last case of dramatic unfriendly takeovers that is the source of much of M&A·s colorful vocabulary. the acquirer (the ´predatorµ) masks its identity and thus its intent. a company can (at least in theory) develop a competitive advantage and ultimately increase shareholder value. however it has also occurred in the Unites States. They can partner on a project. taking over all its operations. there are now restrictions on this practice. Through mergers and acquisitions.maximize shareholder value.K. By getting the brokers to conduct the buying of shares in the target company (the ´victimµ). a firm or investor aims to buy a substantial holding in the takeover-target company·s equity by instructing brokers to buy the shares as soon as the stock markets open. including its holdings and debt.
but announcing them doesn't necessarily mean everything will go ahead as planned. Golden parachutes can be worth millions of dollars and can cost the acquiring firm a lot of money and therefore act as a strong deterrent to proceeding with their takeover bid. bonuses.Saturday Night Special This is a sudden attempt by one company to take over another by making a public tender offer. Greenmail A spin-off of the term "blackmail". Takeovers are announced practically everyday.. who may lose their job if their company is taken over by another firm. In many cases the target company does not want to be taken over. This too has been restricted by the Williams Act in the U. greenmail occurs when a large block of stock is held by an unfriendly company or raider. This is also known as a "bon voyage bonus" or a "goodbye kiss".S. whereby acquisitions of 5% or more of equity must be disclosed to the Securities Exchange Commission. Benefits written into the executives· contracts include items such as stock options. . liberal severance pay and so on. who then forces the target company to repurchase the stock at a substantial premium to destroy any takeover attempt. Let's take a look at some more popular ways that companies can protect themselves from a predator. Golden Parachute This measure discourages an unwanted takeover by offering lucrative benefits to the current top executives. and almost all of these strategies are aimed at affecting the value of the target's stock in some way.15 - . The name comes from the fact that these maneuvers used to be done over the weekends. What does this mean for investors? Everything! There are many strategies that management can use during M&A activity. These are all types of what is referred to as "shark repellent".
The 'flip-in' poison pill allows existing shareholders (except the bidding company) to buy mor e shares at a discount. An extreme version of the poison pill is the "suicide pill" whereby the takeovertarget company may take action that may lead to its ultimate destruction. The 'flip-over' poison pill allows stockholders to buy the acquirer's shares at a discounted price in the event of a merger. the redemption price of the bonds expands. kind of like macaroni in a pot! This is a highly useful tactic. On the other hand. Why is it called macaroni defense? Because if a company is in danger.16 - . the management team will resign at the same time en masse. If investors fail to take part in the poison pill by purchasing stock at the discounted price.Macaroni Defense This is a tactic by which the target company issues a large number of bonds that come with the guarantee that they will be redeemed at a higher price if the company is taken over. . (To learn more about these and other shareholders· rights. This is especially useful if they are a good management team. management threatens that in the event of a takeover. People Pill Here. but the target company must be careful it doesn't issue so much debt that it cannot make the interest payments. hostile takeovers often result in the management being fired anyway. Poison Pill With this strategy. Takeover-target companies can also use leveraged recapitalization to make themselves less attractive to the bidding firm. the outstanding shares will not be diluted enough to ward off a takeover. This type of poison pill is usually written into the company·s shareholder rights plan. the target company aims at making its own stock less attractive to the acquirer. losing them could seriously harm the company and make the bidder think twice. so the effectiveness of a people pill defense really depends on the situation.) The goal of the flip-in poison pill is to dilute the shares held by the bidder and make the takeover bid more difficult and expensive. see Knowing Your Rights as a Shareholder. There are two types of poison pills.
White Knight This is a company (the ´good guyµ) that gallops in to make a friendly takeover offer to a target company that is facing a hostile takeover from another party (a ´black knightµ). they may be getting distracted from their responsibilities of running the company. however. the largest announced mergers in 1998 were the marriage between Citicorp and Traveler·s Group estimated at $77 billion in value and Exxon·s acquisition of Mobil for an estimated $79 billion. valued at approximately $60 billion. The white knight offers the target firm a way out with a friendly takeover. was also announced. AT&T announced the acquisition of Tele-Communications.8 billion and between Nations Bank Corp and BancAmerica Corp. more favorable company (like ´a white knightµ) will make a takeover attempt. But it did not receive regulatory approval and the respective boards of directors called off the merger agreement in July 2000.17 - .5 billion. Had the merger been completed it would . Closely following were transactions between SBC and Ameritech values at approximately $61. The size and number of M&A transactions continue to grow worldwide. If management sandbags too long.Sandbag With this tactic the target company stalls with the hope that another. valued at approximately $43 billion. For example one of the largest mergers in history was announced in 1999 MCI WorldCom and Sprint agreed to a merger values by analyst at $ 115 billion and $129 billion. These were all larger than the acquisition of MCI by WorldCom announced in 1997 and characterized as a megamerger by many at approximately $37 billion. Inc. HISTORY OF MERGERS IN THE 20TH CENTURY In 1998 there were a large number of ´blockbusterµ mergers and acquisitions that made past mergers and acquisitions look small by comparison. For example. One of the largest industrial mergers and acquisition was between Chrysler Group and Daimler Benz AG Valued at $45.
it was predicted to be another record year.5 billion for an average $37. Approximately $2. the acquisitions completed in 1997 were valued at $300 billion more than the value of acquisitions during the 1980s. whereas the mergers and acquisitions announced in 1998 had an average value of $168. continuing the upward trend. Interestingly 1980s was often referred to as the decade of ´Merger Madnessµ.2 million for an increase of 352% over those of 1993. Interestingly the 6. The year 1998 was no different.5 trillion in mergers were announced in 1999.000 mergers and acquisitions roughly 40% of the total acquisitions during the whole decade of the 1980s. the value of these mergers in 1997 was $1. Perhaps more significant. With five merger waves throughout the twentieth century. In other words. The merger and acquisitions in the 1990s represent the fifth merger wave of the twentieth century and their size and numbers suggest that the decade of 1990s might be remembered for the megamerger mania.3 trillion as impressive as these figures are.18 - . Strategy for twenty first century organizations . The number and value of mergers and acquisitions have grown each year since 1993. we must conclude that mergers and acquisitions are an important.6 trillion.2 million. they are small in comparison to the merger wave that began in the earlier 1990·s approximately in 1993.000 mergers and acquisitions in the United States alone. if not dominant. For example in 1997 there were approximately 22. as noted by the huge Merger and Acquisitions transactions listed earlier. IMPORTANCE OF MERGERS AND ACQUISITIONS The 1980·s produced approximately 55. The value of the acquisitions during this decade was approximately $1.311 domestic mergers and acquisitions announced in 1993 had a total value of $234.have been the second largest global telecommunications company behind only AT&T.
6 ) Enhance or increase products and/or services: Mergers between large banks specializing in different sectors for example when Allianz AG acquired Dresdner Bank. 4 ) Create or gain access to distribution channels: A lack of distribution has been one of the main hindrances to growth of the wine companies. In the 1990·s 23 pharmaceutical merger to form the top ten players. when Ford acquired Jaguar. They are overcoming this by a string of acquisitions for example Fosters.THE MOTIVE BEHIND MERGERS AND ACQUISITIONS The strategic Goals of mergers and acquisitions 1 ) Economies of Scale 2 ) Consolidation: Media buyers are now consolidating to increase ad rates 3 ) Globalization: For Example Kerry Group an Irish milk processor and dairy cooperative has become a global player after a string of acquisitions in the food and ingredients business. 5 ) Gain access to new products and technologies: Pooling resources helps pharmaceutical companies to speed up research and development of new drugs and also to share the risks and place a number of bets on emerging technologies. 7 ) Increase market share or access to new markets: Car manufacturers turn to mergers and acquisition for this reason. . For example when Daimler Benz and Chrysler Group merged.19 - .
Bossidy C E O of AlliedSignal.8 ) Diversification 9 ) To offset threatened loss of market 1 0 ) To increase the rate of growth 11) To improve cyclical and seasonal stability 1 2 ) To improve effectiveness of the marketing effort 1 3 ) To employ excess capital 1 4 ) To change from a holding company to a operating company THE ALTERNATIVE PROSPECTS OF MERGERS AND ACQUISITIONS / WHY MERGERS AND ACQUISITIONS? 1 ) The quest for bigness: Many mergers and acquisitions are driven by the simple urge to be bigger as John Johnstone. when he realized he would fail to meet his promise of achieving growth $20 billion by 2000. . retired C E O of Texaco says 2 ) Saving face: As done Mr. 3 ) Short Term Pressure: Mergers and acquisition are undertaken to show good quarterly earnings as there is intense focus on it. So they in order to save face AlliedSignal acquired Honeywell in 1999 and reached revenues of $24 billion.20 - .
6 ) C E O Hubris Sometimes Mergers happen to satisfy the egos of C. BP·s merger with Amco shortly led to the Mobil·s merger with Exxon. O. it was mirrored by Mars·s acquisition of Royal Canin. E. a pet food company. 5 ) Taxes 6 ) Geographical or other diversification These motives are considered to not add shareholder value: 1 ) Diversification 2 ) Overextension 3 ) Manager's hubris 4 ) Empire Building 5 ) Manager's Compensation 6 ) Bootstrapping . a French pet-food manufacturer.21 - . These motives are considered to add shareholder value: 1 ) Economies of scale 2 ) Increased revenue/Increased Market Share 3 ) Cross Selling 4 ) Synergy: Better use of complementary resources.4 ) Boredom 5 ) Fear of being left on the shelf: For example when Nestle acquired Ralston Purina.
22 - . or through several months of talks and informal meetings 2 ) EVALUATION AND NEGOTIATION: Once some form of understanding has been reached the purchasing company conducts ´due diligenceµ a detailed analysis of the target company assets. This can be achieved through a rapid series of meetings over a few weeks.STAGES OF A MERGER Pre-mergers are characteristics by the following stages: 1 ) COURTSHIP: The respective management teams discuss the possibility of a merger and develop a shared vision and set of objectives. liabilities and operations. This leads to a formal announcement of the me rger and .
philosophy and work styles of the merged business. Restructuring begins and may include site closures. Various teams work on detailed plans for integration. ´Closureµ is a commonly referred term to describe the point at which the legal transfer of ownership is completed. This phase typically lasts three or four months. Permission is also sought from trade regulators. new appointments and job transfers.23 - . The new management team is agreed at this point. Companies often consider cultural integration at this point and may embark on a series of workshops exploring the values. Communications and human resources strategies are implemented. often involving financial intermediaries. divestment of subsidiaries (sometimes required by trade regulators).an intense round of negotiations. 5 ) THE TRANSITION PERIOD : This lasts anywhere between six months to two years. The new organizational structure is in place and the emphasis is now on fine tuning the business and ensuring that the envisaged benefits of the mergers are realized. redundancy announcements. Employees receive information about whether and how the merger will affect their employment terms and conditions. as well as the board structure of the new business. Post Merger is characterized by the following phases: 4 ) THE IMMEDIATE TRANSITION: This typically lasts three to six months and often involves intense activity. . but it can take as long as a year if regulators decide to launch an investigation into the deal. 3 ) PLANNING: More and more companies use this time before completing a merger to assemble a senior team to oversee the merger integration and to begin planning the new management and operational structure.
weaknesses and needs 1 ) Company Description 2 ) Management & Organization Structure 3 ) Market & Competitors 4 ) Products & Services 5 ) Marketing & Sales Plan 6 ) Financial Information 7 ) Joint Ventures 8 ) Strategic Alliances Stage 2: Preliminary Due Diligence 1 ) Financial 2 ) Risk Profile 3 ) Intangible Assets 4 ) Significant Issues Stage 3: Preparation of Confidential Information memorandum 1 ) Value Drivers 2 ) Project Synergies PHASE II: TARGET/BUYER IDENTIFICATION & SCREENING Stage 4: Buyer Rationale 1 ) Identify Candidates 2 ) Initial Screening Stage 5: Evaluation of Candidates 1 ) Management and Organization Information .24 - .PHASES OF MERGERS & ACQUISITIONS PHASE I: STRATEGIC PLANNING Stage 1: Develop or Update Corporate Strategy To identify the Company·s strengths.
25 - .2 ) Financial Information (Capabilities) 3 ) Purpose of Merger or Acquisition PHASE III: TRANSACTION STRUCTURING Stage 6: Letter of Intent Stage 7: Evaluation of Deal Points 1 ) Continuity of Management 2 ) Real Estate Issues 3 ) Non-Business Related Assets 4 ) Consideration Method 5 ) Cash Compensation 6 ) Stock Consideration 7 ) Tax Issues 8 ) Contingent Payments 9 ) Legal Structure 1 0 ) Financing the Transaction Stage 8: Due Diligence 1 ) Legal Due Diligence 2 ) Seller Due Diligence 3 ) Financial Analysis 4 ) Projecting Results of the Structure Stage 9: Definitive Purchase Agreement 1 ) Representations and Warranties 2 ) Indemnification Provisions Stage 10: Closing the Deal .
26 - .PHASE IV: SUCCESSFUL INTEGRATION 1 ) Human 2 ) Tan ible Resources 3 ) In an ible Assets 4 ) Business Processes 5 ) Post Closin Audit MAGIC CIRCLE FOR A SUCCESSFUL MERGER £¢¡ § urces ¦ ¥ ¤ .
The chart below demonstrates the relationship between designed and emergent strategy and merger integration. It suggests how merging organizations can become learning organisation. Some merger failures can be explained by this model.27 - . leading to a gradual lo ss of confidence in senior management·s ability to chart the future of the new entity. Employees may perceive their leaders as being out of touch with reality of the merger. The management team may seem to lack direction or to be moving too slow. . This often leads political infighting and territory building and the departure of many talented people. too much reliance on emergent strategy can lead to the sense of a leadership vacuum within the combining organizations.A company·s integration process can ensure the formation of such a circle. ensuring a unity of purpose. The integration process can ensure that the ideas and the creativity can are not dissipated but are fed into the emergent strategy of the organisation this is achieved through the day to day job of the encouraging and motivating people and also creating forums where people can think the impossible. serious problems arise when a company relies too heavily on designed strategy. A well designed integration process ensures that the new entity·s designed strategy reaches deep into the organisation. where the flow of hot and cold water ensures a continuous cyclical movement. For example. Basically everyone understands the purpose and logic of the deal. If the management team is not getting high quality feedback and information from the rest of the organisation. the leadership team may not receive timely information about external threats. brought about perhaps by the predatory actions of competitors or dissatisfies customers with the result that performance suffers and the new management is criticized for failing to get grips with the complexities of the changeover. However. strategy formulation and implementation merges into collective learning. It acts rather like the Gulf Stream. it runs the risk of becoming cut off. Similarly.
Therefore it is very important that a careful balance is struck between designed and emergent strategy for integration after the merger between two companies is done. which means working together. . However. But what is synergy? Synergy is derived from a Greek word ´synergosµ. when a premium is paid the challenge is more significant. For both the companies and individual shareholders the value of synergy must be examined in relation to value that could be created through other strategic options like alliances etc. synergy ´refers to the ability of two or more units or companies to generate greater value working together than they could working apartµ. Typically synergy is thought to yield gains to the acquiring firm through two sources 1) Improved operating efficiency based on economies of scale or scope 2) Sharing of one or more skills. SYNERGY When most people talk about mergers and acquisitions they talk about synergy. The reason for this is that the payment of premium requires the creation of greater synergy to generate economic value. But for shareholders synergy is when they acquire gains that they could not obtain through their own portfolio diversification decisions. The ability to make 2 + 2 = 5 instead of 4.28 - . However this is difficult to achieve since shareholders can diversify their ownership positions more cheaply. For managers synergy is when the combined firm creates more value than the independent entity. Synergy is difficult to achieve. even in the relatively unusual instance that the company does not pay a premium.
. The sharing of R&D programs. 2) Technology Synergy To create synergies through this. creating synergy ´requires a great deal of work on the part of the managers at the corporate and business levelsµ. The activities that create synergy include 1) Combining similar processes 2) Co-ordinating business units that share common resources 3) Centralizing support activities that apply to multiple units 4) Resolving conflict among business units The Types of Synergy 1) Operations Synergy This is obtained through integrating functional activities.29 - . firms seek to link activities associated with research and development processes. products and programs. It can be created through economies of scale / or scope.The actual creation of synergy is an outcome that is expected from the managers· work. and the development of new core business through access to private innovative capabilities are examples of activities of firms trying to create synergies 3) Marketing ² Based Synergy Synergy is created when the firm successfully links various marketing-related activities including those related to sharing of brand names as well as distribution channels and advertising and promotion campaigns. operations and personnel. History shows that at the very least. Achieving this outcome demands effective integration of combined units· assets. the transfer of technologies across units.
Only 12 percent of these companies managed to accelerate their growth significantly over the next three years. 5) Private Synergy This can be created when the acquiring firm has knowledge about the complementary nature of its resources with those of the target firm that is not known to others.4) Management Synergy These synergies are typically gained when competitively relevant skills that were possessed by managers in the formerly independent companies or business units can be transferred successfully between units within the newly formed firm. Overall. A study of 160 companies shows that measured against industry peers. indeed. REVENUES Revenue deserves more attention in mergers. 42 percent of the acquirers lost ground. only 36 percent of the targets maintained their revenue growth in the first quarter after the merger announcement.30 - . most sloths remained sloths. In fact. only 11 percent had avoided a slowdown. . The belief that mergers drive revenue growth could be a myth. while most solid performers slowed down. By the third quarter. Yet in the end. a failure to focus on this important factor may explain why so many mergers don·t pay off. Too many companies lose their revenue momentum as they concentrate on cost synergies or fail to focus on post merger growth in a systematic manner. halted growth hurts the market performance of a company far more than does a failure to nail costs. the acquirers managed organic growth rates that were four percentage points lower than those of their industry peers. It turned out that the targets· continuing underperformance explained only half of the slowdown. unsettled customers and distracted staff explained the rest.
Out of the 160 companies studied only 12 percent achieved organic growth rates (from 1992 to 1999) that were significantly ahead of the organic growth rates of their peers. revenue actually hits the bottom line harder Fluctuations in revenue can quickly outweigh fluctuations in planned cost savings. such merger masters look after their existing customers and revenue. Thus it can be noted that if revenue is not monitored properly and if one does not make an effort to maintain revenue it can result in significant losses to the company. whatever the merger·s objectives. and only seven of those companies had total returns to shareholders that were better than the industry average. it is revenue that determines the outcome of a merger. not costs. They also target and retain their revenue-generating talent³especially the people who handle relations with customers. companies that actively pursue growth in their mergers generate a positive dynamic that makes merger objectives. Beating target revenue-growth rates by 2 to 3 percent can offset a 50 percent failure on costs. a merger can stay on track to create value only if a company achieves cost savings that are 25 percent higher than those it had anticipated. cost savings are hardly as sure as they appear: up to 40 percent of mergers fail to capture the identified cost synergies. thus depressing future earnings by taking out muscle. Finally. not just fat. easier to achieve. including cost cutting. ultimately. Furthermore. The market penalizes this slippage hard: failing to meet an earnings target by only 5 percent can result in a 15 percent decline in share prices. Before capturing the benefits of integration. Given a 1 percent shortfall in revenue growth. The temptation is then to make excessively deep cuts or cuts in inappropriate places.Why should one worry so much about revenue growth in mergers? Because. .31 - .
culture management.MANAGING CULTURES DURING THE PROCESS OF MERGERS AND ACQUISITIONS Basing a merger decision purely on financial criteria is similar to deciding that your in-laws must move in to help share the rent. the cultures of both organizations should be measured on these dimensions in order to determine the level of compatibility (or incompatibility) of the two organisations. an acquirer might. It may make financial sense. In this way. expectations and the mindsets of the people within an organization. it focuses the energies of the executives in creating a unified organisation that maximises potential synergies. find that they have bought less than they bargained for. and disposition towards change. customer orientation. . Organizational culture exists at two levels.32 - . in many cases. Support Cultures. 2) The behaviour patterns or style of an organization. In addition. the cost of dealing with these issues can then be factored into the acquisition price of the company. order and stability to their lives and influences their behaviour. This culture provides meaning. but it certainly doesn't take into account the disruption or impact this will have on your family life. Unless this is done. as it provides the negotiators from both parties with a sound understanding of the human resource issues. attitudes. The other advantage of conducting an organisational culture audit before the companies are officially merged is that it provides a basis to measure later interventions to merge organisational culture. Culture can be categorized into various types such as Power Cultures. Prior to a merger. Task \ Achievement Cultures and Role Cultures. values that tend to persist within the organization even if its membership changes. The various aspects of culture can also be synthesized into a number of dimensions such as conflict resolution. Measuring and understanding the diverse organisational cultures should form part of the due diligence process. feelings. New employees are automatically encouraged to behave in a similar fashion by their colleagues. What is culture? Culture concerns the internalization of a set of values. 1) Those values that are shared by the people working in the organization.
People in Mergers An announcement of a merger or an acquisition sends a strong a message to your competitors and to the recruiting firms that serve them: your employees are ripe for the picking. anger. The earlier the direction of the new company and its identity is decided upon. The organisation that does not take the positive aspects of organisational culture and the human resources within the acquired company into account. Germans are trained to think deductively and they kept thinking how they would make it work. Americans were bothered only with the vision and they would fill in the details in later. The Germans kept the doors of their office cabins closed because that·s how they are trained but Americans always thought that the Germans were having meetings excluding them. anxiety. People said that even seemingly mundane communication differences between the employees of the German and the American auto giants challenged the stability of the combined entity. The basic differences in the merger started cropping up because their. and the less the chance of losing a valuable aspect from either culture. The formal Germans and the informal Americans had a tough time trusting each other. an opportunity to merge the best of both cultures is then missed. communication problems and a feeling of uncertainty about the future. mentalities were opposite. however. is missing one of the most valuable assets of that organisation: Intellectual capital.The tendency in mergers is to take the easy route and adopt the stronger culture. This often results in a decrease in employee morale. Even something as innocuous as the office-seating layout started straining the relations. as well as which parts of both contributing cultures are going to be kept. The merger of two culturally different organizations could result in conflict during the period immediately following the merger or acquisition.33 - . . the easier the decision-making process will be. An example of a merger that failed due to improper integration or understanding of cultures is the Daimler-Benz and Chrysler merger. Executives who fail to consider these issues when acquiring a company are not serving themselves or their shareholders.
And no organizational level is exempt.34 - .Competitors understand that your employees don·t know whether they have a job or. Plenty of attention is paid to the legal. 1 0 ) Process and organisational change issues ² every organisation has its own culture and business processes 1 1 ) Human Issues ² Staff feeling insecure and uncertain. financial. . But executives who have been through the merger process now recognize that in today·s economy. Key employees usually receive inquiries within five days of a merger announcement³precisely when uncertainty is at its highest. 1 2 ) A very high failure rate (close to 50%). if they do. the management of the human side of change is the real key to maximizing the value of a deal. where it will be located. where they fit into the new company·s structure. DISADVANTAGES OF MERGERS AND ACQUISITIONS 1) 2) 3) 4) 5) 6) 7) 8) 9) All liabilities assumed (including potential litigation) Two thirds of shareholders (most states) of both firms must approve Dissenting shareholders can sue to receive their ´fairµ value Management cooperation needed Individual transfer of assets may be costly in legal fees Integration difficult without 100% of shares Resistance can raise price Minority holdouts Technology costs . how much pay they will receive. or how their performance will be measured. and operational elements of mergers and acquisitions.costs of modifying individual organizations systems etc.
3) Failure to integrate Diverse cultures. is Sony·s $5 billion takeover of Columbia Studios in which Walter Yetnikoff. Unfortunately both of them set records for underachievement. many mergers and acquisitions do not produce the benefits that are expected or desired by the buying firm. . Some of the reasons could be: 1) High cost of financing A study conducted by Mckinsey shows that 60% of the acquisitions examined failed to earn returns greater than the annual cost of capital required to finance the acquisitions. 2) The potential for managerial hubris This may preclude an adequate analysis of the target firm or may produce substantial premiums paid for the firm that is acquired. Steven Ross. In such a case the mergers and acquisitions may not be for the benefit of the company. This was a part of the battle with the Warner Bros CEO. structures and operating systems of the two firms.WHY MERGERS & ACQUISITIONS DO NOT SUCCEED? Despite the popularity and importance of mergers and acquisitions among large and small firms. 4) Failure to do proper due diligence During the pre-merger or acquisition stage. the CEO of Sony paid almost $800 million to acquire two producers from their contract at the Warner Bros. Yetnikoff convinced his superiors at Sony that the producers would earn millions of $ for them.g.35 - . An e.
increased work loads.36 - . 6) Employees of the organization 1 ) The sought-after benefits of greater size and efficiency are nullified by increased losses related to top-heavy organizations which mean that the people increase as a result the benefits etc provided to the top management also substantially increase. when in full boom. This rationale is largely spacious. 3 ) If the employees and the culture of the companies are not integrated then this can be a major reason for the failure of the merger and acquisition A SURE GUIDE TO UNSUCESSSFUL MERGERS / REASONS FOR FAILURE OF MERGERS COSTLY OVERSIGHTS Overlooking the scientific development of new competitive materials and new is only one of the faults that sometimes lead to unhappy merger results. physics. Thus lack of innovation is another reason for mergers floundering. Another costly oversight is failure to consider those new developments in chemistry. anxiety and stress all of which have a negative effect on the morale of the employees which in turn affects their productivity. size does not inoculate a company from rule-busting innovation. metallurgy. CEO·s in order to defend their merger plans are often quoted saying ´Only the biggest surviveµ.5) Bankruptcy of strategy There is a strong belief that mergers and acquisitions indicate a bankruptcy of strategy. Patents maybe developed for new scientific processes . plastics and so on which are now still in the pre-patent stage but which. may completely wipe out the market of the for the acquired company·s chief product. an inability to innovate. 2 ) There are problems of: reduced job security.
this manufacturer acquired a well-run electronic company which specialized in electronic circuitry. In t his above case actually clues to the new chemical development were all in the scientific literature of the industry at the time of the acquisition ² but no one had been asked to look. . For example purchase if a canning-machinery concern by a diesel engine manufacture. About two years after this costly acquisition. may make machinery and equipment obsolete and undermine many of the older processes. Many branches of the various scientific disciplines run along parallel path. How can this sad but common error be avoided? The answer lies in understanding how scientific innovations are detected in every industry. which indicated that conglomerate acquisitions were on the rise in many manufacturing industries. the parent manufacturer discovered that new chemical techniques were available which would produce uniform circuits on plastics and glass. That this approach is quite common today is evidenced by the Federal Trade Commission. The result was a sort of primitive printed circuit which had an excellent potentiality for savings in material and labour costs. With the help pf its major bank.which chop production costs radically.37 - . The Need for Research The likelihood of making acquisitions mistakes is especially strong among large companies which are buying a scattered selection of smaller companies operating in many diverse fields in which technical products or processes are involved. a major manufacturer of electronic organ part decided it was sound strategy to diversification was a sound move. For example. This west coast producer had a new process in its lab it was of creating circuitry on glass and plastics this was done by specially treating glass and plastics and then scratching a circuit on its surface with a mechanical stylus. outmoding the entire process of scratching such circuits with a mechanical stylus.
Others have wanted a leap out of a stagnant industry in one jump. they found out to their considerable dismay that researchers in another fields had discovered a better and a cheaper material then the one they had to offer. On the advice of its bank it purchased a small chemical factory which had developed a substance which was of high transparency and could withstand high temperatures. Still others have chosen to diversify in order to escape their own industry·s bust-or-boom cycle. .The variety of actual conglomerate acquisitions is truly astounding.38 - . Some of these companies have taken the plunge because of a variety of reasons like they had a lot of cash in the corporate till and were in a hurry to grow. for example a truck assembler acquiring a chain of department stores. A few have decided to move into new fields because they might run afoul of antitrust laws if they acquired firms in their own industry. Finally when the chemical subsidiary was ready to produce the windshields. which were available to any knowledgeable technical investigator at the time the plywood company was acquiring the chemical subsidiary. This shows us the importance of research. A large plywood manufacturing company had been selling certain plywood to aircraft manufacturer for its interiors. This development had been foreshadowed in research papers in the learned journals of this field. This the plywood company felt they could easily supply to its aircraft manufacturers as windshields The plywood company acquired the chemical company invested a further six figure amount.
Largest M&A deals worldwide since 2000: Rank Year Acquirer Target Transaction % Value (in Mil. This same reason also prevented the development of any extensive academic works on the subject. Pending: E.761 56.243 59.62 9. Due to the complicated nature of cross border M&A.747 21.79 7.89 7. AT&T Inc. the power of the average employee.559 72.974 Pharmacia Corporation Bank One Corporation Endesa SA 59. In 1996 alone there were over 2000 cross border transactions worth a total of approximately $256 billion. This rapid increase has taken many M&A firms by surprise because the majority of them never had to consider acquiring the capabilities or skills required to effectively handle this kind of transaction. (AOL) Time Warner Glaxo Wellcome Plc. In the past.266 754. company regulations. and countries' culture are all crucial factors that could spoil the transaction.041 60.on AG Total SmithKline Beecham Plc. Comcast Corporation Sanofi-Synthelabo SA Spin-off : Nortel Networks Corporation Pfizer Inc. Merger : JP Morgan Chase & Co.98 7.45 100 1 2 3 4 5 6 7 8 9 10 2000 2000 2004 2006 2001 2004 2000 2002 2004 2006 Merger : America Online Inc.54 7.95 7.83 75. USD) 164.671 72. the market's lack of significance and a more strictly national mindset prevented the vast majority of small and mid-sized companies from considering cross border intermediation as an option which left M&A firms inexperienced in this field.39 - . Shell Transport & Trading Co BellSouth Corporation AT&T Broadband & Internet Svcs Aventis SA .CROSS BORDER MERGERS AND ACQUISITIONS The rise of globalization has exponentially increased the market for cross border M&A.87 9. the vast majority of cross border actions have unsuccessful results.06 9. political factors customer expectations.515 58.961 74. Cross border intermediation has many more levels of complexity to it than regular intermediation seeing as corporate governance. Royal Dutch Petroleum Co.738 10.
40 - . news of Indian Companies acquiring foreign businesses is more common than other way round. it is 9.87 % of total transaction value of top ten worldwide M & a deals. extra cash with Indian corporates. which was 10. Shell Transport & Trading Co of worth US $ 74.The table above shows the ten largest M&A deals worldwide since 2000. Of US $ 75. Nowadays. Government policies and newly found dynamism in Indian businessmen have all contributed to this new acquisition trend. Time Warner of worth $ 164. & SmithKline Beecham Plc.559 million. Reddy's Betapharm Labs Suzlon Hansen Group Energy .961 million which was also occurred during 2000.83% of total transaction value of top ten worldwide merger and acquisition deals. While second largest deal was between Glaxo Wellcome Plc.000 5. The top 10 acquisitions made by Indian companies worldwide: Acquirer Tata Steel Hindalco Videocon Target Company Corus Group plc Novelis Daewoo Electronics Corp. which account 21. this scenario has taken a sudden U turn. Table reflects that the largest M & A deal during last 6 year was between American Online Inc and.982 729 597 565 Steel Steel Electronics Pharmaceutic al Energy Dr. Country targeted UK Canada Korea Germany Belgium Deal value ($ ml) Industry 12.06 % of total transaction value of top ten worldwide M & a deals & third largest deal was between Royal Dutch Petroleum Co. Indian companies are now aggressively looking at North American and European markets to spread their wings and become the global players. CROSS-BORDER MERGER AND ACQUISITION: INDIA Until upto a couple of year·s back.747 million during 2000. Buoyant Indian Economy. However. the news that Indian companies having acquired American-European entities was very rare.
were greatly encouraged in their own efforts to bring more hybrids to the market. hybrid technology as they are with that of Toyota models..S. and technology will steadily improve. totaled 11.HPCL Ranbaxy Labs Tata Steel Videocon VSNL Kenya Petroleum Refinery Ltd. makers has been lukewarm at best. there has been exceptional demand for Toyota·s Lexus RX400h hybrid crossover. However. Meanwhile. For example. and other carmakers.5 million vehicles yearly in North America.000 hybrid Camrys yearly there by late 2006³Toyota will likely wish it had created even more hybrid capacity.S. including GM. Over the mid-term. Terapia SA Natsteel Thomson SA Teleglobe Kenya Romania Singapore France Canada 500 324 293 290 239 Oil and Gas Pharmaceutic al Steel Electronics Telecom AUTOMOBILE INDUSTRY INTRODUCTION In the U. Ford launched its first hybrids.8 million produced in America. one result was the phenomenal demand for Toyota·s Prius hybrid car. Toyota responded by raising the price of the 2005 model and planning production increases.6 million produced in Canada and 2 million produced in Mexico. response to hybrids from U. Meanwhile. Consumers generally aren·t as impressed with U. Toyota is attacking mercilessly. Kentucky plant to enable it to manufacture 48. These estimates are from Scotiabank Group.41 - . Toyota made investments in its Georgetown. including cars and trucks of all types. Production in North America. about 49 million new cars were sold in 2006. Globally. 2. many hybrids will be available from a wide variety of makers.S. the 2006 market was approximately 16. .5 million cars and light trucks sold. It has the capacity to manufacture over 1. and actual mileage results on the road have been disappointing. While the Big Three struggle. which was so great that many purchasers were put on waiting lists of six months or longer.
42 - . with disclosed values exceeding US$80 billion PriceWaterhouseCoopers. is equally dismal. more than two-thirds arose from cross-border M&As. high-quality manufacturers with a growing global customer base. more than 600 deals were undertaken.The parts manufacturing business in the U. parts manufacturers are experiencing dismal financial results. 1999a). dominated by the ´mammoth mergerµ between Chrysler and Daimler-Benz which alone accounted for US$39 billion. 1998 turned out to be a record year for M&As within the automotive industry. the increasing costs of innovation and technical development. Of the total value. and is to a large extent taking place across national borders. TRENDS OF MERGERS & ACQUISITIONS IN AUTOMOBILES THE INDUSTRY Recent mergers and acquisitions in the automotive industry are largely driven by a combination of excess capacity.S. Asian car manufacturers are generally enjoying booming success. Delphi Corp. and regulatory changes.6 billion in 2004 alone and is operating in bankruptcy. . component suppliers and retail sectors. the giant parts supplier that was part of GM until 1999. In fact. lost nearly $4.S. In fact. with Toyota and Honda at the forefront. and the alliance between Renault and Nissan ² is evidence of an industry consolidating at an accelerating speed. The merger between the US company Chrysler and DaimlerBenz of Germany together with other large-scale deals ² Volkswagen·s take-over of Rolls Royce. The merger wave is also affecting all parts of the automotive industry: vehicle companies. South Korean makers Hyundai and Kia have established themselves as true. The rapid restructuring of the automotive industry has attracted a great deal of attention. many U. Ford·s take-over of Volvo·s car division.
Figure shows the increase in deals in the motor vehicle and parts manufacturing industry. . with some ten leading companies accounting for more than 50% of the total market. the current restructuring trend is taking place in a somewhat new context: markets have been liberalised and new and different countries have entered both on the consumer and producer sides. The vehicle market is already highly concentrated. and especially to vehicle producer companies.43 - . However. Consolidation and internationalisation are far from new to the automotive industry.
000 THE OFFICERS: .Case Study No.. VP.9 Billion 104.41.61 Billion 4.Germany (Daimler-Benz). U. Engg. founded 1924 FINANCIALS :- DAIMLER BENZ Revenue (1998) Employees (1998) ::- $ 154. Germany. Schrempp Manfred Gentz Bernard Robertson Thomas C. USA.A. (Chrysler) DATE :- November 17.S. founded 1882 Chrysler Corp.500 CHRYSLER CORP Revenue (1998) Employees (1998) ::- $ 91.1 Daimler-Benz and Chrysler NATIONALITY: . Gale . 1998 AFFECTED : - Daimler-Benz AG. And Tech Exec VP Prod Dev and Design :::::Robert Eaton Juergen E.DAIMLER CHRYSLER Co-Chairman and Co-CEO Co-Chairman and Co-CEO Chief Financial Officer Sr.44 - .
as well as profits of $ 7.Overview of the Merger The $37 billion merger of Chrysler corp. tanks. joined with researcher Wilhelm Maybach to set up an experimental workshop. In 1939. appropriating its factories to manufacture trucks.3 billion. which began producing cars under the name Mercedes ² Benz. and aircraft engines for the Luftwaffe during World War 2.000. a gunsmith who studied engineering in several European countries.S. Daimler and Benz merged to become Daimler ² Benz AG.. Gottlieb Daimler. the German government took over that nation·s auto industry. as chief engineer at the company·s Austrian factory after Paul returned to the main plant in Stuttgart. The Daimler and Benz companies began coordinating designs and production in 1924. Ferdinand Porsche replaced Daimler·s oldest son. Germany. The French rights to Daimler·s engines were sold to Panhard ² Levassor.4 billion in cost savings in 1999.wheeled vehicle. In 1906. the new Daimler²Chrysler manufactured its cars in 34 countries and sold them in more than 200 countries. Anticipating $ 1. Daimler ² Benz doubled its size to become the fifthlargest automaker in the world based on unit sales and the third-largest based on annual revenue.06 billion on sales of $ 155. The merger allowed the two firms to avoid bankruptcy in the midst of poverty and inflation in Germany after World War 1. Two years later. . History of Daimler ² Benz AG In 1882. Paul Daimler. but they maintained their own brand names. They tested their first engines on a wooden bicycle.45 - .. and a boat. Employees totalled 434. the third largest car maker in the U. a four. and Germany·s Daimler ² Benz AG in November of 1998 rocked the global automotive industry. In one fell swoop.
one of the company·s worst ever. The entire transaction totalled $1.500 layoffs in addition to 20. With competitor BMW closing on the leadership of German luxury car sales.S. That year. Auto Union.000 jobs had been eliminated. History of Chrysler Corporation In 1924. 1925.05 billion loss was reported.000 previou s job losses. a manufacturer of heavy trucks.46 - . In 1994. and Sweden·s Electrolux ² were completed in 1992. in order to gain a smaller car for the product line. a Frankfurt-based international supplier of raw materials and technological services. making him Germany·s second ranking industrialist. produced the first Chrysler automobile.In 1957.9 billion. a $1. shareholders with over an 8% stake in the company. 70. Daimler-Benz relied heavily on revision of its popular Mercedes 190 compact in 1993. Over 32. in 1991. Daimler-Benz acquired a stake in Metallgesellschaft AG. convicted war criminal Friedrich Flick raised his personal stake in Daimler Benz to over 37%. the Maxwell Motor Corporation.000 models were sold for a profit in excess of $4 million. His holdings allowed him to push the firm to buy 80% of its competitor. On June 6. Daimler-Benz announced 7.S. recession in the early 1980·s. the largest rights issued in German history was completed as Daimler-Benz·s one-for-ten offer left U. the acquisition made Daimler-Benz the fifth-largest auto-mobile manufacturer in the world and the largest outside the U. gaining controlling interest as an individual stockholder. Chrysler was incorporated when Walter Chrysler took over . headed by Walter Chrysler.S. Within two years. By 1995. Instead. Several major stock acquisitions and working agreements with international corporations ² such as Fokker of Netherlands. Flick·s $20 million investment had grown in worth $200 million. Germany·s Siemens AG. Daimler-Benz purchased Freightliner. just as sales dropped with the onset of the U.
a system for controlling exhaust emissions.Maxwell Motor Car. drivers of Chrysler products were the first to enjoy all-transistor car radios and the convenience of power steering. the company expanded outside North America by purchasing a majority of Chrysler Australia.000 miles on drive train components ² in 1963. as well as the industry·s first one-piece. By 1927. and in 1934. curved glass windshield. In 1938. Chrysler surpassed Ford. . Chrysler established and became minority owner in Chrysler de Mexico. Chrysler had sold 192. Continual management changes were blamed for a $4 million loss in 1969. Electric powered windows were developed as well. In 1933. the board tapped former Ford president Lee Iacocca to take over as president and CEO. Chrysler developed its first automatic overdrive transmission. The company acquired Dodge Brothers. Chrysler began production of the first hardtop convertible. and the Oriflow shock absorbers were designed in 1951. as well as the Air Package. Chrysler fared no better during the 1970s.000 cars to become fifth in the industry. the firm was operating at only 68% of its capacity. The Hemi. Chrysler introduced its first 5/50 warranty ² five years or 50. in annual sales for the first time.. By 1955. quintupling its size. In 1946. The company ended the decade by developing electronic fuel injection as an alternative to carburettors. its major competitor.47 - . After losing $52 million in 1974 and $250 million in 1975. The company continued to thrive. On accomplishments included the introduction of the Chrysler Four Series 58 with a top speed of 58 mph. Inc. Four years later. In 1960. Safety innovations such as front seat shoulder harness and a self-contained rear heater/defroster system were developed in 1966. production of the De Soto ceased. a hemispheric combustion chamber V-8 engine. Ltd.
4 billion. Chrysler Financial. to build small cars in the U.S. and reduce the white collar staff by 50%. Chrysler acquired 15. Chrysler paid off its government loan seven years early. Market forces driving the Merger The deal between Chrysler and Daimler-Benz was pit into motion in the early 1990·s. Later in 1987. Iacocca released his autobiography. which became the best-selling nonfiction hardcover book in the U. Iacocca began appearing in Chrysler·s television advertisements in an effort to boost sales. Chrysler Technologies. .. maker of Jeep and Eagle vehicles. Because traditional markets had matured and consumers in emerging markets were typically unable to afford higher prices autos. it brought Gulfstream Aerospace for $367 million and began a joint venture. In 1985. New York. Mercedes began to look for a partner that would both broaden its appeal and give it the scale it needed to survive industry consolidation. Turnaround efforts paid off with the record 1984 net profit of $2. President Jimmy Carter signed the Chrysler Corp. with Mitsubishi Motors Corp. Chrysler was divided up as a holding company with four divisions: Chrysler Motors. for $800 million. In 1982. Hoping that interest in the company would increase as well. which provided the company with $1. when executives at Daimler Benz realized that the luxury car market they targeted with the Mercedes line was approaching saturation. The holding company·s headquarters moved from Highland Park. Shareholders approved the acquisition of Renault·s 46% stake in American Motors Corp. Diamond Star Motors.48 - . cut inventories by $1 billion. Chrysler reported a record loss of $1. That year. The next year. In July of that year.7 billion.In January of 1980. Loan Guarantee Act.5 billion in federal loan guarantees and stipulated that Chrysler sell its corporate jets. to Manhattan.S. and Gulfstream Aerospace. Michigan.6% in Officine Alfieri Maserati SpA. however.
. To make his firm more attractive to suitors. A deal between Daimler-Benz and Chrysler seemed inevitable until Ford·s Alex Trotman contacted Schrempp about a possible alliance. Daimler-Benz CEO Jurgen Schrempp listed it on the New York Stock Exchange. a growth plan that called for exporting cars built in North America instead of spending money on building plants overseas. The plan faltered because the firm did not have enough managers placed in international locations to boost sales as quickly as Chrysler wanted. After plans in 1995 to jointly make and market automobiles in Asia and South America with Daimler-Benz fell apart. Prior to the second meeting. Approach and Engagement Daimler-Benz CEO Jurgen Schrempp called Chrysler CEO Eaton in January of 1998. The trend of globalisation had forced Chrysler to take look at foreign market in mid 1990s. the company was looking for a way to break into overseas markets. and reduced the independence of the Mercedes by removing its separate board of directors. Daimler-Benz settled on Chrysler because it·s broad range of less costly vehicles and its third place status in the US. Daimler-Benz also pursued growth of its own after attempts at an alliance with Chrysler failed in 1995. began using US GAAP guidelines. A merger seemed the company·s only option. They met briefly at Chrysler·s headquarters during North American International Auto Show in Detroit. Quality control problems with both autos plagues he factory in 1996 and 1997. Trotman and Schrempp met in London in March to discuss terms. however the deal fizzled after Trotman admitted to Schrempp that the Ford family was unwilling to consider a deal that would reduce its 40% stake of Ford·s voting stock.49 - . With the majority of sales coming from North America.the German automaker built a plant in Alabama to manufacture its M-Class Sports Utility Vehicle and a small A-Class model.Eventually. Chrysler devised lone star.
Anticipated sales of $155. Eagle.Schrempp and Eaton rekindled their merger negotiations and their merger negotiations and the $37 billion deal was officially announced on May 7 in Lond on. Other automotive operations. Dodge. telecommunications and real estate management.3 billion positioned the firm as third in the world in terms of revenue. insurance brokerage. Aerospace operations made up another 6% of total revenues. Dow Jones Industrial average in May of 1999.. a compact car. Standard & Poors chose not to list DC in the Standard & Poor·s 500 stock index because the firm had become the . Accordingly. Schrempp would gain full control. Mercedes-Benz. which secured 17% of sales. Plymouth and Smart. Products and Services After the merger. information technology. Changes in the Industry The new DaimlerChrysler moved into the fifth place spot among global automakers based on the four million vehicles it was estimated to produce in 1999. DC stock continued to outperform Ford Motor company co. the new firm was officially listed on worldwide stock exchanges on November 17. commercial vehicles. After more than 98% of Daimler-Benz shares were converted into DaimlerChrysler shares.50 - . Daimler passenger accounted for 24%. 1 year after the deals formal announcements Review of Outcome The new firm faced its first hurdle immediately.. tucks and busses. included four wheel drive vehicle. 1998. Chrysler passenger car made up 41% of total sales. DaimlerChrysler manufactured the following makes of automobiles: Chrysler. Analysts heralded the deal as the first in a wave of intense global consolidation among the industry·s leading players. General Motors Corp. Jeep. According to the terms of the agreement the new firm ² named DaimlerChryslerwould be incorporated in Germany 58% owned by former Daimler -Benz shareholders. and managed mainly by former Daimler-Benz Executives. Services accounted for 9%of sales and encompassed financial.
In both Europe and North America Chrysler and Mercedes showroom will remain separate. service and technical training will be combined.4 billion in savings.51 - . For instance Daimler will handle Fuel-Cell and diesel technology and Chrysler will keep it for electric-vehicle project. although warehousing. So the two are debating whether to ditch Daimler·s version or offer a separate a luxury model.German entity Standard & Poors fund managers were forced to sell their Chrysler shares. The success of the merger depends upon how well the 2 disparate teams mesh. as might ironing out anticipated cultural clash between the Germans and the Americans . On a more positive note DC did not face the expense of spending 5-10 years integrating its Computer Aided Design Systems or its financial applications because the 2 firms already used the same system. Most analysts consider purchasing likely to be the second candidate for cost cutting efforts as DC works to leverage its size to garner discounts for such commodities as steel and services like transportation. merging manufacturing functions will take even longer. Complete integration of purchasing operations is scheduled to take 3-5 years. logistics.the anticipated outcome of the geographic reach and the product lines. To achieve the promised $1. Other decisions are tougher Chrysler invented the minivan but Daimler was far along in developing its own. but not of the lay-offs that typify mergers of this scope-integration efforts began immediately with the financing departments of both firms first on the list. and because they were unable to exchange them for DC shares the new firm lost a wide shareholder base.
321 AB VOLVO Revenue (1998) Employees (1998) ::- SEK 212..P. V. Worldwide Sales & Marktg Exec. Co-Chairman and Co-CEO Exec. V.820 THE OFFICERS: . 2 Renault AND VOLVO NATIONALITY: . 1999 AFFECTED :- Renault S.P.A.52 - . Executive V.P.P. V.38. Sweden. France.. Sweden (Volvo) DATE :- March 31. Chief Financial Officer ::::Louis Schweitzer Patrick Faure Carlos Ghosn Christian Dor AB VOLVO Chairman President and CEO Deputy CEO and Exec. Founded 1915 FINANCIALS :- RENAULT Revenue (1998) Employees (1998) ::- FFr 195 Billion 1. ::::Hakan Frisinger Leif Johansson Lennart Jeansson Arne Wittlov .RENAULT S.France (Renault).A.Case Study No.9 Billion 79. Founded 1989 AB Volvo.
As the American market began to shrink in 1970s. to terminate the deal.V. By 1959 it ranked as the worlds sixth largest automobile manufacturer in the world.53 - . it operated the company along commercial lines. the company had become competitive race car drivers to promote their company·s products.000 in his automobile company. manufactured to fit into the market opening between inexpensive economy models and the higher priced models. building up its international production of machine tools and making it the first in Europe to use automation.A. which had been secretly developed during the war by Renault technicians. In 1948 Renault manufactured a miniature car called Qautre Chevaux (4 C. Only two years later. Two years later it released the Dauphine. The two companies had formed an alliance in 1990. The de Gaulle provisional government nationalized Renault·s company. Marcel Renault was killed in 1903 while competing in the Paris -Madrid car race. Louis Renault formed Renault Frères in 1989 and produced the world·s first sedan. to invest FFr. . Renault adjusted its products to meet specific requirements of the American motorist. For five years. sales of the Dauphine dropped 33%. History of Regie Nationale des Usines-Renault S. the Dauphine outsold all other models. which it renamed Regie Nationale des Usines Renault S.A.Overview of the Acquisition The collapse of the between Renault and Volvo brought an end to their three year engagement. pressuring Volvo·s president. and in 1993 set their official merger date as January 1994. and began production of the cylinder R-16. Fernand and Marcel. or hp). After persuading his brothers. however. Soren Gyll. however Volvo·s managers and shareholders voiced their objections to the terms of the agreement. Before they could complete the union. 30. Consequently.
Renault Vehicle Industries.4 billion. when it arranged to acquire part of Fiat·s Teksid subsidiary.54 - . Renault edged toward privatization as the French government reduced its stake in the company from 80% to 52% in 1995. In May 1999 Renault acquired 36.4% of AMC. The two companies also joined their bus making business the following year. In the years that followed.S. History of AB Volvo AB Volvo was formed in 1915 as a subsidiary of AB Svenska Kullagerfabriken. It formed a partnership with AB Volvo in 1990 to cooperate in international auto and truck operations. a Swedish ball bearing manufacturer. Renault recorded a loss of $1. Two years later it acquired the means to safeguard the delivery of engines by purchasing a majority interest in AB Pentaverken.8% stake in Nissan for $5. It began the assembly of cars in 1927 and of trucks in 1928. George Besse took the company·s helm in 1985. In 1987 Renault withdrew from the U.In 1976 Renault merged its Peugeot-Citroen truck subsidiary with its own Saviem truck company. In 1934 Volvo began the production bus chassis and marine engines. market by selling its stake in AMC to Chrysler Corp. The firm forged a relationship with Italian car manufacturer Fiat SpA in 1998. The following year the company gained a listing on the Stockholm Stock Exchange. and then to 46% in 1996.5 billion in 1984. . and set about instituting a cost reduction program that staff and encouraged the concept of profit to the state owned company. thereby creating the alrget producer in France. for $200 million. In 1980 Renault purchased 46. both AMC and Renault suffered from an industry slump and increased competition from Japanese automakers.
reacted by entering into an alliance with General Motors whereby GM gained an effective control of the company.55 - . The market declined continued. One such firm. West European car sales dropped 16. Passenger car volume also surpassed that of trucks and buses. In 1999 Volvo sold its automobile operations to Ford Motor in 1999. Market forces driving the merger By 1990 Sweden·s export sales had began to slow. a Swedish manufacturer of farm machinery. Volvo. Hoping to strengthen its position Volvo entered into a merger agreement with Renault in September 1993. Moreover. That year it entered into a complex arrangement with France-based Renault to share increasingly high cost of research and product development. for foreign assistance. many of the nation·s automotive companies were squeezed financially.5% in the first eight months of 1993 and increased competition would soon arise from Japanese automakers. In 1991 Volvo spent $2 billion to update its plant and develop the 800 series of performance-oriented family sedans. partly due to heavy demand for Volvo PV 444 model. the industry showed no signs of rebounding in the immediate future. The combined compan y would be sixth largest car . By 1951 the company concentrated on tractor production and soon accounted for one out of every five tractors sold in Sweden. however and Volvo recorded a loss of $649 million in 1992. which had been introduced in 1944. too looked. as the limitations on European imports were scheduled to be lifted by the European Union in 1999.Volvo entered the 1950s by acquiring AB Bolinder -Munktell. leaving the company with operations in only heavy duty veh icles. In 1981 Volvo diversified in oil industry with the acquisition of Beijerin vest Group. As a result. SAAB.
Approach to the Engagement On September 6. voiced its objections to the deal. Ford. which enabled it to restrict the voting rights of any investor. behind Mercedes-Benz. that deal gave French government a ´Golden Shareµ. Three points in particular that disturbed the association was. until that time merger·s benefits to the Swedish Shareholders would be limited. as the separate companies had substantial operations in Europe and the U. Volkswagen and Nissan. an alliance of individual investors who combined to own 10% of Volvo. . including Volvo.S. Volvo issued revised statement of the merger·s projected savings. as well as compact cars.56 - . It hoped to achieve gains in the sector by reaping the rewards from cross-marketing in luxury cars. a Swedish company. up from the $4. to 20%. Volvo·s strength. The French government expressed its assurance that it would not abuse its golden share rights. On October 6 the Swedish Shareholders Association. The companies tried to quell to growing number of oppositionists.8billion that had been earlier reported. they would rank the combined firm second in that industry. Finally French government was elusive about the date it planned to privatize Renault. And that tremble developed into an outright shudder when the details of the merger deal were revealed. Renault and Volvo announced their merger accord. This brought a patriotic tremble to those vested in Volvo. after General Motors. the companies failed to produce compelling benefits arising form the merger that could not be achieved from a continuation of their partnership. Secondly. Renault was a state owned company that meant that the French government would hold stake in the combined enterprise. reporting that they would be $7.4billion. Yet the merged company·s biggest impact would be in commercial vehicles. But they dint explain the source of extra savings.manufacturer. Renault·s speciality. 1993. first. Toyota.
The efforts to charm investors and managers proved ineffective, and in November 30 the last straw broke. A leaked financial report indicated that while Volvo·s monthly earnings increased markedly, Renault·s dropped sharply. Soren Gyll, Volvo·s CEO, quickly conducted an informal poll of the company·s 25 senior managers, who overwhelmingly declared that the mergers would not work. Gyll telephoned Volvo·s chairman, Pehr Gyllenhammer who was in the U.S. at the time, and informed him of the developments; Gyllenhammer terminated the deal and resigned the following day.
Products and Services
Renault was divided into two main segments passenger cars included such brands such as Clio II, Espace, Kangoo, Laguna, Megane, Scenic, Nevada , Safrane, Twingo and Spider. Commercial Vehicles were comprised of vehicles for long haul goods transport, distribution transport and passenger transport as well as construction trucks, public service vehicles and military vehicles.
Volvo operated in five segments Volvo Buses, Volvo Trucks, Volvo Construction Equipment Group, Volvo Penta Corp. (marine and industrial engines) and Volvo Aero.
Review of the outcome
The breakup dint just bring about an end to the merger deal, it also terminated their previous partnership. Volvo and Renault dissolved their joint purchasing and quality control accords. They also surrendered most of the seats held on the other·s board; Renault·s chairman Louis Schweitzer, however, retained his seat on Volvo·s board. Renault reduced its stake in Volvo to 3.45% on February 3, 1994 and Volvo sold its 11.38% in Renault to the Union Bank of Switze rland on July 31, 1997.
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Case Study No. 3 FORD AND VOLVO
NATIONALITY: - U.S.A. (Ford), Sweden (Volvo)
March 31, 1999
AFFECTED : -
Ford Motor Co., U.S.A., Founded 1903 AB Volvo, Sweden, Founded 1915
FORD MOTOR CO.
Revenue (1998) Employees (1998)
$144.4 Billion 345,175
Revenue (1998) Employees (1998)
SEK 212.9 Billion 79,820
THE OFFICERS: - FORD MOTOR CO.
Chairman President and CEO Vice Chairman Vice Chairman and Chief of Staff Exec. V.C. and C.F.O.
William C. Ford, Jr. J. A. Nasser W. Wayne Booker Peter J. Pestillo John M. Devine
AB VOLVO Chairman President and CEO ::Hakan Frisinger Leif Johansson
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Deputy CEO and Exec. V.P. Executive V.P. :-
Overview of the Acquisition
Ford motor company secures its rank as the world·s number-two automaker with its purchase of Volvo car corp., the automotive business of AB Volvo. This $6.45 billion deal followed the previous years DaimlerChrysler formation and perpetuated the trend of mega mergers within the global auto industry. It also brought the industry in step closer to consolidation of players into the last remaining Global six.
History of Ford Motor Co.
Henry ford built his first steam engine in 1978 and five years later completed his first gasoline fed, one cylinder, and internal combustion engine. In 1896 he built his first car, called the Quadricycle, which he sold to finance the construction of a lighter weight race car. In 1899, he resigned from Edison lighting company to form the Detroit Automobile Co. Two years later, however, the company faces bankruptcy due a production rate that was lower anticipated.
Meanwhile, Ford built two four-cylinder, 80 horsepower racecars in his shed, the 999 and the arrow. When one of Ford·s racecars prevailed against Alexander Winston·s champion car, the bullet, his investors agreed to establish a car production company for him to run. Ford·s tenure there was short-lived, However, as he spent more time in the development of new racecars than in the type of car that the investors planned to produce and sell. He was asked to resign.
In 1902 Ford formed a partnership with Alex Malcolmson to design and built a prototype for a new car. Twelve investors raised $28000 to finance the company which was capitalized at $150000. The next year, the Ford Motor Co. sold more than
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The production of the model T was stopped at its 15 millionth product in 1927. Attributed to the oil crises of the 1970s. In 1934 Volvo began . a Swedish ball bearing manufacturer. The next year it spun off Associated First Capital and sold its interest in Kia Motors. In 1980 Ford experienced a loss of $1. the car·s concept was credited to the general manager Lee Iacocca. unveiled in 1908. Its success was attributed to its reliability and low price. automobile ownership was no longer a luxury of the urban rich. Targeted to American youth. The Model T was the product of Ford·s assembly-line concept that revolutionized the manufacturing of all types including car making. ranging in price from $800 to $2000. For the first time. Ford purchased the automaking business of Volvo for $6.54 billion first of a string of losses during the decade.45 billion in 1999. The Ford Mustang was introduced in 1964. these results called for the closure of 15 plants and the reduction of 33% of the workforce in 1983. History of AB Volvo AB Volvo was formed in 1915 as a subsidiary of AB Svenska Kullagerfabriken. It exited from the heavy duty truck business by selling those operations to Freightliner. After that there was no looking back. $825. The company emerged from the crisis by 1984.60 - . a unit of Daimler -Benz. It began the assembly of cars in 1927 and of trucks in 1928. the model C and the model F.000 units in its first year.000 units within the first 100 days of its availability. The Model T sold more than 10.17000 cars. when its sales and profits reached record levels. It soon introduced three new models: the model B. Two years later it acquired the means to safeguard the delivery of engines by purchasing a majority interest in AB Pentaverken. and sold more than 100.
partly due to heavy demand for Volvo PV 444 model. In 1998 DaimlerChrysler was formed by the merger of two automotive giants. Toyota. These super giants were expected to achieve their entry in this elite group by securing the acquisitions of their smaller brethren. Manufacturers throughout the world were feeling the pinch of flat sales. DaimlerChrysler.61 - . It had built a valuable reputation as one of the . which had been introduced in 1944. Honda and Volkswagen. Passenger car volume also surpassed that of trucks and buses. By 1951 the company concentrated on tractor production and soon accounted for one out of every five tractors sold in Sweden. leaving the company with operations in only heavy duty vehicles.the production bus chassis and marine engines. a Swedish manufacturer of farm machinery. Ford. In 1999 Volvo sold its automobile operations to Ford Motor in 1999. Volvo entered the 1950s by acquiring AB Bolinder -Munktell. and erased all doubt that small independent companies would survive on their own for much longer. The following year the company gained a listing on the Stockholm Stock Exchange. In 1981 Volvo diversified in oil industry with the acquisition of Beijerinvest Group. Market Forces Driving the Acquisitions Global automobile industry in the late 1990s was showing signs of a consolidation trend. As one of the relatively smaller companies AB Volvo was actively seeking partner even though it was far from hurting. Analyst and industry players were predicting a shakeout of the industry into the global six General Motors. In 1991 Volvo spent $2 billion to update its plant and develop the 800 series of performance-oriented family sedans. pricing competition and international overcapacity.
In the months prior to the announcement of a definite deal. rumours were flying about potential partners for Volvo. minivans. minivans . Ford and Volkswagen had been named as possible suitors. and the regulatory bodies did likewise on March 29. Yet in the automotive sector. and lacked the financial resources to enable to pick up the pace. the deal called for the purchase of Volvo brand name on passenger vehicles. Volvo could focus on increasing its commercial business. between the combined company·s models. 1999. announced on January 28. 1999. Volvo would also provide Ford with European manufacturing plants. By divesting its auto business. known as Volvo Car Corp. Volvo Car Corp. Lincoln and Aston Martin. or chassis. Volvo shareholders approved the deal on March 8. Volvo formed a [act with Ford. while Volvo retained the right to use the Volvo name on all commercial vehicles and non auto products. which at that time consisted of Jaguar. The addition of the Volvo brand to Ford Motor·s line -up would increase its luxury car offerings. was that the company·s commercial vehicle business accounted for a greater share. Instead.62 - . of overall revenues. 60%.. Volvo rejected that offer.safest brands available and had a socially and environmentally responsible corporate image. including car. including cars. 1999. On March 31. 1999. sports-utility vehicles. Fiat had offered $7 Billion for the entire concern. It would attract new classes of luxury car customers ² females and consumers under the age of 55. Part of its reticence to invest heavily in its auto operations. According to reports. this Swedish concern was slow to institute innovations. was transferred . as well as the potential for the exchange of vehicle platforms. since it wanted to maintain and develop those operations itself. but it was the Italian automaker Fiat SpA that particularly wanted to acquire Volvo. sports utility vehicles and light trucks. including the commercial vehicles business. which would never survive independently anyway.
According to Autofacts Group. while GM would trail slightly behind with 9.5% share. Additionally. Lincoln and Jaguar. among the world·s automotive companies. . (marine and industrial engines). Volvo Construction Equipment Group.7% share of the European market just edged out GM·s 11. the company expected its global sales to reach 750.15 million cars and light trucks by 2005.4% share held by the leader of that market Volkswagen AG. behind General Motors. Ford·s other automotive brands were Ford and Mercury. Changes to the Industry Ford secured its second-place position. the company operated in Financial Services Sector. Ford·s global production was expected to reach 9. Its 11. Ford·s luxury operations sold 250. Which paid the Swedish corporations $700 million and SEK 10.63 - . After divesting itself to its automotive business AB Volvo in five segments: Volvo Buses.2 billion was scheduled to be paid within two years.000 vehicles by mid 1999. Aston Martin. A June 1999 issue of the Detroit Free Press reported results of a study predicting that ford would soon overtake GM as the world·s leader in terms of both revenue and production.1 million. Hertz and USL Capital. Before the addition of Volvo. Products and Services Ford Motor created the Premier Automotive Group to hold its luxury brands: Volvo. as well 33% interest in Mazda. With the newly acquired brand. acquiring a 16% global market share.to Ford Motor. a unit of the PricewaterhouseCoopers. consisting of Ford Credit.000 in the year 2000. and Volvo Aero. although they trailed far behind the 18. Volvo Penta Corp.
Swedish companies were traditionally run by compromise rather than direct order and their bosses encouraged a healthy balance of work and play. Still. this scene is the dream of every company that goes in for a merger or an acquisition. Months of sleepless nights and hours of work have boiled down to this one-day and yes they have been victorious. . but yet no one has been able to come up with a sure shot formula for success and no one probably ever will. The requirements for success for each firm would differ. Over the years there have been millions of mergers. This line. just like no two people in the world are exactly similar.Review of the Outcome Ford vowed to have minimal impact on the operations and the culture of Volvo Car Corp. and neither could they ever hope to compete against Ford·s established suppliers Conclusion ´We·ve achieved our targetµ You can almost hear the sigh of relief from everyone seated in the boardroom. but they were expected to be forthcoming. who worked so hard that he shunned vacations. particularly Jacques Nasser. No layoffs or closures were announced immediately after the deal. employees of the newly acquired company were somewhat anxious about being the subordinates of an aggressive American boss.64 - . the value of which keeps increasing as the years go by. no two firms have the same work cultures and philosophies. To achieve the set target is a remarkable feat considering the fact that most mergers don·t succeed. One of the main reasons for this is that every organization is different from the other. Additionally Swedish suppliers admitted that they dint have the large scale capabilities to service Ford.
Before making a final deal they must do a due diligence. this excessive competition at some point of time will lead to consolidation in the industry because they cannot keep playing price games.This does not mean that the organization does not strive to achieve success or that it is out of reach.. The best is yet to come the marriages are going to get bigger and bigger« . Today in a lot of sectors there is fierce competition like telecom. The scope of mergers is tremendous because there are so many fragmented players especially in India. To conclude I would like to say that this is just the beginning. because if they·ve done everything right and it still does not work means that they were a misfit form the beginning. consumers are becoming global. This would assure their full support to the firm. be it employees or customers should be informed about the going-ons in the company.. The company should be on their toes all the time making sure that the competitor is not taking advantage of their vulnerable position when they are in the process of a merger or an acquisition. The issues that I have discussed in the report should be looked at closely. Fixed costs are rising. It is not. The price structure should be studied in detail. This will help them in uncovering any facts that might not be blatantly visible but can cause a hindrance to the merger. their demands have to be serviced and mergers are considered to be the simplest way to expand since you don·t incur the start-up costs. they would not be able to withstand competition from the multinationals. The company should work towards their set goals.65 - . at some point they will have to stop. The people who have a stake in the firm.
when the global slowdown started. ´The biggest reason for the fall was the lack of liquidity. chief executive. and manufacturing deals from 20%. with an 18% share each. M&A activity in IT and ITeS had fallen from 27% in the first half of 2008. according to a study by Venture Intelligence. ´This particularly affected cross-border deals as no leverage or buying finance was available.66 - . however. the number of deals declined 28% but the average deal value has recovered from the $60 million seen then. IT-enabled services (ITeS) and manufacturing industries accounted for the most acquisitions in the first half. say the worst may be over. Analysts. Venture Intelligence. Information technology (IT). It was only companies with cash in hand that went hunting for targets. .µ Mismatch in valuations further dampened spirits as expectations of many promoters had not come down as much as the markets. In the second half of 2008.LATEST NEWS Mergers And Acquisitions In First Half Of 2009 Worst In Five Years Mergers and acquisitions (M&A) in the country slumped to their worst since 2004 in the first half of 2009 as a liquidity crunch and mismatched valuations marred buying plans of Indian companies. down nearly 54% from the same period last year. against 40% last year. In the first six months of 2009.µ said Arun Natarajan. However. At least 50% of the deals in the first half of 2009 were domestic acquisitions. Indian companies were involved in 136 M&A deals. a research firm focused on private equity and M&A deals in India. according to the Venture Intelligence study.
com 3) www. Hilt -Jefferey S.wallstreetjournal. Hiraoka 2 ) Mergers and Acquisitions ² A Guide to creating value for Stakeholder -Micheal A. Vinay Kuma 4 ) Cases in corporate Acquisitions. Harrison -R.investopedia.Leslie S.ny-times.67 - .BIBLIOGRAPHY Books 1 ) Global Alliances in the Motor Vehicle Industry .com 2) www. Duane Ireland 3 ) Independent Project on Mergers and Acquisitions in India ²A Case Study -Kaushik Roy Choudry -K.com . Mergers and Takeovers -Edited by Kelly Hill 5 ) SUCESSFUL MERGERS getting the people issues right ² Marion Devin Websites 1) www.
com 6) www.com News Papers 1) The Economic Times 2) Mint .wikipedia.4) www.economictimes.68 - .google.com 5) www.
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