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Mergers and Acquisitions: by Praful Metange
Mergers and Acquisitions: by Praful Metange
Management
Presentation on:
WHAT IS MERGER?
A merger is a combination of two or more companies where
one corporation is completely absorbed by another
corporation.
WHAT IS ACQUISITION?
Acquisition essentially means to acquire or to takeover.
Here a bigger company will take over the shares and assets of
the smaller company.
The
concept of merger and acquisition in India was not popular until the year
1988.
The
The
As
Prelimina
ry
Assessm
ent or
Business
Valuation
Stage of
Integrati
on
Structure
d
Marketin
g
Phase of
Proposal
Exit Plan
Merging ofMERGER
two
organization in to one.
It is the mutual decision.
i.
ii.
iii.
iv.
v.
vi.
ACQUISITION
Buying one organization
by another.
It can be friendly
takeover or hostile
takeover.
Acquisition is less
expensive than merger.
Buyers cannot raise their
enough capital.
It is faster and easier
transaction.
The acquirer does not
experience the dilution
of ownership.
v.
PROBLEM WITH
MERGER
i.
ii.
iii.
Clash of corporate
cultures
Increased business
complexity
Employees may be
resistant to change
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iv.
v.
Increased market
share.
Increased speed to
market
Lower risk comparing
to develop new
products.
Increased
diversification
Avoid excessive
competition
PROBLEM WITH
ACUIQISITION
i.
ii.
iii.
Inadequate
valuation of target.
Inability to achieve
synergy.
Finance by taking
huge debt.
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Types of M&A
M&A
Marketextension
merger
Productextension
merger
Conglomeration
Two companies
that sell the
same products
in different
markets
Two companies
selling different but
related products in
the same market
Two companies
that have no
common
business areas
Economies
of large
scale
business
Elimination
of
competition
Desire to
enjoy
Desire to enjoy monopoly power
monopoly
M&A leads to monopolistic control in the market.
power
Adoption of
modern
technology
Elimination of competition
It eliminates severe, intense and wasteful
expenditure by different competing organizations.
Lack of
technical
and
managerial
talent
Integration
Large
difficulties
or extraordinary debt
Managers
Overly
Diversified
Employees:
Mergers and acquisitions impact the employees or the workers the most. It is a
well known fact that whenever there is a merger or an acquisition, there are bound
to be lay offs.
Shareholders of the acquiring firm: hey are most affected. If we measure the
benefits enjoyed by the shareholders of the acquired company in degrees, the
degree to which they were benefited, by the same degree, these shareholders are
harmed
A reverse acquisition occurs when the entity that issues securities (the legal acquirer) is
identified as the acquiree for accounting. The entity whose equity interests are acquired (the
legal acquiree) must be the acquirer for accounting purposes for the transaction to be
considered a reverse acquisition.
One way for acompanyto becomepublicly traded, by acquiring apublic companyand then
installing itsownmanagementteam and renaming the acquired company.
A reverse merger refers to an arrangement where private company acquires a public company,
usually a shell company, in order to acquire the status of a public company. Also known as a
reverse takeover, it is an alternative to the traditional initial public offering (IPO) method of
floating a public company. It is an easier way that allows private companies to change their
type while avoiding the complex regulations and formalities associated with an IPO. Also, the
degree of ownership and control of the private stakeholders increases in the public company. It
also leads to combining of resources thereby giving greater liquidity to the private company.
To ensure a smooth reverse merger, the public company should be a shell company, that is,
the one which simply has an organization structure but negligible business activity. It is only an
organizational entity on paper with no significant existence in the market.
Reverse merger is a speedy and cheaper way of becoming a public company within a
maximum period of 30 days. Alternatively, the IPO route takes almost a year. Moreover, public
companies normally have greater valuation due to the greater investor confidence enjoyed by
them. Hence acquiring one will push the private company up the growth ladder.
However, it faces stability risk because the owners of the shell company might sell their stakes
once the new company decides to raise the market price of its shares. This may lead to a
100 % stake in
CORUS paying Rs
2. Vodafone-Hutchison
Essar: $11.1 billion
TELECOM sector
11th February 2007
2nd largest
takeover deal
67 % stake holding
in hutch
3. Hindalco-Novelis: $6 billion
June 2008
Aluminium
and
copper sector
Hindalco Acquired
Novelis
Hindalco entered
the Fortune-500
listing of world's
largest companies
by sales revenues
5. ONGC-Imperial Energy:$2.8billion
January 2009
Acquisition deal
Imperial energy is a
biggest chinese co.
ONGC paid 880 per
share to the
shareholders of
imperial energy
ONGC wanted to
tap the siberian
market
November 2008
Telecom sector
Acquisition deal
Japanese telecom
giant NTT DoCoMo
acquired 26 per
cent equity stake in
Tata Teleservices for
about Rs 13,070 cr.
February, 2008
Banking sector
Acquisition deal
CBoP shareholders
got one share of
HDFC Bank for
every 29 shares
held by them.
9,510 crore
May 2008
Acquisition deal
Sector copper
May 2007
Acquisition
deal
Energy sector
Suzlon is now
the largest wind
turbine maker in
Asia
5th largest in the
world.
of
its subsidiary
Reliance
Petroleum with
the parent
company Reliance
industries ltd.
Rs 8,500 crore
RIL-RPL merger
swap ratio was at
16:1
Why India?
Dynamic
government policies
Corporate investments in
industry
Economic stability
Ready to experiment attitude
of Indian industrialists
Cultural
Flawed
Difference
Intention
No
guiding principles
No
ground rules
No
detailed investigating
Poor
Create
Provide
Enable
Provide
Provide
Provide
a larger and growth oriented company for the people and the same shall be
Provide
Economies
The
new entity was in a better position to bargain while buying fuel, spares
and other materials. There were also major operational benefits.
Traffic
39
40
POST MERGER
SCENAREO
NACIL's
Fleet
Expansion: NACIL's fleet expansion seems out of sync with the times. Most
airlines are actually rounding their fleet and cancelling orders for new planes. While
NACIL plans to induct around 85 more aircrafts which means their debt going forward.
Mutual
Increased
Lower
load factor: The companys load factor is decreasing year by year, in 2005- 06
load factor is 66.2% which is more than present load factor. Air India load factor is
likely to be low because of the much higher frequency operated on each route. Lower
load factor could decrease the companys margins.
42
Bloated workforce
Conclusion