INDEX

REPORT SECTION PAGE NUMBER

TITLE PAGE

CONTENTS PAGE

ACKNOWLEDGEMENT

EXECUTIVE SUMMARY

INTRODUCTION

MERGERS AND TYPES OF MERGERS

ACQUISITIONS

CROSS BORDER ACQUISITIONS

DAIMLER- BENZ AND CHRYSLER CASE STUDY

ICICI AND BoR CASE STUDY

CASE STUDIES

FAILURE OF M&A

RECOMMENDATIONS

BIBLIOGRAPHY
EXECUTIVE SUMMARY

Industrial maps across the world have been constantly redrawn over the years through
various forms of corporate restructuring. The most common method of such restructuring is
Mergers and Acquisitions (M&A). The term "mergers & acquisitions (M&As)" encompasses
a widening range of activities, including joint ventures, licensing and synergising of energies.
Industries facing excess capacity problems witness merger as means for consolidation.
Industries with growth opportunities also experience M&A deals as growth strategies. There
are stories of successes and failures in mergers and acquisitions. Such stories only confirm the
popularity of this vehicle.

Merger is a tool used by companies for the purpose of expanding their operations often
aiming at an increase of their long term profitability. There are 15 different types of actions
that a company can take when deciding to move forward using M&A. Usually mergers
occur in a consensual (occurring by mutual consent) setting where executives from the target
company help those from the purchaser in a due diligence process to ensure that the deal is
beneficial to both parties. Acquisitions can also happen through a hostile takeover by
purchasing the majority of outstanding shares of a company in the open market against the
wishes of the target's board. In the United States, business laws vary from state to state
whereby some companies have limited protection against hostile takeovers. One form of
protection against a hostile takeover is the shareholder rights plan, otherwise known as the
"poison pill".

Mergers and acquisitions (M&A) have emerged as an important tool for growth for Indian
corporates in the last five years, with companies looking at acquiring companies not only in
India but also abroad.
 INTRODUCTION

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

CLASSIFICATIONS OF MERGERS

Mergers are generally classified into 5 broad categories. The basis of this classification is the

A comprehensive study on Mergers and Acquisitions

 business in which the companies are usually involved. Different motives can also be attached
to these mergers. The categories are:
Types of Particulars
Mergers

Horizontal It is a merger of two or more competing companies, implying that they are
Merger firms in the same business or industry, which are at the same stage of
industrial process. This also includes some group companies trying to
restructure their operations by acquiring some of the activities of other group
companies.
There is little evidence to dispute the claim that properly executed horizontal
mergers lead to significant reduction in costs. A horizontal merger brings
about all the benefits that accrue with an increase in the scale of operations.
Apart from cost reduction it also helps firms in industries like
pharmaceuticals, cars, etc. where huge amounts are spent on R & D to achieve
critical mass and reduce unit development costs.
Usually done by highend companies for exchange of R&D as in case of
standard essential patents,firms merge for the purpose of cumulative R&D.

Vertical It is a merger of one company with another, which is involved, in a different

Merger
stage of production and/ or distribution process thus enabling backward
integration to assimilate the sources of supply and / or forward integration
towards market outlets.
The main motives are to ensure ready take off of the materials, gain control
over product specifications, increase profitability by gaining the margins of
the previous supplier/ distributor, gain control over scarce raw materials
supplies and in some case to avoid sales tax.

Conglomerate It is an amalgamation of 2 companies engaged in the unrelated industries. The

Merger1 motive is to ensure better utilization of financial resources, enlarge debt
capacity and to reduce risk by diversification.
The company is also essential owing to the fact that the combination of the
financial resources of the two companies making up the merger reduces the
lenders risk while combining each of the individual shares of the two
companies in the investor’s portfolio does not. In spite of the arguments and
counter- arguments, some amount of diversification is required, especially in

1
Melicher R., and Rush, D. (1974). Evidence On the Acquisition-Related Performance of conglomerate Firms. Journal
of Finance, 29(1), 141-149.
 industries which follow cyclical patterns, so as to bring some stability to cash
flows.
Concentric
Mergers This is a mild form of conglomeration. It is the merger of one company with
another which is engaged in the production / marketing of an allied product.
Concentric merger is also called product extension merger. In such a merger,
in addition to the transfer of general management skills, there is also transfer
of specific management skills, as in production, research, marketing, etc,
which have been used in a different line of business. A concentric merger
brings all the advantages of conglomeration without the side effects, i.e., with
a concentric merger it is possible to reduce risk without venturing into areas
that the management is not competent in.
Consolidation
It involves a merger of a subsidiary company with its parent. Reasons behind
Mergers
such a merger are to stabilize cash flows and to make funds available for the
subsidiary.

Market-
extension Two companies that sell the same products in different markets.
merger

Product-
extension Two companies selling different but related products in the same market.
merger

ACQUISITION
Acquisition in general sense is acquiring the ownership in the property. In the context of
business combinations, an acquisition is the purchase by one company of a controlling interest
in the share capital of another existing company.

Types of Particular
Aquisition
Friendly i. Before a bidder makes an offer for another company, it usually first informs
takeover the company's board of directors. If the board feels that accepting the offer
: serves shareholders better than rejecting it, it recommends the offer be accepted
by the shareholders.

Hostile A hostile takeover allows a suitor to take over a target company's management
takeover: unwilling to agree to a merger or takeover. A takeover is considered "hostile" if the
target company's board rejects the offer, but the bidder continues to pursue it, or
the bidder makes the offer without informing the target company's board
beforehand.
 Back flip A back flip takeover is any sort of takeover in which the acquiring company
takeover turns itself into a subsidiary of the purchased company. This type of a takeover
rarely occurs.
Reverse A reverse takeover is a type of takeover where a private company acquires a
takeover: public company. This is usually done at the instigation of the larger, private
company, the purpose being for the private company to effectively float itself
while avoiding some of the expense and time involved in a conventional IPO

Methods of Acquisition:
An acquisition may be affected by:-
 Agreement with the persons holding majority interest in the company management like
members of the board or major shareholders commanding majority of voting power;
 Purchase of shares in open market;
 To make takeover offer to the general body of shareholders;
 Purchase of new shares by private treaty;
 Acquisition of share capital through the following forms of considerations viz. Means
of cash, issuance of loan capital, or insurance of share capital.

DISTINCTION BETWEEN MERGERS AND ACQUISITION2

Although they are often uttered in the same breath and used as though they were synonymous,
the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new owner, the
purchase is called an acquisition. From a legal point of view, the target company ceases to
exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of about the same size,
agree to go forward as a single new company rather than remain separately owned and
operated. This kind of action is more precisely referred to as a "merger of equals." Both
companies' stocks are surrendered and new company stock is issued in its place. For example,
both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new
company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one company
will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim
that the action is a merger of equals, even if it's technically an acquisition. Being bought out
often carries negative connotations, therefore, by describing the deal as a merger, deal makers
and top managers try to make the takeover more palatable.

2
Harrison, J., Hitt, M., Hoskisson, R., and Ireland, R. (1991). Synergies and Post-Acquisition Performance: Differences
versus Similarities in Resource Allocations. Journal of Management, 17(1), 173. Retrieved from Business Source
Complete database.
A purchase deal will also be called a merger when both CEOs agree that joining together is in
the best interest of both of their companies. But when the deal is unfriendly - that is, when the
target company does not want to be purchased - it is always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends on whether the

purchase is friendly or hostile and how it is announced. In other words, the real difference lies
in how the purchase is communicated to and received by the target company's board of
directors, employees and shareholders.
 CROSS BORDER MERGERS AND ACQUISITIONS

The rise of globalization has exponentially increased the market for cross border M&A. In
1996 alone there were over 2000 cross border transactions worth a total of approximately $256
billion. This rapid increase has taken many M&A firms by surprise because the majority of
them never had to consider acquiring the capabilities or skills required to effectively handle
this kind of transaction. In the past, the market's lack of significance and a more strictly
national mindset prevented the vast majority of small and mid-sized companies from
considering cross border intermediation as an option which left M&A firms inexperienced in
this field. This same reason also prevented the development of any extensive academic works
on the subject.

Due to the complicated nature of cross border M&A, the vast majority of cross border actions
have unsuccessful results. Cross border intermediation has many more levels of complexity to it
than regular intermediation seeing as corporate governance, the power of the average employee,

Ran Year Acquirer Target Transactio %

k n Value
(in Mil.
USD)
1 2000 Merger : America Online Inc. Time Warner 164,747 21.8
(AOL) 3
2 2000 Glaxo Wellcome Plc. SmithKline Beecham Plc. 75,961 10.0
6
3 2004 Royal Dutch Petroleum Co. Shell Transport & 74,559 9.87
Trading
Co
4 2006 AT&T Inc. BellSouth Corporation 72,671 9.62
5 2001 Comcast Corporation AT&T Broadband 72,041 9.54
&
Internet Svcs
6 2004 Sanofi-Synthelabo SA Aventis SA 60,243 7.98
7 2000 Spin-off : Nortel 59,974 7.95
Networks
Corporation
8 2002 Pfizer Inc. Pharmacia Corporation 59,515 7.89
9 2004 Merger : JP Morgan Chase & Bank One Corporation 58,761 7.79
Co.
10 2006 Pending: E.on AG Endesa SA 56,266 7.45
Total 754,738 100
 company regulations, political factors customer expectations, and countries' culture are all
crucial factors that could spoil the transaction.

CROSS-BORDER MERGER AND ACQUISITION: INDIA

Until up to a couple of years back, the news that Indian companies having acquired American-
European entities was very rare. However, this scenario has taken a sudden U turn. Nowadays,
news of Indian Companies acquiring foreign businesses is more common than other way
round.

Buoyant Indian Economy, extra cash with Indian corporate, Government policies and newly
found dynamism in Indian businessmen have all contributed to this new acquisition trend.
Indian companies are now aggressively looking at North American and European markets to
spread their wings and become the global
players.
 The top 10 acquisitions made by Indian companies worldwide3:

Acquirer Target Company Country targeted Deal value ($ Industry

ml)
Tata Steel Corus Group plc UK 12,000 Steel
Hindalco Novelis Canada 5,982 Steel
Videocon Daewoo Electronics Corp. Korea 729 Electronics
Dr. Betapharm Germany 597 Pharmace
Reddy' u tical
s
Labs
Suzlon Hansen Group Belgium 565 Energy
Energy
HPCL Kenya Petroleum Refinery Kenya 500 Oil and
Ltd. Gas
Ranbaxy Terapia SA Romania 324 Pharmaceu
Labs Tical
Tata Steel Natsteel Singapore 293 Steel
Videocon Thomson SA France 290 Electronics
VSNL Teleglobe Canada 239 Telecom

3
Wharton Study (2006) Indian Companies are on an Acquisition Spree: Their Target? U.S. Firms, Knowledge @
Wharton, (Dec. 13, 2006) available at http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4131
 1 10 biggest merger and acquisition deals in India in 20104

Above analysis of Indian industry can be substantiated by the following major Marger and
Acquisition deals of the country in the year 2010. Some of the deals which are later covered
in the project report provide significant importance of M&A as a strategy for growth by Indian
Industries

 Tata Chemicals bought British Salt for about US $ 13 billion. The acquisition gave
Tata access to very strong brine supplies and also access to British Salt’s facilities as it
produces about 800,000 tons of pure white salt every year.
 Reliance Power and Reliance Natural Resources merged valued at US $11 billion. It
was one of the biggest mergers of the year. It eased out the path for Reliance power to
get natural gas for its power projects
 Airtel acquired Zain at about US $ 10.7 billion to become the third biggest telecom
major in the world. Airtel’s acquisition gave it the opportunity to establish its base in
one of the most important markets in the coming decade.
 Abbott acquired Piramal healthcare solutions at US $ 3.72 billion which was 9 times its
sales. Abbott benefited greatly by moving to leadership position in the Indian market.
 GTL Infrastructure acquisition of Aircel towers brought GTL Infrastructure to the third
position in terms of number of mobile towers – 33000. The money generated gave
Aircel the funds for expansion throughout the country and also for rolling out its 3G
services
 ICICI Bank bought Bank of Rajasthan. This merger between the two for a price of Rs
3000 cr would help ICICI improve its market share in northern as well as western
India.
 Jindal Steel Works acquired 41% stake at Rs 2,157 cr in Ispat Industries to make it the
largest steel producer in the country. This move would also help Ispat return to
profitability with time.
 Reckitt acquired Paras Pharma at a price of US $ 726 million to basically strengthen its
healthcare business in the country.
 Mahindra acquired a 70% controlling stake in troubled South Korea auto major Ssang
Yong at US $ 463 million. Along with the edge it would give Mahindra in terms of the
R & D capabilities, this deal would also help them utilize the 98 country strong dealer
network of Ssang Yong.
 Fortis Healthcare, the unlisted company owned by Malvinder and Shivinder Singh
looks set to make it two in two in terms of acquisitions.

4
Gopinathan S (2010). Overseas Investment by Indian Companies: Evolution of Policy and Trends,
Mumbai: Reserve Bank of India (2010), available at http://www.bis.org/review/r070122c.pdf;
Keynote address by Deputy Governor of the Reserve Bank of India, at the International Conference
on Indian cross-border presence/acquisitions, Mumbai, 19 January 2010.
Outb0und Mergers and Antitrust - Unchartered Indian Waters
In the w0rld 0f cr0ss b0rder mergers, the Indian waters, till n0w, have remained densely murky with
a few inb0und mergers executed under the watchful, all-seeing lidless eye 0f the G0vernment. 5 N0w,
it w0uld be a f0lly t0 assume that with the 0pening 0f the 0utb0und merger gates, the mist w0uld
clear. Even if it did, antitrust w0uld be 0ne 0f the first creatures that it w0uld need t0 face 0ff
everywhere against, as such is the nature 0f the beast that it w0uld h0und the merger acr0ss all the
c0ntinents that the latter "effects"6 . And the credit f0r unleashing the beast g0es t0 n0ne 0ther than
Secti0n 234, under which, 0ne w0uld have t0 meet the c0mpliance requirements under Secti0ns 230-
232, such as n0tifying sect0rial regulat0rs including the CCI. Th0ugh recently, the g0vernment,
thr0ugh an0ther n0tificati0n7, waived 0ff the 30 day n0tificati0n trigger deadline f0r rep0rting a
pr0p0sed "c0mbinati0n", which it had earlier strictly enf0rced as seen in the Jet/Etihad case 8, which
had caused increasing gun jumping panic attacks, earning it c0nsiderable flak and thereby, rubbed 0ff
a target 0n its back.
Cr0ss B0rder Mergers and Jurisdicti0n 0f Antitrust Auth0rities
A fundamental issue arising as a result 0f cr0ss-b0rder mergers is the fact that the merger must be
rep0rted t0, and appr0ved by, the auth0rities in m0re than 0ne c0untry and, as a result, a p0ssibility 0f
inc0nsistent decisi0ns in different jurisdicti0ns arises. Cr0ss-b0rder mergers can be defined either 0n
the basis 0f the "structure" 0r the "effect" 0f the merger. 9 A merger can be c0nstrued t0 be a "cr0ss-
b0rder" 0ne in structure if it pertains t0 c0mpanies established in m0re than 0ne jurisdicti0n. 10An
"effect" merger is 0ne where, regardless 0f where the merging c0mpanies were inc0rp0rated, the
merger affects the markets in m0re than 0ne jurisdicti0n. The Draft FEMA Regulati0ns 11 define
'Cr0ss b0rder merger' as "any merger, demerger, amalgamati0n 0r arrangement between Indian
c0mpanies and f0reign c0mpanies in acc0rdance with C0mpanies (C0mpr0mises, Arrangements and
5
0utb0und Acquisiti0ns by India Inc., Nishith Desai Ass0ciates, available at
http//:www.nishithdesai.c0m/fileadmin/user_upl0ad /Research%20Papers/0u b0und Acquisiti0ns by India Inc.pdf, last
seen 0n 23/12/2017.

6
5 V.Dhall, The Indian C0mpetiti0n Act, 530-31 in C0mpetiti0n Law T0day: C0ncepts, Issues, and the Law in Practice
(Vin0d Dhall, 1st ed., 2007)

7
N0tificati0n regarding exempti0n fr0m n0tifying a c0mbinati0n within thirty days menti0ned in Secti0n 6(2) 0f the
C0mpetiti0n Act, 2002, MCA N0tificati0n S.0. 2039 (E) (29/06/2017), available at
http://www.cci.g0v.in/sites/default/files/n0tificati0n/S.0. % 202039% 20% 28E% 29% 20- %2029th%2June
%202017.pdf , last seen 0n 21/12/2017.

8
Etihad Airways PJSC/Jet Airways (India) Limited, C 0mbinati0n Registrati0n N0. C2013/12/144, (C0mpetiti0n
C0mmissi0n 0f India, 05/02/2014).
9
Cr0ss-B0rder Merger C0ntr0l: Challenges f0r Devel0ping and Emerging Ec0n0mies, 0rganisati0n 0n Ec0n0mic C0-
0perati0n and Devel0pment, available at http://www.0ecd.0rg/c0mpetiti0n/mergers/50114086.pdf, last seen 0n
23/12/2017.
10
Ibid.
11
F0reign Exchange Management (Cr0ss B0rder Merger) Regulati0ns, 2018, RBI N0tificati0n N0. FEMA.389/2018-RB
(20/03/2018), available at http://www.rbi. 0rg.in/scripts/N0tificati0nUser.aspx?id~ 11235&M0de=0, last seen 0n
02/08/2018.
Amalgamati0n) Rules, 2016 n0tified under the C0mpanies Act, 2013".Thus, these regulati0ns
envisage a cr0ss b0rder merger b0th 0n basis 0f structure and effect. As per the the0ry 0f harm, it is
generally accepted that tw0 dimensi0ns relating t0 an amalgamati0n need t0 be reviewed by the
C0mpetiti0n/Antitrust Auth0rities12 i.e. whether the amalgamati0n leads the merged firm t0
unilaterally exercise market p0wer and raise prices (i.e., leading t0 single firm d0minance) (i.e., the
unilateral effects)), and ii. Where th0ugh the amalgamated firm may n0t unilaterally increase prices,
whether the amalgamati0n leads t0 such industry c0nditi0ns where the sc0pe 0f c0llusi0n (called
c00rdinated effects) between the remaining firms in the market increases (i.e., leading t0
j0int/c0llective d0minance) (the pr0-c0llusive effects)).
N0w, the 0bjective 0f the C0mpetiti0n Act, 2002 ("Act"), inter alia, is t0 regulate mergers&
acquisiti0ns activity in India in 0rder t0 pr0tect, enhance and preserve c0mpetiti0n in the markets and
prevent creati0n 0f m0n0p0lies that are detrimental t0 the c0nsumers.13 The Act pr0vides f0r a
c0mpuls0ry, ex ante, suspens0ry regime, which needs c0mbinati0ns breaking the prescribed
thresh0lds 0f assets 0r turn0ver ("Jurisdicti0nal Thresh0lds") under the Act, t0 be n0tified t0 the CCI
f0r its appr0val.14Based 0n the thresh0ld trigger, the CCI c0mmences an investigati0n 0f whether a
p0tential merger is likely t0 cause an 'appreciable adverse effect 0n c0mpetiti0n ("AAEC") within the
relevant market in India'.15
Furtherm0re, the Act16c0nfers up0n the CCI extra-territ0rial jurisdicti0nal p0wer t0 render the Act
applicable t0 C0mbinati0ns taking place 0utside India and t0 parties l0cated 0utside India, if such
mergers have 0r are likely t0 have, an appreciable adverse effect 0n c0mpetiti0n in the relevant
market in India. Earlier, Schedule I0f the C0mbinati0n Regulati0ns exempted th0se mergers fr0m
n0tificati0n requirement, which t00k place entirely 0utside India with negligible l0cal nexus and
effect 0n markets in India ("Offsh0re Exempti0n"). H0wever, by way 0f amendments 17t0 the
C0mbinati0n, the said exempti0n has been 0mitted and the criteria f0r n0tificati0n 0f 0ffsh0re
transacti0ns is based 0n the Jurisdicti0nal Thresh0lds being met. H0wever, Secti0n 32 has rarely
been inv0ked by the CCI, with the Titan case1 8 being the 0nly pr0minent case seeing the f0rmer's
applicati0n.

0utb0und Mergers and the Present Tax Structure- Need f0r Immediate Ref0rms
12
M. M0tta, C0mpetiti0n P0licy: The0ry and Practice, 39 (2004).
13
Preamble, The C0mpetiti0n Act, 2002.
14
S. 5, The C0mpetiti0n Act, 2002.
15
S. 6, The C0mpetiti0n Act, 2002
16
S. 32, The C0mpetiti0n Act, 2002.
17
The C0mpetiti0n C0mmissi0n 0f India (Pr0cedure in regard t0 the transacti0n 0f business relating t0 c0mbinati0ns)
Amendment Regulati0ns, 2014, MCA N0tificati0n N0.CCI/CD/Amend/C0mb.Regl./2014 (28/03/2014), available at
http://www.cci.g0v.in/sites/default/files_regulati0n.pdf/march%202014_0.pdf, last seen 0n 28/12/2017.
A wide range 0f tax critters have als0 been unleashed as a result 0f this n0tificati0n. In furtherance 0f
this n0tificati0n, any 0utb0und merger w0uld inv0lve unfav0urable tax liabilities 0n the transfer0r
c0mpany and its shareh0lders. This necessitates, acc0rding t0 the auth0rs, an amendment t0 the
inc0me tax scheme 0f the c0untry s0 as t0 align itself with the decisi0n 0f enc0uraging 0utb0und
mergers. Capital gains, being 0ne 0f the s0urces 0f tax, are applicable 0n all transacti0ns that lead t0
any pr0fits 0r gains arising fr0m the transfer 0f a capital asset. 18This s0urce 0f inc0me is backed by
Secti0n 45 0f the Inc0me Tax Act, 1961 (hereinafter "Act"). 19 Since m0st amalgamati0ns schemes
inv0lve transfer 0f capital assets and shares fr0m the transfer0r c0mpany t0 the transferee c0mpany,
it is 0bvi0us that capital gains tax w0uld thus, be attracted under the Act f0r any merger deal. 20
H0wever, under internati0nal jurisprudence and internati0nal practice, 21tax 0n nati0nal and
internati0nal mergers are generally waived 0ff. F0ll0wing the same, Secti0n 47 0f the Indian Act 22
pr0vides mergers resulting in the f0rmati0n 0f an 'Indian C0mpany' as an excepti0n t0 tax 0n capital
gains. Clauses (vi) and (vii) under Secti0n 47 0f the Act, deal with mergers and make transfer 0f
capital assets and shares as an excepti0n t0 capital gains tax. H0wever, this excepti0n is given 0nly if
the f0ll0wing c0nditi0ns are fulfilled:
(i) F1rstly, the amalgamated c0mpany sh0uld be an1ndian c0mpany.
(ii) Sec0ndly, it is essential that the merger falls within the definiti0n 0f 'amalgamati0n' described
under the Act.23
Thus, if the resulting c0mpany 0f a merger is an 'Indian C0mpany' then, Capital Gains tax w0uld n0t
be charged up0n the transfer 0f assets and shares, pr0vided the 0ther c0nditi0ns required under the
definiti0n 0f "amalgamati0n" are c0mplied with by the merging and the merged entity. 24 Thus, it is
clear thr0ugh the reading 0f the Secti0n that such an excepti0n is n0t available t0 mergers which
result in the f0rmati0n 0f a 'F0reign C0mpany'. As a necessary c0nclusi0n, since inb0und mergers
inv0lve f0rmati0n 0f an Indian C0mpany, the same w0uld be c0vered by the excepti0n under Secti0n
18
S. 45, The Inc0me Tax Act, 1961.
19
Ibid.
20
Kusum, Tax Implicati0ns 0n Mergers and Acquisiti0ns Pr0cess, 3 J0urnal 0f Business Management & S0cial Sciences
Research (JBM&SSR) 62,62 (2014)available at
htts://www.b0rj0rn0uls.c0m/a/index.php/jbmsr/article/d0wnl0ad/1703/1064, last seen 0n 01/01/2018.

21
K0rea, f0r example, enacted several measures which permit capital gains taxes t 0 be deferred and has reduced
registrati0n taxes. Japan intr0duced deferrals 0f capital gains taxes applied t0 st0ck exchanges, st0ck transfers and
c0rp0rate de-mergers. The United States has a "tax-free" c 0rp0rate re0rganisati0n system which d0es n0t rec0gnise
gains 0r l0sses in the pr0cess 0f c0rp0rate re0rganisati0ns, as l0ng as certain c0nditi0ns are met. Germany intr 0duced a
c0mprehensive "tax-neutral" c0rp0rate restructuring system in1995. Under the Business Re 0rganisati0n Act, certain
types 0f c0rp0rate restructuring, including mergers and de-mergers (spin- 0ffs, split-0ffs and split-ups), are simplified. A
c0mplementary Business Re0rganisati0n Tax Act enables qualifying firms t0 defer capital gains taxes when they
c0mbine 0r divide. Germany als0 eliminated, as fr0m 2002, c0rp0rate taxes 0n capital gains when st0cks 0f subsidiaries
are s0ld, pr0vided the shares are retained f0r m0re than 0ne year (German Federal Ministry 0f Finance, 2000); 0ECD
Business and Industry P0licy F0rum Rep0rts 0n Pr0ceedings, available at http://www.0ecd.0rg/sti/lnd/2731209.pdf last
seen 0n 25/12/2017.

22
S. 47, The Inc0me Tax Act, 1961.

23
S. 2(1B), The Inc0me Tax Act, 1961.

24
0utb0und Acquisiti0ns by India Inc., Nishith Desai Ass 0ciates, available at
http//:www.nishithdesai.c0m/fileadmin/user_upl0ad /Research%20Papers/0u b0und Acquisiti0ns by India Inc.pdf, last
seen 0n 23/12/2017.
47 and n0 tax 0n capital gains w0uld be imp0sed up0n it. 25 Fav0urable treatment '0nly' in cases 0f
resulting Indian C0mpanies was n0t a pr0blem until recently, since cr0ss b0rder mergers resulting in
the f0rmati0n 0f a f0reign c0mpany 0r an Outb0und Merger was n0t all0wed under the Act. 26 Since,
such re0rganizati0ns were n0t all0wed; any taxati0n issues related t0 the same were n0t a c0ncern.

A SUMMARY OF THE REGULATIONS IS GIVEN BELOW IN THE CONTEXT OF

INBOUND AND OUTBOUND MERGERS.
Section 234 of the Companies Act, 2013 (notified with effect from 13 April, 2017) provided for the
cross border merger of Indian and foreign companies. Further, Companies (Compromises,
Arrangements and Amalgamation) Rules, 2016, as amended by the Companies (Compromises,
Arrangements and Amalgamation) Amendment Rules, 2017 (Co. Rules) were issued. Section 234
provides for prior Reserve Bank of India (RBI) approval in case of cross border merger.
On 26 April, 2017, the RBI issued draft regulations relating to cross border mergers for comments
from the public. The Foreign Exchange Management (Cross Border Merger) Regulations, 2018 have
now been notified vide notification no. FEMA 389/ 2018-RB dated 20 March, 2018 and are effective
from the date of notification. As per the Regulations, merger transactions in compliance with these
regulations shall be deemed to have been approved by RBI, and hence, no separate approval should
be required. In other cases, merger transactions should require prior RBI approval.
Particulars
Definition Inbound merger Outbound merger
Cross border merger in which . Cross border merger in which
the Resultant Company is an the Resultant Company is a
Indian company foreign company. The foreign
company should be
incorporated in a jurisdiction
specified in Annexure B to Co.
Rules.

25
R. Begur and A.Karmakar, Taxati0n Aspects In Cr0ss B0rder Mergers, M0ndaq,
http://www.m0ndaq.c0m/india/x540748/C0rp0rate+C0mmercia+Law/Taxati0n+Aspects+I +Cr0ss+B0rder+.Mergers,
last seen 0n 25/12/2017.

26
R. Shr0ff & M. Varghese, A New Dawn f 0r India's Cr0ss B0rder Merger Regime, India C0rp0rate Law, available at
https://c0rp0rate.cyrilamarchandbl0gs.c0m/2017/05/new-dawn-indias-cr0ss-b0rder-merger-rcejme/, last seen 0n
26/12/2017.
 Conditions for issue of security  regulations concerning Compliance with FEMA
by the Resultant Company inbound investments,27 regulations concerning
Compliance with FEMA including pricing Compliance outbound investments28.
with FEMA Compliance with FEMA
guidelines, entry routes, regulations concerning
sectoral caps, attendant  outbound investments29. In
conditions and reporting case shareholder of transferor
requirements. Additionally, Indian
compliance required with  company is a resident
FEMA regulations concerning individual, the fair market value
outbound investments2 in the of foreign securities should be
following cases: − Where within the limits prescribed
transferor foreign company is a under the Liberalised
joint venture (JV)/ wholly Remittance Scheme
owned subsidiary (WOS) of the
Indian company. − Where the
merger results in acquisition of
step-down subsidiary (SDS) of
JV/ WOS outside India.
Treatment of office of Any office of the transferor Any office of the transferor
transferor company foreign company outside India Indian company in India will be
will be deemed to be the deemed to be the branch/ office
branch/ office outside India of in India of the resultant foreign
the resultant Indian company. company. Relevant FEMA
31
Relevant FEMA regulations to regulations to be complied
be  with post-merger.
 complied with30 post-merger.
Guarantees and outstanding Guarantees and borrowings of Resultant foreign company
borrowings of transferor the transferor foreign company should not acquire
company from overseas sources, which  any liability payable to local
become guarantees and Indian lenders, which is not in
borrowings of the resultant conformity with FEMA or
Indian company to comply with guidelines issued thereunder -
the relevant FEMA regulations. NOC to be obtained from
Timeline of two years lenders in India. Guarantees
prescribed for and borrowings of the transferor
 above compliance. No  Indian company to be repaid
remittance for repayment can be as per terms of the scheme that
made within these two years. may be sanctioned by the
27
1 Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017
28
Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2004
29
Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2004
30
4 Foreign Exchange Management (Foreign Currency Account by a person resident in India) Regulations, 2015
31
Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any
other place of business) Regulations, 2016

Bank account in country of Resultant Company permitted The Resultant Company is
transferor entity
Acquisition/ holding of any Resultant Company permitted Resultant Company permitted
other asset of transferor entity to acquire and hold asset to acquire and
Other conditions
Conditions with respect to end- National Company Law
use Tribunal (NCLT).
 would not apply
to permitted to open a Special
 open a bank account in Non-Resident Rupee Account
foreign currency in the overseas (SNRR Account) in accordance
jurisdiction for putting through with relevant FEMA
32
transactions incidental to the regulations . This bank
merger. This bank account can account can be maintained for a
be  maximum period of two years
 maintained for a maximum from the date of sanction by the
period of two years from the NCLT.
date of sanction by the NCLT.
outside India to the extent  hold any asset in India to the
permitted under FEMA extent permitted under FEMA
guidelines. Asset or security guidelines. Asset or security
not permitted to be acquired or not permitted to be acquired
held under FEMA guidelines  or held under FEMA
should be sold within two years guidelines should be sold within
from the date of sanction by the two years from the date of
NCLT. Proceeds to be sanction by the NCLT.
repatriated to India Proceeds to be repatriated
immediately on sale − Proceeds outside India
could be utilised for payment of  immediately on sale −
an overseas liability not Proceeds could be utilised for
permitted to be held under repayment of Indian liability
FEMA guidelines within the within the two-year period.
twoyear period.
Valuation
 Valuation of the Indian company and the foreign company to be
in accordance with Rule 25A of the prescribed Co. Rules, i.e.,
internationally accepted principles on accounting and valuation.
Compensation
 Payment of compensation by the Resultant Company, to a holder
of a security of the Indian company or the foreign company to be
in accordance with the Scheme sanctioned by the NCLT.
Regularisation of non-compliances
 Companies to ensure completing requisite regulatory actions
prior to merger with respect to any non-compliance,

32
Foreign Exchange Management (Deposit) Regulations, 2016
 contravention, violation under FEMA.
Reporting compliances
 Certificate confirming compliance with above guidelines to be
furnished by the managing director/ whole-time director and
company secretary (if available) to be submitted to the NCLT.
Other reporting guidelines to be prescribed by the RBI in
consultation with the Government of India.
Key definitions under these regulations
“Cross border merger” means
 any merger, amalgamation or arrangement between an Indian company and foreign company, in
accordance with Companies (Compromises, Arrangements and Amalgamation) Rules, 2016 notified
under the Companies Act, 2013 (Under the draft regulations, the word “demerger” was part of the
definition of “Cross border merger.” However, the same has been deleted in the notified regulations).
“Foreign company” means any
 company or body corporate incorporated outside India whether having a place of business in India
or not. “Indian company” means a
 company incorporated under the Companies Act, 2013 or under any previous company law.
“Resultant Company” means
 an Indian company or a foreign company, which takes over the assets and liabilities of the
companies involved in the cross border merger.
The takeaways
The notification of FEMA regulations laying down the framework in relation to cross border mergers
is an extremely positive development, which should facilitate international merger and acquisition
transactions. Given that the guidelines deal with a new set of transactions, they are likely to evolve
based on practical experience, as may be encountered in the due course of time.

C0rp0rate Differences in Cr0ss B0rder Mergers

Tax Code Differences

C0mpanies are inc0rp0rated in their respective jurisdicti0ns and g0verned by nati0nal c0mpany laws.
There are different types0fc0mpanies in Eur0pe. 33 H0wever, the private limited c0mpanies, f0r
example the UK limited c0mpany, the French SAIL, the German GmbH and the Dutch BV, and the
stuck c0rp0rati0ns, for example,in the UK public listed c0mpany, the French SA, the German AG
and the Dutch NV, d0resemble each 0ther which, in general, tends t0 facilitate cr0ss-b0rder
acquisiti0ns. Legal mergers are 0nly p0ssible between c0mpanies which are inc0rp0rated in the same
jurisdicti0n, In Germany f0r example, 0nly c0mpanies which are b0th d0miciled in Germany can be
merged pursuant t0 the Transf0rmati0n Act. In a legal merger pursuantt0 the Transf0rmati0n Act,
0ne c0mpany is amalgamated int0 an0ther c0mpany s0 that the f0rmer c0mpany ceases t0 exist.' As
direct legal mergers are n0t p0ssible, cr0ss-b0rder transacti0ns are frequently classical acquisiti0ns in
which the acquiring c0mpany purchases shares in the target c0mpany in exchange f0r cash 0r f0r its
0wn shares.
33
MarikaChalkisdis, Michael Pri0r and NaharraNathan0n, in B0b Wusulsand Cnmiel van der Heijden(eds), C0rp0rate
Rescue and Ins0lvency (1998 et seg) at e&w5 f0r ,England and Wales;
S0me c0untries are m0re in fav0ur 0f take0vers than 0thers. In the United Kingd0m, f0r example,
take0vers have l0ng been regulated by the City C0de, which lays d0wn the rules f0r
transacti0ns,34The City C0de, alth0ugh n0n-binding, is widely 0beyed in the United Kingd0m. The
same c0uld n0t be said f0r the German K0dex0f 1995, even th0ugh it was accepted by the maj0rity 0f
listed c0mpanies. H0wever, imp0rtant c0mpanies such as BMW had n0t accepted the K0dex.35 As
n0n-acceptance (0r, in ease 0f acceptance, vi0lati0n) 0f the k0dex did n0t necessarily lead t0
disadvantages, c0mpanies c0uld aff0rd t0 d0s0, In Germany, a Take0ver Act has been intr0duced
which bears many similarities t0 the City C0de. It is h0ped that the new Take0ver Act will help t0
regulate mergers in Germany. The Act became effective 0n 1 January 2002. Its effective date
c0incided with the effective date 0f new German tax provisions, pursuant to which profit.t of
corporations arising fr0m the sale 0f participati0ns in 0ther c0rp0rati0ns are n0t subject t0
c0rp0rati0n inc0me tax.36In 0ther c0untries, such as Italy and Sweden, the climate t0wards mergers is
m0re h0stile than it is in Germany.37 The pr0blems presented by the differing nati0nal take0ver
pr0visi0ns sh0uld be s0lved by the EU Take0ver Directive. This Directive has been under discussi0n
f0r a l0ng time, but has yet t0be implemented.

Accounting Differences
The acc0unting systems 0f c0untries differ significantly. The German acc0unting principles, f0r
example, differ fr0m US GAAP and IAS. Tie German acc0unting system is g0verned by the
V0rschisptinzip (the principle 0f prudence), which means, inter alia, that all f0reseeable risks and
l0sses must be taken int0 acc0unt, whereas pr0fits may 0nly be taken up if they are realised at the
balance sheet date. In c0ntrast, the acc0unting systems 0f 0ther c0untries are aimed at giving an
accurate picture 0f a c0mpany's value. In Germany, the assets 0f a c0mpany are frequently sh0wn in
the balance sheet at a much l0wer value than their actual market value. 38 This can c0nfuse an acquirer
wh0 is n0t familiar with German acc0unting principles in relati0n t0 the value 0f a c0mpany.

Conclusion

The number 0f cr0ss-b0rder transacti0ns has been rising c0nstantly in the Last few years,
Ab0ut 30 per cent 0f all mergers and acquisiti0ns are n0w cr0ss-b0rder transacti0ns. In additi0n t0the
usual pr0blems c0nnected with mergers, cr0ss-b0rder transacti0ns present further pr0blems which
arise fr0m the differences between legal systems. Nati0nal c0mpany laws differ, as d0the respective
take0ver c0de. Cr0ss-b0rder mergers are frequently straight f0rward acquisiti0ns, which can be
structured as share deals 0r asset deals. A j0int venture can he preferable t0anacquisiti0n if b0th
parties wish t0benefit fr0m a c00perati0n while, at the same time, retaining their independence.
Ifparties wish t0 achieve the effect 0f a 'merger 0f equals while av0iding an acquisiti0n, it is p0ssible
t0 establish a structure under which b0th c0mpanies remain separate legal entities, but c00perate s0
cl0sely that the ec0n0mic effect 0f a merger is achieved.

34
Paul 1. Davies, Principles 0f M0dern C0mpany Law(6th edn, 1997), pp772 et seq..
35
EeB0hl, 'RechlieheStrleipunhipImRingen tam cinCbenaltmneg0se', FAZ, 6 March 2000, at 21.
36
FAZ . 7 April 2001, at 15; litreaut. Wimkler, DStZ2000, at 75.
37
PAZ, 4 April 2001, at 17 for Sweden,
38
Fur this reas0n, all c0mpanies which are listed 0n the NeuerMarkthave additi0nal balance sheets which are drawn up
either pursuant t0US GAAP 0r JAS.
The merger represents one of the companies' reorganization methods allowing them to adapt to new
economic substantiality, either at national level (domestic mergers), or outside the national borders
(cross-border mergers). The definition of domestic merger, respectively cross-border merger depends
on the legal perspective involved in the conceptual delimitation, as well as on the national applicable
law perspective, namely the law areas concerned.

The merger may be considered (a) as a reorganization method of legal entities, (b) as a complex
reorganization operation with specific features deriving from the structure of the legal entities
involved i.e., companies (c) a form or freedom of establishment and a method of changing the
company's nationality (in case of the cross border mergers) and (d) an economic concentration under
the Competition/Anti-Trust Law.
 CASE STUDIES

Case Study No.1

Daimler-Benz and Chrysler

NATIONALITY: - Germany (Daimler-Benz), U.S.A. (Chrysler)

DATE :- November 17, 1998

AFFECTED : - Daimler-Benz AG, Germany, founded 1882

Chrysler Corp., USA, founded 1924

FINANCIALS :- DAIMLER BENZ

Revenue (1998) :- $ 154.61 Billion

Employees (1998) :- 4,41,500

CHRYSLER CORP

Revenue (1998) :- $ 91.9 Billion

Employees (1998) :- 104,000

:-

Overview of the Merger

The $37 billion merger of Chrysler corp., the third largest car maker in the U.S., and
Germany’s Daimler – Benz AG in November of 1998 rocked the global automotive industry.
In one fell swoop, Daimler – Benz doubled its size to become the fifth- largest automaker in
the world based on unit sales and the third-largest based on annual revenue. Employees
totalled 434,000. Anticipating $ 1.4 billion in cost savings in 1999, as well as profits of $
 7.06 billion on sales of $
155.3 billion, the new Daimler–Chrysler manufactured its cars in 34 countries and sold them
in more than 200 countries.

Market forces driving the Merger

The deal between Chrysler and Daimler-Benz was pit into motion in the early 1990’s, when
executives at Daimler Benz realized that the luxury car market they targeted with the
Mercedes line was approaching saturation. Because traditional markets had matured and
consumers in emerging markets were typically unable to afford higher prices autos,
Mercedes began to look for a partner that would both broaden its appeal and give it the scale
it needed to survive industry consolidation. Eventually, Daimler-Benz settled on Chrysler
because it’s broad range of less costly vehicles and its third place status in the US.

The trend of globalisation had forced Chrysler to take look at foreign market in mid 1990s.
With the majority of sales coming from North America, the company was looking for a way to
break into overseas markets. After plans in 1995 to jointly make and market automobiles in
Asia and South America with Daimler-Benz fell apart, Chrysler devised lone star, a growth
plan that called for exporting cars built in North America instead of spending money on
building plants overseas. The plan faltered because the firm did not have enough managers
placed in international locations to boost sales as quickly as Chrysler wanted.

Daimler-Benz also pursued growth of its own after attempts at an alliance with Chrysler failed
in 1995.the German automaker built a plant in Alabama to manufacture its M-Class Sports
Utility Vehicle and a small A-Class model. Quality control problems with both autos plagues
he factory in 1996 and 1997. To make his firm more attractive to suitors, Daimler-Benz CEO
Jurgen Schrempp listed it on the New York Stock Exchange, began using US GAAP
guidelines, and reduced the independence of the Mercedes by removing its separate board of
directors. A merger seemed the company’s only opti

Review of Outcome

The new firm faced its first hurdle immediately. Standard & Poors chose not to list DC in the
Standard & Poor’s 500 stock index because the firm had become the German entity Standard
& Poors fund managers were forced to sell their Chrysler shares, and because they were
unable to exchange them for DC shares the new firm lost a wide shareholder base. On a more
positive note DC did not face the expense of spending 5-10 years integrating its Computer
Aided Design Systems or its financial applications because the 2 firms already used the same
system.

The success of the merger depends upon how well the 2 disparate teams mesh. For instance
Daimler will handle Fuel-Cell and diesel technology and Chrysler will keep it for electric-
vehicle project. Other decisions are tougher Chrysler invented the minivan but Daimler was
far along in developing its own. So the two are debating whether to ditch Daimler’s version or
 offer a separate a luxury model.

To achieve the promised $1.4 billion in savings- the anticipated outcome of the geographic
reach and the product lines, but not of the lay-offs that typify mergers of this scope-integration
efforts began immediately with the financing departments of both firms first on the list. Most
analysts consider purchasing likely to be the second candidate for cost cutting efforts as DC
works to leverage its size to garner discounts for such commodities as steel and services like
transportation.

In both Europe and North America Chrysler and Mercedes showroom will remain separate,
although warehousing, logistics, service and technical training will be combined. Complete
integration of purchasing operations is scheduled to take 3-5 years; merging manufacturing
functions will take even longer, as might ironing out anticipated cultural clash between the
Germans and the Americans.

CASE STUDY 2

CASE STUDY ON THE MERGER OF ICICI BANK AND BANK OF RAJASTHAN

ICICI BANK is India’s second largest bank with total assets of Rs.3,634.00 billion (US$81
billion) at March 31,2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year
ended March 31,2010.
The Banks has a network of 2035 branches and about 5,518 ATMs in India and presence in 18
countries. ICICI Bank offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and through its
specialized subsidiaries in the areas of investment banking, life and non-life insurances,
venture capital and asset management.

BANK OF RAJASTHAN, with its stronghold in the state of Rajasthan, has a nationwide
presence, serving its customers with a mission of “together we prosper” engaging actively in
Commercial Banking, Merchant Banking, Consumer Banking, Deposit and Money Placement
services, Trust and Custodial services, International Banking, Priority Sector Banking.
At March 31, 2009, Bank of Rajasthan had 463 Branches and 111 ATMs, total assets of Rs.
billion, deposits of Rs.151.87 billion and advances of Rs. 77.81 billion. It made a net
profit of Rs. 1.18 billion in the year ended March 31, 2009 and a net loss rs.0.10 billion
in the nine months ended December 31,2009.

WHY BANK OF RAJASTHAN

ICICI Bank Ltd, Indi’s largest Private sector bank, said it agreed to acquire smaller rival Bank
of Rajasthan Ltd to strengthen its presence in northern and western India.
Deal would substantially enhance its branch network and it would combine Bank of Rajasthan
branch franchise with its strong capital base.
The deal, which will give ICICI a sizeable presence in the northwestern desert of Rajasthan,
values the small bank at 2.9 times its book value, compared with an Indian Banking sector
average of 1.84.
ICICI Bank may be killing two birds with one stone through its proposed merger of the Bank
of Rajasthan. Besides getting 468 branches, India’s largest private sector bank will also get
control of 58 branches of a regional rural bank sponsored by BoR

NEGATIVES
The negatives for ICICI Bank are the potential risks arising from BoR’s non-performing loans
and that BoR is trading at expensive valuations.

As on FY-10 the net worth of BoR was approximately Rs.760 crore and that of ICICI Bank
Rs. 5,17,000 crore. For December 2009 quarter, BoR reported loss of Rs. 44 crore on an
income of Rs. 373 crore.

ICICI Bank offered to pay 188.42 rupees per share, in an all-share deal, for Bank of
Rajasthan, a premium of 89 percent to the small lender, valuing the business at $668
million. The Bank of Rajasthan approved the deal, which was subject to regulatory
agreement.

INFORMATION
The boards of both banks, granted in-principle approval for acquisition in May 2010.
The productivity of ICICI Bank was high compared to Bank of Rajasthan. ICICI recorded a
business per branch of 3 billion rupees compared with 47 million rupees of BoR for fiscal
2009. But the non-performing assets(NPAs) record for BoR was better than ICICI Bank. For
the Quarter ended Dec 09, BoR recorded 1.05 percent of advances as NPA‟s which was far
better than 2.1 percent recorded by ICICI Bank.

TYPE OF ACQUISITION
This is a horizontal Acquisition in related functional area in same industry (banking) in order
to acquire assets of a non-performing company and turn it around by better management;
achieving inorganic growth for self by access to 3 million customers of BoR and 463
branches.

PROCESS OF ACQUISITION
Haribhakti & Co. was appointed jointly by both the banks to assess the valuation.
Swap ratio of 25:118(25 shares of ICICI for 118 for Bank of Rajasthan) i.e. one ICICI Bank
share for 4.72 BoR shares.
Post – Acquisition, ICICI Bank‟s Branch network would go up to 2,463 from 2000
The NPAs record for Bank of Rajasthan is better than ICICI Bank. For the quarter ended Dec
09, Bank of Rajasthan recorded 1.05 % of advances as NPA‟s which is far better than 2.1%
recorded by ICICI Bank.
The deal, entered into after the due diligence by Deloitte, was found satisfactory in
maintenance of accounts and no carry of bad loans.

CASE STUDY-3
Sony acquisition of Columbia pictures

Sony: The Early Years and the Betamax

Masura Ibuka and Akio Morita founded Tokyo Tsushin Kogyo (Tokyo Telecommunications
Engineering Company) in 1946, with a mission to be “a clever company that would make new
high technology products in ingenious ways."2 With the development of the transistor, the
cassette tape, and the pocket-sized radio by 1957, the company renamed itself Sony, from the
Latin word sonus meaning "sound." In 1967, Sony formed a joint venture with CBS Records
to manufacture and sell records in Japan. Norio Ohga, an opera singer by training, was
selected to head the CBS/Sony Group, quickly growing the joint venture into the largest
record company in Japan.

When Sony was preparing to launch the Betamax home videocassette recorder in 1974, it
invited representatives from rival consumer electronics companies to preview the new
technology but did not accept any advice or offers for joint development. Two years later,
Sony was surprised to learn that Matsushita subsidiary JVC was preparing to introduce its own
Video Home System (VHS) to compete with Betamax. While JVC licensed VHS to other
electronics firms, Sony chose to keep its Betamax format to itself – and its prices even higher
– insisting that Betamax was superior in quality. When the less expensive VHS started to take
hold, motion picture studios began to release a larger number of their library titles on the
format. The more expensive Betamax failed despite its technological to release a larger
number of their library titles on the format.

Reason for failure:

 Vastly different corporate culture.

 Poor understanding of movie business
 Legal issues
 Japanese recession

FAILURE OF MERGERS AND ACQUISITION

Historical trend shows that roughly two third of mergers and acquisitions will disappoint on
their own terms. This means they lose value on their stock market. In many cases mergers fail

because companies try to follow their own method of doing work. By analyzing the reason for
failure in mergers and eliminating the common mistakes, rate of performance in mergers can
be improved. Discussions on the increase in the volume and value of Mergers and
Acquisitions during the last decade have become commonplace in the economic and business
press. Merger- and-acquisition turned faster in 2010 than at any other time during the last five
years.

Merger and acquisition deals worth a total value of US$ 2.04 billion were announced
 worldwide in the first nine months of 2010. This is 43% more than during the same period in
2006. It seems that more and more companies are merging and thus growing progressively
larger.

80% of merger and acquisitions failed because they do not focus on other fields, common
mistakes should be avoided. M&As are not regarded as a strategy in themselves, but as an
instrument with which to realize management goals and objectives. A variety of motives have
been proposed for M&A activity, including: increasing shareholder wealth, creating more
opportunities for managers, fostering organizational legitimacy, and responding to pressure
from the acquisitions service industry. The overall objective of strategic management is to
understand the conditions under which a firm could obtain superior economic performance
consequently analyzed efficiency-oriented motives for M&As. Accordingly, the dominant
rationale used to explain acquisition activity is that acquiring firms seek higher overall
performance.

Failure an occur at any stage of process

Research has conclusively shown that most of the mergers fail to achieve their stated
goals39.

 Corporate Culture Clash

 Lack of Communication
 Loss of Key people and talent
 HR issues
 Lack of proper training
 Clashes between management
 Loss of customers due to apprehensions
 Failure to adhere to plans
 Inadequate evaluation of tax
39
Critical Success Factors in Merger & Acquisition Projects diva-portal, http://www.diva-
portal.org/smash/get/diva2:141248/FULLTEXT01.pdf (last visited Nov 9, 2015)
 RECOMMENDATIONS40

After analyzing the advantages and disadvantages of mergers and acquisitions along with
consideration of the rate of failure of the same, the companies should prioritize their goal and
focus on creating long-term benefits for organizations rather than short term achievements .
Defining firm goals, aligning with business strategy, conducting the right type of due diligence,
and gaining stakeholder value are also top concerns.

Monitor the Pace: It is clear that the pace of M&A in 2012 will return to pre-recession
volumes. Activity will be strong for both financial and strategic acquisitions. Take
extreme care during these high volume times to not allow the ego to get in front of the
brain on acquisition valuations. Overpaying for an acquisition can doom it to failure
from the onset.

Define Firm Goals: What outcome do you desire from a merger or acquisition?
Determine if the company can be integrated into current operations or left as a
standalone unit, realizing that strategies to channel existing customers into the new
company can increase revenues. Potential goals for the supply chain operations include
evaluation for consolidation, expansion and streamlined distribution processes, as well
as using forecasting tools to model combined revenues.

Align with Growth Strategies: Just because an acquisition seems like a “good deal,” it
should still be determined if it fits with your overall growth strategy. Due diligence that
incorporates a careful analysis and weighting of all risk factors must be conducted
before execution. This will help answer such key questions as, “Does the risk of
acquiring a company for new products or new markets outweigh the perceived benefit of
the acquisition cost versus a Greenfield approach?”

Identify the Right Targets: Start by making a target shortlist. Typically, a company
will gather as much relevant information on markets, companies, products and services
as needed to augment its portfolio. Second, develop a profile of the type of company
ideal for acquisition; for instance, your profile may include target revenues of $20
million, North America focused, with an EBIDTA of $4 million.

Do Specific Commercial Due Diligence: The due diligence process will be specific to
40
 Werner H. Hoffmann & Roman Schlosser, Success Factors of Strategic Alliances in Small and Medium-sized
Enterprises—An Empirical Survey, 34 Long Range Planning , 357-381 (2001)
the type of company and market. Typical areas covered include financial, legal, labor,

intellectual property, IT, environment and market/commercial areas. Also, an

operational/supply chain review is needed to identify the potential of additional value for
the target company by improving its operations; this review can also uncover any
serious operational risks. The outcome will provide full visibility and allow you, as the
potential buyer to consider aborting the deal or renegotiating the price.

Identify Any Weaknesses Through Due Diligence: Private equity firms will be
looking more for the untapped values, or disguised weaknesses, in the operations of
acquisition targets. Understanding a company’s operational effectiveness – from
sourcing to customer delivery – will help price discovery and expose potentially costly
problems. This year, it is not solely about financial engineering; it is also about
uncovering the operational values early in the process and realizing what these are fairly
quickly.

Accelerate Integration to Boost Stake Holder Confidence: If the acquisition is

complete, it is now time to get results based upon the due diligence process. Stake
holders are expecting results by the first 100 days, and acquisition partners are looking
to boost their confidence. The first step is to organize and supplement your resources to
ensure a quick and efficient performance towards achieving theses goals. And within the
first 100 days, it is imperative that companies avoid supply chain disruptions, begin the
integration and set a pace for achieving results.

Develop Sound Operations Strategies: Even though business strategies can be

identified and understood, supply chain managers often launch too quickly into
initiatives that appear to integrate the supply chains. But in, they initiate actions that
automatically focus on operational cost savings synergies without first considering what
the operations strategies should be – and how these should align with business
strategies. So, prior to considering the integration of supply chains, establish operations
strategies for geographies, customers, product categories, etc.

Set Integration of Processes and Technologies: It is important to dig into the

integration of supply chain processes and technologies to really grasp how the
integration will work. Address the Mega supply chain processes of Plan-But-Make-
Move-Store-Sell–Return to understand the synergies of supply chain cost reduction,
optimization of inventories, synergy of the business combination, facilities
rationalization, coordination of supply chain innovation, and the selection of
technologies to help transform the processes to the
 desired vision.

Validate Market Perception: The perception of the marketplace regarding a new

merger or acquisition can be validated by customers and channel partners beforehand.
Important issues include customer loyalty and customer service levels, and how the
market will perceive this will be affected by the acquisition.

M&A is no longer just about buying or combining companies; it is about integrating supply
chains to create greater business value and spur growth. Following these priorities will allow
company leaders to prepare for the business, operations and cultural challenges involved in
purchasing or acquiring other entities.
 BIBLIOGRAPHY

1 ) Mergers and Acquisitions – A Guide to creating value for Stakeholder

-Micheal A. Hilt

-Jefferey S. Harrison

-R. Duane Ireland

2 ) Independent Project on Mergers and Acquisitions in India –A Case Study

-Kaushik Roy Choudry

-K. Vinay Kumar

3 ) Cases in corporate Acquisitions, Mergers and Takeovers
-Edited by Kelly Hill

4 ) SUCCESSFUL MERGERS getting the people issues right

– Marion Devin

Websites

1) www.investopedia.com

2) www.wallstreetjournal.com

3) www.ny-times.com

4) www. Heinonline.com
5) www.economictimes.com

6) www.google.com

7) www.wikipedia.com

News Papers

1) The Economic Times

2) Mint
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