S.P.

MANDALIS

R. A PODAR COLLEGE OF COMMERCE AND ECONOMICS MATUNGA, MUMBAI-400 019. A PROJECT REPORT ON (Corpor !" S!r !"#$, M"r#"r% &' A()*+%+!+o&%, T ,"o-"r%, Jo+&!
."&!*r"%,/

SUBMITTED B0 (RO1AN 21ILARE/ M.COM (SEM. II/3 STRATEGIC MANAGEMENT SUBMITTED TO UNI.ERSIT0 OF MUMBAI 4015-4014 PROJECT GUIDE Pro6. Dr..INITA PIMPALE

S.P. MANDALIS

R. A PODAR COLLEGE OF COMMERCE AND ECONOMICS MATUNGA, MUMBAI-400 019.

CERTIFICATE
This is to certify that Mr7M%. N 8" RO1AN 21ILARE of M.Com ( Business Management/ Accountancy) Semester I (2013 201!) has successfu""y com#"ete$ the #ro%ect on Corpor !" S!r !"#$, M"r#"r% &' A()*+%+!+o&%, T ,"o-"r%, Jo+&! ."&!*r"%, (T+!9"/ un$er the gui$ance of Pro6. Dr. .+&+! P+8p 9"

&ro%ect 'ui$e/Interna" ()aminer ()aminer &rof. Dr. (Mr%/ .+&+! P+8p 9" ************************ +r. (Mrs) ,inita &im#a"e ,asu$e.an Course Co or$inator &rinci#a"

()terna" &rof.

+r.(Mrs) Sho-ana

D !" Co99"#"

S" 9 o6 !:"

AC2NO;LEDGEMENT
I ac/no0"e$ge the .a"ua-"e assistance #ro.i$e$ -y S. & Man$a"i1s 2. A. &o$ar Co""ege of Commerce 3 (conomics4 for t0o year $egree course in M.Com. I s#ecia""y than/ the &rinci#a" +r.(Mrs) Sho-ana ,asu$e.an for a""o0ing us to use the faci"ities such as 5i-rary4 Com#uter 5a-oratory4 internet etc. I sincere"y than/ the M.Com Co or$inator for gui$ing us in the right $irection to #re#are the #ro%ect. I than/ my gui$e &rof. Dr. (Mr%/ .+&+! P+8p 9" (6ame of 'ui$e) 0ho has gi.en his/her .a"ua-"e time4 /no0"e$ge an$ gui$ance to com#"ete the #ro%ect successfu""y in time. My fami"y an$ #eers 0ere great source of ins#iration throughout my #ro%ect4 their su##ort is $ee#"y ac/no0"e$ge$.

Signature of the Student

DECLARATION
I4 RO1AN 21ILARE of R. A. PODAR COLLEGE OF S(M(ST(2 II4

COMMERCE < ECONOMICS of M.Com

here-y $ec"are that I ha.e com#"ete$ the #ro%ect Corpor !" S!r !"#$,
M"r#"r% &' A()*+%+!+o&%, T ,"o-"r%, Jo+&! ."&!*r"%, in the aca$emic

year 2013 2013 for the su-%ect STRATEGIC MANAGEMENT. The information su-mitte$ is true an$ origina" to the -est of my /no0"e$ge. 1. Signature of the Student

Corpor !" S!r !"#$, M"r#"r% &' A()*+%+!+o&%, T ,"o-"r%, Jo+&! ."&!*r"%,

SR. No. 1 2 3 ! 7 > :

INDE= PARTICULARS I6T28+9CTI86 C82&82AT( ST2AT('I(S M(2'(2S 3 AC;9ISIT86S CAS( ST9+< TA=( 8,(2 ?8I6T ,(6T92( C86C59SI86 BIB5I8'2A&@<

PG.NO : 12 20 2> 32 33 3!

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C82&82AT( ST2AT('I(S I6T28+9CTI86

Cor#orate strategy is the se"ection an$ $e.e"o#ment of the mar/ets (or in$ustries)1 in 0hich a firm com#etes. Therefore4 cor#orate strategy $ea"s 0ith 0hat in$ustries (or mar/ets) a firm see/s to com#ete in. Business "e.e" strategies ("o0 cost4 $i.ersification4 an$ focus) that 0ere $iscusse$ "ast cha#ter are @8A a firm com#etes in a sing"e mar/et or in$ustry. Therefore4 cor#orate strategy an$ -usiness strategy $escri-e .ery $ifferent issues -e carefu" not to confuse themB 9n"i/e -usiness "e.e" strategy4 0or/ on cor#orate strategy frame0or/s is not near"y as a$.ance$ or 0e"" $one. Most em#hasis is on describing cor#orate strategy. +escri-ing cor#orate strategy in.o".es t0o #rimary $imensions4 .ertica" integration4 0here firms engage in acti.ities that 0ere former"y $one -y their -uyers or su##"iers an$ $i.ersification 0here they enter a$$itiona" mar/ets. Ahi"e that often gets a "ot of attention4 C@o0 $i.ersifie$ is the firmDE is not rea""y that im#ortant for un$erstan$ing 0hy firm #erformance $iffers. Ahat rea""y a""o0s cor#orate strategy to resu"t in su#erior firm #erformance are 0hat I1"" ca"" the C-ui"$ing -"oc/s of cor#orate strategyE sharing resources4 transferring com#etencies4 an$ creating s#ecific assets. @o0e.er4 -efore mo.ing into them4 -est to go ahea$ an$ "ay out ho0 cor#orate strategy is $escri-e$. D"%(r+>+&# Corpor !" S!r !"#$ There are t0o -asic $escri#ti.e $imensions of cor#orate strategy4 ho0 $i.ersifie$ an$ ho0 .ertica""y integrate$ an organiFation is. It may -e he"#fu" to thin/ of -oth of these $imensions as a continuum. D+-"r%+6+( !+o& occurs 0hen a firm enters a ne0 in$ustry or mar/et. ?ust "i/e 0hen 0e $iscusse$ &orterGs Hi.e Horces4 the $efinition of an in$ustry or mar/et is critica""y im#ortant. There are forma" c"assification co$es4 the 6orth American In$ustria" C"assification System (#re.ious"y Stan$ar$ In$ustria" C"assification co$es I see -o) in e)terna" ana"ysis)4 for trying to c"assify a"" in$ustries in an economy. @o0e.er4 for our #ur#oses the 6AICS is not .ery usefu". @o0e.er4 it is critica" 0hen $oing your ana"ysis to carefu""y $efine in$ustries in $escri-ing firm $i.ersification. Hor e)am#"e4 0as Coca Co"aGs mo.e from car-onate$ -e.erages into -ott"e$ 0ater an instance of $i.ersificationD +e#en$ing on ho0 you $efine the in$ustry4 it cou"$ -e yes or no. @o0 $i.ersifie$ a firm is can -e $etermine$ -y 0hat #ortion of its sa"es are $eri.e$ from $ifferent mar/ets. The "arger a #ercentage of sa"es are $eri.e$ from $ifferent mar/ets/in$ustries the more $i.ersifie$ the firm can -e sai$ to -e. A 0i$e range of "a-e"s can -e a##"ie$ to the "e.e" of a firmGs $i.ersification from sing"e -usiness (J7K of sa"es from one in$ustry)4 $ominant -usiness (:0K from one in$ustry) to $i.ersifie$ :

("ess than :0K from any one in$ustry).2 Ahi"e sing"e -usiness firms are usua""y foun$ in fast mo.ing4 ra#i$"y e.o".ing in$ustries 0here there is a nee$ to focus4 there are e)ce#tions. Ai""iam Arig"ey4 the che0ing gum manufacturer4 is #erha#s the most famous sing"e -usiness firm. @o0e.er4 most "arge firms engage in some $i.ersification. R"9 !"' -%. U&r"9 !"'. +i.ersification can -e either re"ate$ or unre"ate$. The /ey issue here is if the o#erations of the firm in the ne0 in$ustry share some "in/ in 0ith the firmGs e)isting .a"ue chain. Is there some .a"ue a$$ing acti.ity that can -e share$D Hor e)am#"e4 is there a #ro$uction faci"ity4 a $istri-ution net0or/4 or a mar/eting com#etence that -oth can useD @istorica""y it 0as thought that re"ate$ $i.ersification 0ou"$ -e -etter than unre"ate$ $i.ersification. @o0e.er4 the coor$ination costs of re"ate$ $i.ersification a##ear to consume a "ot of the e)#ecte$ -enefits. Therefore4 0hi"e most firms seem to engage in re"ate$ $i.ersification its -enefits are on"y s"ight"y4 if at a""4 -etter than unre"ate$.3 ."r!+( 9 +&!"#r !+o& occurs 0hen a firm ta/es on acti.ities that 0ere forma""y $one -y others on its -eha"f. In a 0ay4 .ertica" integration is %ust a s#ecia" case of $i.ersification4 a firm is $i.ersifying into either its su##"iersG or its -uyersG in$ustries. Hor e)am#"e if a com#any starts to ma/e com#onents for its #ro$ucts on its o0n or if it starts to $istri-ute #ro$ucts $irect"y to customers it is engage$ in .ertica" integration. Hor$ Motor Com#any un$er @enry Hor$ 0as e)treme"y .ertica""y integrate$ going so far at one time as to o0n the iron ore mines that fue"e$ its stee" mi""s that fe$ its automo-i"e assem-"y o#erations.! @o0e.er4 recent"y .ertica" integration has fa""en out of fa.or in #reference to contract manufacturing an$ outsourcing. It 0i"" -e interesting to see ho0 the e)#ansion of the internet creates o##ortunities for firms to .ertica""y integrate $o0nstream into $irect $istri-ution. A firmGs "e.e" of .ertica" integration can -e mo$e"e$ using an in$ustry (rather than a firm) .a"ue chain. An in$ustry .a"ue chain mo$e"s a"" the significant .a"ue a$$ing ste#s that occur in an in$ustry from the most -asic ra0 materia"s to the fina" consumers. The more of these acti.ities a firm encom#asses the more .ertica""y integrate$ it is. A firm that enters acti.ities to its "eft on the in$ustry .a"ue chain4 re#"acing a su##"ier4 is sai$ to -e .ertica""y integrating Lu#streamL. A firm entering acti.ities to its right4 su##"anting a -uyer4 is sai$ to -e mo.ing L$o0nstreamL. So continuing the historica" Hor$ e)am#"e4 Hor$ -uying coa" mines 0ou"$ -e u#stream 0hi"e him -uying a $ea"ershi# 0ou"$ -e $o0nstream .ertica" integration. ,ertica" integration entai"s coor$ination (-ureaucratic) costs %ust "i/e re"ate$ $i.ersification. Hor e)am#"e4 a ma%or issue for .ertica""y integrate$ firms is transfer #rices4 0hat shou"$ one #art of the firm charge anotherD Hurthermore4 a .ertica""y integrate$ firm faces greater techno"ogica" ris/ an$ $eman$ uncertainty. In many 0ays .ertica" integration is a "ot "i/e financia" "e.erage4 0hen times are goo$4 they are .ery goo$ as the firm #rofits a"" a"ong the .a"ue chain4 -ut 0hen they go -a$4 itGs corres#on$ing"y -a$ a"" a"ong the .a"ue chain.

@o0e.er4 -oth sets of these terms are 0ho""y ar-itrary an$ sim#"y $escri#ti.e. If a firm is sing"e -usiness .ersus $ominant -usiness matters "itt"e to ans0ering our Nuestion of 0hy firm #erformance $iffers. Some .a"ue chain function can a"most a"0ays -e c"aime$ as -eing share$ to meet the $efinition of Lre"ate$nessL. 7 5i/e0ise4 .ertica" integration4 u#stream or $o0nstream4 0hich is -etterD Therefore4 0hi"e it is im#ortant to -e a0are of these $escri#ti.e terms4 the /ey issue is ho0 0e"" an organiFation is a-"e to share resources4 transfer com#etencies an$ create s#ecific assets regar$"ess of the $escri#tion of its cor#orate strategy. T:" B"&"6+!% o6 Corpor !" S!r !"#$3 T:" B*+9'+&# B9o(,% o6 Corpor !" A'- &! #" A"" (0e"" J0KO) cor#orate strategy is moti.ate$ -y 0hat 0eG"" term the three -ui"$ing -"oc/s of cor#orate strategyP share$ resources4 transferre$ com#etencies4 an$ the creation of s#ecific assets.> Ahi"e there are many #ossi-"e reasons gi.en for things "i/e $i.ersification4 they can a"most a"" -e trace$ -ac/ to one of these three moti.ations. S: r+&# r"%o*r("% is ta/ing something an organiFation a"rea$y has an$ using it in a ne0 in$ustry. Hor e)am#"e4 Aa" Mart #"un/ing $o0n one hour #hoto "a-s in its stores is an e)am#"e of sharing a resource. AMT a"rea$y has stores (a resource) "ocate$ a"" o.er the country. A$$ing this ser.ice is sim#"y a matter of sharing its e)isting resource. (conomies of sco#e4 efficiencies gaine$ $ue to the -reath of oneGs goo$s/ser.ices4 is a fun$amenta" e)am#"e of sharing resources.: Tr &%6"rr+&# (o8p"!"&(+"% are ta/ing something that an organiFation is goo$ at an$ using it in a ne0 in$ustry. The most famous e)am#"e of this of a"" time 0as @enry Hor$ an$ his mass #ro$uction/assem-"y "ine techniNues. To$ay Hor$ is most famous for cars4 ho0e.er Hor$ too/ his i$eas an$ a##"ie$ them to farm eNui#ment4 "arge truc/s4 an$ e.en air#"anesB Some of these -usinesses remain to this $ay as you can sti"" fin$ Hor$ farm eNui#ment. Sp"(+6+( A%%"!%. Much more com#"e) is the i$ea of s#ecific assets. S#ecific assets are assets that ha.e a much "o0er .a"ue in their ne)t -est use 82 to their ne)t -est user.M A great e)am#"e of a s#ecific asset might -e a te)t-oo/ for a co""ege course. It has great .a"ue if you are a co""ege stu$ent in that course4 -ut it $oesnGt ha.e many a"ternate uses4 e.g. firestarter4 an$ fe0 #eo#"e other than a co""ege stu$ent ta/ing that course 0ou"$ #ay a "ot of money for it. Therefore4 it is a s#ecific asset. Common e)am#"es of s#ecific assets are things "i/e uniforms an$ #i#e"ines. It may -e he"#fu" to thin/ of s#ecific assets as assets that ha.e -een customiFe$. This is -ecause -y customiFing something it freNuent"y -ecomes more .a"ua-"e to the #erson or firm 0ho $i$ the customiFing -ut "ess .a"ua-"e to e.eryone e"se. S#ecific assets are im#ortant for cor#orate strategy for t0o reasons. Hirst4 if you $onGt o0n the s#ecific asset it #ro-a-"y 0i"" not get create$ at a"". After a"" Hor$ is not "i/e"y to e.er #ro$uce a car in your schoo"1s co"or scheme 0ith your mascot #ainte$ on the hoo$. If you 0ant one4 you1"" ha.e to ha.e it $one yourse"f. Secon$4 you freNuent"y J

0ant to o0n s#ecific assets so that you are not Lhe"$ u#L -y an o##ortunistic #artner. @o"$ u# can occur 0hen the #ro.i$er of a s#ecific asset $eci$es to 0ithho"$ it from you at a critica" time. Hor e)am#"e4 0hat if you rente$ your te)t-oo/ from me rather than o0ne$ itD I might ha.e an incenti.e to increase the renta" rate right -efore the e)am 0hen you nee$e$ the -oo/ the most. <ou might -e a-"e to ta/e me to court an$ 0in for .io"ation of contract4 -ut -y then the test is "ong #ast. <ou1"" ha.e to #ay my higher rent. This is 0hat economists mean 0hen they refer to Cho"$ u#.E A great i""ustration of the -ui"$ing -"oc/s comes from ?ac/ Ae"ch1s manageria" e.a"uation system at '( #ro-a-"y the most $i.ersifie$ "arge com#any in the 9.S. The centra" focus of the system 0as the $i.isiona" $irectorGs a-i"ity to recogniFe4 $e.e"o#4 an$ S@A2( the ta"ent of their e)ecuti.es. If someone ha$ someone 0ho 0as rea""y goo$ at so".ing #ro-"em Q that another $i.ision ha$4 then they 0ere e)#ecte$ to share that #erson. This further encourage$ em#"oyees to $e.ote themse".es to "earning a-out '( an$ $oing a great %o-4 they /ne0 goo$ 0or/ 0ou"$ -e re0ar$e$. This is a c"assic e)am#"e of 0hy sharing resources4 transferring com#etencies4 an$ getting #eo#"e to in.est in s#ecific assets (es#ecia""y im#ortant for organiFationa" /no0"e$ge) is im#ortant for the management an$ ongoing success of $i.ersifie$ cor#orations. Manageria" attention shou"$ -e #ai$ to these three factors on an ongoing -asis4 not %ust at the time a $i.ersification or .ertica" integration $ecision is ma$e. Therefore4 in or$er for a cor#orate strategic $ecision to he"# resu"t in a sustaine$ com#etiti.e a$.antage for a firm the -enefits from the share$ resources4 transferre$ com#etencies4 an$ s#ecific assets must -e greater than the integration an$ -ureaucratic costs of #erforming the function interna""y. @o0e.er4 this "ea$s to an interesting Nuestion4 0hat a-out firms that ha.e #ursue$ com#"ete"y unre"ate$ $i.ersification yet ha.e #erforme$ Nuite 0e""D Ahi"e these are rather rare4 e)am#"es of these firms ha.e inc"u$e$ @anson Trust an$ #resent $ay Ber/shire @atha0ay (B2=). Ahat may ha.e ha##ene$ is that these firms 0in$ u# em-o$ying a contro" or resource a""ocation function (#erha#s ca#ita") that is su#erior to 0hat their com#onent firms cou"$ $o in$i.i$ua""y. Hor e)am#"e4 Aarren Buffett often targets acNuisitions on the foun$ation of ta/ing a0ay the current C(8Gs hea$aches of $ea"ing 0ith -oar$s an$ regu"ators an$ "etting the C(8 get -ac/ to focusing on running the com#any that they "o.e.J This of course is %ust a transferre$ com#etency on the #art of B2= that ta/es o.er cor#orate go.ernance concerns of the C(8. Aarren BuffettGs e)ce#tiona" s/i"" in in.esting cou"$ a"so -e a transferre$ com#etency an$ his com#anyGs e)ce""ent cre$it rating a share$ resource. ; r&+&# o& M !r+("%. Initia""y4 consu"ting grou#s an$ managers attem#te$ to $ea" 0ith the com#"e) cha""enges of cor#orate strategy through Lmatrices.L The matrices4 e.g. Boston Consu"ting 'rou# (Stars4 &ro-"em Chi"$ren4 Cash Co0s4 an$ +ogs)4 you often see associate$ 0ith cor#orate strategy can -e great e)terna" ana"ysis too"s an$ .isua" ai$s. @o0e.er4 since they $onGt te"" you ho0 to share resources4 transfer com#etencies4 or create s#ecific assets4 they are Lmost"y 0orth"essL for e)#"aining 0hy 10

firm #erformance $iffers. Ahi"e matrices may ha.e some .a"ue as in.estment gui$es for managers4 there are su#erior frame0or/s for in.esting -ase$ on the 0or/ of economists an$ financia" e)#erts4 so their .a"ue here is sus#ect as 0e"".

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D"6+&+&# M"r#"r% &' A()*+%+!+o&% T:" M +& I'" 8ne #"us one ma/es threeP this eNuation is the s#ecia" a"chemy of a merger or acNuisition. The /ey #rinci#"e -ehin$ -uying a com#any is to create shareho"$er .a"ue o.er an$ a-o.e that of the sum of the t0o com#anies. T0o com#anies together are more .a"ua-"e than t0o se#arate com#anies at "east4 thatGs the reasoning -ehin$ M3A. This rationa"e is #articu"ar"y a""uring to com#anies 0hen times are tough. Strong com#anies 0i"" act to -uy other com#anies to create a more com#etiti.e4 cost efficient com#any. The com#anies 0i"" come together ho#ing to gain a greater mar/et share or achie.e greater efficiency. Because of these #otentia" -enefits4 target com#anies 0i"" often agree to -e #urchase$ 0hen they /no0 they cannot sur.i.e a"one. D+%!+&(!+o& >"!?""& M"r#"r% &' A()*+%+!+o&% A"though they are often uttere$ in the same -reath an$ use$ as though they 0ere synonymous4 the terms LmergerL an$ LacNuisitionL mean s"ight"y $ifferent things. Ahen a com#any ta/es o.er another one an$ c"ear"y -ecomes the ne0 o0ner4 the #urchase is ca""e$ an acNuisition. Hrom a "ega" #oint of .ie04 the target com#any ceases to e)ist an$ the -uyer Ls0a""o0sL the -usiness4 an$ stoc/ of the -uyer continues to -e tra$e$. In the #ure sense of the term4 a merger ha##ens 0hen t0o firms4 often a-out the same siFe4 agree to go for0ar$ as a ne0 sing"e com#any rather than remain se#arate"y o0ne$ an$ o#erate$. This /in$ of action is more #recise"y referre$ to as a Lmerger of eNua"s.L Both com#aniesG stoc/s are surren$ere$4 an$ ne0 com#any stoc/ is issue$ in its #"ace. Hor e)am#"e4 -oth +aim"er BenF an$ Chrys"er cease$ to e)ist 0hen the t0o firms merge$4 an$ a ne0 com#any4 +aim"erChrys"er4 0as create$. In #ractice4 ho0e.er4 actua" mergers of eNua"s $onGt ha##en .ery often. 8ften4 one com#any 0i"" -uy another an$4 as #art of the $ea"Gs terms4 sim#"y a""o0 the acNuire$ firm to #roc"aim that the action is a merger of eNua"s4 e.en if itGs technica""y an acNuisition. Being -ought out often carries negati.e connotations. By using the term Lmerger4L $ea"ma/ers an$ to# managers try to ma/e the ta/eo.er more #a"ata-"e. A #urchase $ea" 0i"" a"so -e ca""e$ a merger 0hen -oth C(8s agree that %oining together in -usiness is in the -est interests of -oth their com#anies. But 0hen the $ea" is unfrien$"y that is4 0hen the target com#any $oes not 0ant to -e #urchase$ it is a"0ays regar$e$ as an acNuisition.

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So4 0hether a #urchase is consi$ere$ a merger or an acNuisition rea""y $e#en$s on 0hether the #urchase is frien$"y or hosti"e an$ ho0 it is announce$. In other 0or$s4 the rea" $ifference "ies in ho0 the #urchase is communicate$ to an$ recei.e$ -y the target com#anyGs -oar$ of $irectors4 em#"oyees an$ shareho"$ers. S$&"r#$ Synergy is the magic force that a""o0s for enhance$ cost efficiencies of the ne0 -usiness. Synergy ta/es the form of re.enue enhancement an$ cost sa.ings. By merging4 the com#anies ho#e to -enefit from the fo""o0ingP Staff re$uctions As e.ery em#"oyee /no0s4 mergers ten$ to mean %o- "osses. Consi$er a"" the money sa.e$ from re$ucing the num-er of staff mem-ers from accounting4 mar/eting an$ other $e#artments. ?o- cuts 0i"" a"so inc"u$e the former C(84 0ho ty#ica""y "ea.es 0ith a com#ensation #ac/age. (conomies of sca"e <es4 siFe matters. Ahether itGs #urchasing stationery or a ne0 cor#orate IT system4 a -igger com#any #"acing the or$ers can sa.e more on costs. Mergers a"so trans"ate into im#ro.e$ #urchasing #o0er to -uy eNui#ment or office su##"ies 0hen #"acing "arger or$ers4 com#anies ha.e a greater a-i"ity to negotiate #rice 0ith their su##"iers. AcNuiring ne0 techno"ogy To stay com#etiti.e4 com#anies nee$ to stay on to# of techno"ogica" $e.e"o#ments an$ their -usiness a##"ications. By -uying a sma""er com#any 0ith uniNue techno"ogies4 a "arge com#any can /ee# or $e.e"o# a com#etiti.e e$ge. Im#ro.e$ mar/et reach an$ in$ustry .isi-i"ity Com#anies -uy com#anies to reach ne0 mar/ets an$ gro0 re.enues an$ earnings. A merge may e)#an$ t0o com#aniesG mar/eting an$ $istri-ution4 gi.ing them ne0 sa"es o##ortunities. A merger can a"so im#ro.e a com#anyGs stan$ing in the in.estment communityP -igger firms often ha.e an easier time raising ca#ita" than sma""er ones.

That sai$4 achie.ing synergy is easier sai$ than $one it is not automatica""y rea"iFe$ once t0o com#anies merge. Sure4 there ought to -e economies of sca"e 0hen t0o -usinesses are com-ine$4 -ut sometimes it 0or/s in re.erse. In many cases4 one an$ one a$$ u# to "ess than t0o. Sa$"y4 synergy o##ortunities may e)ist on"y in the min$s of the cor#orate "ea$ers an$ the $ea"ma/ers. Ahere there is no .a"ue to -e create$4 the C(8 an$ in.estment -an/ers 0ho ha.e much to gain from a successfu" M3A $ea" 0i"" try to -ui"$ u# the image of enhance$ .a"ue. The mar/et4 ho0e.er4 e.entua""y sees through this an$ #ena"iFes the com#any -y assigning it a $iscounte$ share #rice. Ae ta"/ more a-out 0hy M3A may fai" in a "ater section of this tutoria". . r+"!+"% o6 M"r#"r% Hrom the #ers#ecti.e of -usiness structures4 there are a 0ho"e host of $ifferent mergers. @ere are a fe0 ty#es4 $istinguishe$ -y the re"ationshi# -et0een the t0o com#anies that are mergingP

13

Horizontal mergerP T0o com#anies that are in $irect com#etition in the same #ro$uct "ines an$ mar/ets. Vertical mergerP A customer an$ com#any or a su##"ier an$ com#any. Thin/ of a cone su##"ier to an ice cream ma/er. Market-extension mergerP T0o com#anies that se"" the same #ro$ucts in $ifferent mar/ets. Product-extension mergerP T0o com#anies se""ing $ifferent -ut re"ate$ #ro$ucts in the same mar/et. ConglomerationP T0o com#anies that ha.e no common -usiness areas.

Hrom the #ers#ecti.e of ho0 the merge is finance$4 there are t0o ty#es of mergersP #urchase mergers an$ conso"i$ation mergers. (ach has certain im#"ications for the com#anies in.o".e$ an$ for in.estorsP o Purchase Mergers As the name suggests4 this /in$ of merger occurs 0hen one com#any #urchases another one. The #urchase is ma$e -y cash or through the issue of some /in$ of $e-t instrument4 an$ the sa"e is ta)a-"e. AcNuiring com#anies often #refer this ty#e of merger -ecause it can #ro.i$e them 0ith a ta) -enefit. AcNuire$ assets can -e L0ritten u#L to the actua" #urchase #rice4 an$ the $ifference -et0een -oo/ .a"ue an$ #urchase #rice of the assets can $e#reciate annua""y4 re$ucing ta)es #aya-"e -y the acNuiring com#any (0e $iscuss this further in #art four of this tutoria"). o Consolidation Mergers Aith this merger4 a -ran$ ne0 com#any is forme$ an$ -oth com#anies are -ought an$ com-ine$ un$er the ne0 entity. The ta) terms are the same as those of a #urchase merger. A()*+%+!+o&% As you can see4 an acNuisition may -e on"y s"ight"y $ifferent from a merger. In fact4 it may -e $ifferent in name on"y. 5i/e mergers4 acNuisitions are actions through 0hich com#anies see/ economies of sca"e4 efficiencies4 an$ enhance$ mar/et .isi-i"ity. 9n"i/e a"" mergers4 a"" acNuisitions in.o".e one firm #urchasing another there is no e)changing of stoc/ or conso"i$ating as a ne0 com#any. AcNuisitions are often congenia"4 0ith a"" #arties fee"ing satisfie$ 0ith the $ea". 8ther times4 acNuisitions are more hosti"e. In an acNuisition4 as in some of the merger $ea"s 0e $iscuss a-o.e4 a com#any can -uy another com#any 0ith cash4 0ith stoc/4 or a com-ination of the t0o. Another #ossi-i"ity4 0hich is common in sma""er $ea"s4 is for one com#any to acNuire a"" the assets of another com#any. Com#any Q -uys a"" of Com#any <Gs assets for cash4 0hich means that Com#any < 0i"" ha.e on"y cash (an$ $e-t4 if they ha$ $e-t -efore). 8f course4 Com#any < -ecomes mere"y a she"" an$ 0i"" e.entua""y "iNui$ate or enter another area of -usiness. Another ty#e of acNuisition is a re.erse merger4 a $ea" that ena-"es a #ri.ate com#any to get #u-"ic"y "iste$ in a re"ati.e"y short time #erio$. A re.erse merger occurs 0hen a #ri.ate com#any that has strong #ros#ects an$ is eager to raise financing -uys a #u-"ic"y "iste$ she"" com#any4 usua""y one 0ith no -usiness an$ "imite$ assets. The #ri.ate com#any re.erse merges into the #u-"ic com#any4 an$ together they -ecome an entire"y ne0 #u-"ic cor#oration 0ith tra$a-"e shares. 1!

2egar$"ess of their category or structure4 a"" mergers an$ acNuisitions ha.e one common goa"P they are a"" meant to create synergy that ma/es the .a"ue of the com-ine$ com#anies greater than the sum of the t0o #arts. The success of a merger or acNuisition $e#en$s on ho0 0e"" this synergy is achie.e$. . 9* !+o& M !!"r% In.estors in a com#any that is aiming to ta/e o.er another one must $etermine 0hether the #urchase 0i"" -e -eneficia" to them. In or$er to $o so4 they must as/ themse".es ho0 much the com#any -eing acNuire$ is rea""y 0orth 6atura""y4 -oth si$es of an M3A $ea" 0i"" ha.e $ifferent i$eas a-out the 0orth of a target com#anyP its se""er 0i"" ten$ to .a"ue the com#any as high as #ossi-"e4 0hi"e the -uyer 0i"" try to get the "o0est #rice #ossi-"e. There are4 ho0e.er4 many "egitimate 0ays to .a"ue com#anies. The most common metho$ is to "oo/ at com#ara-"e com#anies in an in$ustry4 -ut $ea"ma/ers em#"oy a .ariety of other metho$s an$ too"s 0hen assessing a target com#any. @ere are %ust a fe0 of themP 1. Comparative Ratios I The fo""o0ing are t0o e)am#"es of the many com#arati.e metrics on 0hich acNuirers may -ase their offersP o P/E (price-to-earnings ratio I Aith the use of this ratio4 an acNuirer ma/es an offer as a mu"ti#"e of the earnings the target com#any is #ro$ucing. 5oo/ing at the &/( for a"" the stoc/s 0ithin the same in$ustry grou# 0i"" gi.e the acNuirer goo$ gui$ance for 0hat the targetGs &/( mu"ti#"e shou"$ -e. o EV/!ales (price-to-sales ratio I Aith this ratio4 the acNuiring com#any ma/es an offer as a mu"ti#"e of the re.enues4 again4 0hi"e -eing a0are of the &/S ratio of other com#anies in the in$ustry. 2. Replacement CostP In a fe0 cases4 acNuisitions are -ase$ on the cost of re#"acing the target com#any. Hor sim#"icityGs sa/e4 su##ose the .a"ue of a com#any is sim#"y the sum of a"" its eNui#ment an$ staffing costs. The acNuiring com#any can "itera""y or$er the target to se"" at that #rice4 or it 0i"" create a com#etitor for the same cost. 6atura""y4 it ta/es a "ong time to assem-"e goo$ management4 acNuire #ro#erty an$ get the right eNui#ment. This metho$ of esta-"ishing a #rice certain"y 0ou"$nGt ma/e much sense in a ser.ice in$ustry 0here the /ey assets #eo#"e an$ i$eas are har$ to .a"ue an$ $e.e"o#. 3. "iscounted Cash #lo$ ("C# P A /ey .a"uation too" in M3A4 $iscounte$ cash f"o0 ana"ysis $etermines a com#anyGs current .a"ue accor$ing to its estimate$ future cash f"o0s. Horecaste$ free cash f"o0s (o#erating #rofit O $e#reciation O amortiFation of goo$0i"" I ca#ita" e)#en$itures I cash ta)es change in 0or/ing ca#ita") are $iscounte$ to a #resent .a"ue using the com#anyGs 0eighte$ a.erage costs of ca#ita" (AACC). A$mitte$"y4 +CH is tric/y to get right4 -ut fe0 too"s can ri.a" this .a"uation metho$. S$&"r#$3 T:" Pr"8+*8 6or Po!"&!+ 9 S*(("%% Hor the most #art4 acNuirers near"y a"0ays #ay a su-stantia" #remium on the stoc/ mar/et .a"ue of the com#anies they -uy. The %ustification for $oing so near"y a"0ays -oi"s $o0n to 17

the notion of synergyP a merger -enefits shareho"$ers 0hen a com#anyGs #ost merger share #rice increases -y the .a"ue of #otentia" synergy. 5etGs face it4 it 0ou"$ -e high"y un"i/e"y for rationa" o0ners to se"" if they 0ou"$ -enefit more -y not se""ing. That means -uyers 0i"" nee$ to #ay a #remium if they ho#e to acNuire the com#any4 regar$"ess of 0hat #re merger .a"uation te""s them. Hor se""ers4 that #remium re#resents their com#anyGs future #ros#ects. Hor -uyers4 the #remium re#resents #art of the #ost merger synergy they e)#ect can -e achie.e$. The fo""o0ing eNuation offers a goo$ 0ay to thin/ a-out synergy an$ ho0 to $etermine if a $ea" ma/es sense. The eNuation so".es for the minimum reNuire$ synergyP

In other 0or$s4 the success of a merger is measure$ -y 0hether the .a"ue of the -uyer is enhance$ -y the action. @o0e.er4 the #ractica" constraints of mergers4 0hich 0e $iscuss in #art fi.e4 often #re.ent the e)#ecte$ -enefits from -eing fu""y achie.e$. A"as4 the synergy #romise$ -y $ea"ma/ers might %ust fa"" short. ;: ! !o Loo, For ItGs har$ for in.estors to /no0 0hen a $ea" is 0orth0hi"e. The -ur$en of #roof shou"$ fa"" on the acNuiring com#any. To fin$ mergers that ha.e a chance of success4 in.estors shou"$ start -y "oo/ing for some of these sim#"e criteriaP A reasona-"e #urchase #rice A #remium of4 say4 10K a-o.e the mar/et #rice seems 0ithin the -oun$s of "e.e" hea$e$ness. A #remium of 70K4 on the other han$4 reNuires synergy of ste""ar #ro#ortions for the $ea" to ma/e sense. Stay a0ay from com#anies that #artici#ate in such contests. Cash transactions Com#anies that #ay in cash ten$ to -e more carefu" 0hen ca"cu"ating -i$s4 an$ .a"uations come c"oser to target. Ahen stoc/ is use$ as the currency for acNuisition4 $isci#"ine can go -y the 0aysi$e. Sensi-"e a##etite I An acNuirer shou"$ -e targeting a com#any that is sma""er an$ in -usinesses that the acNuirer /no0s intimate"y. Synergy is har$ to create from com#anies in $is#arate -usiness areas. An$4 sa$"y4 com#anies ha.e a -a$ ha-it of -iting off more than they can che0 in mergers.

Mergers are a0fu""y har$ to get right4 so in.estors shou"$ "oo/ for acNuirers 0ith a hea"thy gras# of rea"ity.

Do+&# !:" D" 9 S! r! ?+!: & O66"r 1>

Ahen the C(8 an$ to# managers of a com#any $eci$e they 0ant to $o a merger or acNuisition4 they start 0ith a ten$er offer. The #rocess ty#ica""y -egins 0ith the acNuiring com#any carefu""y an$ $iscreet"y -uying u# shares in the target com#any4 -ui"$ing a #osition. 8nce the acNuiring com#any starts to #urchase shares in the o#en mar/et4 it is restricte$ to -uying 7K of the tota" outstan$ing shares -efore it must fi"e 0ith the S(C. In the fi"ing4 the com#any must forma""y $ec"are ho0 many shares it o0ns an$ 0hether it inten$s to -uy the com#any or /ee# the shares #ure"y as an in.estment. Aor/ing 0ith financia" a$.isors an$ in.estment -an/ers4 the acNuiring com#any 0i"" arri.e at an o.era"" #rice that itGs 0i""ing to #ay for its target in cash4 shares4 or -oth. The ten$er offer is then freNuent"y a$.ertise$ in the -usiness #ress4 stating the offer #rice an$ the $ea$"ine -y 0hich the shareho"$ers in the target com#any must acce#t (or re%ect) it.

T:" T r#"!@% R"%po&%" 8nce the ten$er offer has -een ma$e4 the target com#any can $o one of se.era" thingsP A(("p! !:" !"r8% o6 !:" o66"r If the target firmGs to# managers an$ shareho"$ers are ha##y 0ith the terms of the transaction4 they 0i"" go ahea$ 0ith the $ea". A!!"8p! !o &"#o!+ !" The ten$er offer #rice may not -e high enough for the target com#anyGs shareho"$ers to acce#t4 or the s#ecific terms of the $ea" may not -e attracti.e. In a merger4 there may -e much at sta/e for the management of the target their %o-s4 in #articu"ar. So4 if theyGre not satisfie$ 0ith the terms "ai$ out in the ten$er offer4 the targetGs management may try to 0or/ out more agreea-"e terms that "et them /ee# their %o-s or4 #erha#s e.en -etter4 sen$ them off 0ith a nice4 -ig com#ensation #ac/age.

6ot sur#rising"y4 high"y sought after target com#anies that are the o-%ect of se.era" -i$$ers 0i"" ha.e greater "atitu$e for negotiation. An$ managers ha.e more negotiating #o0er if they can sho0 that they are crucia" to the mergerGs future success. EA"(*!" po+%o& p+99 or %o8" o!:"r :o%!+9" ! ,"o-"r '"6"&%" I A #oison #i"" scheme can -e triggere$ -y a target com#any 0hen a hosti"e suitor acNuires a #re$etermine$ #ercentage of com#any stoc/. To e)ecute its $efense4 the target com#any grants a"" shareho"$ers e)ce#t the acNuirer o#tions to -uy a$$itiona" stoc/ at a $ramatic $iscount. This $i"utes the acNuirerGs share an$ interce#ts its contro" of the com#any. F+&' ?:+!" ,&+#:! As an a"ternati.e4 the target com#anyGs management may see/ out a frien$"ier #otentia" acNuirer4 or 0hite /night. If a 0hite /night is foun$4 it 0i"" offer an eNua" or higher #rice for the shares than the hosti"e -i$$er. Mergers an$ acNuisitions can face scrutiny from regu"atory -o$ies. Hor e)am#"e4 if the t0o -iggest "ong $istance com#anies in the 9nite$ States4 AT3T an$ S#rint4 0ante$ to merge4 the $ea" 0ou"$ reNuire a##ro.a" from the He$era" Communications Commission. 6o $ou-t4 the HCC 0ou"$ regar$ a merger of the t0o giants as the creation of a mono#o"y or4 at the .ery "east4 a threat to com#etition in the in$ustry.

1:

C9o%+&# !:" D" 9 Hina""y4 once the target com#any agrees to the ten$er offer an$ regu"atory reNuirements are met4 the merger $ea" 0i"" -e e)ecute$ -y means of some transaction. In a merger in 0hich one com#any -uys another4 the acNuirer 0i"" #ay for the target com#anyGs shares 0ith cash4 stoc/4 or -oth. A cash for stoc/ transaction is fair"y straightfor0ar$P target com#any shareho"$ers recei.e a cash #ayment for each share #urchase$. This transaction is treate$ as a ta)a-"e sa"e of the shares of the target com#any. If the transaction is ma$e 0ith stoc/ instea$ of cash4 then itGs not ta)a-"e. There is sim#"y an e)change of share certificates. The $esire to steer c"ear of the ta)man e)#"ains 0hy so many M3A $ea"s are carrie$ out as cash for stoc/ transactions. Ahen a com#any is #urchase$ 0ith stoc/4 ne0 shares from the acNuirerGs stoc/ are issue$ $irect"y to the target com#anyGs shareho"$ers4 or the ne0 shares are sent to a -ro/er 0ho manages them for target com#any shareho"$ers. 8n"y 0hen the shareho"$ers of the target com#any se"" their ne0 shares are they ta)e$. Ahen the $ea" is c"ose$4 in.estors usua""y recei.e a ne0 stoc/ in their #ortfo"io the acNuiring com#anyGs e)#an$e$ stoc/. Sometimes in.estors 0i"" get ne0 stoc/ i$entifying a ne0 cor#orate entity that is create$ -y the M3A $ea". ;:$ M<A% C & F +9 ItGs no secret that #"enty of mergers $onGt 0or/. Those 0ho a$.ocate mergers 0i"" argue that the merger 0i"" cut costs or -oost re.enues -y more than enough to %ustify the #rice #remium. It can soun$ so sim#"eP %ust com-ine com#uter systems4 merge a fe0 $e#artments4 use sheer siFe to force $o0n the #rice of su##"ies4 an$ the merge$ giant shou"$ -e more #rofita-"e than its #arts. In theory4 1O1 R 3 soun$s great4 -ut in #ractice4 things can go a0ry. @istorica" tren$s sho0 that rough"y t0o thir$s of -ig mergers 0i"" $isa##oint on their o0n terms4 0hich means they 0i"" "ose .a"ue on the stoc/ mar/et. Moti.ations -ehin$ mergers can -e f"a0e$ an$ efficiencies from economies of sca"e may #ro.e e"usi.e. An$ the #ro-"ems associate$ 0ith trying to ma/e merge$ com#anies 0or/ are a"" too concrete. F9 ?"' I&!"&!+o&% Hor starters4 a -ooming stoc/ mar/et encourages mergers4 0hich can s#e"" trou-"e. +ea"s $one 0ith high"y rate$ stoc/ as currency are easy an$ chea#4 -ut the strategic thin/ing -ehin$ them may -e easy an$ chea# too. A"so4 mergers are often attem#ts to imitateP some-o$y e"se has $one a -ig merger4 0hich #rom#ts to# e)ecuti.es to fo""o0 suit. A merger may often ha.e more to $o 0ith g"ory see/ing than -usiness strategy. The e)ecuti.e ego4 0hich is -ooste$ -y -uying the com#etition4 is a ma%or force in M3A4 es#ecia""y 0hen 1M

com-ine$ 0ith the inf"uences from the -an/ers4 "a0yers an$ other assorte$ a$.isers 0ho can earn -ig fees from c"ients engage$ in mergers. Most C(8s get to 0here they are -ecause they 0ant to -e the -iggest an$ the -est4 an$ many to# e)ecuti.es get a -ig -onus for merger $ea"s4 no matter 0hat ha##ens to the share #rice "ater. 8n the other si$e of the coin4 mergers can -e $ri.en -y genera"iFe$ fear. '"o-a"iFation4 or the arri.a" of ne0 techno"ogica" $e.e"o#ments4 or a fast changing economic "an$sca#e that ma/es the out"oo/ uncertain are a"" factors that can create a strong incenti.e for $efensi.e mergers. Sometimes the management team fee"s they ha.e no choice an$ must acNuire a ri.a" -efore -eing acNuire$. The i$ea is that on"y -ig #"ayers 0i"" sur.i.e a more com#etiti.e 0or"$. T:" O>%! (9"% o6 M ,+&# +! ;or, Co#ing 0ith a merger can ma/e to# managers s#rea$ their time too thin"y4 neg"ecting their core -usiness4 s#e""ing $oom. Too often4 #otentia" $ifficu"ties seem tri.ia" to managers caught u# in the thri"" of the -ig $ea". The chances for success are further ham#ere$ if the cor#orate cu"tures of the com#anies are .ery $ifferent. Ahen a com#any is acNuire$4 the $ecision is ty#ica""y -ase$ on #ro$uct or mar/et synergies4 -ut cu"tura" $ifferences are often ignore$. ItGs a mista/e to assume that #eo#"e issues are easi"y o.ercome. Hor e)am#"e4 em#"oyees at a target com#any might -e accustome$ to easy access to to# management4 f"e)i-"e 0or/ sche$u"es or e.en a re"a)e$ $ress co$e. These as#ects of a 0or/ing en.ironment may not seem significant4 -ut if ne0 management remo.es them4 the resu"t can -e resentment an$ shrin/ing #ro$ucti.ity. More insight into the fai"ure of mergers is foun$ in the high"y acc"aime$ stu$y from the g"o-a" consu"tancy Mc=insey. The stu$y conc"u$es that com#anies often focus too intent"y on cutting costs fo""o0ing mergers4 0hi"e re.enues an$4 u"timate"y4 #rofits suffer. Merging com#anies can focus on integration an$ cost cutting so much that they neg"ect $ay to $ay -usiness4 there-y #rom#ting ner.ous customers to f"ee. This "oss of re.enue momentum is one reason so many mergers fai" to create .a"ue for shareho"$ers. But remem-er4 not a"" mergers fai". SiFe an$ g"o-a" reach can -e a$.antageous4 an$ strong managers can often sNueeFe greater efficiency out of -a$"y run ri.a"s. But the #romises ma$e -y $ea"ma/ers $eman$ the carefu" scrutiny of in.estors. The success of mergers $e#en$s on ho0 rea"istic the $ea"ma/ers are an$ ho0 0e"" they can integrate t0o com#anies together 0hi"e maintaining $ay to $ay o#erations. Co&(9*%+o& < R"%o*r("% 8ne siFe $oesn1t fit a"". Many com#anies fin$ that the -est route for0ar$ is e)#an$ing o0nershi# -oun$aries through mergers an$ acNuisitions. Hor others4 se#arating the #u-"ic o0nershi# of a su-si$iary or -usiness segment offers more a$.antages. At "east in theory4 mergers create synergies an$ economies of sca"e4 e)#an$ing o#erations an$ cutting costs. In.estors can ta/e comfort in the i$ea that a merger 0i"" $e"i.er enhance$ mar/et #o0er.

1J

By contrast4 $e merge$ com#anies often en%oy im#ro.e$ o#erating #erformance than/s to re$esigne$ management incenti.es. A$$itiona" ca#ita" can fun$ gro0th organica""y or through acNuisition. Mean0hi"e4 in.estors -enefit from the im#ro.e$ information f"o0 from $e merge$ com#anies. M3A comes in a"" sha#es an$ siFes4 an$ in.estors nee$ to consi$er the com#"e) issues in.o".e$ in M3A. The most -eneficia" form of eNuity structure in.o".es a com#"ete ana"ysis of the costs an$ -enefits associate$ 0ith the $ea"s.

20

I&'+ I&( :+#: o& 8"r#"r% &' ()*+%+!+o&% 2 + T r por"- 9 J 8"% ;+&!"r>o!: 8 +(A5 acti.ity in the first ha"f of 2007 -ro/e out of the f"at tren$ seen since mi$ 2002. I6+ATA recor$e$ 2:: $ea"s .a"ue$ at 2s 2>1.7 -i""ion (S> -i""ion) -et0een ?anuary an$ ?une 200!. @1 0! 0as a goo$ #erio$ for cor#orate finance4 an$ the tota" $ea" .a"ue 0as more than t0ice (237 #er cent) that in the first ha"f of 200! (2s 111.2 -i""ion4 S2.7 -i""ion) an$ 0e"" ahea$ of the fu"" year tota" for 200! (2s 23!.1 -i""ion4 S7.2 -i""ion). A.erage $ea" .a"ue 0as higher -y !2 #er cent at 2s J!! mi""ion (S21.: mi""ion) com#are$ to 2s >>3 mi""ion (S1!.: mi""ion) in 200!. Strategic in.estors $ominate$ the $ea" f"o0 in @1 2007. M3A $ea"s ma$e u# MM #er cent -y the .a"ue of a"" $ea"s an$ #ri.ate eNuity $ea"s on"y 12 #er cent4 com#are$ to >: #er cent an$ 33 #er cent in the 0ho"e of 200!. @o0e.er4 #ri.ate eNuity ma%ors such as B"ac/stone an$ Car"y"e ha.e esta-"ishe$ offices in In$ia an$ announce$ su-stantia" in.estment #"ans. 6e0 tren$P B"oc/ $ea"s Ahi"e issues of 0arrants an$ foreign currency con.erti-"e -on$s (HCCBs) remain #o#u"ar4 a ne0 tren$ has emerge$ T of -"oc/ $ea"s effecte$ through the stoc/ mar/et (Chart 1). Ahi"e -"oc/ $ea"s are not #art of I6+ATA4 it is $ifficu"t to ignore 12 "arge -"oc/ $ea"s on In$iaGs t0o main stoc/ e)changes T BS( an$ 6S(4 0hich tota""e$ 2s >M.7 -i""ion (S1.> -i""ion mi""ion). In the "argest of these $ea"s4 Aar-urg &incus ma$e a #rofita-"e e)it -y se""ing a J.3 #er cent sta/e in te"ecom ma%or4 Bharti Te"e.entures4 for 2s 3M -i""ion (SM:2.M mi""ion) in t0o -"oc/ $ea"s to a consortium of in.estors inc"u$ing Ca#ita" Internationa"4 Hi$e"ity4 the 'o.ernment of Singa#ore an$ others.

Sectors4 #"ayers4 /ey $ea"s

21

The finance sector re#"ace$ IT as the "argest contri-utor to I6+ATA in @1 20074 0ith a tota" of 3> $ea"s tota""ing 2s 70.M -i""ion (S1.2 -i""ion) ma$e u# 20 #er cent of tota" $ea" .a"ue. IT sti"" remaine$ the "argest contri-utor in terms of num-er of $ea"s 0ith a tota" of !3 $ea"s4 -ut ma$e u# on"y 7 #er cent of the tota" $ea" .a"ue. In contrast to #re.ious years4 $ea" acti.ity in @1 2007 0as s#rea$ across a 0i$e range of sectors4 0ith te"ecom (1> #er cent)4 foo$s an$ HMC' (13 #er cent)4 cement an$ -ui"$ing materia"s (10 #er cent)4 meta"s (J #er cent)4 oi" an$ gas (7 #er cent)4 automoti.e (7 #er cent) an$ #harma an$ hea"thcare (7 #er cent) $is#"aying hea"thy "e.e"s of acti.ity (Chart 2).

Hinance (3> $ea"s tota""ing 2s 70.M -i""ion4 S1.2 -i""ion) The finance sector 0as the -iggest contri-utor to I6+ATA in @1 2007. Ahi"e acti.ity 0as s#rea$ across su- sectors4 70 #er cent of the $ea" .o"ume in the finance sector 0as contri-ute$ -y Mr Ani" Am-aniGs acNuisition (through ho"$ing com#any AAA (nter#rises) of a 72.03 #er cent sta/e in asset management com#any T 2e"iance Ca#ita" T for 2s 27.> -i""ion (S7M:.M mi""ion). The $ea" 0i"" -e com#"ete$ -y 0ay of a #referentia" a""otment of shares an$ a su-seNuent ten$er offer to e)isting shareho"$ers4 as #er ta/eo.er regu"ations in In$ia. 2e"iance Ca#ita" manages the si)th "argest mutua" fun$ in In$ia4 an$ ha$ assets un$er management 0orth 2s JJ.1 -i""ion (S2.3 -i""ion) at en$ ?une 2007. This acNuisition 0as announce$ a"most imme$iate"y after the announcement of the reso"ution of the 2e"iance 'rou# o0nershi# $is#ute -et0een the -rothers Mu/esh Am-ani an$ Ani" Am-ani -y 0ay of a $i.ision of grou# com#anies. 2e"iance Ca#ita" is one of the former 2e"iance 'rou# com#anies that 0i"" no0 form #art of the Ani" +hiru-hai Am-ani 'rou#. Another nota-"e $ea" 0as the merger of the "arge go.ernment o0ne$ financia" institution4 In$ustria" +e.e"o#ment Ban/ of In$ia (I+BI)4 0ith its su-si$iary4 I+BI Ban/4 in a $ea" 0orth 2s :.> -i""ion (S1:!.> mi""ion). This $ea" is #art of I+BIGs strategy of con.erting itse"f into a uni.ersa" -an/ing institution. Ho""o0ing the merger4 the com-ine$ entity is /no0n as I+BI

22

an$ no0 un$erta/es acti.ities ranging from #ro%ect finance to retai" -an/ing an$4 short"y4 e)#ects to enter insurance as 0e"". A ma%or "ast minute entry into I6+ATA 0as another "arge -an/ merger T that of Centurion Ban/ 0ith Ban/ of &un%a-. Centurion Ban/ is ma%ority o0ne$ -y a consortium "e$ -y 2ana Ta"0arGs Sa-re Ca#ita"4 0hi"e Ban/ of &un%a- has -een #romote$ -y the Singh fami"y. Ho""o0ing the 2s 3.> -i""ion (SM2.1 mi""ion) merger4 the com-ine$ entity 0i"" -e /no0n as Centurion Ban/ of &un%a- an$ 0i"" ha.e a net0or/ of 237 -ranches across In$ia. Te"ecom (! $ea"s tota""ing 2s !1.! -i""ion4 SJ71 mi""ion) The te"ecom sector a"so emerge$ as a ma%or contri-utor to I6+ATA in @1 20074 a"though 0ith fe0er $ea"s. The "argest $ea" in I6+ATA in @1 2007 re"ate$ to the te"ecom -usinesses of the @ong =ong -ase$ @utchison Te"ecommunications in In$ia. @utchison ha$ so far o#erate$ in se#arate %oint .entures in the .arious te"ecom circ"es 0here it #ro.i$e$ mo-i"e te"e#hony ser.ices in In$ia. @utchisonGs %oint .enture #artners T the (ssar 'rou#4 the =ota/ Mahin$ra 'rou# an$ the In$usIn$ 'rou# T so"$ their sta/es in three @utch mo-i"e te"ecom ser.ice o#erating com#anies T @utchison (ssar Te"ecom4 @utchison Te"ecom (ast an$ Hasce"4 for 2s 30.1 -i""ion (S>J1 mi""ion). This 0as effecte$ -y a fresh issue of shares to these three 'rou#s in @utchison Ma) Te"ecom. SingTe" increase$ its sta/e in Bharti Te"ecom from 2>.J> #er cent to 32.M #er cent for a tota" of 2s 10.J -i""ion (S272 mi""ion). Bharti Te"ecom is the ho"$ing com#any in the te"ecom ma%or Bharti Te"e.entures an$4 hence4 SingTe" no0 effecti.e"y o0ns 17.22 #er cent of Bharti Te"e.entures. The 2s 1:.7 -i""ion (S3J0 mi""ion) acNuisition of a !M #er cent sta/e in I$ea Ce""u"ar4 announce$ in 200! -y Singa#ore Techno"ogies Te"eme$ia an$ Te"e/om Ma"aysia4 of 0hich 33 #er cent 0as .ia a sa"e AT3T an$ the rest .ia a #referentia" a""otment4 ha$ to -e ca""e$ off $ue to regu"atory a##ro.a"s not -eing grante$. Hoo$s 3 HMC' (2: $ea"s tota""ing 2s 3!.2 -i""ion4 S:M> mi""ion) The $ea" acti.ity in the sector 0as $ominate$ -y the s#irits su- sector4 main"y $ue to e)it sa"es -y the ?um-o 'rou# to the 9B 'rou# an$ SAB Mi""er4 $ea"s that the mar/et has -een e)#ecting for the "ast 10 years. ,i%ay Ma""yaGs 9nite$ Bre0eries 'rou# (through 'rou# entities Mc +o0e"" 3 Co4 &hi#son +isti""ery4 9nite$ S#irits an$ 9nite$ Bre0eries @o"$ings) acNuire$ a contro""ing sta/e in the ?um-o 'rou#Gs Sha0 Aa""ace 3 Com#any for a tota" $ea" .a"ue of 2s 1>.2 -i""ion (S3:1.> 23

mi""ion). The $ea" is ma$e u# of an acNuisition of a 70 #er cent sta/e from the #romoters (inc"u$ing a non com#ete #remium) a ten$er offer for an a$$itiona" 27 #er cent from other shareho"$ers4 an$ the acNuisition of t0o $istri-ution su-si$iaries. The other ?um-o 'rou# com#any to -e so"$ 0as Sha0 Aa""ace Bre0eries. SAB Mi""er increase$ its sta/e -y 70 #ercentage #oints to JJ #er cent in the com#any through its In$ian su-si$iary4 Mysore Bre0eries. The sta/e 0as he"$ -y Sha0 Aa""ace 3 Com#any an$4 hence4 ha$ SAB Mi""er not un$erta/en this acNuisition4 Sha0 Aa""ace Bre0eries 0ou"$ effecti.e"y ha.e -een an %oint .enture -et0een t0o ri.a"s T 9B an$ SAB Mi""er. Mc5eo$ 2usse"" In$ia (#art of the B. M. =haitan 'rou#) acNuire$ a J0 #er cent sta/e in Ai""iamson Tea Assam for 2s 2.1 -i""ion (S!M.2 mi""ion). 8f this4 a :0 #er cent sta/e came through the acNuisition of ho"$ing com#any Bore""i Tea @o"$ings from Ai""iamson Tea of 9=4 0hi"e the rest is to -e acNuire$ -y a ten$er offer to other shareho"$ers. Cement 8ne of the ma%or $ea"s of @1 2007 0as un$erta/en -y the S0iss cement ma%or4 @o"cim4 0hich acNuire$ a >: #er cent sta/e in Am-u%a Cement In$ia 5t$ (ACI5) for 2s 2:.3 -i""ion (S>3!.J mi""ion). 8f this4 a !0 #er cent sta/e 0as acNuire$ from AI' an$ the 'enera" Insurance Cor#oration of In$ia for 2s J -i""ion (S20M.7 mi""ion)4 0hi"e the rest 0as .ia a #referentia" a""otment for 2s 1M.! -i""ion (S!2>.7 mi""ion). The in.estment has -een use$ to increase ACI5Gs sta/e in cement com#any ACC from 13.M2 #er cent to 3!.:1 #er cent for 2s 13.M -i""ion (S320.J mi""ion)4 an$ in Am-u%a Cement (astern from J!.0M #er cent to 100 #er cent for 2s :J:.> mi""ion (S1M.> mi""ion) .ia ten$ers offers to the shareho"$ers of the res#ecti.e com#anies. &ri.ate eNuity

2!

The first ha"f of 2007 sa0 M1 #ri.ate eNuity $ea"s contri-uting 2s 31.M -i""ion (S:33.1 mi""ion)4 com#are$ to 30 $ea"s 0orth 2s 2!.7 -i""ion (S7!!.! mi""ion) in @1 200!. Ahi"e the o.era"" $ea" .a"ue increase$ -y a hea"thy 30 #er cent4 the a.erage $ea" siFe of 2s 3J3.: mi""ion (SJ.1 mi""ion) 0as ha"f that in @1 200! (2s M1>.> mi""ionU S1M.1 mi""ion). The sma""er $ea" .a"ues are main"y $ue to the a-sence of -"oc/-uster $ea"s "i/e the S700 mi""ion acNuisition of a >0 #er cent sta/e in '( Ca#ita" Internationa" Ser.ices ('(CIS) -y 'enera" At"antic &artners an$ 8a/ @i"" Ca#ita" &artners. A "arge num-er of &( $ea"s in In$ia continue to -e &I&( (#ri.ate in.estments in #u-"ic eNuity) $ea"s4 suggesting that attracti.e in.estment o##ortunities are sti"" a.ai"a-"e among "iste$ In$ian mi$ ca# com#anies (Chart 3).

The "argest &( transaction in the first ha"f 0as the #urchase of a !.:! #er cent sta/e in automo-i"e com#any Mahin$ra 3 Mahin$ra for 2s 2.> -i""ion (S>0.7 mi""ion) -y Singa#oreGs Temase/. In$ia +e.e"o#ment Hun$4 @+HC an$ I53HS together acNuire$ a 1M #er cent sta/e in @ote" 5ee"a.enture4 the ho"$ing Com#any for a"" 5ee"a 'rou# hote"s in In$ia4 for 2s 1.> -i""ion (S3>.3 mi""ion). Aar-urg &incus ha$ one ma%or in.estment this year T it acNuire$ a 23 #er cent sta/e in the Ma) @ea"thcare Institute from for 2s 1.! -i""ion (S32.2 mi""ion). In a$$ition to o-.ious choices such as #harmaceutica"s4 te)ti"es4 IT an$ auto com#onents4 #ri.ate eNuity ma%ors a"so .enture$ into other sectors. Stan$ar$ Chartere$ &ri.ate (Nuity an$ Mer"ion In$ia Hun$ acNuire$ a 23 #er cent sta/e for 2s 1.1 -i""ion (S27 mi""ion) in AB' Shi#yar$. 'ary Aen$tGs 'A Ca#ita" s#ent 2s 1 -i""ion (S23 mi""ion) to acNuire a :7 #er cent sta/e in Music Broa$cast4 0hich o#erates the 2a$io City chain of HM ra$io stations. In$ian acNuirers asserte$ themse".es in @1 074 an$ 0ere res#onsi-"e for !M #er cent of the tota" $ea" .a"ue (Ta-"e 1). In terms of num-er of $ea"s4 In$ian acNuirers announce$ 1>> out of a tota" of 2:: $ea"s (>0 #er cent).

27

8.erseas $ea"s Ahi"e the I6+ATA sur.ey is restricte$ to cor#orate finance acti.ity in.o".ing In$ian targets4 the .o"ume of o.erseas acNuisitions -y In$ian com#anies can no "onger -e ignore$. sIn$ian com#anies continue$ to acNuire a-roa$ continue$ in @1 2007. There 0ere !3 o.erseas acNuisitions -y In$ian acNuirers in @1 2007 com#are$ to >0 in the 0ho"e of 200! (Ta-"e 2).

The "argest o.erseas $ea" 0as the ,i$eocon 'rou#Gs acNuisition of ThomsonGs co"our #icture tu-e -usiness in China4 &o"an$4 Me)ico4 an$ Ita"y for a tota" of S2J0 mi""ion. The $ea" 0as #ai$ for -y an issue of shares in t0o ,i$eocon com#anies T ,i$eocon Internationa" (consumer $ura-"es) an$ ,i$eocon In$ustries (oi" an$ gas e)#"oration). The other "arge o.erseas $ea" 0as -y #harmaceutica"s Matri) 5a-oratories4 0hich acNuire$ 100 #er cent of the Be"gian #harma com#any4 +oc#harma for S2>3 mi""ion). 9BS acte$ as the a$.isor to Thomson an$ Matri) res#ecti.e"y. IT com#anies 0ere acti.e acNuirers 0ith 13 $ea"s 0orth SMJ mi""ion.

2>

T ,"o-"r%
1. The conce#t of Ta/eo.er A"though4 the term VTa/eo.er1 has not -een $efine$ un$er the sai$ 2egu"ations4 the term -asica""y en.isages the conce#t of an acNuirer iWiiiX ta/ing o.er the contro" iiWi.X or management of the target com#any iiiW.X. Ahen an acNuirer4 acNuires su-stantia" Nuantity of shares or .oting rights of the target com#any4 it resu"ts in the Su-stantia" acNuisition of Shares. Hor the #ur#oses of un$erstan$ing the im#"ications arising from the aforementione$ #aragra#h4 it is necessary for us to $0e"" into 0hat is the actua" meaning of su-stantia" Nuantity of shares or .oting rights 2. Meaning of su-stantia" Nuantity of shares or .oting rights The sai$ 2egu"ations ha.e $iscusse$ this as#ect of Vsu-stantia" Nuantity of shares or .oting rights1 se#arate"y for t0o $ifferent #ur#osesP (I) Hor the #ur#ose of $isc"osures to -e ma$e -y acNuirer(s)P (1) 7K or more shares or .oting rightsP A #erson 0ho4 a"ong 0ith V#ersons acting in concert1 i.W.iX. (C&ACE)4 if any4 acNuires shares or .oting rights (0hich 0hen ta/en together 0ith his e)isting ho"$ing) 0ou"$ entit"e him to more than 7K or 10K or 1!K shares or .oting rights of target com#any4 is reNuire$ to $isc"ose the aggregate of his shareho"$ing or .oting rights to the target com#any an$ the Stoc/ ()changes 0here the shares of the target com#any are tra$e$ 0ithin 2 $ays of recei#t of intimation of a""otment of shares or acNuisition of shares .i W.iiX. 2) More than 17K shares or .oting rightsP An acNuirer 0ho ho"$s more than 17K shares or .oting rights of the target com#any4 sha"" 0ithin 21 $ays from the financia" year en$ing March 31 ma/e year"y $isc"osures to the com#any in res#ect of his ho"$ings as on the mentione$ $ate .iiW.iiiX. The target com#any is4 in turn4 reNuire$ to #ass on such information to a"" stoc/ e)changes 0here the shares of target com#any are "iste$4 0ithin 30 $ays from the financia" year en$ing March 31 as 0e"" as the recor$ $ate fi)e$ for the #ur#ose of $i.i$en$ $ec"aration. (II) Hor the #ur#ose of ma/ing an o#en offer -y the acNuirer (1) 17K shares or .oting rightsP An acNuirer 0ho inten$s to acNuire shares 0hich a"ong 0ith his e)isting shareho"$ing 0ou"$ entit"e him to more than 17K .oting rights4 can acNuire such a$$itiona" shares on"y after ma/ing a #u-"ic announcement (C&AE) to acNuire at "east a$$itiona" 20K of the .oting ca#ita" of the target com#any from the shareho"$ers through an o#en offer .iiiWi)X.

2:

(2) Cree#ing "imit of 7KP An acNuirer 0ho is ha.ing 17K or more -ut "ess than :7K of shares or .oting rights of a target com#any4 can conso"i$ate his ho"$ing u# to 7K of the .oting rights in any financia" year en$ing 31st March. @o0e.er4 any a$$itiona" acNuisition o.er an$ a-o.e 7K can -e ma$e on"y after ma/ing a #u-"ic announcement i)W)X. @o0e.er in #ursuance of 2eg. :(1A) any #urchase or sa"e aggregating to 2K or more of the share ca#ita" of the target com#any are to -e $isc"ose$ to the Target Com#any an$ the Stoc/ ()change 0here the shares of the Target com#any are "iste$ 0ithin 2 $ays of such #urchase or sa"e a"ong 0ith the aggregate shareho"$ing after such acNuisition /sa"e. An acNuirer 0ho has ma$e a #u-"ic offer an$ see/s to acNuire further shares un$er 2eg. 11(1) sha"" not acNuire such shares $uring the #erio$ of > months from the $ate of c"osure of the #u-"ic offer at a #rice higher than the offer #rice. (3) Conso"i$ation of ho"$ingP An acNuirer 0ho is ha.ing :7K shares or .oting rights of target com#any4 can acNuire further shares or .oting rights on"y after ma/ing a #u-"ic announcement s#ecifying the num-er of shares to -e acNuire$ through o#en offer from the shareho"$ers of a target com#any )W)iX. In or$er to a##reciate the im#"ications arising here from4 it is #ertinent for us to consi$er the meaning of the term V#u-"ic announcement1. 3. &u-"ic Announcement A &u-"ic announcement is genera""y an announcement gi.en in the ne0s#a#ers )iW)iiX -y the acNuirer4 #rimari"y to $isc"ose his intention to acNuire a minimum of 20K of the .oting ca#ita" of the target com#any from the e)isting shareho"$ers -y means of an o#en offer )iiW)iiiX. @o0e.er4 an AcNuirer may a"so ma/e an offer for "ess than 20K of shares of target com#any in case the acNuirer is a"rea$y ho"$ing :7K or more of .oting rights/ shareho"$ing in the target com#any an$ has $e#osite$ in the escro0 account in cash a sum of 70K of the consi$eration #aya-"e un$er the #u-"ic offer )iiiW)i.X. The AcNuirer is reNuire$ to a##oint a Merchant Ban/er registere$ 0ith S(BI -efore ma/ing a &A an$ is a"so reNuire$ to ma/e the &A 0ithin four 0or/ing $ays of the entering into an agreement to acNuire shares4 0hich has "e$ to the triggering of the ta/eo.er4 through such Merchant Ban/er. !. &roce$ure to -e fo""o0e$ after the &u-"ic Announcement In #ursuance of the #ro.isions of 2eg. 1M of the sai$ 2egu"ations4 the AcNuirer is reNuire$ to fi"e a $raft 8ffer +ocument 0ith S(BI 0ithin 1! $ays of the &A through its Merchant Ban/er4 a"ong 0ith fi"ing fees of 2s.704000/ #er offer +ocument (#aya-"e -y Ban/er1s CheNue / +eman$ +raft). A"ong 0ith the $raft offer $ocument4 the Merchant Ban/er a"so has to su-mit a $ue $i"igence certificate as 0e"" as certain registration $etai"s )i. W).iX.

2M

The fi"ing of the $raft offer $ocument is a %oint res#onsi-i"ity of -oth the AcNuirer as 0e"" as the Merchant Ban/er ).W).iiX Thereafter4 the acNuirer through its Merchant Ban/er sen$s the offer $ocument as 0e"" as the -"an/ acce#tance form 0ithin !7 $ays from the $ate of &A4 to a"" the shareho"$ers 0hose names a##ear in the register of the com#any on a #articu"ar $ate ).iW).iiiX. The offer remains o#en for 30 $ays. The shareho"$ers are reNuire$ to sen$ their Share certificate(s) / re"ate$ $ocuments to the 2egistrar or Merchant Ban/er as s#ecifie$ in the &A an$ offer $ocument ).iiW)i)X. The acNuirer is o-"igate$ to offer a minimum offer #rice as is reNuire$ to -e #ai$ -y him to a"" those shareho"$ers 0hose shares are acce#te$ un$er the offer4 0ithin 30 $ays from the c"osure of offer ).iiiW))X. 7.()em#tions The fo""o0ing transactions are ho0e.er e)em#te$ from ma/ing an offer an$ are not reNuire$ to -e re#orte$ to S(BI )i)W))iXP YZY a""otment to un$er0riter #ursuant to any un$er0riting agreementU Y acNuisition of shares in or$inary course of -usiness -yU Y 2eg$. Stoc/ -ro/ers on -eha"f of c"ientsU Y 2eg$. Mar/et ma/ersU Y &u-"ic financia" institutions on their o0n accountU Y -an/s 3 HIs as #"e$gesU Y AcNuisition of shares -y 0ay of transmission on succession or -y inheritanceU Y acNuisition of shares -y 'o.t. com#aniesU Y acNuisition #ursuant to a scheme frame$ un$er section 1M of SICA 1JM7U Y of arrangement/ restructuring inc"u$ing ama"gamation or merger or $e merger un$er any "a0 or 2egu"ation In$ian or HoreignU Y AcNuisition of shares in com#anies 0hose shares are not "iste$U Y @o0e.er4 if -y .irtue of acNuisition of shares of un"iste$ com#any4 the acNuirer acNuires shares or .oting rights (o.er the "imits s#ecifie$) in the "iste$ com#any4 acNuirer is reNuire$ to ma/e an o#en offer in accor$ance 0ith the 2egu"ations. >.Minimum 8ffer &rice an$ &ayments ma$e It is not the $uty of S(BI to a##ro.e the offer #rice4 ho0e.er it ensures that a"" the re"e.ant #arameters are ta/en in to consi$eration for fi)ing the offer #rice an$ that the %ustification for the same is $isc"ose$ in the offer $ocument. The offer #rice sha"" -e the highest of ))W))iiXP 6egotiate$ #rice un$er the agreement4 0hich triggere$ the o#en offer.

2J

&rice #ai$ -y the acNuirer or &AC 0ith him for acNuisition if any4 inc"u$ing -y 0ay of #u-"ic rights/ #referentia" issue $uring the 2> 0ee/ #erio$ #rior to the $ate of the &A A.erage of 0ee/"y high 3 "o0 of the c"osing #rices of shares as Nuote$ on the Stoc/ e)changes4 0here shares of Target com#any are most freNuent"y tra$e$ $uring 2> 0ee/s #rior to the $ate of the &u-"ic Announcement In case the shares of target com#any are not freNuent"y tra$e$4 then the offer #rice sha"" -e $etermine$ -y re"iance on the fo""o0ing #arameters4 .iFP the negotiate$ #rice un$er the agreement4 highest #rice #ai$ -y the acNuirer or &AC 0ith him for acNuisition if any4 inc"u$ing -y 0ay of #u-"ic rights/ #referentia" issue $uring the 2> 0ee/ #erio$ #rior to the $ate of the &A an$ other #arameters inc"u$ing return on net 0orth4 -oo/ .a"ue of the shares of the target com#any4 earning #er share4 #rice earning mu"ti#"e .is a .is the in$ustry a.erage. AcNuirers are reNuire$ to com#"ete the #ayment of consi$eration to shareho"$ers 0ho ha.e acce#te$ the offer 0ithin 30 $ays from the $ate of c"osure of the offer. In case the $e"ay in #ayment is on account of non recei#t of statutory a##ro.a"s an$ if the same is not $ue to 0i""fu" $efau"t or neg"ect on #art of the acNuirer4 the acNuirers 0ou"$ -e "ia-"e to #ay interest to the shareho"$ers for the $e"aye$ #erio$ in accor$ance 0ith 2egu"ations. AcNuirer(s) are ho0e.er not to -e ma$e accounta-"e for #osta" $e"ays. If the $e"ay in #ayment of consi$eration is not $ue to the a-o.e reasons4 it 0ou"$ -e treate$ as a .io"ation of the 2egu"ations. :.Safeguar$s incor#orate$ so as to ensure that the Shareho"$ers get their #ayments Before ma/ing the &u-"ic Announcement the acNuirer has to create an escro0 account ha.ing 27K of tota" consi$eration #aya-"e un$er the offer of siFe 2s. 100 crores (A$$itiona" 10K if offer siFe more than 100 crores) ))iW))iiiX. The (scro0 cou"$ -e in the form of cash $e#osite$ 0ith a sche$u"e$ commercia" -an/4 -an/ guarantee in fa.or of the Merchant Ban/er or $e#osit of acce#ta-"e securities 0ith a##ro#riate margin 0ith the Merchant Ban/er. The Merchant Ban/er is a"so reNuire$ to confirm that firm financia" arrangements are in #"ace for fu"fi""ing the offer o-"igations. In case4 the acNuirer fai"s to ma/e #ayment4 Merchant Ban/er has a right to forfeit the escro0 account an$ $istri-ute the #rocee$s in the fo""o0ing 0ay. 1/3 of amount to target com#any 1/3 to regiona" Stoc/ ()changes4 for cre$it to in.estor #rotection fun$ etc. 1/3 to -e $istri-ute$ on #ro rata -asis among the shareho"$ers 0ho ha.e acce#te$ the offer.

30

The Merchant Ban/er a$.ise$ -y S(BI is reNuire$ to ensure that the re%ecte$ $ocuments 0hich are /e#t in the custo$y of the 2egistrar / Merchant Ban/er are sent -ac/ to the shareho"$er through 2egistere$ &ost. Besi$es forfeiture of escro0 account4 S(BI can ta/e se#arate action against the acNuirer 0hich may inc"u$e #rosecution / -arring the acNuirer from entering the ca#ita" mar/et for a #erio$ etc. M. &ena"ties The 2egu"ations ha.e "ai$ $o0n the genera" o-"igations of the acNuirer4 target com#any an$ the Merchant Ban/er. Hor fai"ure to carry out these o-"igations as 0e"" as for fai"ure / non com#"iance of other #ro.isions of the 2egu"ations4 2eg. !7 #ro.i$es for #ena"ties. Any #erson .io"ating any #ro.isions of the 2egu"ations sha"" -e "ia-"e for action in terms of the 2egu"ations an$ the S(BI Act. If the acNuirer or any #erson acting in concert 0ith him4 fai"s to carry out the o-"igations un$er the 2egu"ations4 the entire or #art of the sum in the escro0 amount sha"" -e "ia-"e to -e forfeite$ an$ the acNuirer or such a #erson sha"" a"so -e "ia-"e for action in terms of the 2egu"ations an$ the Act. The -oar$ of $irectors of the target com#any fai"ing to carry out the o-"igations un$er the 2egu"ations sha"" -e "ia-"e for action in terms of the 2egu"ations an$ S(BI Act. The Boar$ may4 for fai"ure to carry out the reNuirements of the 2egu"ations -y an interme$iary4 initiate action for sus#ension or cance""ation of registration of an interme$iary ho"$ing a certificate of registration un$er section 12 of the Act. &ro.i$e$ that no such certificate of registration sha"" -e sus#en$e$ or cance""e$ un"ess the #roce$ure s#ecifie$ in the 2egu"ations a##"ica-"e to such interme$iary is com#"ie$ 0ith. Hor any mis statement to the shareho"$ers or for concea"ment of materia" information reNuire$ to -e $isc"ose$ to the shareho"$ers4 the acNuirers or the $irectors 0here he acNuirer is a -o$y cor#orate4 the $irectors of the target com#any4 the merchant -an/er to the #u-"ic offer an$ the merchant -an/er engage$ -y the target com#any for in$e#en$ent a$.ice 0ou"$ -e "ia-"e for action in terms of the 2egu"ations an$ the S(BI Act. The #ena"ties referre$ to in su- regu"ation (1) to (7) may inc"u$e a. crimina" #rosecution un$er section 2! of the S(BI ActU -. monetary #ena"ties un$er section 17 @ of the S(BI ActU c. $irections un$er the #ro.isions of Section 11B of the S(BI Act. 2egu"ations ha.e "ai$ $o0n the #ena"ties for non com#"iance. These #ena"ties may inc"u$e forfeiture of the escro0 account4 $irecting the #erson concerne$ to se"" the shares acNuire$ in .io"ation of the regu"ations4 $irecting the #erson concerne$ not to further $ea" in securities4 monetary #ena"ties4 #rosecution etc.4 0hich may e.en e)ten$ to the -arring 31

of the acNuirer from entering an$ #artici#ating in the Ca#ita" Mar/et. Action can a"so -e initiate$ for sus#ension4 cance""ation of registration against an interme$iary such as the Merchant Ban/er to the offer.

32

Jo+&! -"&!*r"
Ta/eo.er refers to the #rocess of acNuiring contro" o.er the management of a firm -y acNuiring a su-stantia" #ortion of its eNuity. After the ta/eo.er4 the in$i.i$ua" firms continue to e)ist -ut un$er a ne0 management. In theory4 the acNuirer nee$s to get ho"$ of 71K sta/e to o-tain contro" o.er management. In #ractice4 ta/eo.ers ha.e -een carrie$ out -y acNuiring a sma""er sta/e -et0een 17K to 70K. A ta/eo.er can -e either frien$"y or hosti"e. (a) Hrien$"y ta/eo.erP A frien$"y ta/eo.er is one 0hich is carrie$ out 0ith the consent an$ su##ort of the e)isting management. In a frien$"y ta/eo.er4 .ery often4 the Boar$ of the target com#any recommen$s to the shareho"$ers to acce#t the offer an$ ten$er their shares. Hor e)am#"e4 the ta/eo.er of In$ian A"uminium Com#any (In$a") -y the =umarmanaga"am Bir"a grou#. A"can of Cana$a he"$ 73K sta/e in In$a". Hor strategic reasons4 A"acan $eci$e$ to e)it from In$a". They .o"untari"y so"$ their sta/e to the Bir"a grou#. The Bir"a grou# acNuire$ the In$a" in a frien$"y ta/eo.er.

(-):o%!+9" ! ," o-"r hosti"e ta/eo.er is one 0here the acNuirer attem#ts to get contro" o.er the com#any in s#ite of the o##osition from the e)isting management. (gP @osti"e ta/eo.er of Sha0 0a""ace -y Manu Cha-ria in 1JM: The then e)isting management "e$ -y S& Acharya ha$ strong"y -ut unsuccessfu""y o##ose$ the ta/eo.er of the com#any

33

CONCLUSION
8ne siFe $oesn1t fit a"". Many com#anies fin$ that the -est route for0ar$ is e)#an$ing o0nershi# -oun$aries through mergers an$ acNuisitions. Hor others4 se#arating the #u-"ic o0nershi# of a su-si$iary or -usiness segment offers more a$.antages. At "east in theory4 mergers create synergies an$ economies of sca"e4 e)#an$ing o#erations an$ cutting costs. In.estors can ta/e comfort in the i$ea that a merger 0i"" $e"i.er enhance$ mar/et #o0er. By contrast4 $e merge$ com#anies often en%oy im#ro.e$ o#erating #erformance than/s to re$esigne$ management incenti.es. A$$itiona" ca#ita" can fun$ gro0th organica""y or through acNuisition. Mean0hi"e4 in.estors -enefit from the im#ro.e$ information f"o0 from $e merge$ com#anies. M3A comes in a"" sha#es an$ siFes4 an$ in.estors nee$ to consi$er the com#"e) issues in.o".e$ in M3A. The most -eneficia" form of eNuity structure in.o".es a com#"ete ana"ysis of the costs an$ -enefits associate$ 0ith the $ea"s. Strategies for an organiFation may -e c"assifie$ -y the "e.e" of the organiFation res#onsi-"e for the strategy. Cor#orate "e.e" strategies concern to# management an$ a$$ress strategic issues of facing the organiFation as a cor#orate 0ho"e.

3!

i ii iii i. . .i .ii .iii i) ) )i

)ii
)iii )i. ).

BIBLIOGRAP10

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).ii ).iii )i) )) ))i