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ITM - Capstone Project Report

Capstone Project
A subject report submitted in partial fulfillment of the Term-6 PGDM (2010-2012)

A Comprehensive Study on Mergers and Acquisitions

Submitted To: Prof. Geetanjali Pinto

Submitted by: Archana Singh -186

A comprehensive study on Mergers and Acquisitions

ITM - Capstone Project Report

INDEX
REPORT SECTION TITLE PAGE CONTENTS PAGE ACKNOWLEDGEMENT EXECUTIVE SUMMARY INTRODUCTION MERGERS AND TYPES OF MERGERS ACQUISITIONS MOTIVES OF M&A STAGES OF MERGERS PHASES OF MERGERS M&A VALUATIONS DISADVANTAGES
DEFENCE STRATEGIES AGAINST MERGERS AND ACUISITIONS

PAGE NUMBER 1 2 3 4 5 6 8 9 11 13 15 20 20 24 29 36 38 43 48 52

CROSS BORDER ACQUISITIONS DAIMLER- BENZ AND CHRYSLER CASE STUDY ICICI AND BoR CASE STUDY FAILURE OF M&A CASESTUDIES RECOMMENDATIONS BIBLIOGRAPHY

A comprehensive study on Mergers and Acquisitions

ITM - Capstone Project Report ACKNOWLEDGEMENT

I wish to express our gratitude to every person who helped me to get the better insight of the project.

I am also thankful to our institute, ITM Business School, for giving me the opportunity to undertake this capstone project work. It is our duty to express our profound gratitude and extreme regards to the capstones guide, without their learned and able guidance and encouragement, this work would not have been completed.

From conception to completion, this project took many days for learning. And I am indebted to platoons of people for their assistance and encouragement, and motivation to undertake this project and look at life from different perspective. I would like to give a special thanks to all the subordinate employees for taking out their valuable time in explaining the processes.

A comprehensive study on Mergers and Acquisitions

ITM - Capstone Project Report


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.

A comprehensive study on Mergers and Acquisitions

ITM - Capstone Project Report

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

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business in which the companies are usually involved. Different motives can also be attached to these mergers. The categories are: Horizontal Merger It is a merger of two or more competing companies, implying that they are 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. The main motives behind this are to obtain economies of scale in production by eliminating duplication of facilities and operations, elimination of competition, increase in market segments and exercise better control over the market. 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. Vertical Mergers It is a merger of one company with another, which is involved, in a different 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 Mergers It is an amalgamation of 2 companies engaged in the unrelated industries. The motive is to ensure better utilization of financial resources, enlarge debt capacity and to reduce risk by diversification. It has evinced particular interest among researchers because of the general curiosity about the nature of gains arising out of them. Economic gain arising out of a conglomerate is not clear. Much of the traditional analysis relating to economies of scale in production, research, distribution and management is not relevant for conglomerates. The argument in its favour is that in spite of the absence of economies of scale and complimentaries, they may cause stabilization in profit stream. Even if one agrees that diversification results in risk reduction, the question that arises is at what level should the diversification take place, i.e. in order to reduce risk should the company

A comprehensive study on Mergers and Acquisitions

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diversify or should the investor diversify his portfolio? Some feel that diversification by the investor is more cost effective and will not hamper the companys core competence. Others argue that diversification by 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 investors portfolio does not. In spite of the arguments and counter- arguments, some amount of diversification is required, especially in 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 Mergers It involves a merger of a subsidiary company with its parent. Reasons behind such a merger are to stabilize cash flows and to make funds available for the subsidiary.

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

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

A comprehensive study on Mergers and Acquisitions

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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 acquisitions: i. Friendly takeover: Before a bidder makes an offer for another company, it usually first informs 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. ii. Hostile takeover: A hostile takeover allows a suitor to take over a target company's management 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. iii. Back flip takeover: A back flip takeover is any sort of takeover in which the acquiring company turns itself into a subsidiary of the purchased company. This type of a takeover rarely occurs. iv. Reverse takeover: A reverse takeover is a type of takeover where a private company acquires a 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.

A comprehensive study on Mergers and Acquisitions

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DISTINCTION BETWEEN MERGERS AND ACQUISITIONS 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. 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.

Motives behind M&A


The following motives are considered to improve financial performance: 1 ) Synergies: the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins. 2 ) Increased revenue/Increased Market Share: This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices.

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3 ) Cross selling: For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts. Economies of Scale: For example, managerial economies such as the increased opportunity of managerial specialization. Another example is purchasing economies due to increased order size and associated bulk-buying discounts. 4 ) Taxes: A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. 5 ) Resource transfer: resources are unevenly distributed across firms and the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources. 6 ) Vertical integration: Vertical Integration occurs when an upstream and downstream firm merges (or one acquires the other). By merging the vertically integrated firm can collect one deadweight loss by setting the upstream firm's output to the competitive level. This increases profits and consumer surplus. A merger that creates a vertically integrated firm can be profitable. Therefore, additional motives for merger and acquisition that may not add shareholder value include: 1 ) Diversification: While this may hedge a company against a downturn in an individual industry it fails to deliver value, since it is possible for individual shareholders to achieve the same hedge by diversifying their portfolios at a much lower cost than those associated with a merger. 2 ) Manager's hubris: manager's overconfidence about expected synergies from M&A which results in overpayment for the target company. 3 ) Empire building: Managers have larger companies to manage and hence more power. 4 ) Manager's compensation: In the past, certain executive management teams had their payout based on the total amount of profit of the company, instead of the profit per share, which would give the team a perverse incentive to buy companies to increase the total profit while decreasing the profit per share (which hurts the owners of the company, the shareholders); although some empirical studies show that compensation is linked to profitability rather than mere profits of the company.

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STAGES OF A MERGER

Pre-mergers are characteristics by the :1. COURTSHIP: -

The respective management teams discuss the possibility of a merger and develop a shared vision and set of objectives. This can be achieved through a rapid series of meetings over a few weeks, or through several months of talks and informal meetings
2. EVALUATION AND NEGOTIATION: -

Once some form of understanding has been reached the purchasing company conducts due diligence a detailed analysis of the target company assets, liabilities and operations. This leads to a formal announcement of the merger and an intense round of negotiations, often involving financial intermediaries. Permission is also sought from trade regulators. The new management team is agreed at this point, as well as the board structure of the new business.

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This phase typically lasts three or four months, but it can take as long as a year if regulators decide to launch an investigation into the deal. Closure is a commonly referred term to describe the point at which the legal transfer of ownership is completed. 3. PLANNING: More and more companies use this time before completing a merger to assemble a senior team to oversee the merger integration and to begin planning the new management and operational structure.

Post Merger is characterized by the following phases: -

1) THE IMMEDIATE TRANSITION: -

This typically lasts three to six months and often involves intense activity. Employees receive information about whether and how the merger will affect their employment terms and conditions. Restructuring begins and may include site closures, redundancy announcements, divestment of subsidiaries (sometimes required by trade regulators), new appointments and job transfers. Communications and human resources strategies are implemented. Various teams work on detailed plans for integration.

2) THE TRANSITION PERIOD : -

This lasts anywhere between six months to two years. The new organizational structure is in place and the emphasis is now on fine tuning the business and ensuring that the envisaged benefits of the mergers are realized. Companies often consider cultural integration at this point and may embark on a series of workshops exploring the values, philosophy and work styles of the merged business.

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A comprehensive study on Mergers and Acquisitions

ITM - Capstone Project Report PHASES OF MERGERS & ACQUISITIONS

PHASE I: STRATEGIC PLANNING Stage 1: Develop or Update Corporate Strategy To identify the Companys strengths, weaknesses and needs 1) 2) 3) 4) 5) 6) 7) 8) Company Description Management & Organization Structure Market & Competitors Products & Services Marketing & Sales Plan Financial Information Joint Ventures Strategic Alliances

Stage 2: Preliminary Due Diligence 1) 2) 3) 4) Financial Risk Profile Intangible Assets Significant Issues

Stage 3: Preparation of Confidential Information memorandum 1 ) Value Drivers 2 ) Project Synergies

PHASE II: TARGET/BUYER IDENTIFICATION & SCREENING Stage 4: Buyer Rationale 1 ) Identify Candidates 2 ) Initial Screening

Stage 5: Evaluation of Candidates 1 ) Management and Organization Information

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2 ) Financial Information (Capabilities) 3 ) Purpose of Merger or Acquisition

PHASE III: TRANSACTION STRUCTURING Stage 6: Letter of Intent

Stage 7: Evaluation of Deal Points 1 ) Continuity of Management 2 ) Real Estate Issues 3 ) Non-Business Related Assets 4 ) Consideration Method 5 ) Cash Compensation 6 ) Stock Consideration 7 ) Tax Issues 8 ) Contingent Payments 9 ) Legal Structure 1 0 ) Financing the Transaction

Stage 8: Due Diligence 1) 2) 3) 4) Legal Due Diligence Seller Due Diligence Financial Analysis Projecting Results of the Structure

Stage 9: Definitive Purchase Agreement 1 ) Representations and Warranties 2 ) Indemnification Provisions

Stage 10: Closing the Deal

PHASE IV: SUCCESSFUL INTEGRATION

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1) 2) 3) 4) 5) Human Resources Tangible Resources Intangible Assets Business Processes Post Closing Audit

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.

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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.

MAGIC CIRCLE FOR A SUCCESSFUL MERGER

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A companys integration process can ensure the formation of such a circle. It acts rather like the Gulf Stream, where the flow of hot and cold water ensures a continuous cyclical movement. A well designed integration process ensures that the new entitys designed strategy reaches deep into the organisation, ensuring a unity of purpose. Basically everyone understands the purpose and logic of the deal. The integration process can ensure that the ideas and the creativity can are not dissipated but are fed into the emergent strategy of the organisation this is achieved through the day to day job of the encouraging and motivating people and also creating forums where people can think the impossible. The chart below demonstrates the relationship between designed and emergent strategy and merger integration. It suggests how merging organizations can become learning organisation; strategy formulation and implementation merges into collective learning.

Some merger failures can be explained by this model. For example, serious problems arise when a company relies too heavily on designed strategy. If the management team is not getting high quality feedback and information from the rest of the organisation, it runs the risk of becoming cut off. Employees may perceive their leaders as being out of touch with reality of the merger, leading to a gradual loss of confidence in senior managements ability to chart the future of the new entity. Similarly, the leadership team may not receive timely information about external threats, brought about perhaps by the predatory actions of competitors or dissatisfies customers with the result that performance suffers and the new management is criticized for failing to get grips with the complexities of the changeover.

However, too much reliance on emergent strategy can lead to the sense of a leadership vacuum within the combining organizations. The management team may seem to lack direction or to be moving too slow. This often leads political infighting and territory building and the departure of many talented people.

Therefore it is very important that a careful balance is struck between designed and emergent strategy for integration after the merger between two companies is done.

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SYNERGY
When most people talk about mergers and acquisitions they talk about synergy. But what is synergy? Synergy is derived from a Greek word synergos, which means working together, synergy refers to the ability of two or more units or companies to generate greater value working together than they could working apart. The ability to make 2 + 2 = 5 instead of 4. Typically synergy is thought to yield gains to the acquiring firm through two sources 1) Improved operating efficiency based on economies of scale or scope 2) Sharing of one or more skills. For managers synergy is when the combined firm creates more value than the independent entity. But for shareholders synergy is when they acquire gains that they could not obtain through their own portfolio diversification decisions. However this is difficult to achieve since shareholders can diversify their ownership positions more cheaply. For both the companies and individual shareholders the value of synergy must be examined in relation to value that could be created through other strategic options like alliances etc. Synergy is difficult to achieve, even in the relatively unusual instance that the company does not pay a premium. However, when a premium is paid the challenge is more significant. The reason for this is that the payment of premium requires the creation of greater synergy to generate economic value. The actual creation of synergy is an outcome that is expected from the managers work. Achieving this outcome demands effective integration of combined units assets, operations and personnel. History shows that at the very least, creating synergy requires a great deal of work on the part of the managers at the corporate and business levels. The activities that create synergy include 1) 2) 3) 4) Combining similar processes Co-ordinating business units that share common resources Centralizing support activities that apply to multiple units Resolving conflict among business units

The Types of Synergy


1) Operations Synergy

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This is obtained through integrating functional activities. It can be created through economies of scale / or scope. 2) Technology Synergy To create synergies through this, firms seek to link activities associated with research and development processes. The sharing of R&D programs, the transfer of technologies across units, products and programs, and the development of new core business through access to private innovative capabilities are examples of activities of firms trying to create synergies 3) Marketing Based Synergy Synergy is created when the firm successfully links various marketing-related activities including those related to sharing of brand names as well as distribution channels and advertising and promotion campaigns. 4) Management Synergy These synergies are typically gained when competitively relevant skills that were possessed by managers in the formerly independent companies or business units can be transferred successfully between units within the newly formed firm. 5) Private Synergy This can be created when the acquiring firm has knowledge about the complementary nature of its resources with those of the target firm that is not known to others. REVENUES Revenue deserves more attention in mergers; indeed, a failure to focus on this important factor may explain why so many mergers dont pay off. Too many companies lose their revenue momentum as they concentrate on cost synergies or fail to focus on post merger growth in a systematic manner. Yet in the end, halted growth hurts the market performance of a company far more than does a failure to nail costs.

The belief that mergers drive revenue growth could be a myth. A study of 160 companies shows that measured against industry peers, only 36 percent of the targets maintained their revenue growth in the first quarter after the merger announcement. By the third quarter, only 11 percent had avoided a slowdown. It turned out that the targets continuing underperformance explained only half of the slowdown; unsettled customers and distracted staff explained the rest.

Only 12 percent of these companies managed to accelerate their growth significantly over the next three years. In fact, most sloths remained sloths, while most solid performers slowed down. Overall, the acquirers managed organic growth rates that were four percentage points lower than those of their industry peers; 42 percent of the acquirers lost ground.
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Why should one worry so much about revenue growth in mergers? Because, ultimately, it is revenue that determines the outcome of a merger, not costs; whatever the mergers objectives, revenue actually hits the bottom line harder

Fluctuations in revenue can quickly outweigh fluctuations in planned cost savings. Given a 1 percent shortfall in revenue growth, a merger can stay on track to create value only if a company achieves cost savings that are 25 percent higher than those it had anticipated. Beating target revenue-growth rates by 2 to 3 percent can offset a 50 percent failure on costs.

Furthermore, cost savings are hardly as sure as they appear: up to 40 percent of mergers fail to capture the identified cost synergies. The market penalizes this slippage hard: failing to meet an earnings target by only 5 percent can result in a 15 percent decline in share prices. The temptation is then to make excessively deep cuts or cuts in inappropriate places, thus depressing future earnings by taking out muscle, not just fat.

Finally, companies that actively pursue growth in their mergers generate a positive dynamic that makes merger objectives, including cost cutting, easier to achieve.

Out of the 160 companies studied only 12 percent achieved organic growth rates (from 1992 to 1999) that were significantly ahead of the organic growth rates of their peers, and only seven of those companies had total returns to shareholders that were better than the industry average. Before capturing the benefits of integration, such merger masters look after their existing customers and revenue. They also target and retain their revenue-generating talentespecially the people who handle relations with customers.

Thus it can be noted that if revenue is not monitored properly and if one does not make an effort to maintain revenue it can result in significant losses to the company.

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DISADVANTAGES OF MERGERS AND ACQUISITIONS

1 ) All liabilities assumed (including potential litigation) 2 ) Two thirds of shareholders (most states) of both firms must approve 3 ) Dissenting shareholders can sue to receive their fair value 4 ) Management cooperation needed 5 ) Individual transfer of assets may be costly in legal fees 6 ) Integration difficult without 100% of shares 7 ) Resistance can raise price 8 ) Minority holdouts 9 ) Technology costs - costs of modifying individual organizations systems etc. STAProcess and organisational change issues every organisation has its own culture and business processes 1 0 ) Human Issues Staff feeling insecure and uncertain. 1 1 ) A very high failure rate (close to 50%).

DEFENCE STRATEGIES AGAINST MERGERS AND ACUISITIONS


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

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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.

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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.

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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.

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,

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company regulations, political factors customer expectations, and countries' culture are all crucial factors that could spoil the transaction.

Largest M&A deals worldwide since 2000: Rank Year Acquirer Target Transactio % n Value (in Mil. USD) 164,747 21.83 10.06 9.87 9.62 9.54 7.98 7.95 7.89 7.79 7.45 100

1 2 3 4 5 6 7 8 9 10

2000 Merger : America Online Inc. Time Warner (AOL) 2000 Glaxo Wellcome Plc. SmithKline Beecham Plc. 75,961 2004 Royal Dutch Petroleum Co. 2006 AT&T Inc. 2001 Comcast Corporation 2004 Sanofi-Synthelabo SA Shell Transport & Trading 74,559 Co BellSouth Corporation 72,671 AT&T Broadband Internet Svcs Aventis SA & 72,041 60,243 59,974 59,515 58,761 56,266

2000 Spin-off : Nortel Networks Corporation 2002 Pfizer Inc. Pharmacia Corporation 2004 Merger : JP Morgan Chase & Bank One Corporation Co. 2006 Pending: E.on AG Endesa SA Total

754,738

The table above shows the ten largest M&A deals worldwide since 2000. Table reflects that the largest M & A deal during last 6 year was between American Online Inc and. Time Warner of worth $ 164,747 million during 2000, which account 21.83% of total transaction value of top ten worldwide merger and acquisition deals. While second largest deal was between Glaxo Wellcome Plc. & SmithKline Beecham Plc. Of US $ 75,961 million which was also occurred during 2000, which was 10.06 % of total transaction value of top ten worldwide M & a deals & third largest deal was between Royal Dutch Petroleum Co. Shell Transport & Trading Co of worth US $ 74,559 million, it is 9.87 % of total transaction value of top ten worldwide M & a deals.

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CROSS-BORDER MERGER AND ACQUISITION: INDIA

Until up to a couple of years back, the news that Indian companies having acquired AmericanEuropean 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 worldwide: Acquirer Target Company Tata Steel Corus Group plc Hindalco Novelis Videocon Daewoo Electronics Corp. Dr. Reddy's Labs Suzlon Energy HPCL Betapharm Country targeted UK Canada Korea Germany Deal value ($ Industry ml) 12,000 Steel 5,982 729 597 Steel Electronics Pharmaceu tical Energy Oil and Gas Pharmaceu tical Steel Electronics Telecom

Hansen Group

Belgium

565 500 324 293 290 239

Kenya Petroleum Refinery Kenya Ltd. Romania Ranbaxy Terapia SA Labs Singapore Tata Steel Natsteel Videocon Thomson SA VSNL Teleglobe France Canada

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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 Salts 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. Airtels 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.

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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.

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CASE STUDIES Case Study No.1 Daimler-Benz and Chrysler

NATIONALITY: - Germany (Daimler-Benz), U.S.A. (Chrysler) DATE :November 17, 1998 Daimler-Benz AG, Germany, founded 1882 Chrysler Corp., USA, founded 1924 FINANCIALS :DAIMLER BENZ Revenue (1998) Employees (1998) CHRYSLER CORP Revenue (1998) Employees (1998) THE OFFICERS: - DAIMLER CHRYSLER Co-Chairman and Co-CEO Co-Chairman and Co-CEO Chief Financial Officer Sr. VP. Engg. And Tech Exec VP Prod Dev and Design ::::Robert Eaton Juergen E. Schrempp :Manfred Gentz ::$ 91.9 Billion 104,000 ::$ 154.61 Billion 4,41,500

AFFECTED : -

Bernard Robertson Thomas C. Gale

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Overview of the Merger

The $37 billion merger of Chrysler corp., the third largest car maker in the U.S., and Germanys 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 DaimlerChrysler manufactured its cars in 34 countries and sold them in more than 200 countries.

History of Daimler Benz AG

In 1882, Gottlieb Daimler, a gunsmith who studied engineering in several European countries, joined with researcher Wilhelm Maybach to set up an experimental workshop. They tested their first engines on a wooden bicycle, a four- wheeled vehicle, and a boat. The French rights to Daimlers engines were sold to Panhard Levassor.

In 1906, Ferdinand Porsche replaced Daimlers oldest son, Paul Daimler, as chief engineer at the companys Austrian factory after Paul returned to the main plant in Stuttgart, Germany.

The Daimler and Benz companies began coordinating designs and production in 1924, but they maintained their own brand names. Two years later, Daimler and Benz merged to become Daimler Benz AG, which began producing cars under the name Mercedes Benz. The merger allowed the two firms to avoid bankruptcy in the midst of poverty and inflation in Germany after World War 1. In 1939, the German government took over that nations auto industry, appropriating its factories to manufacture trucks, tanks, and aircraft engines for the Luftwaffe during World War 2.

In 1957, convicted war criminal Friedrich Flick raised his personal stake in Daimler-Benz to over 37%, gaining controlling interest as an individual stockholder. Within two years, Flicks $20 million investment had grown in worth $200 million, making him Germanys second ranking industrialist. His holdings allowed him to push the firm to buy 80% of its competitor,

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Auto Union, in order to gain a smaller car for the product line; the acquisition made DaimlerBenz the fifth-largest auto-mobile manufacturer in the world and the largest outside the U.S.

Daimler-Benz purchased Freightliner, a manufacturer of heavy trucks, just as sales dropped with the onset of the U.S. recession in the early 1980s. Daimler-Benz acquired a stake in Metallgesellschaft AG, a Frankfurt-based international supplier of raw materials and technological services, in 1991. Several major stock acquisitions and working agreements with international corporations such as Fokker of Netherlands, Germanys Siemens AG, and Swedens Electrolux were completed in 1992. That year, Daimler-Benz announced 7,500 layoffs in addition to 20,000 previous job losses. By 1995, 70,000 jobs had been eliminated.

With competitor BMW closing on the leadership of German luxury car sales, Daimler-Benz relied heavily on revision of its popular Mercedes 190 compact in 1993. Instead, a $1.05 billion loss was reported, one of the companys worst ever. In 1994, the largest rights issued in German history was completed as Daimler-Benzs one-for-ten offer left U.S. shareholders with over an 8% stake in the company. The entire transaction totalled $1.9 billion.

History of Chrysler Corporation

In 1924, the Maxwell Motor Corporation, headed by Walter Chrysler, produced the first Chrysler automobile. Over 32,000 models were sold for a profit in excess of $4 million. On June 6, 1925, Chrysler was incorporated when Walter Chrysler took over Maxwell Motor Car. On accomplishments included the introduction of the Chrysler Four Series 58 with a top speed of 58 mph.

By 1927, Chrysler had sold 192,000 cars to become fifth in the industry. The company acquired Dodge Brothers, Inc., quintupling its size. In 1933, Chrysler surpassed Ford, its major competitor, in annual sales for the first time.

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The company continued to thrive, and in 1934, Chrysler developed its first automatic overdrive transmission, as well as the industrys first one-piece, curved glass windshield. In 1938, Chrysler established and became minority owner in Chrysler de Mexico.

In 1946, Chrysler began production of the first hardtop convertible. Four years later, the company expanded outside North America by purchasing a majority of Chrysler Australia, Ltd. Electric powered windows were developed as well.

The Hemi, a hemispheric combustion chamber V-8 engine, and the Oriflow shock absorbers were designed in 1951. By 1955, drivers of Chrysler products were the first to enjoy alltransistor car radios and the convenience of power steering. The company ended the decade by developing electronic fuel injection as an alternative to carburettors.

In 1960, production of the De Soto ceased. Chrysler introduced its first 5/50 warranty five years or 50,000 miles on drive train components in 1963. Safety innovations such as front seat shoulder harness and a self-contained rear heater/defroster system were developed in 1966, as well as the Air Package, a system for controlling exhaust emissions. Continual management changes were blamed for a $4 million loss in 1969; the firm was operating at only 68% of its capacity. Chrysler fared no better during the 1970s. After losing $52 million in 1974 and $250 million in 1975, the board tapped former Ford president Lee Iacocca to take over as president and CEO.

In January of 1980, President Jimmy Carter signed the Chrysler Corp. Loan Guarantee Act, which provided the company with $1.5 billion in federal loan guarantees and stipulated that Chrysler sell its corporate jets. In July of that year, Iacocca began appearing in Chryslers television advertisements in an effort to boost sales. The next year, however, Chrysler reported a record loss of $1.7 billion, cut inventories by $1 billion, and reduce the white collar staff by 50%.

In 1982, Iacocca released his autobiography, which became the best-selling non-fiction hardcover book in the U.S. Hoping that interest in the company would increase as well, Chrysler paid off its government loan seven years early.

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Turnaround efforts paid off with the record 1984 net profit of $2.4 billion. That year, Chrysler acquired 15.6% in Officine Alfieri Maserati SpA. In 1985, it brought Gulfstream Aerospace for $367 million and began a joint venture, Diamond Star Motors, with Mitsubishi Motors Corp. to build small cars in the U.S. Later in 1987, Chrysler was divided up as a holding company with four divisions: Chrysler Motors, Chrysler Financial, Chrysler Technologies, and Gulfstream Aerospace. The holding companys headquarters moved from Highland Park, Michigan, to Manhattan, New York.

Shareholders approved the acquisition of Renaults 46% stake in American Motors Corp., maker of Jeep and Eagle vehicles, for $800 million.

Market forces driving the Merger The deal between Chrysler and Daimler-Benz was pit into motion in the early 1990s, 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 its 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 companys only option.
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Approach and Engagement Daimler-Benz CEO Jurgen Schrempp called Chrysler CEO Eaton in January of 1998. They met briefly at Chryslers headquarters during North American International Auto Show in Detroit. A deal between Daimler-Benz and Chrysler seemed inevitable until Fords Alex Trotman contacted Schrempp about a possible alliance. Trotman and Schrempp met in London in March to discuss terms. Prior to the second meeting, however the deal fizzled after Trotman admitted to Schrempp that the Ford family was unwilling to consider a deal that would reduce its 40% stake of Fords voting stock. Schrempp and Eaton rekindled their merger negotiations and their merger negotiations and the $37 billion deal was officially announced on May 7 in London. According to the terms of the agreement the new firm named DaimlerChrysler- would be incorporated in Germany 58% owned by former Daimler-Benz shareholders, and managed mainly by former Daimler-Benz Executives. Schrempp would gain full control. After more than 98% of Daimler-Benz shares were converted into DaimlerChrysler shares, the new firm was officially listed on worldwide stock exchanges on November 17, 1998. Products and Services After the merger, DaimlerChrysler manufactured the following makes of automobiles: Chrysler, Dodge, Eagle, Jeep, Mercedes-Benz, Plymouth and Smart, a compact car. Chrysler passenger car made up 41% of total sales; Daimler passenger accounted for 24%. Other automotive operations, which secured 17% of sales, included four wheel drive vehicle, commercial vehicles, tucks and busses. Services accounted for 9%of sales and encompassed financial, insurance brokerage, information technology, telecommunications and real estate management. Aerospace operations made up another 6% of total revenues. Changes in the Industry The new DaimlerChrysler moved into the fifth place spot among global automakers based on the four million vehicles it was estimated to produce in 1999. Anticipated sales of $155.3 billion positioned the firm as third in the world in terms of revenue. Analysts heralded the deal as the first in a wave of intense global consolidation among the industrys leading players. Accordingly, DC stock continued to outperform Ford Motor company co., General Motors Corp., Dow Jones Industrial average in May of 1999. 1 year after the deals formal announcements

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Review of Outcome The new firm faced its first hurdle immediately. Standard & Poors chose not to list DC in the Standard & Poors 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 Daimlers 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.

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CASE STUDY 2 CASE STUDTCASE STUDY ON THE MERGER OF ICICI BANK AND BANK OF RAJASTHAN ICICI BANK is Indias 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. 172.24 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, Indis 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, Indias 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 BoRs non-performing loans and that BoR is trading at expensive valuations.
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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 NPAs 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 Banks 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 NPAs 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.

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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. Mergerand-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 goals.

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Some of the reasons identified are: 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 target

ANALYSIS OF DATA Q.1) Do you think Merger fail due to HR issues? Ans. A) yes B) No The reaction of people towards involvement of HR issues in failure merger is as follows: HR issues Percentage YES 64 NO 36

In the survey that the researcher conducted, it could easily be concluded that HR issues are mainly concerned with failure in mergers and acquisitions and should be taken carefully at the time of merger. As data shows 64% people think due to HR issues merger failed but 36% say no. This can be presented graphically with the form of following bar graph.

Q.2) Which method do you think is good for valuation? Ans. A.) Book value B.)Enterprise value C.) DCF Model D.)Three stage growth model

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The reaction of people towards which one is good valuation for merger are as follows:

Valuation method

Book value

Enterprise value

DCF model

Three stage growth model

Percentage

17

25

35

22

In the survey that the researcher conducted, it could easily be concluded that DCF model is good valuation during merger, followed by Enterprise value and then three stage growth model and book value is least preferred by people. This can be presented graphically with the form of following bar graph.

Q.3) Do you think Merger fail due to Cultural issues? Ans. A) Yes B) No The reaction of people towards involvement of Cultural issues in failure merger are as follows:

Cultural Issues Percentage

Yes 92

No 8

In the survey that the researcher conducted, it could easily be concluded that Cultural issues are mainly concerned with failure in mergers and acquisitions and should be taken carefully at the time of merger. As data shows 92% people think due to Cultural issues merger failed but 8% say no. This can be presented graphically with the form of following bar graph.

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Q.4) Do you think, paying high acquisition premium has negative impact on acquirer growth? Ans. A) Yes B) No The reaction of people towards involvement of Cultural issues in failure merger are as follows: In the survey that the researcher conducted, it could easily be concluded that paying high Acquisition premium are mainly concerned with failure in mergers and acquisitions and should be taken carefully at the time of merger. As data shows 55% people think yes but 45% say no. Q.5) Do you think greater the market similarity the better the performance? Ans. A) Yes B) No In the survey that the researcher conducted, it could easily be concluded that market similarities are mainly concerned with increase in performance of mergers and acquisitions. As data shows 87% people think yes but 13% say no. Q.6) Which acquisition is more effective and better for acquirer? Ans. A) Friendly B) Hostile In the survey that the researcher conducted, it could easily be concluded that friendly acquisition are mainly concerned with increase in performance of mergers and acquisitions. As data shows 79% people think friendly merger is better but 21% say Hostile. Q.7) What do you think the reason for acquiring the firm? Ans. A) Target firm is too cheap to buy B) Target firm has crown jewels C) For diversification In the survey that the researcher conducted, it could easily be concluded that Diversification is only reason for merger, followed by Crown jewels and then 29% says merger happens only when acquire is cheaper and book value is least preferred by people.

Q.8) Do you think most of merger fail because acquirer deal with larger target?

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Ans. A) Yes B) No In the survey that the researcher conducted, it could easily be concluded merger failed because acquirer deal with larger targer. As data shows 69% people think yes but 31% say no. Q.9) Do you think during pre-merger only financial team is assembled and the make the decision? Ans, A) Yes B) No In the survey that the researcher conducted, it could easily be concluded merger failed because acquirer assembled only financial team. As data shows 42% people think yes but 58% say no. In the survey that the researcher conducted, it could easily be concluded merger failed because acquirer assembled only financial team. As data shows 42% people think yes but 58% say no.

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The DaimlerChrysler Merger Summary
In the mid-1990s, Chrysler Corporation was the most profitable automotive producer in the world. Buoyed by record light truck, van, and large sedan sales, revenues were at an all-time high. Chrysler had taken a risk in producing vehicles that captured the bold and pioneering American spirit when imports dominated the market the Dodge Ram, the Jeep Grand Cherokee and the LH Sedan Series. In these vehicles Chrysler found an instant mass appeal, and its U.S. market share climbed to 23% in 1997. As revenues and market share rose, product development costs shrank to 2.8% of revenues - compared with 6% at Ford and 8% at General Motors1.Chrysler's integrated design teams and noncompetitive relationships with suppliers kept costs down, while its marketing department scored success after success in gauging consumer tastes. Chrysler had always fashioned itself the bold and risk-taking underdog. It had brought itself back from the brink of bankruptcy four times since the Second World War, and its boom bust revenue flow pattern had earned it a "comeback kid" reputation. With $7.5 billion in cash on hand and a full range of best-selling products, Chrysler finally seemed ready in 1997 to weather the volatile American automotive business cycle on its own without government bailouts or large-scale R&D cutbacks2. Its wealth did not go unnoticed: Investor Kirk Kerkorian, a 13% shareholder, threatened to mount a takeover -- citing "the management's practice of cash hoarding" as his reason. In 2001, three years after a "merger of equals" with Daimler-Benz, the outlook is much bleaker. The financial data is sobering: Chrysler Group is on track to hemorrhage $3 billion this year, its U.S. market share has sunk to 14%, earnings have slid by 20%, and the once independent company has been fully subordinated to Stuttgart4. Its key revenue generators the minivan, the Jeep SUV, and the supercharged pickup truck have all come under heavy competition from Toyota, Honda, General Motors and Ford. Chrysler continues to make few passenger cars of note, save the Neon and limited-release Viper and Prowler. In the words of DaimlerChrysler CEO Jrgen Schrempp, "What happened to the dynamic, can-do cowboy culture I bought?"

The Rationale for a "Merger of Equals" On July 17, 1997, Chrysler CEO Bob Eaton walked into the auditorium at company headquarters in Auburn Hills, Michigan, and gave the speech of his life. Instead of reveling in four years of rapid growth, he warned of trouble brewing on the horizon. His urgent oratory, adapted from the nonfiction bestseller The Perfect Storm, a tale of three fishermen caught at the confluence of three potent storms off the Canadian coast, warned that a triad of similar factors threatened to
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sink Chrysler in the coming decade. "I think," Eaton said, "there may be a perfect storm brewing around the industry today. I see a cold front, a nor'easter, and a hurricane converging on us all at once.6" The cold front was chronic overcapacity, the nor'easter was a retail revolution that empowered buyers, and the hurricane was a wave of environmental concerns that threatened the very existence of the internal combustion engine. "Read The Perfect Storm, and you will learn," Eaton implored the assembled executives, "that when a seventy-two foot boat tries to climb a hundred-foot wave and doesn't make it, it slides back down the face of the wave, out of control . . .and plunges into the trough, stern first. Sometimes the boat bobs back up. Sometimes it doesn't.7 "In the book, the lesson was that there's only one way to survive the perfect storm. Don't go there. Be somewhere else" Eaton said. "And don't do it alone" Daimler- Benz, meanwhile, was looking for a soul-mate. Despite a booming U.S. economy, its luxury vehicles had captured less than 1% of the American market9. Its vehicle production method was particularly labor intensive - requiring nearly twice as many workers per unit produced over Toyota's Lexus division. It recognized that it could benefit from an economy of scale in this capitalintensive industry. With $2.8 billion in annual profits, remarkable efficiency, low design costs, and an extensive American dealership network,Chrysler appeared to be the perfect match. On May 7th, 1998, Eaton announced that Chrysler would merge with Daimler-Benz. Thanks to a $37 billion stock-swap deal, the largest trans-Atlantic merger ever, Chrysler would not "do it alone" any longer10. Daimler-Benz CEO Jrgen Schrempp hailed the union as "a merger of equals, a merger of growth, and a merger of unprecedented strength". The new company, with 442,000 employees and a market capitalization approaching $100 billion, would take advantage of synergy savings in retail sales, purchasing, distribution, product design, and research and development. When he rang the bell at the New York Stock Exchange to inaugurate trading of the new stock, DCX, Eaton predicted, "Within five years, we'll be among the Big Three automotive companies in the world". Three years later DaimlerChrysler's market capitalization stands at $44 billion, roughly equal to the value of Daimler-Benz before the merger13. Its stock has been banished from the S&P 500, and Chrysler Group's share value has declined by onethird relative to pre-merger values. Unlike the Mercedes-Benz and Smart Car Division, which posted an operating profit of EUR 830 million in Q3 2000, the Chrysler Group has been losing money at an alarming rate. In the same quarter, it lost $512 million14.

Why the Merger Failed Culture Clash:


To the principles involved in the deal, there was no clash of cultures. There was a remarkable meeting of the minds at the senior management level. They look like us, they talk like us, theyre

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focused on the same things, and their command of English is impeccable. There was definitely no culture clash there.. Although DaimlerChrysler's Post-Merger Integration Team spent several million dollars on cultural sensitivity workshops for its employees on topics such as "Sexual Harassment in the American Workplace" and "German Dining Etiquette," the larger rifts in business practice and management sentiment remain unchanged. James Holden, Chrysler president from September 1999 through November 2000, described what he saw as the "marrying up, marrying down" phenomenon. "Mercedes was universally perceived as the fancy, special brand, while Chrysler, Dodge, Plymouth and Jeep [were] the poorer, blue collar relations"16. This fueled an undercurrent of tension, which was amplified by the fact that American workers earned appreciably more than their German counterparts, sometimes four times as much. The dislike and distrust ran deep, with some Daimler-Benz executives publicly declaring that they "would never drive a Chrysler". "My mother drove a Plymouth, and it barely lasted two-and-ahalf years," commented Mercedes-Benz division chief Jrgen Hubbert to the then Chrysler vicechairman, pointed out to the Detroit Free Press that "The Jeep Grand Cherokee earned much higher consumer satisfaction ratings than the Mercedes M-Class". With such words flying across public news channels, it seemed quite apparent that culture clash has been eroding the anticipated synergy savings. Much of this clash was intrinsic to a union between two companies which had such different wage structures, corporate hierarchies and values. At a deeper level, the problem was specific to this union: Chrysler and Daimler- Benz's brand images were founded upon diametrically opposite premises. Chrysler's image was one of American excess, and its brand value lay in its assertiveness and risk-taking cowboy aura, all produced within a costcontrolled atmosphere. Mercedes-Benz, in contrast, exuded disciplined German engineering coupled with uncompromising quality. These two sets of brands, were they ever to share platforms or features, would have lost their intrinsic value. Thus the culture clash seemed to exist as much between products as it did among employees. Distribution and retail sales systems had largely remained separate as well, owing generally to brand bias. Mercedes-Benz dealers, in particular, had proven averse to including Chrysler vehicles in their retail product offerings. The logic had been to protect the sanctity of the Mercedes brand as a hallmark of uncompromising quality. This had certainly hindered the Chrysler Group's market penetration in Europe, where market share remained stagnant at 2%19. Potentially profitable vehicles such as the Dodge Neon and the Jeep Grand Cherokee had been sidelined in favor of the less-cost-effective and troubled Mercedes A-Class compact and M-Class SUV, respectively. The A-Class, a 95 hp, 12 foot long compact with an MSRP of approximately $20,000, competed in Europe against similar vehicles sold by Opel, Volkswagen, Renault and Fiat for approximately $9,000-$16,000. Consumers who ordinarily would have paid a premium for Mercedes' engineering and safety record had been disappointed by the A-Class which failed an emergency maneuver test conducted by a Swedish television station in 199920. The A-Class appeared both overpriced and underengineered for the highly competitive European compact market. The Dodge

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Neon, in contrast, could have competed more effectively in this segment with an approximate price of $13,000, similar mechanical specifications, and a record of reliability. Brand bias, however, had prevented this scenario from becoming reality. Differing product development philosophies continued to hamper joint purchasing and manufacturing efforts as well. Daimler-Benz remained committed to its founding credo of "quality at any cost", while Chrysler aimed to produce price-targeted vehicles. This resulted in a fundamental disconnect in supply-procurement tactics and factory staffing requirements. Upon visiting the Jeep factory in Graz, Austria, Hubbert proclaimed: "If we are to produce the M-Class here as well, we will need to create a separate quality control section and double the number of line workers. It simply can't be built to the same specifications as a Jeep21". The M-Class was eventually built in Graz, but not without an expensive round of retooling and hiring to meet Hubbert's manufacturing standards.

Mismanagement:
In autumn 2000, DaimlerChrysler CEO Jrgen Schrempp let it be known to the world via the German financial daily Handelsblatt - that he had always intended Chrysler Group to be a mere subsidiary of DaimlerChrysler. "The Merger of Equals statement was necessary in order to earn the support of Chrysler's workers and the American public, but it was never reality"22. This statement was relayed to the English-speaking world by the Financial Times the day after the original news broke in Germany. To be sure, it was apparent from Day One that Daimler-Benz was the majority shareholder in the conglomerate. It controlled the majority of seats on the Supervisory Board; yet the DaimlerChrysler name and two parallel management structures under co-CEOs at separate headquarters lent credence to the "merger of equals" notion. This much, however, is clear: Jrgen Schrempp and Bob Eaton did not follow a coordinated course of action in determining Chrysler's fate. During 1998-2001, Chrysler was neither taken over nor granted equal status. It floated in a no man's land in between. The managers who had built Chrysler's "cowboy bravado" were no more. Some remained on staff, feeling withdrawn, ineffective and eclipsed by the Germans in Stuttgart. Others left for a more promising future at G.M. or Ford. The American dynamism faded under subtle German pressure, but the Germans were not strong enough to impose their own managers. According to a Daimler-Benz executive, "Eaton went weeks without speaking with Jrgen Schrempp. He preferred to maintain lower-level contact. . .Jrgen, meanwhile, was afraid of being labeled a takeover artist. He left Chrysler alone for too long". Why? According to one well-placed senior executive at Chrysler, Jurgen Schremp

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looked at Chryslers past success and told himself there is no point in trying to smash these two companies together. Some stuff was pulled together but they said operationally lets let the Chrysler guys continue to run it because they have done a great job in the past. What they didnt take into account was that immediately prior to the consummation of the merger or shortly thereafter, enough of the key members of that former Chrysler management team left. They saw the forest but they didnt realize that removing four or five key trees was going to radically change the eco system in that forest. It was a misjudgment. As a result, Chrysler sat in apathy, waiting for Daimler's next move - a move which came too late eleven months after Eaton's retirement -- when Schrempp installed a German management team on November 17, 2000. During that interval, Chrysler bled cash. After the merger, many people in Auburn Hills observed that co- CEO Bob Eaton appeared withdrawn, detached, and somewhat dispassionate about the company he continued to run. Even Schrempp encouraged him to "act like a co-chairman and step up to the podium" to no avail. Two valuable vice-presidents, engineer Chris Theodore and manufacturing specialist Shamel Rushwin, left for jobs at Ford24. According to then-president Peter Stallkamp, Eaton "had really checked-out about a year before he left. . .The managers feared for their careers, and in the absence of assurance, they assumed the worst. There were a good eighteen months when we were being hollowed out from the core by the Germans' inaction and our own paralysis". During the period 1998-2000, the Honda Odyssey came to rival the Dodge Caravan, the Toyota Tundra threatened the Dodge Ram, and SUVs from GM, Ford, Nissan and Toyota attacked Jeep's market share. Chrysler responded with little innovations, and competitive price reductions only began in Q2 2001. Its traditional dominance in the SUV and light truck market had been challenged, and it had not adequately responded. While Chrysler's management languished, the market continued to function, and the industry left Chrysler in the dust. Synergy savings are only achieved when two companies can produce and distribute their wares more efficiently than when they were apart. Owing to culture clash and a poorly integrated management structure, DaimlerChrysler is unable to accomplish what its forbears took for granted three years ago: profitable automotive production.

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CASE - 2 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

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RECOMMENDATIONS 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 the type of company and market. Typical areas covered include financial, legal, labor,

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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 companys 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-SellReturn 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

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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.

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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 Kuma

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

4 ) SUCESSFUL MERGERS getting the people issues right Marion Devin

Websites

1) www.investopedia.com

2) www.wallstreetjournal.com

3) www.ny-times.com

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4) www.economictimes.com

5) www.google.com

6) www.wikipedia.com

News Papers

1) The Economic Times 2) Mint

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