Mergers and Acquisitions

Danyal Mustafa &Sartaj Sangi

Presented by:

A brief Introduction

Danyal Mustafa Shaikh

Outlines:• What is Mergers?• What is Acquisitions?• Difference between Mergers and Acquisitions.• Why merger is important and problems with Merger.• Why Acquisition is important and problems with

Acquisition.• Experience in Mergers and Acquisitions.• Some Examples.• Process of mergers and acquisition.• Impact of Mergers and Acquisition.• Why Mergers and Acquisition Fail.

What is MERGER?

• A transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage.

• Example: Company A+ Company B= Company C.

• It also known as a takeover or a buyout• It is the buying of one company by another. • In acquisition two companies are combine together to form a

new company altogether.

• Example: Company A+ Company B= Company A.

What is ACQUISITION?

ACQUISITIONi. Buying one organization by

another.ii. It can be friendly takeover or

hostile takeover.iii. Acquisition is less expensive

than merger.iv. Buyers cannot raise their

enough capital.v. It is faster and easier

transaction.

DIFFERENCE BETWEEN MERGER AND ACQUISITION

MERGER

i. Merging of two organization in to one.

ii. It is the mutual decision.iii. Merger is expensive than

acquisition(higher legal cost).iv. Through merger shareholders can

increase their net worth.v. It is time consuming and the

company has to maintain so much legal issues.

The process of merger and acquisition has the following steps:i. Approval of Board of Directorsii. Information to the stock exchangeiii. Application in the High Courtiv. Shareholders and Creditors meetingsv. Sanction by the High Courtvi. Filing of the court ordervii. Transfer of assets or liabilitiesviii. Payment by cash and securities

Maximum Waiting period:210 days from the filing of notice(or the order of the commission - whichever earlier).

PROCESS OF MERGER & ACQUISITION

• Cultural Difference

• Flawed Intention

• No guiding principles

• No ground rules

• No detailed investigating

• Poor stake holder outreach

Why Mergers and Acquisitions Fail?

PROBLEM WITH MERGER

i. Clash of corporate cultures

ii. Increased business complexity

iii. Employees may be resistant to change

MERGER:WHY & WHY NOT

WHY IS IMPORTANT

i. Increase Market Share.ii. Economies of scaleiii. Profit for Research and

development.iv. Benefits on account of

tax shields like carried forward losses or unclaimed depreciation.

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PROBLEM WITH ACUIQISITION

i. Inadequate valuation of target.

ii. Inability to achieve synergy.

iii. Finance by taking huge debt.

WHY IS IMPORTANT

i. Increased market share.

ii. Increased speed to market

iii. Lower risk comparing to develop new products.

iv. Increased diversification

v. Avoid excessive competition

ACQUISITION:WHY & WHY NOT

Sartaj Sangi

For further..

M&A DEALS…

1. Tata Steel-Corus: $12.2 billion

• January 30, 2007

• Largest Indian take-over

• After the deal TATA’S

became the 5th largest

STEEL co.

• 100 % stake in CORUS

paying Rs 428/- per

shareImage: B Mutharaman, Tata Steel MD; Ratan Tata, Tata chairman; J Leng, Corus chair; and P Varin, Corus CEO.

2. Vodafone-Hutchison Essar: $11.1 billion

• TELECOM sector• 11th February 2007• 2nd largest

takeover deal• 67 % stake holding

in hutchImage: The then CEO of Vodafone Arun Sarin visits Hutchison Telecommunications head office in Mumbai.

3. 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 marketImage: Imperial Oil

CEO Bruce March.

4. HDFC Bank-Centurion Bank of Punjab: $2.4 billion

• February, 2008• Banking sector• Acquisition deal• CBoP shareholders

got one share of HDFC Bank for every 29 shares held by them.

• 9,510 croreImage: Rana Talwar (rear) Centurion Bank of Punjab chairman, Deepak Parekh, HDFC Bank chairman.

5. Tata Motors-Jaguar Land Rover: $2.3 billion

• March 2008 (just a year after acquiring Corus)

• Automobile sector• Acquisition deal• Gave tuff competition

to M&M after signing the deal with ford

Image: A Union flag flies behind a Jaguar car emblem outside a dealership in Manchester, England.

• Learn from mistakes of others• Define your objectives clearly• Complete strategy to achieve goal.• SWOT analysis for the merged business - a

must• Pick holes in strategy to get the best• Will merged units be able to work at efficient /

ideal level?

EXPERIENCES IN M&A

Deals in India for first financial quarter 2010

Sector No. of Deals Value in USD million

Share in per cent

Telecom 3 22732.26 67.19

Pharmaceutical 4 3958.29 11.02

BFSI 6 2651.54 7.84

Metal and Mining 4 1483.15 4.38

Energy 4 1320 3.90

Other sectors 39 1919.00 5.67

Impact of Mergers and Acquisitions

Impact

Employees

Competition

Management

Public

Shareholders

• Continuous communication – employees, stakeholders,

customers, suppliers and government leaders.

• Transparency in managers operations

• Capacity to meet new culture higher management

professionals must be ready to greet a new or modified

culture.

• Talent management by the management

How to Prevent the Failure

MERGER & ACQUISITION(2010-11) :

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THANK YOU