Professional Documents
Culture Documents
ASSIGNMENT-2
Success and Failure of Mergers and Acquisition
S.NO. CONTENT
1 Abstract
2 Introduction
3 Objectives
4 Analysis and post-merger impact
5 Conclusion
6 References
TABLE OF CONTENT:
MERGER AND ACQUISITION
Abstract
Mergersandacquisitions(M&A)aretransactionsinwhichtheownership
ofcompanies,otherbusinessorganizationsortheiroperatingunitsare
transferredorcombined.Asanaspectofstrategicmanagement,M&A
canallowenterprisestogrow,shrink,andchangethenatureoftheir
businessorcompetitiveposition.
Mergersandacquisitionsaremorecommonthaneverintodaysbusiness
climatedespitecompanyhighestdegreeofstrategyandplanningand
investmentsofhundredsofcrores,somemergersbecomesuccessfuland
somecannotcreateavalueandfailmiserably.In1987,theprofessorof
Harvard,MichaelPorterfoundthataround50%to60%ofthemergers
andacquisitionsendedinafailure.
Thereforethisprojectstudiesthereasonsofsuccessandfailureofmerger
andacquisitionwiththereferenceofthecompaniesthatsuccessfully
merge/acquireorfailed.
Forcompletionofthisstudy,twoliveexamplesofcompanieshasbeen
takenoutofwhichoneistheexampleofsuccessfulmerger/acquiredand
otheristheexampleoffailedmerger.
SuccessfulAcquisitionTATAMOTORSJAGUARLANDROVER
FailedAcquisitioneBayandSkype
INTRODUCTION
Mergersandacquisitions(M&A)aretransactionsinwhichtheownership
ofcompanies,otherbusinessorganizationsortheiroperatingunitsare
transferredorcombined.Asanaspectofstrategicmanagement,M&A
canallowenterprisestogrow,shrink,andchangethenatureoftheir
businessorcompetitiveposition.
Fromalegalpointofview,amergerisalegalconsolidationoftwo
entitiesintooneentity,whereasanacquisitionoccurswhenoneentity
takesownershipofanotherentity'sstock,equityinterestsorassets.From
acommercialandeconomicpointofview,bothtypesoftransactions
generallyresultintheconsolidationofassetsandliabilitiesunderone
entity,andthedistinctionbetweena"merger"andan"acquisition"isless
clear.Atransactionlegallystructuredasamergermayhavetheeffectof
placingoneparty'sbusinessundertheindirectownershipoftheother
party'sshareholders,whileatransactionlegallystructuredasan
acquisitionmaygiveeachparty'sshareholderspartialownershipand
controlofthecombinedenterprise.Adealmaybeeuphemisticallycalled
a"mergerofequals"ifbothCEOsagreethatjoiningtogetherisinthe
bestinterestofbothoftheircompanies,whilewhenthedealisunfriendly
(thatis,whenthemanagementofthetargetcompanyopposesthedeal)it
mayberegardedasan"acquisition".
Tata Motors Limited (formerly TELCO, short for Tata Engineering and
Locomotive Company) is an Indian multinational automotive
manufacturing company headquartered in Mumbai, India, and a member
of the Tata Group. Its products include passenger cars, trucks, vans,
coaches, buses, construction equipment and military vehicles.
Tata entered the commercial vehicle sector in 1954 after forming a joint
venture with Daimler-Benz of Germany. After years of dominating the
commercial vehicle market in India, Tata Motors entered the passenger
vehicle market in 1991 by launching the Tata Sierra, a multi utility
vehicle. Tata subsequently launched the Tata Estate (1992; a station
wagon design based on the earlier 'TataMobile' (1989), a light
commercial vehicle), the Tata Sumo (1994; LCV) and the Tata Safari
(1998; India's first sports utility vehicle).
Tata launched the Indica in 1998, the first fully indigenous Indian
passenger car. Although initially criticized by auto analysts, its excellent
fuel economy, powerful engine, and an aggressive marketing strategy
made it one of the best-selling cars in the history of the Indian automobile
industry. A newer version of the car, named Indica V2, was a major
improvement over the previous version and quickly became a mass
favourite. Tata Motors also successfully exported large numbers of the car
to South Africa. The success of the Indica played a key role in the growth
of Tata Motors.
Jaguar Land Rover is a company that brings together two much loved,
highly prestigious British car brands. After Tata Motors acquired Jaguar
and Land Rover from Ford in 2008, it merged the two marques into a
single company and its success has flourished, with memorable vehicles
and innovative technologies that add to a long-lasting legacy.
In 2008, the two were bought by Tata Motors, Indias largest automobile
manufacturer, and officially joined together as one company in 2013.
Sales and profits have risen year on year, with more exciting chapters in
the histories of these two brands still to be written.
The 50:50 partnership between Jaguar Land Rover & Chery Automobile
Company Ltd. is the first British-Chinese automotive joint venture.
Located in Changshu (north of Shanghai), the 98 acre facility represents a
total investment of 10.9 billion RMB (circa 1 billion). The Range Rover
Evoque & Land Rover Discovery Sport are both produced in Changshu
for customers in China.
Jaguar Land Rover is the first British carmaker to build a new local
manufacturing facility in Brazil and is the company's first wholly-owned
overseas local manufacturing facility. The 14 acre site in the state of Rio
de Janeiro represents an investment of R$750m (240m), with the first
vehicles expected off the production line in 2016.
Jaguar Land Rover has had a local assembly presence in India since 2011
and currently assembles the Range Rover Evoque, Jaguar XF and XJ and
most recently the Discovery Sport.
In August 2015, Jaguar Land Rover signed a Letter of Intent with the
Government of the Slovak Republic for the potential development of a
new manufacturing plant in the city of Nitra in western Slovakia. The
feasibility study will explore plans for a factory with an installed capacity
reaching up to 300,000 vehicles over the next decade. Earlier in the year,
Jaguar
HISTORY OF E-BAY:
Millions of buyers and sellers have made eBay Inc. the world's largest
and most popular Internet site for individuals and businesses to exchange
goods.
The site quickly became massively popular, as sellers came to list all sorts
of odd things and buyers actually bought them. Relying on trust seemed
to work remarkably well, and meant that the site could almost be left
alone to run itself. The site had been designed from the start to collect a
small fee on each sale, and it was this money that Omidyar used to pay
for AuctionWeb's expansion. The fees quickly added up to more than his
current salary, and so he decided to quit his job and work on the site full-
time. It was at this point, in 1996, that he added the feedback facilities, to
let buyers and sellers rate each other and make buying and selling safer.
Then, in 1998 - the peak of the dotcom boom - eBay became big
business, and the investment in Internet businesses at the time allowed it
to bring in senior managers and business strategists, who took in public
on the stock market. It started to encourage people to sell more than just
collectibles, and quickly became a massive site where you could sell
anything, large or small. Unlike other sites, though, eBay survived the
end of the boom, and is still going strong today.
1999 saw eBay go worldwide, launching sites in the UK, Australia and
Germany. eBay bought half.com, an Amazon-like online retailer, in the
year 2000 - the same year it introduced Buy it Now - and bought PayPal,
an online payment service, in 2002.
HISTORY OF SKYPE:
Skype is an application that provides video chat and voice call services.
Users may exchange such digital documents as images, text, video and
any others, and may transmit both text and video messages. Skype allows
the creation of video conference calls.
One of the fastest growing companies on the Internet, Skype already has
54 million members in 225 countries and territories. Skype is currently
adding approximately 150,000 users a day and has created a thriving
ecosystem of products, services, developers, and affiliates. Skype is
considered the market leader in virtually all countries in which it does
business. In North America alone, Skype has more users and serves more
voice minutes than any other Internet voice communications provider.
First released in August 2003, Skype was created by the Swede Niklas
Zennstrm and the Dane Janus Friis, in cooperation with Ahti Heinla,
Priit Kasesalu, and Jaan Tallinn, Estonians who developed the backend
that was also used in the music-sharing application Kazaa. In September
2005, eBay acquired Skype for $2.6 billion.
e-BAY SKYPE:
On acquiring JLR, Ratan Tata, Chairman, Tata Group, said, "We are very
pleased at the prospect of Jaguar and Land Rover being a significant part
of our automotive business. We have enormous respect for the two brands
and will endeavor to preserve and build on their heritage and
competitiveness, keeping their identities intact. We aim to support their
growth, while holding true to our principles of allowing the management
and employees to bring their experience and expertise to bear on the
growth of the business."
1) The acquisition would help the company acquire a global footprint and
enter the high-end premier segment of the global automobile market.
After the acquisition, Tata Motors would own the world's cheapest car -
the US$ 2,500 Nano, and luxury marquees like the Jaguar and Land
Rover.
2) Tata also got two advance design studios and technology as part of the
deal. This would provide Tata Motors access to latest technology, which
would also allow Tata to improve their core products in India, for eg,
Indica and Safari suffered from internal noise and vibration problems.
3) This deal provided Tata an instant recognition and credibility across
globe which would have otherwise have taken years.
4) The cost competitive advantage was as Corus was the main supplier of
automotive high-grade steel to JLR and other automobile industry in US
and Europe. This would have provided a synergy for TATA Group on a
whole.
5) In the long run TATA Motors will surely diversify its present
dependence on Indian markets (which contributed to 90% of TATAs
revenue). Along with it due to TATAs footprints in South East Asia will
help JLR do diversify its geographic dependence from US (30% of
volumes) and Western Europe (55% of volumes).
Analysts were of the view that the acquisition of JLR, which had a global
presence and a repertoire of well-established brands, would help Tata
Motors become one of the major players in the global automobile
industry.
DISADVANTAGES IF TATA NOT GOING FOR THIS
ACQUISITION?
There was immense pressure from the shareholders, analysts community
etc. to abort the deal as they unanimously agreed that it was over priced
and the balance sheet of TATA was not in a position to absorb more loan
(as discussed in the previous section). Ford purchased JLR at $5 bn and
sold at almost half the price to TAMO after operating it for losses for few
years. As the market would have recovered from recession the valuation
would have increased since there would have been growth in the demand
of JLR thus creating more problems for TAMO. Tata would not have
been able enter into the premium segment (>10 lakhs) in India. TAMO
would have lacked in robust designing capabilities. Above all, at that time
no other major automobile brand was available for acquisition with such
designing and R&D capabilities.
Support from Ford Motor Credit Ford Motor Credit will continue
to support the sales of JLR for
the next 12 months
5. Sharing of best practises between Jaguar, Land Rover and Tata Motors
in the future
Above equity issues were estimated to increase the then existing equity
capital by about 30%-35% in FY09. In the event of CCP conversions
between 2011 and 2013, additional increase of about 12% was also
estimated
The beginning was not smooth, when TATA acquired JLR, world was
entering recession and the worst recession of them all. There was a bad
sentiment everywhere. JLR was a failing brand and TATA paid $2.3
billion. Analysts feared that TATA has made a mistake and that they will
not be able to handle what they have entered.
Also, JLR being a British powerhouse brand, the deal was not very well
perceived due to the coming Indian ownership and the fears of
outsourcing of jobs, technology and the brand to India. On the other hand,
Indian analysts feared that this whole acquisition may bring the almighty
TATAs down.
The most important things which TATA prioritize to start the change
were:
1) Cost Management: The most important task on hand for TATAs was
the reduction in the costs. Consultants from Roland Berger Strategy
Consultants and KPMG were hired for this. Strategy plans were made for
cross functional teams and the management was shaken at the top.
Also one major cut down was done on the IT front. The systems and
software for managing operations were now handled by Tatas own IT
firm Tata technologies saving JLR millions of dollars.
In 2005, eBay Inc. purchased Skype for $2.6 billion. The purchase price
was extremely high considering that Skype had only $7 million in
revenues. Meg Whitman, eBay's CEO, justified the acquisition by arguing
that Skype would improve the auction site by giving its users a better
platform for communicating. Ultimately eBay's users rejected Skype's
technology as unnecessary for conducting auctions, and the rationale for
the purchase dissipated. Two years after the acquisition, eBay informed
its shareholders that it would write down the value of Skype by $900
million. In 2011, eBay was fortunate to find a higher bidder for Skype. It
sold Skype to Microsoft and realized a $1.4 billion profit.
1-A young Skype was growing much faster than mature eBay . It still is,
five years later.
eBay (product) buyers could chat with each other during bidding
wars.
Skype (product) users could wire money to each other via PayPal
(product) and top off their Skype Out accounts through PayPal
(product).
1
VISION OF e-Bay:
eBay vision for Skype has always been to build the worlds largest
communications business and revolutionize the ease with which people
can communicate through the Internet.
eBay will acquire all of the outstanding shares of privately-held Skype for
a total up-front consideration of approximately 2.1 billion, or
approximately $2.6 billion, which is comprised of $1.3 billion in cash and
the value of 32.4 million shares of eBay stock, which are subject to
certain restrictions on resale.
2) eBay thought Skype would improve the auction site by giving its
users a better platform for communicating. Ultimately eBay's users
rejected Skype's technology as unnecessary for conducting
auctions, and the rationale for the purchase dissipated.
3) The culture clash between the two companies was too great to
overcome. EBays conservative, bank-like culture didnt mesh
well with Skypes democratic mission to level the field for voice
technologies.
Managers have to be transparent and should always tell the truth. By this
way, they can win the trust of the employees and others and maintain a
healthy environment.
https://blog.ipleaders.in/10-biggest-ever-merger-
acquisition-deals-in-india/
http://www.globoforce.com/gfblog/2012/6-big-mergers-
that-were-killed-by-culture/
http://www.jaguarlandrover.com/gl/en/about-
us/international-manufacturing/
https://www.ebayinc.com/our-company/our-history/
http://www.ebay.com/gds/History-of-
Ebay-/10000000008868464/g.html
http://www.mbaskool.com/business-
articles/marketing/1737-tata-motors-jaguar-land-
rover-jlr-the-success-story.html
www.tatamotors.com/press/tata-motors-completes-
acquisition-of-jaguar-land-rover/