Types of Merger

1. Horizontal merger: It is a merger of two or more companies that compete in the same industry. It is a merger with a direct competitor and hence expands as the firm’s operations in the same industry. Horizontal mergers are designed to produce substantial economies of scale and result in decrease in the number of competitors in the industry. The merger of Tata Oil Mills Ltd. with the Hindustan lever Ltd. was a horizontal merger. In case of horizontal merger, the top management of the company being meted is generally, replaced, by the management of the transferee company. One potential repercussion of the horizontal merger is that it may result in monopolies and restrict the trade. Weinberg and Blank define horizontal merger as follows: “A takeover or merger is horizontal if it involves the joining together of two companies which are producing essentially the same products or services or products or services which compete directly with each other (for example sugar and artificial sweetness). In recent years, the great majority of takeover and mergers have been horizontal. As horizontal takeovers and mergers involve a reduction in the number of competing firms in an industry, they tend to create the greatest concern from an anti-monopoly point of view, on the other hand horizontal mergers and takeovers are likely to give the greatest scope for economies of scale and elimination of duplicate facilities.” 2. Vertical merger: It is a merger which takes place upon the combination of two companies which are operating in the same industry but at different stages of production or distribution system. If a company takes over its supplier/producers of raw material, then it may result in backward integration of its activities. On the other hand, Forward integration may result if a company decides to take over the retailer or Customer Company. Vertical merger may result in many operating and financial economies. The transferee firm will get a stronger position in the market as its production/distribution chain will be more integrated than that of the competitors. Vertical merger provides a way for total integration to those firms which are striving for owning of all phases of the production schedule together with the marketing network (i.e., from the acquisition of raw material to the relating of final products). “A takeover of merger is vertical where one of two companies is an actual or potential supplier of goods or services to the other, so that the two companies are both engaged in the manufacture or provision of the same goods or services but at the different stages in the supply route (for example where a motor car manufacturer takes over a manufacturer of sheet metal or a car distributing firm). Here the object is usually to ensure a source of supply or an outlet for products or services, but the effect of the merger may be to improve efficiency through improving the flow of production and reducing stock holding and handling costs, where, however there is a

degree of concentration in the markets of either of the companies, anti-monopoly problems may arise.” 3. Co generic Merger: In these, mergers the acquirer and target companies are related through basic technologies, production processes or markets. The acquired company represents an extension of product line, market participants or technologies of the acquiring companies. These mergers represent an outward movement by the acquiring company from its current set of business to adjoining business. The acquiring company derives benefits by exploitation of strategic resources and from entry into a related market having higher return than it enjoyed earlier. The potential benefit from these mergers is high because these transactions offer opportunities to diversify around a common case of strategic resources. Western and Mansinghka classified cogeneric mergers into product extension and market extension types. When a new product line allied to or complimentary to an existing product line is added to existing product line through merger, it defined as product extension merger, Similarly market extension merger help to add a new market either through same line of business or adding an allied field . Both these types bear some common elements of horizontal, vertical and conglomerate merger. For example, merger between Hindustan Sanitary ware industries Ltd. and associated Glass Ltd. is a Product extension merger and merger between GMM Company Ltd. and Xpro Ltd. contains elements of both product extension and market extension merger. 4. Conglomerate merger: These mergers involve firms engaged in unrelated type of business activities i.e. the business of two companies are not related to each other horizontally ( in the sense of producing the same or competing products), nor vertically( in the sense of standing towards each other n the relationship of buyer and supplier or potential buyer and supplier). In a pure conglomerate, there are no important common factors between the companies in production, marketing, research and development and technology. In practice, however, there is some degree of overlap in one or more of this common factors. Conglomerate mergers are unification of different kinds of businesses under one flagship company. The purpose of merger remains utilization of financial resources enlarged debt capacity and also synergy of managerial functions. However these transactions are not explicitly aimed at sharing these resources, technologies, synergies or product market strategies. Rather, the focus of such conglomerate mergers is on how the acquiring firm can improve its overall stability and use resources in a better way to generate additional revenue. It does not have direct impact on acquisition of monopoly power and is thus favored through out the world as a means of diversification.

crossborder merger
A cross-border merger is a transaction in which the assets and operation of two firms belonging to or registered in two different countries are combined to establish a new legal entity. In a cross-border acquisition, the control of assets and operations is transferred from a local to a foreign company, with the former becoming an affiliate of the latter.

Definition of 'Divestiture'
The partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy. Divestiture can be done slowly and systematically over a long period of time, or in large lots over a short time period.

Investopedia explains 'Divestiture'
For a business, divestiture is the removal of assets from the books. Businesses divest by the selling of ownership stakes, the closure of subsidiaries, the bankruptcy of divisions, and so on. In personal finance, investors selling shares of a business can be said to be divesting their interests in the company being sold.

Post Merger Integration
Successful Post Merger Integration requires well-planned, coordinated communications. Improvising communication, just "winging it," can feed the rumor mill, create needless anxiety, and harm productivity. Studies done on customer satisfaction in mergers say that customers typically expect merging companies to have the majority of their “customer-facing issues” resolved within 100 days postclose. They will be pretty tolerant of mistakes, glitches, and bumps up to that period, but after about 100 days, they expect things to be running smoothly, if not perfectly. Merging companies that take longer than 100 days to iron out their customer issues begin to experience dramatically-rising customer defection rates. One can sometimes refer to 100 days as the “customer tolerance point

Definition of 'Leveraged Buyout - LBO'
The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

EV differs significantly from simple market capitalization in several ways. In the event of a buyout. The value of a firm's debt. For this reason. Definition of 'Enterprise Value . Because of this high debt/equity ratio. Investopedia explains 'Enterprise Value .LBO' In an LBO.. there is usually a ratio of 90% debt to 10% equity. The three companies paid around $33 billion for the acquisition. some regard LBOs as an especially ruthless.Investopedia explains 'Leveraged Buyout . minority interest and preferred shares. Tender offers in the United States are regulated by the Williams Act.EV' A measure of a company's value. to replace the management with a new one which will approve the takeover. would need to be paid by the buyer when taking over a company. A tender offer can be made where the acquiring company makes a public offer at a fixed price above the current market price. for example.EV' Think of enterprise value as the theoretical takeover price. Hostile takeovers A hostile takeover can be conducted in several ways. and many consider it to be a more accurate representation of a firm's value. Bain & Co. whereby it tries to persuade enough shareholders. especially in the 1980s when several prominent buyouts led to the eventual bankruptcy of the acquired companies. Leveraged buyouts have had a notorious history. the bonds usually are not investment grade and are referred to as junk bonds. predatory tactic. This was mainly due to the fact that the leverage ratio was nearly 100% and the interest payments were so large that the company's operating cash flows were unable to meet the obligation. but would pocket its cash. Another method involves quietly purchasing enough stock on the open market. and Merrill Lynch. One of the largest LBOs on record was the acquisition of HCA Inc. An acquiring company can also engage in a proxy fight. Enterprise value is calculated as market cap plus debt. It can be considered ironic that a company's success (in the form of assets on the balance sheet) can be used against it as collateral by a hostile company that acquires it. known as a creeping . thus EV provides a much more accurate takeover valuation because it includes debt in its value calculation. minus total cash and cash equivalents. (KKR). an acquirer would have to take on the company's debt. usually a simple majority. often used as an alternative to straightforward market capitalization. in 2006 by Kohlberg Kravis Roberts & Co.

tender offer. the directors of the company may or may not have endorsed the tender offer proposal. Tender offer Tender offer is a corporate finance term denoting a type of takeover bid. to effect a change in management. Shareholders of a public corporation may appoint an agent to attend shareholder meetings and vote on their behalf." Proxy fight A proxy fight or proxy battle is an event that may occur when a corporation's stockholders develop opposition to some aspect of the corporate governance. If the board of the target cooperates. The tender offer is a public. often focusing on directorial and management positions. votes by one individual or institution as the authorized representative of another) to install new management for any of a variety of reasons. but banks are often less willing to back a hostile bidder because of the relative lack of information about the target available to them. publicly-available information about the target company available. a hostile bidder will only have more limited. These incumbents use various corporate governance tactics to stay in power including: staggering the boards (i. An additional problem is that takeovers often require loans provided by banks in order to service the offer. although a tender offer in which securities are offered as consideration is generally referred to as an "exchange offer. For example. The main consequence of a bid being considered hostile is practical rather than legal. an acquirer might offer $11. In all of these ways. That agent is the shareholder's proxy. Cash or securities may be offered to the target company's shareholders.50 per share to shareholders on the condition that 51% of shareholders agree. To induce the shareholders of the target company to sell. In contrast. In a tender offer. rendering the bidder vulnerable to hidden risks regarding the target company's finances. if a target corporation's stock were trading at $10 per share. the bidder contacts shareholders directly. the bidder can conduct extensive due diligence into the affairs of the target company. incumbent directors and management have the odds stacked in their favor over those trying to force the corporate change. the acquirer's offer price usually includes a premium over the current market price of the target company's shares. subject to the tendering of a minimum and maximum number of shares. having different election years for .e.e. Corporate activists may attempt to persuade shareholders to use their proxy votes (i. open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded corporation (the target corporation) to tender their stock for sale at a specified price during a specified time. management resists the acquisition but it is carried out anyway.[1] In a proxy fight. providing the bidder with a comprehensive analysis of the target company's finances.

Buyer doesn't know which specific company is sending the document. including the Bank of America and the New York Central Railroad. An example of a proxy fight took place within HewlettPackard. that is. proxy fights can come about because dissidents are unhappy with management. The management. Stockholder dissidents opposed to an impending takeover in the view that it will dilute value may also use a proxy fight to stop it. may initiate a proxy fight to install a more compliant management of the target. under Carly Fiorina. Send/receive a teaser. . Opponents of the Compaq takeover lost the fight. as with Carl Icahn's effort in 2005-2006 to oust a majority of the board of Time Warner. detailing such 1950s battles as the fight for control of some of America's largest corporations. when the management of that company sought to take over Compaq. being a Buyer is far more difficult than being a Seller! 3. it has been recently noted that proxy fights waged by hedge funds are successful more than 60% of the time. Fight for Control. The teaser is usually anonymous. That discussion allows you to gauge the target's interest level and whether proceeding makes sense. can be found in David Karr's 1956 volume. Making a phone call and discussing the target's interest is important. the problem the company solves. and creating restrictive requirements in the bylaws.[4] An early history of proxy fighting. most proxy fights are unsuccessful. and the merger went ahead. However. Steps of the M&A Process 1. 2. and believe it or not.[3] In the absence of any looming takeover. You can't buy or sell a business unless you have a list of suitable Sellers or Buyers.[2] Examples An acquiring company. Knowing how to make a pitch is an art. controlling access to the corporation's money. Contact the targets. The teaser (sometimes called an executive summary) is the document Seller sends to Buyer to give Buyer just enough information (the product. frustrated by the takeover defenses of the management. As a result. remained in place. and some high-level financials) to make Buyer want to learn more. Compile a target list.different directors). the customers.

5. 9. Submit/solicit an indication of interest (IOI). Buyer examines Seller's books and records to confirm everything Seller has claimed. Buyer and Seller usually have some post-closing financial adjustments. Handle any post-closing adjustments and integration. The CIM or deal book is the Seller's bible and provides all the information (including company history. 12. In the due diligence phase. Buyer and Seller get a chance to meet face to face. and Seller gives Buyer the company. 10. Close the deal. product descriptions. Buyer gives Seller the money. Ask for or submit a letter of intent (LOI). 6. customer info. most often with a valuation range rather than a specific price. . 11. both sides gauge how compatible they are. Based on the material in the CIM and on the updates from the management meetings.4. 7. Write the purchase agreement. Conduct management meetings. Both sides agree to keep the deal discussions and materials confidential. Sign a confidentiality agreement. financials. Buyer submits this detailed offer with a firm price. Buyer expresses interest in doing a deal by submitting this simple written offer. Buyer and Seller memorialize the deal in this legally binding contract. Seller provides Buyer with an update of the business and guidance for future performance. Send/review the confidential information memorandum (CIM). Conduct due diligence. 8. Additionally. and Buyer has to integrate the acquired company into the parent company or make sure it can continue to operate as a standalone business. Closing isn't the end of the deal. and more) Buyer needs to determine whether to make an offer. In these meetings. Closing is rather anticlimactic: Both sides sign lots of papers.

the owner has some personal assets he does not want to sell. he should estimate the likelihood of their collection and adjust their value accordingly. they discovered that most of the lumber in a warehouse they had neglected to inspect was warped and was of little value as building material. and fixtures. The first step is to determine which assets are included in the sale. inventory usually is the largest single asset involved in the sale. One young couple purchased a lumber yard without examining the inventory completely. The bargain price they paid for the business turned out not to be the good deal they had expected. and finished goods. Variation: Adjusted Balance Sheet Technique. the buyer should evaluate the condition of the goods. In manufacturing. each having its own method of valuation: raw materials. some buyers insist on having a knowledgeable representative on an inventory team that counts the inventory and checks its condition. If a buyer purchases notes and accounts receivable. Nearly every sale involves merchandise that . inventories. but the most common methods use the cost of last purchase and the replacement value of the inventory. Remember that net worth on a financial statement will likely differ significantly from actual net worth in the market. Taking a physical inventory count is the best way to determine accurately the quantity of goods to be transferred. and retail businesses. supplies. The sale may include three types of inventory. The problem with this technique is that it fails to recognize reality: Most small businesses have market values that exceed their reported book values. Typical assets in a business sale include notes and accounts receivable. The buyer and the seller must arrive at a method for evaluating the inventory First-in-first-out (FIFO). work in-process. although it is not highly recommended because it oversimplifies the valuation process. A more realistic method for determining a company's value is to adjust the book value of net worth to reflect actual market value. The values reported on a company’s books may overstate or understate the true value of assets and liabilities. last-in-first out (LIFO). In most cases. After completing the sale. and average costing are three frequently used techniques. This method computes the company's net worth or owner's equity (net worth = assets .FIRM VALUATION IN MERGERS AND ACQUISITIONS BALANCE SHEET VALUATION The balance sheet technique is one of the most commonly used methods of evaluating a business.liabilities) and uses this figure as the value. wholesale. Before accepting any inventory value. To avoid such problems.

The next method for computing the value of a business is based on its expected future earnings. Gordon. it is used to value stocks based on the net present value of the future dividends. Appraisals of these assets on insurance policies are helpful guidelines for establishing market value. a comparable quoted company/sector should be used. The firms that face important investment. Financial experts believe that business valuations using any method should not be too high or too low because that could be costly. There is no reason to use a calculation of next year's dividend using the current dividend and the growth rate. when management commonly disclose the future year's dividend and websites post it. resulting in either overpayment or lost opportunities. It is named after Myron J. The variables are: is the current stock price. effective management requires an understanding of value creation and a command over valuation analysis. Business evaluations based on balance sheet method suffer one major drawback: they do not consider the future earning potential of the business. The dividend discount model (DDM) is a way of valuing a company based on the theory that a stock is worth the discounted sum of all of its future dividend payments. Price Earnings Multiple Valuation The price-earnings ration (P/E) is simply the price of a company's share of common stock in the public market divided by its earnings per share. . by taking this precaution. By multiplying this P/E multiple by the net income. equipment. the value for the business could be determined. Equipment and fixtures.[2] although the theoretical underpin was provided by John Burr Williams in his 1938 text "The Theory of Investment Value". but. who originally published it in 1959. Fixed assets transferred in a sale might include land. Business owners frequently carry real estate and buildings at prices well below their actual market value. is the value of the next year's dividends. may increase or decrease the true value of the business. acquisition. a buyer minimizes the chance of being stuck with worthless inventory. is the constant growth rate in perpetuity expected for the dividends. and fixtures. These techniques value assets at current prices and do not consider them as tools for creating future profits. particularly in a rapidly changing competitive environment. depending on their condition and usefulness.cannot be sold. or growth decisions. buildings. The equation most always used is called the Gordon growth model. is the constant cost of equity for that company. This valuation method provides a benchmark business valuation as the non-listed companies wishing to use this method.[1] In other words.

'entreprise conjointe'. a new entity and new assets by contributing equity. Some major joint ventures include Dow Corning. such partnership can also be called a joint venture where the parties are "co-venturers". The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements. rental agreements. This method. Joint venture A joint venture (JV) is a business agreement in which parties agree to develop.Business Valuation Method The EVA presents the analysis of the Economic Value Added. when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project. expenses and assets. In Germany. the term 'joint-venture' (or joint undertaking) is an elusive legal concept. invented by Stern Stewart & Co. . for one-time contracts. for a finite time. There are other types of companies such as JV limited by guarantee. EVA Analysis . an advanced evaluation method that measures the performance and the profitability of the business. They exercise control over the enterprise and consequently share revenues. The venture can be for one specific project only . In European law. Norampac. is used today by more and more companies as a framework for their financial management and their incentive compensation system for the managers and the employees. Sony Ericsson. the term 'joint venture' is variously translated as 'association d'entreprises'. management contracts.when the JV is referred to more correctly as a consortium (as the building of the Channel Tunnel) . taking in account the cost of capital that the business employs. Penske Truck Leasing.or a continuing business relationship.[1] With individuals. In France. better defined under the rules of company law. joint ventures limited by guarantee with partners holding shares. The JV is dissolved when that goal is reached. MillerCoors. The future cash flow set is made up of the cash flows within the determined forecast period and a continuing value that represents the cash flow stream after the forecast period. 'joint venture' is better represented as a 'combination of companies' (Konzern).Valuation using discounted cash flows Valuation using discounted cash flows is a method for determining the current value of a company using future cash flows adjusted for time value. 'coentreprise' or 'entreprise commune'. franchise and brand use agreements. and Owens-Corning. the term societe anonyme loosely covers all foreign collaborations. But generally.

Definition of 'Vertical Merger' A merger between two companies producing different goods or services for one specific finished product. Success in a joint venture depends on thorough research and analysis of the objectives. rather than just the immediate returns. both parties must be committed to focusing on the future of the partnership. Since money is involved in a joint venture. For example. A vertical merger occurs when two or more firms. as well as the resulting profits. and effort to build on the original concept. including specialised staff and technology sharing of risks with a venture partner Joint ventures can be flexible. Roughly 80% of all joint ventures end in a sale by one partner to the other. short term and long term successes are both important. There is an imbalance in levels of expertise. and eventually. Companies can gradually separate a business from the rest of the organisation. operating at different levels within an . In order to achieve this success. Since the cost of starting new projects is generally high. While joint ventures are generally small projects. both parties are equally invested in the project in terms of money. The partners don't provide enough leadership and support in the early stages. a joint venture allows both parties to share the burden of the project. integrity. it is necessary to have a strategic plan in place. sell it to the other parent company. Ultimately. What are the Advantages of forming a Joint Venture?        Provide companies with the opportunity to gain new capacity and expertise Allow companies to enter related businesses or new geographic markets or gain new technological knowledge access to greater resources.A joint venture takes place when two parties come together to take on one project. major corporations also use this method in order to diversify. In the era of divestiture and consolidation. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. In a joint venture. time. thus limiting both your commitment and the business' exposure. Different cultures and management styles result in poor integration and co-operation. Problems are likely to arise if: The objectives of the venture are not 100 per cent clear and communicated to everyone involved. a joint venture can have a limited life span and only cover part of what you do. honesty. investment or assets brought into the venture by the different partners. In short. and communication within the joint venture are necessary. The Disadvantages of Joint Ventures       It takes time and effort to build the right relationship and partnering with another business can be challenging. JV’s offer a creative way for companies to exit from non-core businesses.

if any. . strategic complications this provides. The banker also needs to provide an outside view of what competitor companies are doing and what. Financing for such scenarios comes in a variety of alternatives. Investopedia explains 'Vertical Merger' In vertical mergers. a company can decrease reliance and increase profitability. Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one. These financing alternatives include:      New private equity placement Sale leaseback vehicles Bridge or term loans Other mezzanine-type products Revolving lines of credit Role of The Investment Bankers Acheiving Strategic Objectives  Investment bankers meet regularly with management to discuss what objectives the company is strategically focusing on. Such a vertical merger would reduce the cost of tires for the automaker and potentially expand business to supply tires to competing automakers. Due Diligence  If a company has made a bid for another company an outside third party such as the investment banker will need to supply an opinion regarding the careful study and decision making that went into acquiring the company. by directly merging with suppliers. An example of a vertical merger is a car manufacturer purchasing a tire company. Bankers must provide solutions for achieving objectives and have the financial strength to lead bond and stock offerings on behalf of the company. Merger and acquisition funding at a competitive rate requires a properly structured transaction. The due diligence report is a necessary document and requires that the investment banker ask probing questions and ascertain that the company did everything in its power to uncover problems that might arise later.industry's supply chain. This is called a due diligence report. merge operations.

or improving the capital strength of existing public companies by redeeming debt with additional stock offerings. although some conglomerates elect to participate in a single industry . raising capital for privately held companies. lower interest cost issue. . but the subsidiaries' management reports to senior management at the parent company. Taking a company public is a difficult task as the stock offering may not be received well if it is overpriced or will rise greatly in value if it is under-priced. seemingly unrelated businesses. Fairness opinions allow management to show that substantial effort was used to get the best price possible for investors. often using several investment metrics. An investment banker may be sued by shareholders if it is later learned that his opinion was incorrect. In a conglomerate. accounting and regulatory documents prepared. mining. It is the job of the banker to negotiate terms and get all legal. In a period of low interest rates a banker may demonstrate cost savings by redeeming outstanding debt at higher interest rates and substituting a new. to demonstrate that the company did not overpay for the acquired company. which conduct business separately. the investment banker will work with the sales force and other customers to buy the stock. The fairness opinion is written by the investment banker and provides detailed determinations. Each of a conglomerate's subsidiary businesses runs independently of the other business divisions. Managing Debt Offerings  Investment bankers suggest ways to finance or refinance financial obligations.Fairness Opinions  Another document necessary for the purchase of one company by another is the fairness opinion. The banker earns fees for the underwriting while guiding the company's efforts to choose the proper size and maturity of the offering as well as handling negotiations with the debt rating agencies. The largest conglomerates diversify business risk by participating in a number of different markets. one company owns a controlling stake in a number of smaller companies. Definition of 'Conglomerate' A corporation that is made up of a number of different. In addition.for example. Managing Stock Offerings  Investment bankers are responsible for bringing new companies to the public markets for the first time (also called an IPO or initial public offering).

in both the short and long term? Financial stability and consistency .how will the off-balance sheet risks be affected by the transaction? Will there be excessive exposures to any particular markets which will have to be managed? Profitability .what are the likely costs of the integration? Non-financial factors to be considered in an Acquisition . an entirely different market that has little or no synergy with its core business or technology”. Financial factors to be considered in an Acquisition Share Price .what level of additional earnings will be generated as a result of the transaction. Conglomerate diversification helps in strengthening the internal structure of a company and it is an essential form of diversification. through acquisition or merger.will the transaction add to your financial stability and the consistency of earnings? Overall asset quality .what is the quality of the assets held by the target? Will the transaction improve your overall asset quality? Capital adequacy and debt .what will be the impact of the transaction on your capital and debt ratios? Could it create any capital adequacy issues? Asset and liability mix .? Off-balance sheet risks .what will be the impact of the transaction on your asset and liability mix. in terms of currency.Conglomerate Diversification According to Business Dictionary “Conglomerate Diversification is a type of diversification whereby a firm enters. interest rates. maturities etc.how will the cost/income ratio be affected by the transaction in the short and long term? Integration costs .will the price of the target enable the synergies to be achieved whilst adding value to your own share price? Earnings .

how does the customer base and mix compare with your own? Are there overlaps in the customer base which could provide risk management issues? What potential is there for cross-selling? What percentage of customers are likely to be lost as a result of the transaction? Customer quality . propensity to buy.? How does it compare with your own? What will be the impact of the transaction on customer profitability? .how easy will it be to gain acceptance of the merger? Will there be regulatory problems because of the size of the market or competitive positioning? Management .what are the strengths and weaknesses of the existing management team? What is their management style? What impact will this have on the integration? Corporate governance . risk profile. loyalty.how do the technologies of the target compare with your own? Can your own systems handle the projected increase in products.Corporate culture . share of wallet.what quality of customers does the target have. customers and transactions? Will systems integration be necessary? What are the costs and risks associated with this? Customer base .what are the possible synergies between the markets of both yourselves and the target? How can they be achieved? Image and marketing . in terms of longevity.how does the organisational structure of the target compare with your own? Will it be easy to integrate functions? Location . etc.how does the corporate governance of the target compare with your own? How will this affect the integration? Markets .how do the skills and experience of the personnel of the target relate to those of your own personnel? What benefits can be obtained through combining some of the teams? What are the costs and risks of doing this? How many personnel are likely to have their contracts terminated as a result of the transaction? How can this be achieved? What are the implications of doing this? Technology .how do the images of the two corporations compare? Can this be exploited in marketing? What will be the costs.how does the corporate culture of the target compare with your own? How will this affect the integration? Regulatory and anticompetitive factors .how do the locations of the target relate to your locations? What benefits can be obtained through combining some of the locations? What are the costs and risks of doing this? Are some locations likely to be surplus to requirements? Can these be disposed of? What are the implications of doing this? Personnel . risks and benefits of the integration? Organisational fit .

. This kind of action is more precisely referred to as a "merger of equals". When one company takes over another and clearly establishes itself as the new owner. GlaxoSmithKline. the buyer "swallows" the business and the buyer's stock continues to be traded.what is the product range of the target? How does it compare with your own? Are there any products in their range which will be of strong benefit to you? How will the product ranges be integrated? What are the costs and risks associated with this? Integration risks . which can be achieved independently of the corporate mechanics through various means such as "triangular merger". In practice. This decision is usually mutual between both firms. Distinction between mergers and acquisitions The terms merger and acquisition mean slightly different things. Usually. the purchase is called an acquisition. by describing the deal euphemistically as a merger. even if it is technically an acquisition. as part of the deal's terms. From a legal point of view. a merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated. actual mergers of equals don't happen very often. was created. An example of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to as a merger at the time. generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. when two companies become one. one company will buy another and.Product range .For example. which have nothing to do with the resulting power grab as between the management of the target and the acquirer) is different from the business point of view of a "merger". The legal concept of a merger (with the resulting corporate mechanics. In the pure sense of the term. deal makers and top managers try to make the takeover more palatable. the target company ceases to exist. statutory merger. statutory merger or statutory consolidation. however. and a new company. both firms ceased to exist when they merged.what are the risks of the integration not being achieved in the planned time scales and costs? What can be done to minimise these risks? Definition of 'Merger' The combining of two or more companies. therefore. Investopedia explains 'Merger' Basically. Being bought out often carries negative connotations. in the 1999 merger of Glaxo Wellcome and SmithKline Beecham. acquisition. etc. The firms are often of about the same size. simply allow the acquired firm to proclaim that the action is a merger of equals. Both companies' stocks are surrendered and new company stock is issued in its place.

But when the deal is unfriendly (that is. Ultimately. the Federal Trade Commission (FTC) was alarmed by the fact that such a merger would allow Time Warner to monopolize much of the programming on television. One such merger occurred between Time Warner Incorporated. Large horizontal mergers are often perceived as anticompetitive. the effect of this merger on the drugstore market would be minimal. and the Turner Corporation. If a small local drug store were to horizontally merge with another local drugstore. In a large horizontal merger. Accretive Merger: Accretive mergers occur when a company with a high price to earnings ratio purchases a company with a low price to earnings ratio. a major cable operation. Vertical Mergers A vertical merger is one in which a firm or company combines with a supplier or distributor.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. the resulting ripple effects can be felt throughout the market sector and sometimes throughout the whole economy. Example of Vertical Merger Vertical mergers can best be understood from examining real world deals. If a contractor has been receiving a material from two separate firms. TBS. Antitrust concerns are a focal point of investigation if competition is hurt. the vertical merger could cause the contractor’s competitors to go out of business. which produces CNN. When two extremely small companies combine. This type of merger can either have a very large effect or little to no effect on the market. however. This type of merger can be viewed as anticompetitive because it can often rob supply business from its competition. This type or merger is the opposite of a dilutive merger. the FTC voted to allow the merger but stipulated that the merger could not act in the interests of anti-competitiveness to the point at which the public good was harmed. This makes the purchasing company’s earnings per share increase. If one company holding twenty percent of the market share combines with another company also holding twenty percent of the market share. In this merger. or horizontally merge. . when the target company does not want to be purchased) it is always regarded as an acquisition. Horizontal Mergers A horizontal merger is when two companies competing in the same market merge or join together. their combined share holding will then increase to forty percent. and then decides to acquire the two supplying firms. The Federal Trade Commission can rule to prevent mergers if they feel they violate antitrust laws. This large horizontal merger has now given the new company an unfair market advantage over its competitors. and other programming. the results of the merger are less noticeable. These smaller horizontal mergers are very common.

size matters. companies need to stay on top of technological developments and their business applications. leveraged buyout uses a combination of various debt instruments from bank and debt capital markets. Hard assets (property. or "bootstrap" transaction) occurs when an investor. The bonds or other paper issued for leveraged buyouts are commonly considered not to be investment grade because of the significant risks involved. sometimes with assets of the acquiring company.when placing larger orders. Improved market reach and industry visibility .Leveraged buyout A leveraged buyout (or LBO. Acquiring new technology . Typically. the companies hope to benefit from the following:     Staff reductions . The potential for new management to make operational or other improvements to the firm to boost cash flows. or highly leveraged transaction (HLT). typically a financial sponsor. companies have a greater ability to negotiate prices with their suppliers.To stay competitive. although because of the importance of debt and the ability of the acquired firm to make regular loan payments after the completion of a leveraged buyout.As every employee knows. mergers tend to mean job losses. A merge may expand two companies' marketing and . Mergers also translate into improved purchasing power to buy equipment or office supplies .Companies buy companies to reach new markets and grow revenues and earnings. acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage (borrowing). The assets of the acquired company are used as collateral for the borrowed capital. including:      Low existing debt loads. Consider all the money saved from reducing the number of staff members from accounting. By buying a smaller company with unique technologies.Yes. Economies of scale . the LBO transaction will frequently be challenged by creditors or a bankruptcy trustee under a theory of fraudulent transfer. Synergy takes the form of revenue enhancement and cost savings. Market conditions and perceptions that depress the valuation or stock price. A multi-year history of stable and recurring cash flows. inventory. such as workforce reductions or eliminations. By merging. Synergy Synergy is the magic force that allows for enhanced cost efficiencies of the new business. some features of potential target firms make for more attractive leverage buyout candidates. receivables) that may be used as collateral for lower cost secured debt. Whether it's purchasing stationery or a new corporate IT system. Job cuts will also include the former CEO. plant and equipment.[1] If the company subsequently defaults on its debts. marketing and other departments.[2] Companies of all sizes and industries have been the target of leveraged buyout transactions. a large company can maintain or develop a competitive edge. who typically leaves with a compensation package. a bigger company placing the orders can save more on costs.

synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. In many cases. Sadly. The publicly traded corporation is called a "shell" since all that exists of the original company is its organizational structure. However. there ought to be economies of scale when two businesses are combined. eventually sees through this and penalizes the company by assigning it a discounted share price. Process In a reverse takeover.who have much to gain from a successful M&A deal . The transaction typically requires reorganization of capitalization of the acquiring company. the private company does not go through an expensive and timeconsuming review with state and federal regulators because this process was completed beforehand with the public company. achieving synergy is easier said than done .distribution. one and one add up to less than two. a reverse merger can be . giving them new sales opportunities. This share exchange and change of control completes the reverse takeover. We'll talk more about why M&A may fail in a later section of this tutorial. however. If the shell is an SEC-registered company.will try to create an image of enhanced value. That said. shareholders of the private company purchase control of the public shell company and then merge it with the private company. but sometimes a merger does just the opposite. transforming the formerly privately held company into a publicly held company. The disclosure is filed on Form 8-K and is filed immediately upon completion of the reverse merger transaction. The private company shareholders receive a substantial majority of the shares of the public company and control of its board of directors. The transaction can be accomplished within weeks. Reverse takeover A reverse takeover or reverse merger (reverse IPO) is the acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public. By contrast. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones. negotiating the merger terms. At the closing.it is not automatically realized once two companies merge. Sure. The private company's shareholders pay for the shell company by contributing their shares in the private company to the shell company that they now control. the shell company issues a substantial majority of its shares and board control to the shareholders of the private company. and signing a share exchange agreement. The market. a comprehensive disclosure document containing audited financial statements and significant legal disclosures is required by the Securities Exchange Commission for reporting issuers. the CEO and investment bankers . The transaction involves the private and shell company exchanging information on each other. Where there is no value to be created.

TAKEOVER CODE.LL. if this is a pink sheet shell.BASIC CONCEPTS By Abhinav Singh. Employee Stock Option Plan (ESOP) by a company or Reduction of share capital of a company. Non organic restructuring. Some examples of such kind of restructuring are buy back of securities by a company. a disclosure filing is made with the Pink Sheet division of OTCMarkets. Unlike organic restructuring there is an element of third party involved in it.This generally refers to any internal change in the structure of the company. MM Law College. operating company. “changing the basic structure of ”.completed in as little as thirty days. All these kinds of restructuring have to be done by a company under different circumstances. The proper securities filing is made if the shell is registered with the SEC.: An operating company seeking to go public locates a public shell. The Reverse Merger Process is essentially simple to anyone familiar with M&A -. The public shell company usually changes its name to the name of the operating company. but does not need to do so. Every company big or small has a basic capital structure as far as its share capital is concerned which is approved by its Memorandum of Association.B.In case of this type restructuring there is an overall change in the corporate entity of the company. sometimes they are to give value to their shareholders(as in the case of rights issue) or sometimes as an incentive to their employees ( as in issue of sweat equity) or sometimes as a defensive measure from hostile take overs( as in the case of buy back of securities). Vth BSL. . Terms are negotiated & generally the public shell issues stock to the shareholders of the private. Restructuring of a company is generally of two types : (i) (ii) Organic Restructuring Non organic Restructuring Organic restructuring.mergers & acquisitions. This structure of a company cannot be changed before the company has actually gone through certain procedures of law. without the corporate entity undergoing any change. Pune INTRODUCTION Restructuring in its literal sense means.

3) by means of a takeover bid. . 2) by purchase of shares on the stock exchange. Mergers & Acquisitions (M&A) have become one of the most common type of restructuring. Every company big or small have jumped in the race of ongoing M&A feast that has been served in the Indian market in plenty. Takeover can be either friendly which is done by a mutual agreement between two companies or it can be hostile.The foremost examples of this type of restructuring are Merger and amalgamation . In the wake of India emerging as one of the fastest growing economies in the world.e. In the words of M.A. Where shares are closely held (i. reorganization of a company. Corporates generally embark on acquisition of another company and then take steps to merge or amalgamate the acquired company or merge or amalgamate with the acquired companies and in the process also demerge certain undertakings. by small number of persons). TAKEOVER. either directly by becoming the owner of those assets or indirectly by obtaining control of the management of the company. Takeovers are quite often taken as a prelude to the mergers. Weinberg one of the pioneers in the formation of law and practice relating to takeovers.Its Meaning Broadly speaking Takeover refers to the acquisition of one company by another company. a takeover will generally be effected by agreement with the holders of the majority of the share capital of the company being acquired. de-merger . it has been defined as “a transaction or a series of transactions whereby a person acquires control over the assets of a company. Where the shares are held by the public generally the take over may be effected: 1) by agreement between the acquirers and the controllers of the acquired company.

The guidelines of the Securities and Exchange board of India (Substantial acquisition of shares and takeover) 1994 was a maiden Indian attempt towards an organized set of laws for regulating takeovers in India. listed company. the question as to what constitutes substantial acquisition is made relatively very clear. WHAT DO THE REGULATIONS STAND FOR The objective of the Takeover code is to regulate in an organized manner the substantial acquisition of shares and take overs of a company whose shares are quoted on a stock exchange i. Substantial Acquisition – The most important point to be understood is what would constitute substantial acquisition under these regulations? Substantial acquisition as such has not been defined under the regulations. 15% or more shares or voting rights of the target company . The laws relating to takeovers in India where not very organized until the year 1994. nor has it been defined in any other related Acts. regarding intercorporate loans by companies and Section 395. regarding acquisition of the shares of dissentient shareholders) there was hardly anything solid enough to be called as organized takeover laws.HISTORY Basically speaking takeover is nothing but the acquisition of shares of one company by another company. Since then the regulations have been known as. Securities and Exchange Board of India(Substantial Acquisition of Shares and Takeover)Guidelines. 1956 ( Section 372. if we read through regulations 10 and 11. In a limited sense these regulations also apply to certain unlisted companies including a body corporate incorporated outside India to an extent where the acquisition results in the control of a listed company by the acquirer.N Bhagwati was constituted to review the regulations and suggest the necessary changes required under the act. The following for the purpose of these regulation can be considered as substantial acquisition: (a) Acquisition by a person or two or more persons acting together with common intention. The regulations were amended in 1997 and they finally were implementation.e. calling it unorganized would rather be an understatement because laws relating to takeovers in India until 1994 hardly existed. The need for changes in the regulation was felt just two years after its inception. Nevertheless. Since then many amendments have been made to the regulations. A need was certain changes in the regulation had been felt and so a committee under the chairmanship of Justice P. Except for certain provisions of the Companies Act. 1997 or TAKEOVER CODE.

who have already acquired 15% or more but less than 55% of share or voting rights. this could only be done by a person who has made public announcement to acquire such shares in accordance with the regulations. SOME IMPORTANT PROVISIONS Few regulations that need a detailed study under the guidelines are given below- Regulations regarding limits according to which shares shall be acquired: The regulation for the minimum amount of shares to be acquired and a public announcement to be made in accordance with it are given under regulations 10. Maybe this was the reason why acquisition of voting rights have been expressly mentioned in the regulations as far as substantial acquisition is concerned.(b) Acquisition by a person or two or more persons acting together with common intention.11 and 12. but there are cases when a person has paid the consideration for the share but an official instrument of share transfer has not been formulated. further acquire 5% or more of share capital or voting rights in the same financial year ending on 31st March. a) Regulation 10.According to this regulation. Though this can be done if the acquirer makes a public offer to acquire such shares in accordance with the regulations. in such case a power of attorney to transfer the voting rights of the transferor can be formulated or the transferee may demand for a proxy from the transferor or he may make the transferee exercise the voting rights as he demands. The regulations further say that. An important point to be noted from the summary of regulations above is that not only the acquisition of shares but also the acquisition of voting rights would also constitute substantial acquisition.This regulation talks about an Acquisition by a person or two or more persons acting together with common intention. who have already acquired 15% or more but less than 55% of share or voting rights. The regulation further talks about acquirers who already have 55% or more shares but less than 75% shares of the target . Until a person is a registered shareholder of a company he cannot have the voting rights. In other words a person by himself or with a person acting with the same intention shall make a public offer to acquire a minimum of 20% of shares in accordance with the regulation. It is to be noted that voting rights of a shareholder are accompanied with the shares of the company. b) Regulation 11. which would enable them to exercise further 5% but not more voting rights in the same financial year ending on 31st March. no person either alone or with someone acting with the same intention shall acquire shares in a company that would enable the person or persons to practice more than 15% voting rights.

any control over the company shall not go into the hands of the acquirer irrespective of whether acquisition of shares or voting rights has taken place or not. The basic purpose of making it compulsory for the acquirer to make a public announcement was to allow the shareholder to have an exit opportunity in case of acquisition or stay in the target company. PUBLIC ANNOUNCEMENT A Public announcement is generally an announcement given in the newspapers by the acquirer..The regulations further say that. 1997 is the mandatory public offer to be made at various important stages of acquisition as prescribed by the Securities and Exchange Board of India in the regulations. primarily to disclose his intention to acquire a minimum of 20% of the voting capital of the target company from the existing shareholders by means of an open offer Another very important aspect of the Takeover Code. The acquirer is required to appoint a merchant banker who is registered with SEBI before making the public offer. As mentioned above the public offer shall be made within four working days of the agreement to acquire shares. 1997 a minimum threshold limit has been set. This can be done by identifying their interest by going through the additional disclosure made in the letter of offer. this can only be done if the acquirer makes a public announcement in this regard c) Regulation 12.company but intend to acquire more share. This means that as soon as a person acquires or agrees to acquire 15% or more of the shares of a company he shall make a mandatory public offer. until a public announcement to acquire such shares has been made in accordance with the regulations. Under the Takeover Code. Regulation 14 of the Code states that a mandatory offer to the public has to be made within four days from the date of the acquirer agreeing to acquire the shares of the company. crossing which the acquirer has to make a compulsory public announcement. The threshold limit under the regulations has been set at 15%. There are certain other disclosures to be made in the public offer to acquire share. The letter of offer shall contain :    The offer price Number of shares to be acquired from public Identity of acquirer .

Below are the nine common tactics refused by target companies. It becomes obligatory for the acquirer to give a minimum offer price to the every shareholder who agrees to sell his share. . MBA on October 27. Repurchase of stock is sometimes undertaken by companies to decrease the attractiveness of the target company for hostile takeover. It leads to the target company buying a large bulk of shares from one or more shareholders which attempt a hostile takeover.N. The offer document has to be sent to every shareholder with the acceptance form within 45 days of public announcement. Greenmail is another defensive strategy. Mergers can be attractive due to a company’s liquidity position. if any. within 30 days of closing of the offer CONCLUSION: The regulations though not very old but have still proved to be very significant for the purpose of regulation of acquisition of shares. The credit for making the regulations so practical should be given to Justice P. repurchase of shares increases the price per share which makes takeover more expensive.   Purpose of acquisition Change in control in the target company Plans of the acquirer regarding the target company. Hostile takeover (hostile merger) defence strategies In Corporate restructuring. 1.Bhagwati committee. it can be used to cover all or part of the debt undertaken to finance the acquisition. the firm decreases its attractiveness as a takeover target. The merchant banker shall also produce a due diligence certificate. By using available cash to repurchase stock. 2010 at 8:22 pm A target company has various options on how to fight a hostile takeover. Target companies may inform shareholders why the merger will be disadvantageous for the company. The acceptance form shall be blank. The target company generally obtains assistance of an investment banker and lawyer to ensure that fighting the hostile takeover will be successful. The offer remains open for 30 days for the shareholders. 3. 2. The draft letter of offer has to be sent to SEBI within 14 days of the public announcement along with the filing fees through the merchant banker. These regulations are a set of magnificently drafted rules. Finance. Moreover. which is also called a hostile merger. If the company has a lot of cash.

this strategy may not be sufficiently effective on its own but will make the acquisition target less attractive. 6. Flip-over occurs where the Target Company will be able to purchase shares of the acquiring company at a discount after the merger is completed. Before a defensive acquisition is undertaken. The target company may also use the crown jewel defence strategy. This will decrease the value of the acquiring company’s shares and dilute the company’s control. 5. will likely lose interest in acquiring the now highly leveraged target company. Due to increased debt of the target company. The poison pill can be effective in discouraging a hostile takeover and allows the target company more time to find a white knight. . This discourages hostile takeovers as it makes the target company less attractive. The purpose of such action is for the target company to make itself less attractive to the acquiring company. It refers to the distribution of a sizable dividend financed by debt. 1. This increases the financial leverage of the target company and decreases its attractiveness. This strategy means including provisions in the employment contracts of top executives which will require a large payments to key executives if the organization is taken over. Flip-in tactic occurs when management offers to buy shares at a discount to all investors except for the acquiring company. Therefore.4. White knights are seen as a protector of the target company against the black knight which is the acquiring company which attempted a hostile takeover. In such situations. According to this strategy. which previously planned hostile takeover. Such an option is exercised when the acquiring company purchases a certain amount of the shares of the target company. It will be exercised if any company or investor buys more than 15% of its shares without the approval of the board of directors. 8. Golden parachutes are another way to discourage hostile takeover. the target company has the right to sell its best and most profitable assets and valuable parts of the business to another party if a hostile takeover occurs. Yahoo is a famous example of a company that the uses poison pill as a defence strategy. the acquiring company. it is important to make sure that such action is better for shareholders’ wealth than the merger with the acquiring company which pursues a hostile takeover. the amounts to be paid are small relative to the size of the transaction. It involves finding a more appropriate acquiring company that will take over the target company on more favourable terms and at a better price than the original bidder. 7. Finding a white knight is another hostile takeover defence strategy. Another strategy to protect itself against hostile takeover is defensive acquisition. Nevertheless. the target company will acquire another company as a defensive acquisition and finance such acquisition through debt. Crown jewels refer to the most valuable assets and parts of the company. Such variations are flip-in and flip-over. The term poison pill was created by mergers and acquisitions lawyer Martin Lipton in the 1980’s and refers to a further hostile takeover defence strategy. It involves an arrangement that will make the target company’s stock unattractive for the acquiring company. Leveraged recapitalization is yet another way to deter hostile takeovers. The poison pill strategy includes two main variations.

Ssangyong had sought bankruptcy protection after continued dismal sales. the company stated \in a media release after the deal was signed in Seoul. Mahindra intends to launch as many as three new SsangYong models in the next few years in an attempt to revive sales of the company. Pawan Goenka. to gain momentum in global markets. after the Korean company declared M&M the preferred bidder from the original list of seven. M&M.100 crore). Korea. earlier today. there are costs such as transaction costs which are involved in undertaking them. after the approval of creditors of the Korean company. Pac-Man defence is a hostile defence strategy named after the popular arcade video game of the 1980’s. president .200 crore) group and the largest in the automotive sector. This is the biggest outbound deal by the city-based $7. M&M will subscribe to new shares of SsangYong worth $378 million (Rs 1. said: “The coming together of Mahindra and SsangYong will result in a competitive global UV (utility vehicle) player. The majority dropped out due to the high valuation sought. We are committed to leverage the combined synergies by investing in a new SsangYong product portfolio. private equity firm Seoul Invest and Yong An Hat Company. today signed a definitive agreement to buy a 70 per cent stake in the ailing South Korean auto maker. Transaction costs may include hiring of investment bankers and lawyers. Those had included the Pawan Ruia group. In making decisions whether or not to undertake any defence actions against hostile takeovers. According to this strategy. Renault-Nissan.1 billion (Rs 32. providing a new growth avenue for SsangYong and further strengthen our dominant position in the UV segment.automotive and farm equipment sectors. market leader in the utility vehicle and tractor segments. management needs to continue to act in the best interests of shareholders by keeping the maximization of the shareholders’ wealth as the main objective. SsangYong Motor Company (SYMC). fifth largest in the sector in that country.2. It will be completed by March. M&M offers competence in sourcing and marketing strategy.700 crore).” M&M had been in dialogue with the SsangYong management since August. . Although these hostile takeover defence strategies may not be successful. while corporate bonds worth $85 million (Rs 385 crore) will also be acquired. the target company “turns the tables” and attempts to acquire an acquiring company which attempted the hostile takeover. Mahindra buys 70% in SsangYong Mahindra & Mahindra. Together with its financial capability. for $463 million (Rs 2.” Adding: “There is an opportunity to introduce a premium portfolio of SUVs in the Indian market. while SsangYong has strong capabilities in technology.

Mahindra & Mahindra looks to make Ssangyong profitable MUMBAI: When Mahindra & Mahindra acquired Ssangyong Motor for $473 million in March last year. with a debt to equity ratio of 0.It was.20:1. we are ahead of the plans we had set out to do. not made clear as to how M&M.” the release stated. Earlier. "Overall. Recent success of some of its products like Korando C. Its products were flailing. PresidentAutomotive & Farm Equipment Sectors. The labour union of SYMC. Exactly a year later. There are strong complementarities between the SsangYong and M&M product portfolios. The balance to be deposited three days prior to SYMC’s stakeholders meeting.02 billion won) in 2010. Now. The battle now . losses have increased to Rs 450 crore (112. providing an opportunity to create distinct positioning.000 units by end 2012 and 300. senior executives had said it would be done through a mix of debt and equity.is to return to profitability.after a dramatic turnaround in the marketplace . workers were unhappy. the question is how soon can M&M nurse Ssangyong back into the black. The wide sales and distribution networks and complementary products lines will provide access to many overseas markets for both companies. helped Ssangyong grow revenues by 32% to Rs 11. however. intended to fund the purchase.000 units by 2015. On the back of a 30% volume growth last year. M&M and holds the dual charge as chairman of Ssangyong. ." says Pawan Goenka. as earlier agreed. M&M has already deposited 10 per cent of the final purchase price. long-term investment and a commitment for no labour disputes.150 crore (2 trillion and 787 billion Korean won). losses were piling up and a court was deciding whether it should live or be consigned to bankruptcy. Yet.4 billion won) in 2011 from Rs 107 crore (27. “SYMC will continue to function as an independent entity. Ssangyong is still fighting. Ssangyong. but not for survival. with a primarily Korean management.200 crore). M&M and SYMC have also signed a tripartite agreement with provisions for employment protection. a new compact utility vehicle launched in 2011. is targeting 123. the Korean sports utility maker was fighting for survival. banks had cut off credit. with cash reserves of $500 million (Rs 2.

First. Yoo II Lee. An investment of Rs 1." says Goenka. the companies have hammered out a new a product co-development plan under which the two will jointly develop three vehicle platforms. Work on the first such new joint platform . and M&M has resolved both. will make the company profitable in two to three years. within 24 hours) was under 50%." Ssangyong president and CEO. "It is not wishful thinking.1%.diesel and petrol to meet specific requirements of Mahindra and Ssangyong. is now rolling out a 100-step program to get the company back on track. For example. it is looking very good.has already started." he adds.000 crore in four new products including variants till 2016 along with M&M. senior director. which has since recovered to 85%. Ssangyong's field rate (ability to reach customer with spares. The two SUV makers also plan to develop a "new family of engines" which will come in several different displacements (engine capacities ) and two different fuels . thus improving the debt-equity ratio from 179. automotive practice at Frost & Sullivan. Bangalore-based electric car-maker Reva. is a third partner in this co-development strategy. Ssangyong and Reva will together develop an electric . They are also working on transmission projects.452 crore to Rs 3.550 crore. going ahead the plan is to invest close Rs 6. Such measures. M&M.XIV concept for compact Utility Vehicles .Goenka says a "strong product plan" will support this kind of volume growth. which M&M had acquired in 2010. "But the real test lies ahead." says VG Ramakrishnan. "This will be our first major new launch. Two things have happened since M&M moved into the driver's seat at Ssangyong. "We'll be announcing more joint platforms in 12 months. but have also opened up hedging limits to SUV maker which exports two-third's of its production. Ssangyong recently became the first company in Korea to get an assurance from the union in writing that they will not go on strike. which will then spawn different variants suited for the markets of each company. The target is to reach 95% this year.500 crore was approved by Ssangyong board just last month which it will invest on its own without any financial support from M&M." Second.3% to 97. This will be a big plus for both the companies. "That work has started. he told ET in an interview at the Auto Expo earlier this year. It infused $200 million in equity helping the maker of Korando and Rexton to whittle liabilities down from Rs 4. if specified terms are adhered to by the company. This will help both save on costs and draw synergies from each other. It may hit the market in three years.200-1 . Moreover." says Goenka. Banks have not only restored credit limits. it sorted out the cash crunch. "Ssangyong's problem was financial and labour related. shedding any fear on labour issues.

Another example would be a utility that separates its business into two components: one to manage the utility's infrastructure assets and another to manage the delivery of energy to consumers. Investopedia explains 'De-Merger' For example. Chennai. in 2001. will now use Ssangyong's facilities. In a friendly takeover. development and integration. Ssangyong has announced plans of setting up assembly bases across BRIC nations. has been posted in South Korea to check feasibility of sourcing components from India. Ssangyong products will be sold through M&M's network in South Africa. British Telecom took this action because it was struggling under high debt levels from the wireless venture. a public offer of stock or cash is made by the acquiring firm. sales have spurted in Russia and the first Ssangyong vehicles will hit Indian roads this festive season. either to operate on their own. BOX: The path to integration M&M. . BT Wireless. Definition of 'De-Merger' A business strategy in which a single business is broken into components. Definition of 'Friendly Takeover' A situation in which a target company's management and board of directors agree to a merger or acquisition by another company. A de-merger allows a large company. The company has already posted 8-9 key officials in South Korea to oversee critical areas of sourcing. A deeper penetration into the BRIC markets will drive volumes while synergies of joint development and joint sourcing with M&M will help in improving profitability for the automaker. British Telecom conducted a de-merger of its mobile phone operations. since coming into the Mahindra fold. to split off its various brands to invite or prevent an acquisition.vehicle platform. or to create separate legal entities to handle different operations. which may yet be subject to shareholder or regulatory approval. and the board of the target firm will publicly approve the buyout terms. where the company being acquired does not approve of the buyout and fights against the acquisition. This stands in contrast to a hostile takeover. Engineers from the three companies will soon come together at M&M's spanking new R&D centre in Oragadam. Lastly. Ssangyong has re-entered China. to be sold or to be dissolved. A key M&M official. which never had crash test facilities. M&M may assemble and sell its product in Russia through Ssangyong's distribution network. More such cross-utilisation of distribution networks will happen. to raise capital by selling off components that are no longer part of the business's core product line. Hemant Sikka. in an attempt to boost the performance of its stock. such as a conglomerate.

survive a currently adverse economic climate. golden parachute. What is Corporate Restructuring? Corporate restructuring is the process of redesigning one or more aspects of a company. or poise the corporation to move in an entirely new direction. if the board approves a buyout offer from an acquiring firm. A hostile takeover can be accomplished through either a tender offer or a proxy fight. but by going directly to the company’s shareholders or fighting to replace management in order to get the acquisition approved. The key determinant in whether the buyout will occur is the price per share being offered. The process of reorganizing a company may be implemented due to a number of different factors. such as positioning the company to be more competitive. the shareholders will vote to pass it as well. Sometimes a company's management will defend against unwanted hostile takeovers by using several controversial strategies including the poison pill. but the size of this premium (given the company's growth prospects) will determine the overall support for the buyout within the target company. Investopedia explains 'Hostile Takeover' The key characteristic of a hostile takeover is that the target company's management does not want the deal to go through. pac-man defense. Restructuring a corporate entity is often a necessity when the company has grown to the point that the original structure can no longer efficiently manage the output and general interests of the company. For example. In this scenario. and others. Definition of 'Hostile Takeover' The acquisition of one company (called the target company) by another (called the acquirer) that is accomplished not by coming to an agreement with the target company's management. a corporate restructuring may call for spinning off some departments into subsidiaries as a means of creating a more effective management model as well as taking advantage of tax breaks that would allow the corporation to divert more revenue to the production process. crown-jewel defense. the restructuring is seen as a positive sign of growth of the company and is often welcome by those who wish to see the corporation gain a larger market share. The acquiring company will offer a premium to the current market price.Investopedia explains 'Friendly Takeover' In most cases. Here are some examples of why corporate restructuring may take place and what it can mean for the company. .

the idea of corporate restructuring is to allow the company to continue functioning in some manner. When this happens.However. the focus is on survival in a difficult market rather than on expanding the company to meet growing consumer demand. In general. With this type of corporate restructuring. financial restructuring may take place in response to a drop in sales. selling off properties and other assets in order to make a profit from the buyout. or scaling back production at various facilities owned by the company. reassigning responsibilities and eliminating personnel. . Costs may be cut by combining divisions or departments. a hostile takeover. or a merger of some type that keeps the company intact as a subsidiary of the controlling corporation. When the restructuring is due to a hostile takeover. Corporate restructuring may take place as a result of the acquisition of the company by new owners. due to a sluggish economy or temporary concerns about the economy in general. Even when corporate raiders break up the company and leave behind a shell of the original structure. albeit not at the level possible before the takeover took place. What remains after this restructuring may be a smaller entity that can continue to function. the corporation may need to reorder finances as a means of keeping the company operational through this rough time. The acquisition may be in the form of a leveraged buyout. there is still usually the hope that what remains can function well enough for a new buyer to purchase the diminished corporation and return it to profitability. corporate raiders often implement a dismantling of the company.

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