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Published by: Karthik Reddy on Feb 04, 2012
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Under the guidance of our respected ProfessorProf S.V.


Submitted by: Pranav Jalan 08BS0002278 Pravesh Surana 08BS0002328 Prerna Singhal 08BS0002 Priyanka Bhuwania 08BS0002372 Rahul Chandalia 08BS000 Rahul Jain 08BS0002500 Ravi Somani 08BS0002638 Rohit Kothari 08BS0002751 Date 12th November;09

€ € € € € € € € € €

Introduction Past History M & A Process Reasons and Issues Strategic Approach to M&A Takeover Strategies and Defenses Issues and Defects Attributes to effective acquisition Legal Procedure Caselets:
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P&G and Gillette Tata-JLR Tata-Corus Adidas-Reebok


Case Study

and better focused . A strategy to change business or financial structure.leaner. The reorganizing can be within the company itself or with the involvement of other corporate entities. Example GE witnessed tremendous growth during tenure of Jack Welch Necessity when the company has grown to the point. Radical changes in composition Process of redesigning.Corporate restructuring is the reorganization of corporate entities. Continuous process. . better organized. Crucial whenever there is a major shift. Result . more efficient.

€ . € Market Restructuring Is the addition of a newer product or shifting one product or segment to another or enlarge the market for the exiting products. decisions regarding mergers. joint ventures and alliances € Operational Restructuring Reformulate the company on basis of change in technology and environment requirements € Organizational Restructuring In order to increase efficiency redefining the organizational structure or the processes or the systems.Financial Restructuring Includes raising the finance.

€ Culture. focus and commitment of top management towards change program € "What is in it for me" attitude € Mind set/resistance to change € Lack of involvement of employees € Poor planning € Resource Availability € Cost and time € Poor communication € Inadequate .

..€ Expansion € Sell offs € Corporate control € Changes in ownership structure.

both Daimler-Benz & Chrysler ceased to exist when two firms merged. For example. € .e. to create a sustainable competitive advantage. agree to go forward as a new single company rather than remain separately owned & operated by pooling all their resources together.. acquisitions can sometimes be unfriendly. Unlike mergers.€ A MERGER happens when two firms. often about same size. and a new company ¶Daimler-Chrysler¶ was created.the purchase is called µACQUISITION¶. i. when a firm tries to takeover another by adopting hostile measures. When a Company takes over another one & clearly becomes the new owner .

€ The value M &A WORLDWIDE increased from $464 Billion in 1990 to $3.´(117 Mtons/Year-Global) .4 trillion in 1999-2000. (28 Mtons/Annum-2006) € . followed by sharp decline during 2001 & 2002.Mergers and Acquisitions M&A . € Tata Steel-Corus(UK) Acquisition by Tata Steel for $12 Billion is very significant and a landmark for the Indian Corporate World. € India born Laxmi Nivas Mittal has taken over Arcelor in Europe .have become very popular strategy all over the world in last 3 decades.It has again shown improvement from 2003 onwards. to form a largest Steel making Company in Europe´Arcelor-Mittal.



Managerial Synergy Improve management or replace inefficient one Financial Synergy Redeploy capital Increase ROI Company-specific Risk Cost-of-capital reduction Operating Synergy Scale Economies Improve margins Market Valuation Release ³value´ .

1922-1929 Merger Movement. 1940-1947 Merger Movement.€ The € The € The € The € Post 1895-1904 Merger Movement. 1980 Merger Movement. 1960s Merger Movement. .

. € Case: JP Morgan merged with Carnegie Steel. in 1904 due to severe economic € Ended recession. for Monopoly in order to eliminate competition.€ Majorly € Merging of Horizontal mergers.

€ Majorly € Merging € Case: of Vertical mergers. for Oligopoly. . FORD. € Ended in 1929 with stock market crash of Black Tuesday.manufacturing tyres of car from rubber plantations in Brazil.

€ Conglomerate € Occurred Merger. . during booming American economy.

of LBO. € Mega-Merger . & Cross border merger.€ Hostile € Birth takeover.

    A = Amalgamating Company: Ceases to Exist B = Amalgamated Company B receives all of A·s assets and liabilities Shareholders of A receive shares in B and maybe other benefits like debentures. cash A Transfer assets and liabilities B .

A B C D . B and C = Amalgamating Companies: Cease to exist D = Amalgamated Company: may or may not have existed before Merger All assets and liabilities of A.B and C get shares in D.    A. B and C transferred to D Shareholders in A.

391 A = Demerging Company B = Resulting Company: may or may not have existed earlier A transfers undertaking to B B issues shares to shareholders of A Transfers undertaking Y Shareholders of A X Y Y Company B Company A Issues shares .     Demergers are one type of spin-offs: under s.

8. 2. Develop a strategic plan for the business. 7.1. Implement post closing integration. 10. 4.(Business Plan) Develop an acquisition plan related to the strategic plan. (Integration Plan) Obtain all necessary approvals and implement closing.( Acquisition Plan) Search companies for acquisitions. . Conduct a post closing evaluation. structure the deal and develop financial plan.(Screen) Initiate contact with target. 5. 3.( Negotiation) Develop plan for integrating the acquired business.(Search) Screen and prioritize potential companies. 6. 9. Refine valuation.

€ A common core of unity is required. He says that mergers should follow five rules. € Within the first year of the merger. € The acquirer must contribute something to the acquired company.According to Drucker. managements in both companies should receive promotions across the entities . the acquiring company must be able to provide top management to the acquired company. financial factors provide stimulus for merger activity. € Within a year or so. in order to be economically viable. € The acquirer must respect the business of the acquired company.

Example: General Electric buying NBC television . .Example: Exxon .Example: Helene Curtis and Unilever € Conglomerate Mergers: activity . .Conglomerate mergers involve firms engaged in unrelated types of business € Concentric Mergers . Textiles firm merges raw materials firm.Based on specific management functions where as the conglomerate mergers are based on general management functions .Example: Citigroup (principally a bank) buying Salomon Smith Barney (an investment banker/stock brokerage operation .€ Horizontal mergers: ƒ ƒ A horizontal merger involves two firms operating and competing in the same kind of business activity.Mobil € Vertical mergers: ƒ Vertical mergers occur between firms in different stages of production operation.

Reasons for M&A Increased market power Overcome entry barriers Cost of new product development Increased speed to market Lower risk compared to developing new products Increased diversification Avoid excessive competition M&A Problems in Achieving Success Integration difficulties Inadequate evaluation of target Large or extraordinary debt Inability to achieve synergy Too much diversification Managers overly focused on acquisitions Too large .

Reasons for M & A Increased Market Power Acquisition intended to reduce the competitive balance of the industry Example: British Petroleum·s acquisition of U.S. Amoco Overcome Barriers to Entry Acquisitions overcome costly barriers to entry which may make ´start´start-upsµ economically unattractive BelgianExample: Belgian-Dutch Fortis· acquisition of American Banker·s Insurance Group Lower Cost and Risk of New Product Development Buying established businesses reduces risk of start-up ventures startExample: Watson Pharmaceuticals· acquisition of TheraTech .

Reasons for M & A Increased Speed to Market Closely related to Barriers to Entry. allows market entry in a more timely fashion Example: Kraft Food·s acquisition of Boca Burger Diversification Quick way to move into businesses when firm currently lacks experience and depth in industry Example: CNET·s acquisition of mySimon Reshaping Competitive Scope Firms may use acquisitions to restrict its dependence on a single or a few products or markets Example: General Electric·s acquisition of NBC .

Problems with M & A Integration Difficulties Differing financial and control systems can make integration of firms difficult Example: Intel·s acquisition of DEC·s semiconductor division Inadequate Evaluation of Target ´Winners Curseµ bid causes acquirer to overpay for firm Example: Marks and Spencer·s acquisition of Brooks Brothers Large or Extraordinary Debt Costly debt can create onerous burden on cash outflows Example: AgriBioTech·s acquisition of dozens of small seed firms .

Problems with M & A Inability to Achieve Synergy Justifying acquisitions can increase estimate of expected benefits Example: Quaker Oats and Snapple Overly Diversified Acquirer doesn·t have expertise required to manage unrelated businesses Example: GE--prior to selling businesses and refocusing GE--prior Managers Overly Focused on Acquisitions Managers may fail to objectively assess the value of outcomes achieved through the firm·s acquisition strategy Example: Ford and Jaguar .

or having the potential to sell other products or services to your existing customers .Present Situation Growing steadily but in a mature market with limited growth Operating at maximum productive capacity Strategy Acquire a company in a younger market with higher growth rate Acquire a company making similar products operating substantially below capacity Acquire a company into which the talents can be extended Acquire a company with product range which is complementary Under-utilizing management resources Marketing an incomplete product range .

Lacking key clients in a targeted sector Acquire a company with right customer profile Need to increase market share Need to widen capability Acquire an important competitor Acquire a company with key talents and/or technology Need more control of suppliers or customers Acquire a company which is. or which gives access to a significant customer or supplier Preparing for floatation but need to improve balance sheet Acquire a company with the right customer profile .

€ Open market or Hostile Takeover A group acquires shares of a company from the open market in order to take control of the company Eg:Autoriders· Hostile Takeover Bid for Saurashtra Cement € Bail-out Takeover When a financially sick company is taken over by a profit earning company in order to bail out the former .it is called a bail-out takeover. .Kinds of takeovers: € Negotiated or Friendly Takeover The existing management of a company decides to give away the control of the company to another group on terms and conditions mutually agreed upon by both the parties.

. € Brand Power The acquiring firm enters into an alliance with other powerful brands to displace the competitor·s brand. € Street Sweep The acquirer accumulates large amounts of the stocks in the target company before making the open offer € Bear Hug The acquirer tries to put pressure on the management of the target firm by threatening to make an open offer € Strategic Alliance An acquirer offers a partnership rather than a buyout of the target firm.€ Tender Offer General offer made publicly and directly to a firm·s shareholders to buy their stock at a price well above the current market price.

€ Economic Issues € Legal Issues € Public Policy Issues € Powers of financial institutions € Proxy wars .

on € Effects on € Effects on Company € Effects on Company € Effects the Acquirer Company the Target company the Shareholders of the Target the Shareholders of Acquiring .

€ Golden Parachutes € Poison Put € Anti-takeover Amendments o o o o Super majority amendments Fair price amendments Classified boards Authorization of preferred stock €Poison Pill Defense €Targeted Share Repurchase and Standstill Agreements €Other Takeover Defences .

€ An acquisition may be defined as an act of acquiring effective control by one company over the assets or management of another company without any combination of companies.€A fundamental characteristic of merger is that the acquiring company takes over the ownership of other companies and combines their operations with its own operations. .

Attributes of Effective Acquisitions + Complementary Assets or Resources Buying firms with assets that meet current needs to build competitiveness + Friendly Acquisitions Friendly deals make integration go more smoothly + Careful Selection Process Deliberate evaluation and negotiations is more likely to lead to easy integration and building synergies + Maintain Financial Slack Provide enough additional financial resources so that profitable projects would not be foregone .

Attributes of Effective Acquisitions + + Low-to-Moderate Debt Merged firm maintains financial flexibility Flexibility Has experience at managing change and is flexible and adaptable + Emphasize Innovation Continue to invest in R&D as part of the firm¶s overall strategy .

TRANSACTION STRUCTURE ‡Companies Act ‡Income Tax Act ‡Stamp Acts ‡Competition Act LISTED COMPANIES ‡SEBI Regulations ‡Stock Exchange ± Listing Agreement TRANS-BORDER TRANSACTIONS ‡Foreign Exchange Management Act .

€ Sec 391 ² 394 of Indian companies act covers M & A. € Examination of object clause € Approval from the board € Intimation to share holders and creditors. € Application to National Company Law Tribunal (NCLJ) € Intimation to SEs . € Approval from share holders and creditors.75% of SH and creditors to approve..

€ Pettion to NCLT for approval € Filing order with ROC € Transfer of assets and Liabilities € Issuance of shares/cash .



06 : Brazilian Steel Group CSN counter-offer to TATA¶s offer. Oct 20. 06: TATA kept its offer to 455 pence per share. Nov 18. 06 : Initial offer by TATA is considered to be too low.3 billion. Oct 27. then CSN made its counter bid at 515 pence per share in cash Jan 31. 06 : CORUS accepts the offer of £4. Oct 23. 07 : Tata steel manages to win acquisition to CSN and has the full voting support from Corus shareholders € € € . 07 : Tata ad agreed to offer Corus investors 608 pence per share in cash Apr 02. Dec h18.€ € € € € € € € Sep 20. Oct 06. 06 : Board of Corus decides to give more time for shareholders to decide whether it issue forward a formal offer. 06 : CORUS criticized by JCB for acceptance of TATA¶s offer. 06 : CORUS uses the strategy to work with low cost producer.06 : Tata increases its original bid for Corus 500 pence per share. 06 : The CSN approaches Corus With an offer of 475 pence per share Nov 27. Oct 17.

The combined entity has become the world·s fifth largest steelmaker after the deal. These advisors were Deutshe bank. € € € € € € € € . ABN Amro and Standard Chartered. TATA Steel. TATA Have secured funding commitments from its advisors. The deal price was $ 12 Billion. For this deal TATA has finance only 4 Billion $ from internal company resources. TATA Surpassed the final bid from Brazilian steel maker ¶COMPANHIA SIDERURGICA NACIONAL· (CSN) of 603 pence per share.€ TATA Acquired CORUS on 2nd April 2007 which is 4 times larger than its size.the winner of the auction for CORUS declares a bid of 608 Pence per share. In 2005 when the deal was started the price per share was 455 pence.

Acquisition cost will be lower then setting up new green field plants and marketing channel. .FOR TATA The initial motive behind the deal was not CORUS revenue size but rather its market value. To compete on global scale because then TATA was just at 56th rank in steel production. CORUS holds a number of Patents and R & D facility. Acquiring Corus will give Tata access to European customers of steel.

Total Debt of Corus was GBP 1.4% (TATA. Better facilities and lower cost of production Employee cost was 15 % (TATA.FOR CORUS To extend its Global reach through TATA. To get access to Indian Ore reserves.9%) Profit margin was 3.17%) .6bn Saturated market of Europe. To get access to low cost materials. as well as virgin market for steel.

Major Acquisitions
Target Arcelor NKK Corp LMM Holdings Corus Krupp AG Dofasco Intl Steel Buyer Mittal Steel Kawasaki Steel Ispat Intl TATA Thyssen Arcelor Mittal Steel Value ($ bn) 31 14.1 13.3 12.0 8.0 5.2 4.8 Year 2006 2001 2004 2006 1997 2005 2005


CAPACITY in (million tones)

1.Arcelor-Mittal 2.Nippon steel 3.Posco 4.JEF steel 5.Tata steel- Corus

110.0 32.0 30.5 30.0 27.7

2008.5 billion Ford bought Land Rover in 2000 for US$ 2. On March 26.Ford announced that it had chosen Tata Motors for the JLR deal and had entered into focused negotiations with the company. the operations of both Jaguar and Land Rover were fully integrated Ford reported losses of US$ 12.2008. Tata Motors agreed to pay US$ 2.3 billion in cash for a 100% acquisition of the businesses of JLR.ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ Ford.7 billion in the year 2006 Ford conducted strategic reviews on the two brands and in June 2007 announced that it was considering selling JLR Ford was concerned more about the interest of the workers employed with JLR than the price JLR·s labour union were against selling to private equity firms to be assure of job security On January 03. Ford acquired Jaguar from British Leyland Limited in 1989 for US$ 2. ƒ .7 billion from BMW Over the years. a leading automaker and one of the largest MNC in the global automobile industry.

‡ Immediate entry to the luxury performance car and premium allterrain vehicle segments ‡ An improvement in global market position through a combination of resources and strengths ‡ Strengthening of technological and product development/inn ovation capabilities to address changing market trends ‡ Enhanced human capital and managerial talent ‡ Sharing of best practices in manufacturing and quality assurance systems and processes ‡ Potential operational synergies .

the acquisition was totally debt free .Tata Motors acquired: ‡ Three manufacturing plants ‡ Two advanced designed and engineering centers ‡ Worldwide network of 26 national sales companies Tata Motors did not inherit any of the debt liabilities of JLR.

€ Tata € The Motors raised a bridge loan of US S$ 3 billion through a syndicate of banks loan was raised through Tata Motors UK. a special purpose vehicle and a 100% subsidiary of Tata Motors € The interest on the bridge loan was linked to LIBOR(London Inter Bank Offer Rate) also proposed to raise around US 500 to 600 million through an international issue € Tata .

€ € € Sales of JLR declined by 11.2% to 49.4 million in 2008 By the end of 2008.JLR announced 450 jobs cut Announced that managers would not receive any bonuses in 2009 while salary raises would be deferred till Oct 2009 For the quarter ending Dec2008. additional investments of funds would only add to the debt and interest burden of the company In early Jan 2009.186 Total car sales in the UK in the year 2009 would be at 1.retail vehicle sales were reported at 10.8 millionaround 2 million lower than the sales reported in 2007 Consumers were delaying the purchase of new vehicles due to lack of consumer loans € € € € € € € .the sales volumes of JLR decreased by 35.2008.2008 Tata motors had to pump in funds to keep JLR on the move By the end of Nov.4% during the 2nd quarter ending Sep.198 employees opted for voluntary retirement and 400 more decide to leave by Jan 2009 With not much of cash generation internally.78 million as against 2.


975$/share(20% premium).7b € After purchase of Gillette P&G will have $21b brands with market cap of $200b € P&G paid .later buyback of shares worth $18-22b over 12-18 months .€ Biggest merger in the history of Consumer goods € P&G acquired Gillette for $57b to become the world·s largest consumer goods company € Annual Sales of the combined entity:$60.

€ Merging companies: similarity in Corporate history € Merger based on a different model where innovation was the focus rather than the scale € Regulatory concerns: Product overlaps € Consumer goods after 1980s .

P&G strength: Women·s personal care products € Gillette strength: Men·s grooming category € Complementary in strength cultures and vision to create potential for superior sustainable growth € Gillette stock climbed 50% since 2003. long term sales growth estimate to 5-7% a year € Operating margin expected to grow by 25 % by 2015 from 19% in 2003 € The companies expected cost savings of $14-16 bn from combining back-room operations and new growth opportunities. € .profits jumped on premium products € Acquisition added about 20% to P&G sales.

€ . € merger would also bring down the advertising and media costs owing to greater bargaining power € Opportunities in developing markets: Gillette would give exposure to P&G in emerging economies like India and Brazil.more resources to enable intensive collaborative supply chain initiatives in a more cost-effective way. while P&G would distribute Gillette products in China € It will give P&G the much needed boost to further strengthen its product categories where at present it has negligible presence € The deal will help Gillette in improving its inventory days.

Cultural problems absence because of geographical proximity P&G is considered a promote-from-within company.000 job cuts. Most of the downsizing will take place to eliminate management overlaps and consolidation of business support functions. Therefore.€ € € € € The merger would result in around 6.000. and already had a lot of executive talent at the top. absorbing Gillette's management to their satisfaction could be difficult P&G's ability to handle this massive cultural assimilation would decide the success or failure of this acquisition. Overlaps of some brands . equivalent to 4% of the two companies' combined workforce of 140.

Analyst forecasted that this deal could lead to further consolidation in the industry .€ Pressure for competitors in the industry € competitors could launch new products or strengthen their supply chain relationships during this time to gain an edge € P&G-Gillette combination could be a transformative deal for the industry because of Gillette's growth potential.

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