STATEGIC FIT IN MERGERS AND ACQUISITIONS AN IMPERATIVE

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2 STATEGIC FIT IN MERGERS AND ACQUISITIONS AN IMPERATIVE 2

3 INTRODUCTION Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. Corporate mergers and acquisition is defined as The process of buying, selling & integrating different corporate with the desire of expansion & accelerated growth opportunity. 1+1=3 One plus One Three, this equation is the special alchemy of an Acquisition. 3

4 DEFINATION Basically, when two companies become one. This decision is usually mutual between both firms. MERGERS A combination of two or more businesses into one business. 4

5 A corporate action in which a company buys most, if not all, of the target company s ownership stakes in order to assume control of the target firm. ACQUISITIONS ACQUIRE MEANS TO BUY OR TO PURCHASE 5

6 Types of Corporate Mergers Vertical Horizontal Varieties Conglomeration Product-extension Market extension Types of Corporate Acquisition Friendly Hostile Depending upon Acquire or merging is or isn t listed in public markets. How the communication is done and received by the target. 6

7 HISTORY Most of the mergers and acquisitions are an outcome of the favorable economic factors like the macroeconomic setting, escalation in the GDP, higher interest rates and fiscal policies. These factors not only trigger the M & A process but also play an active role in laying the mergers and acquisition strategies between bidding and target firms. The concept of merger and acquisition in India was not popular until the year The key factor contributing to fewer companies involved in the merger is the regulatory and prohibitory provisions of MRTP Act, (Monopolies and Restrictive Trade Practices Act,1969) The year 1988 witnessed one of the oldest business acquisitions or company mergers in India. As for now the scenario has completely changed with increasing competition and globalization of business. It is believed that at present India has now emerged as one of the top countries entering into merger and acquisitions. 7

8 Ten biggest Mergers and Acquisitions deals in India Case study 1. Tata Steel -Corus Group 2. Hutch / Essar Vodafone 3. Hindalco Industries - Canada based firm Novelis Inc 4. Indian pharma industry - Daiichi Sankyo 5. ESSO- ONG 6. DoCoMo-Tata Tele 7. India's financial industry - HDFC Bank and Centurion Bank of Punjab. 8. Tata Motors - Jaguar and Land Rover brands from Ford Motor 9. Adyta Birla Group Columbian Chemicals 10. Vedanta Cairn Deal The Vedanta Cairn acquisition December 2011 finally saw the completion of the much talked about Vedanta Cairn deal that was in the pipeline for more than 16 months. Touted to be the biggest deal for Indian energy sector, Vedanta acquired Cairn India for a neat 8.6 billion dollars. Although the Home Ministry cleared the deal, it has highlighted areas of concern with 64 legal proceedings against Vedanta. 8

9 Distinction between Mergers and Acquisitions Merger The case when two companies (often of same size) decide to move forward as a single new company instead of operating business separately. The stocks of both the companies are surrendered, while new stocks are issued afresh. For example, Glaxo Wellcome and SmithKline Beehcam ceased to exist and merged to become a new company, known as Glaxo SmithKline. Merging of two organizations in to one. It is the mutual decision. Merger is expensive than acquisition (higher legal cost). Through merger shareholders can increase their net worth. Acquisition The case when one company takes over another and establishes itself as the new owner of the business. The buyer company swallows the business of the target company, which ceases to exist. Dr. Reddy's Labs acquired Betapharm through an agreement amounting $597 million. 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 time consuming and the company has to maintain so much legal issues. Dilution of ownership occurs in merger. It is faster and easier transaction. The acquirer does not experience the dilution of ownership. 9

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11 MERGERS AND ACQUISITIONS TAKEOVER Mergers, acquisitions and takeovers have been a part of the business world for centuries. TERMINOLOGY Merger is an economic tool that is employed for elevating the long-standing success which is achieved by developing their functional competence. Acquisitions can be either friendly or intimidating and takes place between the bidding and the targeted firm. Reverse acquisition take place when the target company is bigger than the firm which offered the takeover proposal. During the process the bidder has the right to buy the share of the targeted firm. 11

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13 Steps of Mergers and Acquisition Process Preliminary Assessment or Business Valuation Stage of Integration Phase of Proposal Structured Marketing Exit Plan 13

14 REVERS MERGER A reverse merger is when a private company becomes a public company by purchasing control of the public company. The shareholders of the private company usually receive large amounts of ownership in the public company and control of its board of directors (B of D). Advantages The ability for a private company to become public for a lower cost and in less time than with an initial public offering (IPO). When a company plans to go public through an IPO, the process can take a year or more to complete. This can cost the company money and time. With a reverse merger, a private company can go public in as little as 30 days. Disadvantages Reverse stock splits are very common with reverse mergers and can significantly reduce the number of shares owned by stockholders. 14

15 Merger and Acquisition Strategies The merger and acquisition strategies may differ from company to company and also depend a lot on the policy of the respective organization. However, merger and acquisition strategies have got some distinct process, based on which, the strategies are devised. 15

16 BIBLIOGRAPHY BUSINESS.MAPSOFINDIA.COM FIT IN MERGERS AND ACQUISITIONS-AN IMPERATIVE.PPT 16

17 THANKING YOU 17