 REASONS FOR FAILURE

Limited Owner Involvement

“Owner involve nahi hote kyu ki company wale M & A advisor rakhte high cost me or owerners
samjte he ki vo unka kam he to unpe chod dete he humme kuch nahi karna “

Misvaluation
“undhekka kaarna” The failed case of Bank of America’s acquisition of Countrywide is a typical
example.

Cultural Integration Issues

Culture difference due to which some doesn’t accept

Large Required Capacity

Need money ,resources , employees etc

External Factors
Even merging with the other companies can also bring losses to the company

Backup Plan
With more than 50% of M&A deals failing, it’s always better to keep a backup plan to
disengage in a timely manner (with/without a loss), to avoid further losses.

 RECENT EXAMPLES OF M & A IN

INDIA

1. Arcelor Mittal

The biggest merger valued at $38.3 billion was also one that was the most
hostile. In 2006, Mittal Steel announced its initial bid of $23 billion for Arcelor
which was later increased to $38.3 billion. This deal was frowned upon by the
executives because they were influenced by the patriotic economics of several
governments. These governments included the French, Spanish, and that of
Luxembourg. The very fierce French opposition was criticized by the French,
American, and British Media.

2. Vodafone Idea Merger

Reuters reported the Vodafone Idea merger to be valued at $23 billion.

Although the deal resulted in a telecom giant it is safe to say that the 2
companies were pushed to do so due to the entry of Reliance Jio and the price
war that followed. Both companies struggled amidst the growing competition in
the telecom industry. The deal worked both for Idea and Vodafone as
Vodaphone went on to hold a 45.1% stake in the combined entity with the
Aditya Birla group holding a 26% stake and the remaining by Idea.

3. Walmart Acquisition of Flipkart

Walmarts acquisition of Flipkart marked its entry into the Indian Markets.
Walmart won the bidding war against Amazon and went onto acquire a 77%
stake in Flipkart for $16 billion. Following the deal, eBay and Softbank sold
their stake in Flipkart. The deal resulted in the expansion of Flipkart’s logistics
and supply chain network.
4. Tata and Corus Steel

Tata’s takeover of Corus Steel in 2006 was valued at over $10 billion. The
initial offers from Tata were at £4.55 per share but following a bidding war with
CSN, Tata raised its bid to £6.08 per share. Following the Corus Steel had its
name changed to Corus Steel and the combination resulted in the fifth-largest
steel making company.

5. Vodafone Hutch-Essar

The world’s largest mobile operator by revenue – Vodafone acquired a 67%

stake in Hutch Essar for $11.1 billion. Later in 2011 Vodafone paid $5.46
billion to buy out Essar’s remaining stake in the company. Vodafone’s purchase
of Essar marked its entry into India and eventually the creation of Vi.
Unfortunately, the Vodafone group was soon embroiled in a tax controversy
over the purchase with the Indian Income Tax department. 

 CONCEPT OF ACAUISITIONS

When one company purchase most or all of another companey’s shares to gain
control of that company
  TYPES OF ACAUISITIONS
1. Horizontal Acquisition

This is when a company acquires another company in the same business, or

industry or sector, that is, a competitor. A real-life example of the same would
be Facebook acquiring Whatsapp.

2. Vertical Acquisition

This is when a company acquires either a supplier of inputs or a distributor of

its products or the company to which it sells its products. For example, a
garment company acquiring the source of cotton such as a farm.

3. Conglomerate Acquisition
This is when a company acquires a company in a completely different kind of
business, industry or sector. This is mostly done for diversification. An example
of this would be a food industry company acquiring a company in the clothing
industry. Reliance Industries recently took over Hamley’s, a toy products
company.

4. Congeneric Acquisition
This is when companies sharing a similarity come together. This can be
anything, either similar production technology or similar distribution channel
and so on but the production activity of the two companies is not related. This
terminology exists because it is assumed that there can’t be any other kind of
similarity except that being considered while defining the types of acquisitions
explained till now, however that is not the case practically.

 JOINT VENTURE

A joint venture is a business entity created by two or more parties, generally

characterized by shared ownership, shared returns and risks, and shared
governance.

Google and NASA developing Google Earth. 

 TYPES OF A JOINT VENTURE 

1. Project-based joint venture – where the joint venture is done with the
motive of completing some specific task.

Example.

Cipla is a traditional pharmaceutical manufacturer and wants to enter the

booming business of biotech. On the other hand, Biocon is a
biotechnology firm. Cipla intends to utilize the research and development
resources of Biocon to develop a particular drug for the treatment of some
ailment. Now one way to achieve this objective is to buy Biocon. Still, in
that case, Cipla indirectly is buying many other areas in which Biocon
cater to, in which Cipla may not be interested, and this will also result in
an expensive way of gaining the research capability that it intends to gain
from Biocon.

2. Vertical joint venture – where the joint venture takes place between the
buyers and the suppliers

Example

Company A specializes in the formulation business and has various

patents trademarked under its name but due to lack of funding company is
unable to put such formulation of commercial usage. On the contrary,
Company B is a cash-rich Pharma company that lacks in-house patents
but holds experience in commercial success and also has adequate
funding capacity. Together these two companies can mutually benefit and
can complement each other by entering into a Functional Based Joint
Venture.

3. Horizontal joint venture – where the joint venture takes place between

companies having the same line of business
 Example
Let’s understand the same with the help of an example:
Lincoln Corp has made investments in certain machinery and capital
instruments required to produce Buyer specific products. Since the
investments are made by Lincoln exclusively to meet the needs of the
buyer (let say, Prawn International). By entering into a Vertical Joint
Venture with Prawn International, Lincoln Corp can avoid the uncertainty
associated with contracts, which are usually for a specified time period
only and can lead to discontinued business.

4. Functional-based joint venture – where the joint venture is done with

the motive of getting mutual benefit on account of synergy

Example
Let’s understand the same with the help of an example:
Base International is an Indian company specialized in steel extrusion
business and caters to various industrial units. Frank LLC is a US-based
firm specializing in the molding of steel frames which has application in
Industrial Units. The two companies decided to enter into a Horizontal
Joint Venture under which Frank LLC, the foreign partner, will offer
technical collaboration and foreign exchange component while Base
International, the Indian counterpart, will make available its site, local
machinery, and product parts and together with a new steel extrusion
product will be offered by the two companies to its existing clients. Thus
by this type of Joint Venture, both firms were able to sell the product in
multiple markets and also gain from each other expertise, thereby putting
resources to better usage.

 BENEFITS OF JOINT VENTURES

 access to new markets and distribution networks

 increased capacity
 sharing of risks and costs (ie liability) with a partner
 access to new knowledge and expertise, including specialised staff
 access to greater resources, for example technology and finance
  use your joint venture partner's customer database to market your product
 offer your partner's services and products to your existing customers
 join forces in purchasing, research and development

 CONTRACTION
Contraction, in economics, refers to a phase of the business cycle in
which the economy as a whole is in decline. A contraction generally
occurs after the business cycle peaks, but before it becomes a trough.
According to most economists, when a country's real gross domestic
product (GDP)—the most-watched indicator of economic activity—has
declined for two or more consecutive quarters, then a recession has
occurred.

Real World Example—Famous Periods of Contraction

The longest and most painful period of contraction in modern American history
was the Great Depression, from 1929 to 1933. More recently, deep contraction
occurred during the early 1980s when the Federal Reserve sent interest rates
soaring to squelch inflation. This contractionary period, however, was short-
lived and succeeded by a robust and sustained period of expansion. The Great
Recession of 2007 to 2009 was a period of substantial contraction spurred by an
unsustainable bubble in real estate and the financial markets.
  SPIN OFF
A spinoff is the creation of an independent company through the sale or
distribution of new shares of an existing business or division of a parent
company. The spun-off companies are expected to be worth more as
independent entities than as parts of a larger business.

Types of spin off

 Spin off
Parent firm distributes shares of the spun-off subsidiary to parent shareholders

Example,

 Cadbury Schweppes / Dr. Pepper

 Time Warner / AOL
  Carve out

Parent firm sells a portion or all shares of subsidiary through an IPO in the equity market

Example,

 Bristol-Myers / Mead Johnson Nutrition

 Citigroup / Primerica
  Split off
Parent company's shareholders are offered shares of a subsidiary in exchange
for the parents' shares (exchange offer)

Example,

 Bristol-Myers / Mead Johnson Nutrition

 Sara Lee / Coach

 SPLIT-UP

a split-up is a corporate action in which a single firm is split into two or more

independent, separately-administered companies.

A split-up is a financial term describing a corporate action in which a single

company splits into two or more independent, separately-run companies. Upon
completion of such events, shares of the original company may be exchanged
for shares in one of the new entities at the discretion of shareholders.

EXAMPLES,

 the parent company is split into two or more entities, but the parent company is
liquidated and does not survive. The largest most recent example is the
announcement by United Technologies on November 26, 2018 to split-up into
three separate companies: United Technologies, Otis Elevator Company, and
Carrier. While the United Technologies name will remain the same for one of
the three companies, the new company (UTC) will be an entirely new entity
from its original parent (UTX).

 EQUITY CARVE-OUT
In an equity carve-out, a business sells shares in a business unit. The ultimate
goal of the company may be to fully divest its interests, but this may not be for
several years. The equity carve-out allows the company to receive cash for
the shares it sells now.

Examples of carve-outs include GlaxoSmithKline selling its consumer

healthcare business, including its health food drinks portfolio, to Hindustan
Unilever, and L&T's exit from its electrical and automation business via a sale
to Schneider Electric. 

 DIVESTITURE
 A divestiture is the partial or full disposal of a business unit through sale,
exchange, closure, or bankruptcy. A divestiture most commonly results from a
management decision to cease operating a business unit because it is not part of
a core competency.

A divestiture (or divestment) is the disposal of company's assets or a business

unit through a sale, exchange, closure, or bankruptcyBankruptcyBankruptcy is
the legal status of a human or a non-human entity (a firm or a government
agency) that is unable to repay its outstanding debts.

How Does a Divestiture Work?

Let's assume Company XYZ is the parent of a food company, a car company,
and a clothing company. If for some reason Company XYZ wants out of the car
business, it might divest the business by selling it to another company,
exchanging it for another asset, or closing down the car company.

 BENIFITS OF DIVESTITURE
 Divestiture helps lower operating debts.
 It helps increase organizational efficiency.
 Some firms can obtain funds, allowing them to pay off other debt and
obligations and use their capital in other areas.
 Reduce employment risk.
 Enhance shareholder value.

 TYPES OF DIVESTITURE
1. Spin Offs: 

2. Splits: 

3. Equity Carve-outs:

4. Disinvestment: 
Disinvestment, sometimes referred to as divestment, refers to the use of a
concerted economic boycott, with specific emphasis on liquidating stock, to
pressure a government, industry, or company towards a change in policy, or in
the case of govennments, even regime change. 

For example, an electric generator manufacturer might sell off its consumer
generator product lines and manufacturing facilities in order to raise money that
can be used to expand its industrial generator product line.

Another example is a consumer products company selling off a profitable

division that no longer meets its long range goals. The proceeds from this
disinvestment are then used to improve the company's financial position by
reducing its debt.

 REASONS FOR DIVESTURE

1. Bankruptcy
Companies that go bankrupt often cut their losses by divesting themselves of
certain assets or subsidiaries as a business strategy. Divesting after bankruptcy
can help organizations increase cash flow and lower their operating costs.

For example, in 2013 the photography company Eastman Kodak announced that
it would sell some of its personalized imaging and document imaging business
assets, after filing for bankruptcy the previous year. These assets are now part of
the separate company Kodak Alaris.
2. Fundraising
Divestiture of less profitable assets and subsidiaries can also be used to help
companies raise cash. This may be to help pay off debt, improve shareholder
returns, stabilize financial leverage ratios, or a number of other reasons.

In 2019, for example, the retail group Ascena divested itself of its Dressbarn
brand after persistent underperformance, shuttering hundreds of physical stores
(Unfortunately, this move failed to stem the bleeding: Ascena is reportedly in
talks to sell other brands such as Catherines and Lane Bryant.)

3. Lowering volatility
In addition to bankruptcies and fundraising for struggling companies, divestiture
can also be used to head off potential trouble down the line, casting off assets
and subsidiaries that have too much volatility and risk for the core business.
For example, the 2006 sale of Philips’ semiconductor business, which resulted
in the independent company NXP Semiconductors, was reportedly due to “the
volatility associated with the cyclical business-pattern of the semiconductor
industry.”

4. Focusing on core business

Selling a subsidiary isn’t always a bad sign—in some cases, the company just
wants to focus on its core business. “Pruning” the company portfolio can help
reduce organizational complexity and raise funds for the next stage of
expansion or change.

For example, in 2014 the pharmaceutical giant Merck divested itself of its Sirna
Therapeutics business, which was studying a technology known as RNA
interference. Merck CEO Kenneth Frazier commented soon after the
announcement: “Our goal is for each of our priority businesses to be industry
leaders… We must determine whether particular assets are core to our strategy.”

5. Antitrust issues
Rarely, a divestiture isn’t the result of the company’s own choice, but a
necessity imposed due to antitrust concerns from regulators. Selling off certain
subsidiaries during a merger or acquisition can help prevent monopolies and
encourage competition.

In 2015, for example, the U.S. Federal Trade Commission required the grocery
companies Albertsons and Safeway to sell 168 supermarkets across the
country as a condition of their $9.2 billion merger. According to the FTC, these
sales were necessary because the merger “would likely be anticompetitive in
130 local markets,” resulting in higher prices and lower quality for consumers.

 CORPORATE CONTROLS

 WHAT IS GOING PRIVATE?

The term going private refers to a transaction or series of transactions that
convert a publicly traded company into a private entity. Once a company goes
private, its shareholders are no longer able to trade their shares in the open
market.
There are several types of going private transactions, including private equity
buyouts, management buyouts, and tender offers.

 WHAT IS A BUYBACK?
A buyback, also known as a share repurchase, is when a company buys its
own outstanding shares to reduce the number of shares available on the open
market. Companies buy back shares for a number of reasons, such as to increase
the value of remaining shares available by reducing the supply or to prevent
other shareholders from taking a controlling stake.
A leveraged buyout (LBO) is the acquisition of another company using a
significant amount of borrowed money to meet the cost of acquisition. The
assets of the company being acquired are often used as collateral for the loans,
along with the assets of the acquiring company.

Understanding Leveraged Buyout (LBO)

In a leveraged buyout (LBO), there is usually a ratio of 90% debt to 10% equity.
Because of this high debt/equity ratio, the bonds issued in the buyout are usually
not investment grade and are referred to as junk bonds. Further, many people
regard LBOs as an especially ruthless, predatory tactic. This is because it isn't
usually sanctioned by the target company. It is also seen as ironic in that a
company's success, in terms of assets on the balance sheet, can be used against
it as collateral by a hostile company.

LBOs are conducted for three main reasons. The first is to take a public
company private; the second is to spin-off a portion of an existing business by
selling it; and the third is to transfer private property, as is the case with a
change in small business ownership. However, it is usually a requirement that
the acquired company or entity, in each scenario, is profitable and growing.

EXAMPLES

Gibson Greeting Cards

In 1982, Wesray Capital acquired Gibson Greeting Cards for a purchase price of
$80 million. The deal was financed with $1 million in cash, while the rest was
borrowed by issuing junk bonds. A year and a half later, Wesray sold Gibson
Greeting Cards for $220 million, with investors earning about 200 times their
initial equity invested.

 TYPES OF BUYOUTS

 TAKEOVER DEFENSES
 TYPES OF TAKEOVER

 BENIFITS AND DISADVANTAGES OF

TAKEOVER
  ANTI-TAKEOVER DEFENSES
Definition: A takeover is a form of an acquisition, wherein the company offers
a bid for the purchase of a certain block of the equity of another company
(target) to exercise complete control over its affairs. Practically, the acquirer
must buy at least 51% or more paid up equity of the acquired company to enjoy
full control over its operations.

An ESOP (Employee stock ownership plan) refers to an employee benefit plan

which offers employees an ownership interest in the organization. Employee
stock ownership plans are issued as direct stock, profit-sharing plans or
bonuses, and the employer has the sole discretion in deciding who could avail of
these options.
However, Employee stock ownership plans are just options that could be
purchased at a specified price before the exercise date. There are defined rules
and regulations laid out in the Companies Rules which employers need to
follow for granting of Employee stock ownership plans to their employees.
How ESOPs work?
An organization grants ESOPs to its employees for buying a specified number
of shares of the company at a defined price after the option period (a certain
number of years). Before an employee could exercise his option, he needs to go
through the pre-defined vesting period which implies that the employee has to
work for the organization until a part or the entire stock options could be
exercised.