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Impacts of Mergers and Acquisition

PRESENTED BY -

 DANIEL DIAS  UJWAL VIJAPURE  DARRYL CORREIA

06 14 30

BENEFITS OF MERGER AND ACQUISITION

1) Increase in effective values  The principal reason for this external combination is that the value of the company so formed by combining resources is greater than the sum of the independent values of the merged company.  V {C} > V (A) + V (B) Where : V {C} =Value of the merged co. . V {B} =Value of B Ltd. V {A} =Value of A Ltd.

2)Operating Economics  Combination of two or more companies results in a number of operating economics. Duplicate facilities can be eliminated. .

3)Elimination of Competition  The combining of two or more companies under the same name. This may probably benefit the consumer. would result in elimination of competition between them. . in terms of goods being available at lower price. They would save in terms of advertising cost.

having short gestation period. As a result of this merger. with short gestation period can be used to improve the financial requirements of the co. having a long gestation period may large itself with another co. Similarly.  E. the profit coming from the co. with long gestation Later when the company with long gestation period starts giving profits.g.4)Better Financial Planning  Merger result in better financial planning and control. it will benefit the amalgamated company as a whole. the surplus funds of acquiring company may be more effectively utilities in the acquired co. . A co.

5) Stabilisation through diversification  A company experiencing wide economic fluctuations and cyclical phase in its earning due to nature of its product or business may merge with another company. will bring consistent earning to the business as a whole. whose business cycle is different from its own  This merger of companies with different business cycle. .

6)Dilution under FEMA  A foreign company operating in India may merge with and Indian company in order to meet the requirements of Foreign Exchange Management Act for diluting its foreign shareholdings. .

7)Economic necessity  Rehabilitation of sick units may also become a social necessity since its closure may result in unemployment and other consequential problems .

FAILURE OF MERGER AND ACQUISITION .

 The mismatch of culture leads to deterring working environment. which in turn ensure the downturn of the organization .Cultural Difference:  Cultural Difference:  One of the major reasons behind the failure of mergers.

 Often the ego of the executive can become the cause of unsuccessful merger.  Mergers can also happen due to generalized fear.Flawed intentions  Flawed intentions  Companies often go for mergers getting influenced by the booming stock market. .  The work gets hampered.

Impact on Management .

 Impact of mergers and acquisitions on top level management may actually involve a "clash of the egos"  There might be variations in the cultures of the two organizations  Under the new set up the manager may be asked to implement such policies or strategies. the migration to another company may not be troublesome at all. which may not be quite approved by him  However. the manager is well equipped with a degree or has sufficient qualification. .

Impact on shareholders .

.We can further categorize the shareholders into two parts The Shareholders of the acquiring firm The shareholders of the target firm.

. So that the shareholders forgo their shares.  It is seen in majority of the cases that the acquiring company usually pays a little excess than it what should.  Unless a man lives in a house he has recently bought.Shareholders of the acquired firm  The shareholders of the acquired company benefit the most. which is prevailing in the market. Buying a company at a higher price can actually prove to be beneficial for the local economy. the company has to offer an amount more then the actual price. he will not be able to know its drawbacks.

by the same degree.Shareholders of the acquiring firm   They are most affected. these shareholders are harmed. the degree to which they were benefited. which accompanies an acquisition. . This can be attributed to debt load. If we measure the benefits enjoyed by the shareholders of the acquired company in degrees.

Customers .

 Whether it is positive or negative  The empirical results indicate that four of the five mergers we study resulted in some increases in some consumer prices  1+1=3  Merged entity is weaker than the individual companies  Customers loyalty .

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2006  And a premium of over 68% over the average closing market share price over the twelve month period.84 billion.  49% premium over the closing mid market share price of Corus on 4 October.  The acquisition was not cheap for Tata. ₤6. implying a cash outflow from Tata Steel in the amount of £1.  Moreover. .2 billion (US $12 billion) which was paid in cash. since the deal was paid for in cash automatically makes it more expensive.

 Tata has reportedly financed only $4 billion of the Corus purchase from internal company Resources  More than two-thirds of the deal has had to be financed through loans from major banks  The day after the acquisition was officially announced.7 percent on the Bombay stock market. . Tata Steel’s share fell by 10.

3 million tones. .  Tata’s new debt amounting to $8 billion  This amount combined with Corus’ existing interest debt charges of $400 million on an annual basis implies that the combined entity’s interest obligation will amount to approximately $725 million after the acquisition. Despite its four times smaller size and smaller capacity.6 million tons). were very close in amount to those generated by Corus ($860 million in profits on sales of 18. earning $840 million on sales of 5. Tata Steel’s operating profit for 2006.

7 .Tata Steel-Corus:Projected capacity (in million tones per annum) Corus Group (in UK and The Netherlands) 19 Tata Steel – Jamshedpur Tata Steel .7 55.Chattisgarh NatSteel – Singapore Millennium Steel – Thailand Aggregate projected capacity 10 12 6 5 2 1.Jharkhand Tata Steel .Orissa Tata Steel .

5 17.Mittal Nippon Steel Posco JEF Steel Capacity (in m t) 110.Global steel ranking Company Arcelor .0 32.0 18.0 Tata Steel – Corus Bao Steel China US Steel Nucor Riva Thyssen Krupp 27.5 16.7 23.0 30.0 19.5 30.5 .

3 3.9 38.9 6.3 Germany India Ukraine Italy Brazil World production Source: International Iron and Steel Institute 44.8 1.120.5 40.8 418.6 47.6 48.8 6.1 7.5 94.7 .2) 1.6 29.5 70.8 Japan US Russia South Korea 112.7 355.6 30.8 1.1 47.Global Steel output (in million $) Country China 2005 2006 % change 17.8 116.7 7.2 44.6 5.8 31.5 (2.028.0 40.2 98.9 66.4 31.4 3.

ICICI & Bank Of Rajasthan .

 This merger is going to be on a going concern basis and existing shareholders of both banks would gain handsomely .Effects on the stock  ICICI Bank has entered into an agreement with certain shareholders ( promoter group ) for the proposed merger at a share exchange ratio of 25 shares of ICICI Bank for 118 shares of Rajasthan Bank ( a ratio of 1:4.72).

5. they have been going up and up and in last three trading sessions. the prices have shot up by over 60 % to Rs 166. The share price of BOR has been jumping since then and even then at present prices. it gives a monetary gain.70 (as on 24. .2010)  The present shareholders of BOR tend to gain in money terms considering the present price or even the price on the date of announcement in the board meetings of two banks.Shares of Bank of Rajasthan  BOR’s share prices.

the value of ICICI Bank shares will also go up as the business grows and the advantages of merger start accruing.  For ICICI bank. Post merger.Shares of ICICI Bank  Where as price of ICICI Bank stood at Rs 832 on 24 the May 2010. the benefits will start accruing immediately as there is going to be no cash outflow (only share exchange will take place) and benefits from operational performance will be immediate .

.Impact on customers of BOR  They may now enjoy world class personal banking experience but @ increased cost  ICICI lays emphasis on personal banking relationships where as customer loyalty has been a USP of Bank of Rajasthan.

Benefits to ICICI Bank  BOR has considerable business of state government corporations and bodies (eg.  Customers will have rich choice of innovative as well as customized products and corporate customers shall immensely gain out of such products adding to their efficient cash management. roadways. While ICICI would benefit out of this. University. RIICO etc). JDA. .

packages etc.Human relations (HR)  The employees of BOR will resist such a merger for obvious reasons as it makes them insecure. positions. fragile and brings in fear of relocation. .  The most challenging task before BOR employees would be to adjust to new target oriented professional work culture where performance is rewarded and every team member has to contribute in tangible terms to organizational growth. branch closure and rationalization besides discrimination in treatment.

a seven decade old bank would loose its identity and name for ever.a value buying for ICICI and a graceful face saving for Bank of Rajasthan. goodwill) it is a win-win situation for both the banks. However.the cost it paid for the governance . Given the market value of immovable properties and other assets (brand.

Satyam-Tech Mahindra .

However. “They can take another partner if they want to. in the SPV. Satyam board member said while announcing the highest bidder for Satyam . the agreement says that they cannot strip the company and cannot sell the company piecemeal.What Tech Mahindra cannot do? Tech Mahindra is at liberty to bring in any kind of investor after the deal is done.” Deepak Parekh.

Will there be layoffs?
 While most of the employees evoked a

sense of relief after the winner was announced, many remained concerned about tough days ahead.
 This was true especially for those who

are currently not part of any active customer project. Satyam professionals working in subsidiaries such as Nipuna, the BPO arm of the company, continued to be sceptical about the new owner fear that Tech Mahindra could look at rightsizing the company.

 Tech Mahindra has an agreement with Satyam to retain 100 key employees (which interestingly does not include Ram Mynampati). The fate of the remaining employees of Saytam would depend on the extent to which Tech Mahindra decides to downsize. The first set of casualties could be employees on the bench. Satyam has 43,500 direct employees
 As customers seek to lower their IT spend, and even shift projects to other rivals, many Satyam employees would be losing their jobs.

 Mahindra Satyam’s growth momentum

continues,
 Q1 Revenue at $320 million, up 5.2%QoQ,

19.3% YoY
 EBITDA grows 18.8% QoQ, margin at

14.6%

up 17. Financial Highlights for the Quarter ended June 30.434 crores.2 crores  EPS was at Rs.3% QoQ. 1. up 4.8% QoQ  Profit After Tax was at INR 225.91 . 2011:  Consolidated Revenue was INR 1. up 14.9% YoY  EBITDA was INR 210 crores.

Key Wins  Mahindra Satyam was engaged by a global Technology major to define a roadmap for their Enterprise Mobility Strategy  Won a multi-year. managed services engagement with one of the leading global Oil and Gas majors  Mahindra Satyam was selected as a IT Services vendor by a Fortune 500 retailer based in US .

Wipro (over $4 billion) and HCL Technologies (above $2. Infosys.5 billion) in terms of revenue  “Ek se bhale do” . A largest M&A deal in the domestic IT industry Cost of $1.22 billion  iGATE is still no where near to the size of other big league players among India-centric offshore providers such as TCS.

are set to get a bonanza in the form of a special retention bonus that could be equal to up to six months of their pay as an incentive to stay with the company. The bonus package will cover around 500 senior staff at the midmanagement level — 300 from Patni Computer and 200 from iGATE. . which is the new owner of Patni. Key employees of Patni Computer Systems and the Nasdaq-listed iGATE.

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 Kingfisher airlines bought 26% of the stake in Air Deccan  Share prices of AD increased 40% + by the news of merger. .Kingfisher AND Air Deccan  Vijay Mallya from Kingfisher Captain Gopinath from Air Deccan .

is the second biggest domestic aviation group (after JetSahara) in the country and hence can leverage economies of scale in many ways. The first obvious advantage that Kingfisher Airlines – Air Deccan have is commonality of fleet.  With the same family of planes on both sides.And both have plans to acquire more Airbus aircraft. .  With a fleet strength of 72 planes. the combined entity with a 33% market share. there could be significant reduction of cost. since many facilities like engineering could be shared  Both airlines fly similar aircraft – ATRs and Airbus A320s.

ground handling. aircraft spares. training can be combined. With commonality of fleet (Airbus) we intend sharing of resources.” said an Air Deccan spokesperson. airport infrastructure such as X-ray machines. Scarce manpower can be optimally utilized. infrastructure like engineering.  “There exist inherent synergies between Air Deccan and Kingfisher Airlines. conveyer belts. step ladders. The synergies will definitely lead to decreased costs and increased efficiencies for both airlines. . insurance premium and lease rentals can be re-negotiated.

and the Middle East.  . while Deccan could look at areas like the neighboring countries.” said the analyst. South East Asia. Kingfisher Airlines and Air Deccan can access ground infrastructure at 65 airports.    Using its wider network. there are indications that the policy would be done away with. would bring in additional synergies. “Deccan has not ordered any long haul planes while Kingfisher has. On the New Delhi-Mumbai route. The international operations. Kingfisher would fly long haul destinations like the US. of which 28 are common. which accounts for over half of India’s 33 million passenger traffic per annum. Deccan could feed Kingfisher’s international operations. as and when both the airlines are allowed to kickstart. the two carriers account for a total of 155 flights. Although current aviation policy wouldn’t allow Kingfisher to begin flying overseas for another three years. So once both begin international operations.

said in their recent report. in December. the airline. Analysts say if the policy is not changed to Kingfisher’s advantage. analysts with HSBC. Air Deccan would be eligible to fly abroad from 2008.” Mark Webb and Eric Lin. “Kingfisher will get faster international access through Air Deccan and may access some of Air Deccan’s peak metro airport slots. helping it to counter the domestic peak time dominance enjoyed by Jet Airways. an Airbus A340-500. But although managements of both the airlines have said both the entities would be run independently. insiders say some changes already have begun to surface with a brand name change for Deccan being toyed by Kingfisher.   . could use look at flying overseas using Air Deccan’s code. which takes the delivery of its first wide-bodied aircraft. but under its own brand.

Work in Progress .

India has 2nd largest market for mobile. .  It is growing at the rate of 6 million subscribers per month.Vodafone need  Vodafone wants to expand into the asian markets.

Hutch want to sell Major Reasons for sell are :  Hutch-Essar : mutual distrust  The right time to quit Indian operations to finance other operations. In the early 1990s. he sold his stake in Star TV to Rupert Murdoch for $825 million . Li Ka-Shing was the 10th richest man globally in 2006.

Hutch Hutch Hutch  The biggest one is a presence in a market of 143 million subscribers that's growing at a rate of 5 percent on a month-on-month basis Fourth largest mobile operator in India with 24.086 crore) in H1 2006. Operating profits of Rs 1. present in 16 of 23 circles.017 crore .41% of the Indian mobile market.41 million subscribers 16.    Accounted for 41 per cent of Hutchison Telecommunication International’s revenues  Revenues of $908 million (Rs 4.

it valued the company at $18.Valuation Average Revenues per User It had the highest ARPUs – Rs 374(Avg Rs335) perspective of the buyer market share $54.8 billion Vodafone bagged Hutchison Essar.8 billion or $770 per subscriber .

08 .10  -Other Debt: 0.Valuation of Hutch Essar Value ($ billion)  -Hutch Essar 100% enterprise value: 18.47  -Value of 67% stake: 11.8 million  -0Hutch Essar debt: 1.33  -Equity Value: 17.63  -Net Value: 11.

two months ahead of the option window closing. the automatic right the exercise their “call” option for the residual 11 per cent as well.Vodafone-Essar deal now in RBI court  Essar had decided to exercise its underwritten call option for two-thirds of its 33 per cent stake. Vodafone officials claimed the original shareholders’ agreement of 2007 gave them. in such an event. .

 Telecom major Vodafone suffered a setback today after the Foreign Investment Promotion Board (FIPB) disapproved of its bid to acquire Essar's 11% in Vodafone-Essar  The deal will also need to get clearance from Cabinet Committee on Economic Affairs (CCEA) as deals size is large. .  The Home Ministry and Telecom Ministry are yet to comments on the deal.

cement. and many more sectors have only experienced successful mergers with overseas companies in India. steel. The sector which rules the merger scenario in India and is a result of the globalization process is the automobile sector. .  The automobile sector. petrochemical. pharmaceutical.CONCLUSION  Globalization and mergers in India has only helped in improving the economic state.  These global associations have brought them an array of success which has created a brand value in the market.

Thank You .