Mergers & Acquisitions

Merger: The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. Amalgamation: Merger of one or more companies with another co to form one company

 Amalgamation is the integration of two or more companies, while merger is a process of integration of one co with another.
amalgamations

In the nature of merger

In the nature of purchase

horizontal

vertical

conglomerate

Types of Merger
1. Horizontal Merger 2. Vertical Merger 3. Conglomerate Merger

Horizontal Merger
Horizontal mergers are those mergers where the companies manufacturing similar kinds of commodities or running similar type of businesses merge with each other.

Examples of Horizontal Merger

Lipton India and Brooke Bond.

Bank of Mathura with ICICI Bank.

BSES Ltd with Orissa Power Supply Company.

Associated Cement Companies Ltd Damodar Cement.

Vertical Merger
A merger between two companies producing different goods or services.

Example of Vertical Merger

Time Warner Incorporated, a major cable operation, and the Turner Corporation, which produces CNN, TBS, and other programming.

Pixar-Disney Merger

Conglomerate Merger
A merger between firms that are involved in totally unrelated business activities. Two types of conglomerate mergers:
1. Pure conglomerate mergers involve firms with nothing in common.

2. Mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.

Example of Conglomerate Merger

Walt Disney Company and the American Broadcasting Company.

Acquisition
When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition.
Acquisition is generally considered negative in nature

Top Acquisitions
Rank Year Purchaser Purchased Transaction value (in mil. USD)

1 2

2000 2000

3
4 5 6 7

2004
2006 2001 2004 2000

America Online Inc. (AOL) Glaxo Wellcome Plc. Royal Dutch Petroleum Co. AT&T Inc.

Time Warner SmithKline Beecham Plc. Shell Transport & Trading Co BellSouth Corporation AT&T Broadband & Internet Svcs

164,747 75,961

74,559
72,671 72,041 60,243 59,974

8
9

2002
2004

Comcast Corporation Sanofi-Synthelabo Aventis SA SA Spin-off: Nortel Networks Corporation Pharmacia Pfizer Inc. Corporation JP Morgan Chase Bank One Corp & Co

59,515
58,761

Takeovers
A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.

Takeover might be :
Hostile Takeover
A takeover attempt that is strongly resisted by the target firm

Friendly Takeover
Target company's management and board of directors agree to a merger or acquisition by another company.

Top 10 acquisitions made by Indian companies

worldwide:
Acquirer Tata Steel Hindalco Videocon Target Company Country targeted Deal value ($ ml) Industry Corus Group plc Novelis UK Canada 12,000 5,982 729 597 565 500 Steel Steel Electronics Pharmaceutical Energy Oil and Gas

Daewoo Korea Electronics Corp. Germany Belgium

Dr. Reddys Labs Betapharm Suzlon Energy HPCL Hansen Group

Kenya Petroleum Kenya Refinery Ltd.

Ranbaxy Labs
Tata Steel

Terapia SA
Natsteel

Romania
Singapore

324
293

Pharmaceutical
Steel

Videocon
VSNL

Thomson SA
Teleglobe

France
Canada

290
239

Electronics
Telecom

Methods for integration of existing cos

Amalgamation (Through merger or purchase) Through asset route Merger is absorption of one co by another. Absorbed co is dissolved Amalgamation can be either through a merger or through a purchase of bs undertaking of the transferor co Involves transfer of assets and liabilities from transferor to transferee Consideration is settled through stock swap Acquisition or Takeover Through equity route Doesnt involve transfer of assets or liabilities No change in balance sheet of co

Compliance with take over code of SEBI is mandatory if acquisition is in a listed co

Regulated by sections 391-395 of the companies Act

Inv Banking perspectives in M&A

Two fold role:
Advising the client on the transaction Facilitating the execution of the transaction Main areas: formulation of transaction and deal structure identification of other party to transaction either from buy side or sell side Facilitation transaction through negotiations and until deal is closed.

Determination of Strategic Objectives

Synergy : Diversification of product and service offerings Increase in plant capacity

Larger market share Access to key natural resources Utilization of operational expertise and research and development (R&D) Reduction of financial risk Globalization taxation