MERGERS AND

ACQUISITIONS: CORPORATE
RESTRUCTURING IN INDIA

09/03/2011

Under Guidance of:

Mr.S.S.Sharma

Group-10, PGPM-2010

Chiradeep Majumder (10P194)

Kaniz Aeliya (10P205)
Ashwin Nair (10P214)
Nitin Jain (10P217)
Sahil Agarwal (10P228)
Shobhit Jaiswal (10P233)
 ACKNOWLEDGEMENT

We wish to express our sincere gratitude to Mr.S.S.Sharma for providing us an opportunity to

do our project work on “Mergers and Acquisitions: Corporate restructuring in India” .This
project bears on imprint of many people. We sincerely thank to him as our project guide for
guidance and encouragement in carrying out this project work.

We wish to avail ourselves of this opportunity, express a sense of gratitude and love to our
friends, project mates and our beloved parents for their manual support, strength, and help
and for everything.

Place: Gurgaon
Date: 19/03/2011
 TABLE OF CONTENTS
Introduction.................................................................................................................................................5
10 biggest merger and acquisition deals in India in 2010............................................................................6
Corporate Restructuring..............................................................................................................................7
Expansions...............................................................................................................................................8
Contraction............................................................................................................................................9
Ownership and Control..........................................................................................................................10
Synergy..................................................................................................................................................11
Major types of Corporate Restructuring....................................................................................................12
Hurdles in Restructuring........................................................................................................................12
Mergers and Acquisitions..........................................................................................................................13
Mergers and Acquisitions: Valuation.........................................................................................................13
Different Perspectives...............................................................................................................................16
Transactional issues...............................................................................................................................16
Regulatory issues...................................................................................................................................17
Structures..................................................................................................................................................18
Structure 1.............................................................................................................................................18
Structure 2.............................................................................................................................................18
Structure 3 (demergers)........................................................................................................................19
Process of M&A.........................................................................................................................................19
Strategic Approach to merger and acquisition..........................................................................................20
Takeover Strategies and Defences............................................................................................................21
Defence strategies against takeovers........................................................................................................22
Poison Pills.............................................................................................................................................22
Stock option workout............................................................................................................................22
Shark Repellent......................................................................................................................................22
White Knight..........................................................................................................................................22
White Squire..........................................................................................................................................23
Golden Parachutes................................................................................................................................23
Poison put..............................................................................................................................................23
Super majority amendment...................................................................................................................23
Fair price amendment...........................................................................................................................24
Classified board.....................................................................................................................................24
Authorization of preferred stock...........................................................................................................24
Introduction

India is increasingly becoming a trading hub of the world. With the mass market potential driven by
its consumption growth potential, many multinational companies have been constantly searching
for entry opportunities in Indian economy. After the liberalisation in India in 1991, licence raj
which used to dominate the Indian industrial sector came to an end. The monopoly of local
producers ended and a new era competition started. Presently, India is witnessing a high inflows of
FDIs and the companies have started looking for further growth opportunities. If we look at the
M&A data of the foreign acquisition in India, U.S has been the single largest acquirer with a 35%
share. It is followed by UK (16%), Europe and then East Asia.

Lately, Indians have also become fond of shopping abroad. They have announced over 1000
international Mergers and acquisition deals between 2000 and 2008 which are estimated to be
worth over $72 billion, according to Dealogic, a research firm. Corporate India’s shopping spree
gained momentum after 2002, when the rapid growth of the Indian economy began to bolster
companies’ balance-sheets. India’s regulators also relaxed their grip, steadily raising the limits on
investments abroad. Outward investment, they once believed, deprived India of scarce capital that
would be better invested at home. But this fear of capital flight slowly gave way to pride in India’s
national champions. In February 2004, they even allowed firms to finance their foreign acquisitions
by borrowing abroad.

India has been lagging behind per say mergers and acquisition as a tool for success. All innovations
and inventions in terms of corporate and principles happen abroad, and then are being carried to
Indian environment. Corporate restructuring, out of all emerging concepts of findings ways to serve
shareholders better, has been a very successful concept abroad and its been followed all the more
in high context cultures like India. The rapidity with corporate finance due to external factors like
increased price volatility, a general globalization of the markets, tax asymmetric, development in
technology, regulatory change, liberalization, increased competition and reduction in information
and transaction costs and also intra firm factors like liquidity needs of business, capital costs and
growth perspective have lead to practice of corporate restructuring as a strategic move to maximize
the shareholder's value.

Mergers and acquisition has been a favorable method of corporate restructuring for MNCs and
Indian domestic organizations. The factors favoring are dynamic government policies, c corporate
investments in industry, economic stability and risk taking appetite of Indian industry. Sectors like
pharmaceuticals, IT, ITES, telecommunications, steel, construction, etc, have proved their worth in
the international scenario and the rising participation of Indian firms in signing M&A deals has
further triggered the acquisition activities in India.
10 biggest merger and acquisition deals in India in 2010

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.

Corporate Restructuring

Corporate restructuring is the reorganization of corporate entities. The reorganizing can be within
the company itself or with the involvement of other corporate entities. It is the restructuring the
legal responsibilities, ownership/proprietary, operations, finances and other structures of the
company to achieve its objectives. It can be the for the purpose of profitability, to be better
organized to meet the current requirements, change in liabilities, ownership structure, demerger,
buyout, bankrupts, repositioning, dealing with crisis, adhoc decision making etc. These all can be
summarized as follows:

 A strategy to change business or financial structure.

 Radical changes in composition
 Process of redesigning.
 Example ‟ GE witnessed tremendous growth during tenure of Jack Welch
 Necessity when the company has grown to the point.
 Crucial whenever there is a major shift.
 Continuous process.
 Result - leaner, more efficient, better organized, and better focused.

The "Corporate restructuring" is an umbrella term that includes mergers and consolidations,
divestitures and liquidations and various types of battles for corporate control. The essence of
corporate restructuring lies in achieving the long run goal of wealth maximisation. The term
corporate restructuring encompasses three distinct, but related, groups of activities:

 Expansions – including mergers and consolidations, tender offers, joint ventures, and
acquisitions
 Contraction – including sell offs, spin offs, equity carve outs, abandonment of assets, and
liquidation; and ownership and control – including the market for corporate control, stock
repurchases program, exchange offers and going private (whether by leveraged buyout or
other means).

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance
world. One plus one makes three: this equation is the special alchemy of a merger or an acquisition.
The key principle behind buying a company is to create shareholder value over and above that of
the sum of the two companies. Two companies together are more valuable than two separate
companies - at least, that's the reasoning behind M&A.
Expansions
Expansions can be further classified as mergers, acquisitions, consolidation etc. These are various
other activities which result in an enlargement of a firm or its scope of operations.

Merger is the combination of two or more firms resulting in the survival of only single firm.
Mergers tend to occur when one firm is significantly larger than the other and the survivor is
usually the larger of the two. It can be sub-classified as follows into subdivisions as:

 Horizontal merger involves two firms in similar businesses. The combination of two oil
companies or two solid waste disposal companies, for example would represent horizontal
mergers.
 Vertical mergers involves two firms involve in different stages of production of the same
end product or related end product.
 Conglomerate mergers involves two firms in unrelated business activities.

Consolidations is the creation of an altogether new firm owning the assets of both of the first two
firms and neither of the first two survive. This form of combination is most common when the two
firms are of approximately equal size.

Joint ventures is the expansion method in which two separate firms pool some of their resources
such that it does not ordinarily lead to the dissolution of either firm. Such ventures typically involve
only a small portion of the cooperating firms overall businesses and usually have limited lives.

Acquisitions  is another ambiguous term. At the most general, it means attempts by one firm,
called the acquiring firm to gain a majority interest in another firm called the target firm. The effort
to gain control may be a prelude to a subsequent merger to establish a parent subsidiary
relationship, to break up the target firm and dispose of its assets or to take the target firm private
by a small group of investors. There are a number of strategies that can be employed in corporate
acquisitions like friendly takeovers, hostile takeovers etc.The specialist have engineered a number
of strategies which often have bizarre nicknames such as shark repellents and poison pills terms
which accurately convey the genuine hostility involved. In the same vain, the acquiring firm itself is
often described as a raider. One such strategy is to employ a target block repurchase with an
accompanying standstill agreement. This combination sometimes describes as greenmail.
Contraction

Contraction, as the term implies, results in a smaller firm rather than a larger one. If we ignore the
abandonment of assets, occasionally a logical course of action, corporate contraction occurs as the
result of disposition of assets. The disposition of assets, sometimes called sell-offs, can take either of
three board form:

* Spin-offs
* Divestitures
* Carve outs

Spin-offs and carve outs create new legal entities while divestitures do not.

Spin-offs occurs when a subsidiary becomes an independent entity. The parent firm distributes
shares of the subsidiary to its shareholders through a stock dividend. Since this transaction is a
dividend distribution, no cash is generated. Thus, spinoffs are unlikely to be used when a firm needs
to finance growth or deals. Like the carve-out, the subsidiary becomes a separate legal entity with a
distinct management and board. 

Like carve-outs, spinoffs are usually about separating a healthy operation. In most cases, spinoffs
unlock hidden shareholder value. For the parent company, it sharpens management focus. For the
spinoff company, management doesn't have to compete for the parent's attention and capital. Once
they are set free, managers can explore new opportunities. 

Investors, however, should beware of throw-away subsidiaries the parent created to separate legal
liability or to off-load debt. Once spinoff shares are issued to parent company shareholders, some
shareholders may be tempted to quickly dump these shares on the market, depressing the share
valuation.

Sell-Offs or Divestitures is the outright sale of a company subsidiary. Normally, sell-offs are done
because the subsidiary doesn't fit into the parent company's core strategy. The market may be
undervaluing the combined businesses due to a lack of synergy between the parent and subsidiary.
As a result, management and the board decide that the subsidiary is better off under different
ownership. 

Besides getting rid of an unwanted subsidiary, sell-offs also raise cash, which can be used to pay off
debt. In the late 1980s and early 1990s, corporate raiders would use debt to finance acquisitions.
Then, after making a purchase they would sell-off its subsidiaries to raise cash to service the debt.
The raiders' method certainly makes sense if the sum of the parts is greater than the whole. When it
isn't, deals are unsuccessful. 

Carve-outs: More and more companies are using equity carve-outs to boost shareholder value. A
parent firm makes a subsidiary public through an initial public offering (IPO) of shares, amounting
to a partial sell-off. A new publicly-listed company is created, but the parent keeps a controlling
stake in the newly traded subsidiary.

A carve-out is a strategic avenue a parent firm may take when one of its subsidiaries is growing
faster and carrying higher valuations than other businesses owned by the parent. A carve-out
generates cash because shares in the subsidiary are sold to the public, but the issue also unlocks the
value of the subsidiary unit and enhances the parent's shareholder value. 

The new legal entity of a carve-out has a separate board, but in most carve-outs, the parent retains
some control. In these cases, some portion of the parent firm's board of directors may be shared.
Since the parent has a controlling stake, meaning both firms have common shareholders, the
connection between the two will likely be strong.

That said, sometimes companies carve-out a subsidiary not because it's doing well, but because it is
a burden. Such an intention won't lead to a successful result, especially if a carved-out subsidiary is
too loaded with debt, or had trouble even when it was a part of the parent and is lacking an
established track record for growing revenues and profits. 

Carve-outs can also create unexpected friction between the parent and subsidiary. Problems can
arise as managers of the carved-out company must be accountable to their public shareholders as
well as the owners of the parent company. This can create divided loyalties. 

 Ownership and Control

The third major area encompassed by the term corporate restructuring is that of ownership and
control. It has been wrested from the current board, the new management will often embark on a
full or partial liquidating strategy involving the sale of assets. The leveraged buyout preserves the
integrity of the firm as legal entity but consolidates ownership in the hands of small groups. In the
1980s, many large publicly traded firms went private and employees a similar strategy called a
leveraged buyout or LBO. 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.
Synergy 

Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy
takes the form of revenue enhancement and cost savings. By merging, the companies hope to
benefit from the following:

Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all the
money saved from reducing the number of staff members from accounting, marketing and other
departments. Job cuts will also include the former CEO, who typically leaves with a compensation
package.

Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new corporate IT
system, a bigger company placing the orders can save more on costs. Mergers also translate into
improved purchasing power to buy equipment or office supplies - when placing larger orders,
companies have a greater ability to negotiate prices with their suppliers.

Acquiring new technology - To stay competitive, companies need to stay on top of technological
developments and their business applications. By buying a smaller company with unique
technologies, a large company can maintain or develop a competitive edge.

Improved market reach and industry visibility - Companies buy companies to reach new markets
and grow revenues and earnings. A merge may expand two companies' marketing and distribution,
giving them new sales opportunities. A merger can also improve a company's standing in the
investment community: bigger firms often have an easier time raising capital than smaller ones.

That said, achieving synergy is easier said than done - it is not automatically realized once two
companies merge. Sure, there ought to be economies of scale when two businesses are combined,
but sometimes a merger does just the opposite.
Major types of Corporate Restructuring
The corporate restructuring can be classified as :
 Financial Restructuring– It includes raising the finance, decisions regarding mergers, joint
ventures and alliances.
 Operational Restructuring- It reformulates the company on basis of change in technology
and environment requirements. For a firm which wants to become a cost leader in the
market, operational restructuring helps mostly.
 Organizational Restructuring- In order to increase efficiency redefining the
organizational structure or the processes or the systems. Most of the FMCG companies have
to change their organizational structure after a few decades. It is because they have to enter
new markets. The change in market scenario leads to change in their strategies mostly and
this finally results in organizational restructuring.
 Market Restructuring- Is the addition of a newer product or shifting one product or
segment to another or enlarge the market for the existing products. Most of the FMCG
companies have to change their market structure after a few decades. It is because they
have to enter new products. The change in product portfolio leads to change in their
strategies mostly and this finally results in organizational restructuring.

Hurdles in Restructuring
It is not always easy to do restructuring in an organisation. The major barriers or hurdles to
corporate restructuring are:

 Time and resource constraints: Strategies are always aligned with the mission and vision
statement of the organisation. They are long term in nature and do not change randomly.
Hence a change in the strategy by corporate restructuring usually requires substantial
amount of dedicated resources and may be complicated. A complicated restructuring may
consume a lot of time which is not affordable for the organization in many circumstances.
 Cultural Aspects
 Inadequate focus and commitment of top management towards change program
 "What is in it for me" attitude
 Mind set/resistance to change
 Lack of involvement of employees
 Poor planning
 Resource Availability
 Cost and time
 Poor communication
Mergers and Acquisitions

M&A activities were largely restricted to IT and telecom sectors earlier. They have now spread
across the economy. As Business world recently reported, this is the fourth wave of corporate deal-
making in India.

The first happened in the 1980s, led by corporate raiders such as Swaraj Paul, Manu Chhabria and R
P Goenka, in the very early days of reforms. In view of the license raj prevailing then, buying a
company was one of the best ways to generate growth, for ambitious corporate.

In the early 1990s, in the liberalized economy, Indian business houses began to feel the heat of
competition. Conglomerates that had lost focus were forced to sell non-core businesses that could
not withstand competitive pressures. The Tatas, for instance, sold TOMCO to Hindustan Lever.
Corporate restructuring, largely drove this second wave of M&As.

The third wave started about five years ago, driven by consolidation in key sectors like cement and
telecommunications. Companies like Bharti Tele-Ventures and Hutch bought smaller competitors to
establish a national presence. Tata came into limelight for its numerous merger and acquisitions in
that period.

Mergers and Acquisitions: Valuation

Investors in a company that is aiming to take over another one must determine whether the
purchase will be beneficial to them. In order to do so, they must ask themselves how much the
company being acquired is really worth.

Naturally, both sides of an M&A deal will have different ideas about the worth of a target company:
its seller will tend to value the company at as high of a price as possible, while the buyer will try to
get the lowest price that he can. There are, however, many legitimate ways to value companies. The
most common method is to look at comparable companies in an industry, but deal makers employ a
variety of other methods and tools when assessing a target company. Here are just a few of them:

Comparative Ratios - The following are two examples of the many comparative metrics on which
acquiring companies may base their offers:

Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring company makes an

offer that is a multiple of the earnings of the target company. Looking at the P/E for all the stocks
within the same industry group will give the acquiring company good guidance for what the
target's P/E multiple should be.
Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring company makes an
offer as a multiple of the revenues, again, while being aware of the price-to-sales ratio of other
companies in the industry.

Replacement Cost - In a few cases, acquisitions are based on the cost of replacing the target
company. For simplicity's sake, suppose the value of a company is simply the sum of all its
equipment and staffing costs. The acquiring company can literally order the target to sell at that
price, or it will create a competitor for the same cost. Naturally, it takes a long time to assemble
good management, acquire property and get the right equipment. This method of establishing a
price certainly wouldn't make much sense in a service industry where the key assets - people and
ideas - are hard to value and develop.

Discounted Cash Flow (DCF) - A key valuation tool in M&A, discounted cash flow analysis
determines a company's current value according to its estimated future cash flows. Forecasted free
cash flows (operating profit + depreciation + amortization of goodwill – capital expenditures – cash
taxes - change in working capital) are discounted to a present value using the company's weighted
average costs of capital (WACC). Admittedly, DCF is tricky to get right, but few tools can rival this
valuation method.

Advantages

The rationale behind a spinoff, tracking stock or carve-out is that "the parts are greater than the
whole." These corporate restructuring techniques, which involve the separation of a business unit
or subsidiary from the parent, can help a company raise additional equity funds. A break-up can
also boost a company's valuation by providing powerful incentives to the people who work in the
separating unit, and help the parent's management to focus on core operations. Most importantly,
shareholders get better information about the business unit because it issues separate financial
statements. This is particularly useful when a company's traditional line of business differs from the
separated business unit. With separate financial disclosure, investors are better equipped to gauge
the value of the parent corporation. The parent company might attract more investors and,
ultimately, more capital. Also, separating a subsidiary from its parent can reduce internal
competition for corporate funds. For investors, that's great news: it curbs the kind of negative
internal wrangling that can compromise the unity and productivity of a company. For employees of
the new separate entity, there is a publicly traded stock to motivate and reward them.  Stock
options in the parent often provide little incentive to subsidiary managers, especially because their
efforts are buried in the firm's overall performance. Some of them are listed below:

 Accessing new markets vis-à-vis increased market power

 Overcome entry barrier
 Maintaining growth momentum
 Acquiring visibility and international brands 
 Buying cutting edge technology rather than importing it 
  Taking on global competition
 Improving operating margins and efficiencies
 Developing new product mixes
 Hedge against risk on new project
 Low cost leadership
 Increased speed to market

Disadvantages 

That said, de-merged firms are likely to be substantially smaller than their parents, possibly making
it harder to tap credit markets and costlier finance that may be affordable only for larger
companies. And the smaller size of the firm may mean it has less representation on major indexes,
making it more difficult to attract interest from institutional investors. Meanwhile, there are the
extra costs that the parts of the business face if separated. When a firm divides itself into smaller
units, it may be losing the synergy that it had as a larger entity. For instance, the division of
expenses such as marketing, administration and research and development (R&D) into different
business units may cause redundant costs without increasing overall revenues.
Some of the problems associated with M&A are:

 Integration difficulties
 Inadequate target evaluation
 Large debt due to enormous outflows
 Cultural integration
 Over diversification
 Lack of competency
Different Perspectives
Transactional issues
The various transactional issues are:

Target Company
 Due Diligence – Full Disclosures need to be made about the following iteneries
– Linked with Reps & Warranties
– Reps should be negative
– Post Closing Adjustment
 Condition Precedents – Definitive
– Include as Exhibits
 Survival of Reps for limited period
Acquirer Company
 Due Diligence – Risk Matrix
– Material Contracts
– Any subsisting contracts granting similar or superior rights to other investors
– Termination rights of major customers
– Approval rights of financiers
– Title to Properties & Assets: esp. where main business is situated
– Statutory Dues
– Litigation : Contingent Liabilities
– International Proprietary Rights protection
– Tax Compliance (Settlement Commission)
 Mode of Acquisition
– Pure Equity (Existing or New); Equity & Preference; Special Class (Differential
voting rights, dividends or otherwise)
– Leveraged Acquisitions
 Corporate Governance
– Related Party Transactions (past & going forward)
 Board Representation
– Quorum (Inclusive)
– Fiduciary Responsibility of Board v. Shareholders
 Deadlock Resolution
– Majority/ Strategic Partner
– Lenders
 Return on Investment
– Cap on dividends to preference shares
– Liquidation Preference
 Lock - in of Promoters
– Enforceability of transferability restrictions
  Non - Compete/ Non - Solicitation
– Payment for Goodwill to exiting partner
 Exclusivity
– Enforceability against Company
 Exit Options
– Listing (Private Equity)
– Call/ Put Option
General
 Indemnity
– Aggregate Liability Cap
– Threshold
 Participative Rights v. Protective Rights
– Strategic Partner : Participative Rights
– Control on Board
– Sharing Control
– Private Equity : Protective Rights
 Special Rights
– Tag – Along Rights: minority partner/ private equity
– Drag - Along Rights: majority partner
– Right to share the upside on revised valuation of Target Right of First Refusal
 Earn-out Structure
– Favorable Business Projections
 Arbitration v. Litigation: Effective Remedy
– Proper Law of Arbitration
– Group Companies Doctrine
– Place of Arbitration
– Cost Effective

Regulatory issues
 Arbitration v. Litigation: Effective Remedy
– Proper Law of Arbitration
– ICC v. UNICITRAL
– Group Companies Doctrine
– Place of Arbitration
– Cost Effective
 Listed companies
– SEBI Regulations
– Stock Exchange – Listing Agreement
 Trans-border transactions
– Foreign Exchange Management Act
 Companies Act
 FEMA
 Takeover code
 Stamp Duty
T
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d  Industrial Dispute Act

Structures

Shareholders’ interest needs to be taken into consideration while formulating the agreement under
mergers and acquisition. There are various structures for undergoing the mergers and acquisitions
being practised in Indian industrial context. Some of them are described as below:

Structure 1
In this the shareholders of the amalgamating company (which ceases to exist; Target Company) get
the corresponding shares of the amalgamated company. In this case the amalgamating Company
ceases to exist and the amalgamated Company receives all the assets and liabilities of amalgamating
Company.

Structure 2
In this scenario, the amalgamating company are than one. All the other specifications are same as
the previous structure. In this the shareholders of the amalgamating companies (which ceases to
exist; Target Companies) get the corresponding shares of the amalgamated company. In this case
the amalgamating Companies cease to exist and the amalgamated Company receives all the assets
and liabilities of amalgamating Company. One more basic difference is that the amalgamated
company may or may not exist before the merger actually happens
Structure 3 (demergers)

is that, initially it is not necessary that the resulting company have to exist.

1.
2.
3.
4.
5.
6.
7.
Issues shares

Process of M&A
Following is the overview of the world-wide accepted process of merger and acquisitions.

Develop a strategic plan for the business.(Business Plan)

Develop an acquisition plan related to the strategic plan.( Acquisition Plan)
Search companies for acquisitions.(Search)
Screen and prioritize potential companies.(Screen)
Initiate contact with target.
Refine valuation, structure the deal and develop financial plan.( Negotiation)
Develop plan for integrating the acquired business. (Integration Plan)
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dissatisfaction of the shareholders which may create a negative sentiment about the new-born
organisation in the industrial arena.
In this, a company ( demerging company ) gets demerged into other company. In this case,
a
m
A
Demergers follow this structure. They are necessary to be followed as ignoring them can lead to

demerging company transfers the undertaking to the resulting company. In return, the resulting
company issue shares to the shareholders of the demerging company. The beauty of this structure
 8. Obtain all necessary approvals and implement closing.
9. Implement post closing integration.
10. Conduct a post closing evaluation.

For this to be successful there should be basic framework that should be met. They are:

 The acquirer must contribute something to the acquired company.

 A common core of unity is required.
 The acquirer must respect the business of the acquired company.
 Within a year or so, the acquiring company must be able to provide top management to the
acquired company.
 Within the first year of the merger, managements in both companies should receive
promotions across the entities

Strategic Approach to merger and acquisition

Present Situation Proposed strategy

Growing steadily but in a mature market with Acquire a company in a younger market with
limited growth higher growth rate

Under-utilizing management resources Acquire a company into which the talents can be
extended
Operating at maximum productive capacity Acquire a company making similar products
operating substantially below capacity

Marketing an incomplete product range , or Acquire a company with product range which is
having the potential to sell other products or complementary
services to your existing customers

Preparing for floatation but need to improve Acquire a company with the right customer
balance sheet profile

Need to widen capability Acquire a company with key talents and/or

technology

Need more control of suppliers or customers Acquire a company which is, or which gives
access to a significant customer or supplier

Need to increase market share Acquire an important competitor

Lacking key clients in a targeted sector Acquire a company with right customer profile
Takeover Strategies and Defences

There are various kinds of takeovers.  The main types are: 

 'Friendly Takeover or negotiated takeover' - the company bidding will approach the
directors of the other company to discuss and agree an offer before proposing it to the
shareholders of that company. The bidding company will also have an opportunity to look
at the accounts of the business they want to buy - a process known as due diligence.

 'Hostile Takeover or Open market takeover' - the company bidding has their offer
rejected or does not approach the board of the company they wish to buy before making an
offer to shareholders. This also means they will not have access to private information
about the company - increasing the risk of the takeover. Banks are usually more cautious
about lending money for hostile takeovers. Some of the hostile takeover strategies are:

 Tender offer: In this a general offer is made directly publically and to the firms
shareholders to buy their stock at a price well above the current market price.

 Street Sweep: In this case, the acquirer accumulates large amounts of the stocks in
the target company before making the open offer

 Bear Hug: Here the acquirer tries to put pressure on the management of the target
firm by threatening to make an open offer

 Strategic Alliance: An acquirer offers a partnership rather than a buyout of the

target firm.

 Brand Power: The acquiring firm enters into an alliance with other powerful
brands to displace the competitor’s brand.

 'Reverse Takeover or bailout takeover' - the final common type of takeover is the reverse
takeover. This happens when a private (not traded on the stock market) company buys a
publicly-traded company as a means of acquiring public status without having to list itself.
It happens when a financially sick company is taken over by a profit earning company in
order to bail out the former; it is called a bail-out takeover.
Defence strategies against takeovers
Companies can also adopt strategies and take precautionary actions to avoid hostile takeover. This
is very necessary in present day industrial rivalry where a small lack in precaution can result in
huge loss to the stakeholders of the firm. Some of the defence strategies against takeover are:

Poison Pills
To avoid hostile takeovers, lawyers created this contractual mechanics that strengthen Target
Company. One usual poison pill inside a Corporation Statement is the clause which triggers
shareholders rights to buy more company stocks in case of attack. Such action can make severe
differences for the raider. If shareholders do really buy more stocks of company with advantaged
price, it will be harder to acquire the company control for sure.

 It is associated with high cost

 It may keep the good investors away

Stock option workout

Poison Pill may have the same structure of stock options used for payouts. Under these agreements,
once the triggering fact happens, investor have the right to turnkey some right. In poison pill event,
most common is an option to buy more shares, with some advantages. Priced with better
conditions, lower than what bidders does for the corporation it serves for the specific purpose of
protecting the corporation current shareholders.

The usual stock option is made to situations of high priced stocks. That usually happens under
takeover operations. A takeover hard to be defended usually will have a bid offer with a compatible
price, at that moment which is higher than usual for shareholders, with conditions to be accepted
by stockholders.

Shark Repellent

Among shark repellent instruments there are: golden parachute, poison pills, greenmail, white
knight, etc.

White Knight

Another fortune way to handle a hostile takeover is through White Knight bidders. Usually players
of some specific market know each ones history, strategy, strength, advantages, clients, bankers and
legal supporters. Meaning beyond similarities or not, there're communities around these
companies. In this  a strategic partner merges with the target company to add value and increase
market capitalization. Such a merger can not only deter the raider, but can also benefit
shareholders in the short term, if the terms are favorable, as well as in the long term if the merger is
a good strategic fit.
White Squire

To avoid takeovers bids, some shareholder may detain a large stake of one company shares. A white
squire is similar to a white knight, except that it only exercises a significant minority stake, as
opposed to a majority stake. A white squire doesn't have the intention, but rather serves as a
figurehead in defense of a hostile takeover. The white squire may often also get special voting rights
for their equity stake. With friendly players holding relevant positions of shares, the protected
company may feel more comfortable to face an unsolicited offer. A White Squire is a shareholder
than itself can make a tender offer. Otherwise it has so much relevance over the company stock
composition, that can make raiders takeover more difficult or somewhat expensive. Real White
Squire does not take over the target company, and only plays as a defense strategy.

In order to defend these companies, some bankers organize funds for that specific purpose. A White
Squire fund is designed to increase share participation in companies under stress.

Golden Parachutes

A golden parachute is an agreement between a company and an employee (usually upper

executive) specifying that the employee will receive certain significant benefits if employment is
terminated. . Without it, officers have no stability, and it may represent inaccurate defense strategy
in case of bidders pressure. It can further accelerate drastic and unnecessary measures.

From an overall analysis, cost of golden parachutes is relatively low, compared with disadvantages
of its absence. Officers can have minimum guarantees after takeover is accomplished. Otherwise
inappropriate attitudes can be taken just to keep officers standings in the market an inside the
corporation. Golden parachutes try to make these challenges for the corporation and over officers,
as natural as possible. Studies show that these benefits can keep chiefs working without excess
pressure and drama, defending the corporation against all, till the end, but with responsibility.

Poison put

In stocks trading, the rights assigned to common stock holders that sharply escalates the price of
their stockholding, or allows them to purchase the company's shares at a very attractive fixed price,
in case of a hostile takeover attempt.

Super majority amendment

Super-majority amendment is a defensive tactic requiring that a substantial majority, usually 67%
and sometimes as much as 90%, of the voting interest of outstanding capital stock to approve a
merger. This amendment makes a hostile takeover much more difficult to perform. In most existing
cases, however, the supermajority provisions have a board-out clause that provides the board with
the power to determine when and if the supermajority provisions will be in effect. Pure
supermajority provisions would seriously limit management's flexibility in takeover negotiations.

Fair price amendment

A provision in the bylaws of some publicly-traded companies stating that a company seeking

to acquire it must pay a fair price to targeted shareholders. Additionally, the fair price provision
mandates that the acquiring company must pay all shareholders the same amount per share in
multi-tiered shares. The fair price provision exists both to protect shareholders and to
discourage hostile acquisitions by making them more expensive.

Classified board

A staggered board of directors or classified board is a practice governing the board of directors of

a company, corporation, or other organization in which only a fraction (often one third) of the
members of the board of directors is elected each time instead of en masse. In this a structure for
a board of directors in which a portion of the directors serve for different term lengths, depending
on their particular classification. Under a classified system, directors serve terms usually lasting
between one and eight years; longer terms are often awarded to more senior board positions. In
publicly held companies, staggered boards have the effect of making hostile takeover attempts
more difficult. When a board is staggered, hostile bidders must win more than one proxy fight at
successive shareholder meetings in order to exercise control of the target firm.

Authorization of preferred stock

The board of directors is authorized to create a new class of securities with special voting rights.
This security, typically preferred stock, may be issued to friendly voting rights. The security
preferred stock, may be issued to friendly in a control contest. Thus, this device is a defense
takeover bid, although historically it was used to provide the board of directors with flexibility in
financing under changing economic conditions. Creation of a poison pill security could be included
in his category but generally it's excluded from and treated as a different defensive device.