Mergers and Acquisitions

a
Project work
on
Behavioural finance

Prepared by:-
Group 4
 Mergers and Acquisitions

• Mergers and acquisitions are defined as consolidation of

companies.
• Differentiating the two terms, Mergers is the combination
of two companies to form one, while Acquisitions is one
company taken over by the other.
• M&A is one of the major aspects of corporate finance
world. The reasoning behind M&A generally given is that
two separate companies together create more value
compared to being on an individual stand.
• With the objective of wealth maximization, companies keep
evaluating different opportunities through the route of
merger or acquisition.
Reasons for Mergers and Acquisitions:

• Financial synergy for lower cost of capital

• Improving company’s performance and accelerate growth
• Economies of scale
• Diversification for higher growth products or markets
• To increase market share and positioning giving broader
market access
• Strategic realignment and technological change
• Tax considerations
• Under valued target
• Diversification of risk
 Acquisition
of
Bhushan Steel
by
TATA Steel LTD.
 This acquisition lead to……

•Simplification of group structure by eliminating multiple

companies in similar business.

•Greater synergies between their businesses

•Synergy of operations will be achieved as a result of

sustained availability of raw materials as well as reduced
procurement costs

• It will ensure iron ore security for TBSL from the

captive mines of the TSL.
• CIRP process was initiated on July 26, 2017,
under the provisions of the IBC Code.
• On 15th May 2018, NCLT approved TSL’s
resolution plan.
• The funds received by TBSL as debt and equity
have been used to settle the sustainable debts
owed to the existing financial creditors of
TBSL, CIRP costs and employee dues, by
payment of Rs 35,232.58 crore.
 True Synergy……
• Acquisition adds 5.6 MTPA to the current TSL
steel production capacity to reach its target of
33 MTPA by 2025.
 Confirmation bias
• it appears that Tata has paid more for acquisition of Bhushan
steels in terms of value per million tonne per annum as
compared to bids of Vedanta and Arcelor Mittal bid for other
companies which were also in CIRP process.
 The power of Press on M&A
• Acquirer returns are in influenced by mass
media in both short and long run.
• Acquirer which have Tier 1 media coverage
prior to announcement of M&A deal earn
better returns than those not covered in Tier 1
media.
 Effect of illusion of control and over
confidence bias
• Microsoft agreed to pay $26.2 billion to
acquire LinkedIn even though LinkedIn was
money loosing co. with slow growth and the
worst user enragement.
• Microsoft claims the deal had massive
synergies that would have justified the
purchase price.
 Herd Mentality
• In March 2016 LinkedIn's share price plunged
44%.

• When LinkedIn announced a merger deal with

Microsoft the stock price shot up by nearly
50%
 Merger of Dena Bank, Vijaya Bank
with Bank of Baroda
• Announcement 19/02/2019
• BOB share price:
• 18/02/19 Rs. 99.15
• 03/04/19 Rs. 132.05
• 13/05/19 Rs. 105.80
• 17/10/19 Rs. 89.00
• BOB Finacle 10
• Dena, Vijaya Bank on Finacle 7
• Merger of Banks brought down No. of banks
under PCA
 Mindtree hostile takeover by L&T
• Announced on 07/04/19
• Mindtree Share price
– 08/04/19 Rs. 957.3
– 20/06/19 Rs. 974.5
– 12/09/19 Rs. 670.35
• Mindtree Share price
– 08/04/19 Rs. 957.3
– 20/06/19 Rs. 974.5
– 12/09/19 Rs. 670.35
 Conti..
• Why L&T takeover Mindtree:
– L&T was sitting on huge cash reserve Rs. 15000
crores.
– Share byback was stalled by Regulators.
– L&T sees synergies with L&T Infotech
– Shareholder were concern because investment
was in non core business.
 PNB with OBC and UB
• Announcement on 30/08/2019
• Share price
 Refrences
• http://etheses.dur.ac.uk/9404/1/PhD_Emma_
Black_(30.11.13).pdf?DDD2+
• https://mnacritique.mergersindia.com/news/
nclt-clears-decks-for-tatas-acquisition-of-
bhushan-steel/
• https://auto.economictimes.indiatimes.com/t
ag/bhushan%20steel
• https://www.bloombergquint.com/