A Study on

MERGERS AND ACQUISITIONS

Mini Project Report in FINANCIAL MANAGEMENT Submitted to JNTU,

Kakinada in Partial Fulfillment for the Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted By

Koppula. Chandrasekhar

(Reg. No. 13491E0037).

DEPARTMENT OF MASTER OF BUSINESS ADMINISTRATION

QIS COLLEGE OF ENGINEERING & TECHNOLOGY

An ISO 9001: 2008 Certified Institution and Accredited by NBA

(Affiliated to JNTU, Kakinada and Approved by AICTE)

Vengamukkapalem, Pondur Road

ONGOLE –523 272 .julay-2014

INDEX

S. No Contents Page No’s

01 Abstract 01

02 Key wards 01

03 Introduction 02

04 Definition 03

05 Need for the study 03

06 Scope of the study 03

07 Methodology 04

08 Objectives 04

09 Review of literature 04

10 Difference between Merger and acquisition 09

11 Advantages of Merger and acquisition 11

12 Regulations of Merger and acquisition 13

13 The Competition Act, 2002 15

14 Procedure of Merger and acquisition 16

15 Why Merger is fail? 18

16 Conclusion 20

References20

MERGERS AND ACQUISITIONSAbstract:

Purpose   – The purpose of this paper is to advance cross-cultural management during mergers and acquisitions (M&A), an issue that remains poorly understood despite a large body of literature accumulated over many years of study and experience.

Design/methodology/approach   – Based on literature review and case studies of both successful and unsuccessful companies, this paper clarifies the concept, the assessment and the use of corporate culture and its dimensions during all mergers and acquisitions stages, and as such shows its role as an important and influential milestone in the international business environment exploration.

Findings   – The paper arrives at the conclusion that the enduring paradox of the high rate of M&A failure vs the growing activity of M&A may be due to lack of synchronized activities of all merger stages.

Practical implications   – The paper presents frameworks and managerial tools that can help researchers and practitioners conduct better corporate culture assessment during all stages of the M&A, including screening, planning, and negotiation, and enhance the effectiveness of interventions carried out during post-merger integration process.

Originality/value   – The paper offers insights into corporate culture and its impact during pre-merger stage, negotiation, and the post-merger integration process.

Resource:

Yaakov Weber , (School of Business Administration, College of Management, Rishon Lezion, Israel), Shlomo Yedidia Tarba, (The Center of Law and Business, Ramat-Gan, Israel)Yaakov Weber, Shlomo Yedidia Tarba, (2012) "Mergers and acquisitions process: the use of corporate culture analysis", Cross Cultural Management: An International Journal, Vol. 19 Iss: 3, pp.288 - 303

10.1108/13527601211247053  (Permanent URL)

Key words: Acquisitions, Acquisitions and mergers, Culture, Mergers, Organizational culture

Introduction:

We have been learning about the companies coming together to from another company and

companies taking over the existing companies to expand their business. With recession taking

toll of many Indian business and the feelings of insecurity surging over our businessmen, it is not

surprising when we hear about the immense numbers of corporate restructuring taking place,

especially in the last couple of years. Several companies have been taken over and several

have undergone internal restructuring, whereas certain companies in the same field of business

have found it beneficial to merge together into one company.

All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs, tender offers, &

other forms of corporate restructuring. Thus important issues both for business

decision and public policy formulation have been raised. No firm is regarded safe from a

takeover possibility. On the more positives idea Mergers & Acquisitions may be critical for the

healthy expansion and growth of the firm. Successful entry into new product and geographical

markets may require Mergers & Acquisition’s at some stage in the firm’s development.

Successful competition in international markets may depend on capabilities obtained in a timely

and efficient fashion through Mergers and Acquisitions.

Considerable amount of brainstorming would be required by the managements to reach a

conclusion. E.g. A due diligence report would clearly identify the status of the company in

respect of the financial position along with the net worth and pending legal matters and details

about various contingent liabilities. Decision has to be taken after having discussed the pros &

cons of the proposed merger & the impact of the same on the business, administrative costs

benefits, addition to shareholder’s value, tax implications including stamp duty and last but not

the least also on the employees of the Transferor or Transferee Company.

Definition:

WHAT IS MERGER?

Merger is defined as combination of two or more companies into a single company where one

survive and the others lose their corporate existence. The survivor acquires all the assets as well

as liabilities of the merged company or companies. Generally, he surviving company is the

buyer, which retains its identify, and the extinguished company is the seller. Merger is also

defined as amalgamation. Merger is the fusion of two or more existing companies. All assets,

liabilities and the stock stand transferred to transferee company in consideration of payment in

the form of:

Equity shares in the transferee company,

Debentures in the transferee company,

Cash, or 

A mix of the above modes.

WHAT IS ACQUISITION?

Acquisition in general sense is acquiring the ownership in the property. In the context of business

combinations, an acquisition is the purchase by one company of a controlling interest in the share

capital of another existing company.

Need for the Study:

To opt for a merger or not is a complex affair, especially in terms of the technicalities

involved. We have discussed almost all factors that the management may have to look into

before going for merger.

Scope of the Study:

Considerable amount of brainstorming would be required by the managements to reach a conclusion. Decision has to be taken after having discussed the pros & cons of the proposed merger & the impact of the same on the business, administrative costs benefits, addition to shareholder’s value, tax implications including stamp duty and last but not the least also on the employees of the Transferor or Transferee Company.

Objectives:

To know Acquisitions. To Study Mergers.

To evaluate different types of mergers and acquisitions. To know that Advantages.

Methodology:

o This data collected from electronic sources collected from the electronic sources i.e., from the Google and the related websites and also empirical study research papers.o http://www.emeraldinsight.com/journals.htm?articleid=1906651

Review of literatureMethods of Acquisition:

An acquisition may be affected by

a) Agreement with the persons holding majority interest in the company

management like members of the board or major shareholders commanding majority of

voting power; 

b) Purchase of shares in open market;

c) To make takeover offer to the general body of shareholders;

d) Purchase of new shares by private treaty;

e) Acquisition of share capital through the following forms of considerations viz. Means of cash,

issuance of loan capital, or insurance of share capital.

Takeover:

A ‘takeover’ is acquisition and both the terms are used inter changeably. Takeover differs from

merger in approach to business combinations i.e. The process of takeover, transaction involved

in takeover, determination of share exchange or cash price and the fulfillment of goals of

combination all are different in takeovers than in mergers. For example, process of takeover is

unilateral and the offer or company decides about the maximum price. Time taken in

completion of transaction is less in takeover than in mergers, top management of the offeree

company being more co-operative.

DE-MERGER OR CORPORATE SPLITS OR DIVISION:

De-merger or split or divisions of a company are the synonymous terms signifying a movement

in the company.

PURPOSE OF THE MERGER AND ACQUISITION

The purpose for an offer or company for acquiring another company shall be reflected in the

corporate objectives. It has to decide the specific objectives to be achieved through acquisition.

The basic purpose of merger or business combination is to achieve faster growth of the corporate

business. Faster growth may be had through product improvement and competitive position.

Other possible purposes for acquisition are short listed below: -

(1) Procurement of supplies:

To safeguard the source of supplies of raw materials or intermediary product;

To obtain economies of purchase in the form of discount, savings in transportation costs,

overhead costs in buying department, etc.;

To share the benefits of suppliers economies by standardizing the materials.

(2) Revamping production facilities:

To achieve economies of scale by amalgamating production facilities through more

intensive utilization of plant and resources;

To standardize product specifications, improvement of quality of product, expanding

Market and aiming at consumers satisfaction through strengthening after sale Services;

To obtain improved production technology and know-how from the offered company

To reduce cost, improve quality and produce competitive products to retain and Improve

market share.

(3) Market expansion and strategy:

To eliminate competition and protect existing market;

To obtain a new market outlets in possession of the offeree;

To obtain new product for diversification or substitution of existing products and to

enhance the product range;

Strengthening retain outlets and sale the goods to rationalize distribution;

To reduce advertising cost and improve public image of the offeree company;

Strategic control of patents and copyrights.

(4) Financial strength:

To improve liquidity and have direct access to cash resource;

To dispose of surplus and outdated assets for cash out of combined enterprise;

To enhance gearing capacity, Bank of Rajasthan row on better strength and the greater

assets backing;

To avail tax benefits;

To improve EPS (Earning per Share).

(5) General gains:

To improve its own image and attract superior managerial talents to manage its affairs;

To offer better satisfaction to consumers or users of the product.

(6) Own developmental plans:

The purpose of acquisition is backed by the offer or company’s own developmental plans.

A company thinks in terms of acquiring the other company only when it has arrived

at its own development plan to expand its operation having examined its own internal strength

where it might not have any problem of taxation, accounting, valuation, etc. but might feel

resource constraints with limitations of funds and lack of skill managerial personnel’s. It has to

aim at suitable combination where it could have opportunities to supplement its funds by

issuance of securities, secure additional financial facilities, eliminate competition and strengthen

its market position.

(7) Strategic purpose:

The Acquire Company view the merger to achieve strategic objectives through alternative type

of combinations which may be horizontal, vertical, product expansion, market extensional or

other specified unrelated Objectives depending upon the corporate strategies.

Thus, various types of combinations distinct with each other in nature are adopted to pursue this

objective of horizontal combination.

(8) Corporate friendliness:

Although it is rare but it is true that business houses exhibit degrees of co-operative spirit despite

competitiveness in providing rescues to each other from hostile takeovers and cultivate situations

of colla Bank of Rajasthan nations sharing goodwill combinations. He combining corporate aim

at circular combinations by pursuing the objective.

(9) Desired level of integration:

Mergers and acquisitions are pursued to obtain the desired level of integration between the two

combining business houses. Such integration could be operational or financial. This gives birth

to conglomerate combinations. The purpose and the requirements of the offer or company go a

long way in selecting a suitable partner for merger or acquisition in business combinations.

TYPES OF MERGERS

Merger or acquisition depends upon the purpose of the offer or company it wants to achieve.

Based on the offer or’s objective profile, combination could be vertical, horizontal, circular and

conglomeratic as precisely described below with reference to the purpose in view of the offer or

company.

(A) Vertical combination:

A company would like to takeover another company or seek its merger with that company to

expand espousing backward integration to assimilate the resources of supply and forward

integration towards market outlets. The acquiring company through merger of another unit

attempts on reduction of inventories of raw material and finished goods, implements its

production plans as per the objectives and economizes on working capital investments. In other

words, in vertical combinations, the merging undertaking would be either a supplier or a buyer

using its product as intermediary material for final production.

The following main benefits accrue from the vertical combination to the acquirer company i.e.

1. It gains a strong position because of imperfect market of the intermediary products,  scarcity

of resources and purchased products;

2. Has control over products specifications.

(B) Horizontal combination:

It is a merger of two competing firms which are at the same stage of industrial process. The

acquiring firm belongs to the same industry as the target company. The mail purpose of such

mergers is to obtain economies of scale in production by eliminating duplication of facilities and

the operations and broadening the product line, reduction in investment in working

capital, elimination in competition concentration in product, reduction in advertising costs,

increase in market segments and exercise better control on market.

(C) Circular combination:

Companies producing distinct products seek amalgamation to share common distribution and

research facilities to obtain economies by elimination of cost on duplication and promoting

market enlargement. The acquiring company obtains benefits in the form of economies of

resource sharing and diversification.

(D) Conglomerate combination:

It is amalgamation of two companies engaged in unrelated industries like DCM and Modi

Industries. The basic purpose of such amalgamations remains utilization of financial resources

and enlarges debt capacity through re-organizing their financial structure so as to service the

shareholders by increased leveraging and EPS, lowering average cost of capital and thereby

raising present worth of the outstanding shares.

DIFFERENCE BETWEEN MERGERS AND AQUISITION

Merger Acquisition

The case when two companies (often

of same size) decide to move forward

as a single new company instead of

operating business separately.

The case when one company takes over

another and establishes itself as the new

owner of the business.

The stock of both the companies are

surrendered while new stock are

issued afresh.

The buyer company “swallows” the

business of the target company, which

ceases to exist.

For example, Glaxo Wellcome and

SmithKline Beecham ceased to exist

and merged to become a new

company, known as Glaxo

SmithKline.

Dr. Reddy Labs acquired Betapharm

through an agreement amounting $597

million.

POSSIBLE IMPACT OF MERGERS AND ACQUISITIONS

Impacts on Employees

Mergers and acquisitions may have great economic impact on the employees of the organization.

In fact, mergers and acquisitions could be pretty difficult for the employees as there could always

be the possibility of layoffs after any merger or acquisition. If the merged company is pretty

sufficient in terms of business capabilities, it doesn't need the same amount of employees that it

previously had to do the same amount of business. Due to the changes in the operating

environment and business procedures, employees may also suffer from emotional and physical

problems.

Impact on Management

The percentage of job loss may be higher in the management level than the general employees.

The reason behind this is the corporate culture clash. Due to change in corporate culture of the

organization, many managerial level professionals, on behalf of their superiors, need to

implement the corporate policies that they might not agree with. It involves high level of stress.

Impact on Shareholders

Impact of mergers and acquisitions also include some economic impact on the shareholders. If it

is a purchase, the shareholders of the acquired company get highly benefited from the acquisition

as the acquiring company pays a hefty amount for the acquisition. On the other hand,

the shareholders of the acquiring company suffer some losses after the acquisition due to the

acquisition premium and augmented debt load.

Impact on Competition

Mergers and acquisitions have different impact as far as market competitions are concerned.

Different industry has different level of competitions after the mergers and acquisitions.

For example, the competition in the financial services industry is relatively constant. On the

other hand, change of powers can also be observed among the market players.

ADVANTAGES OF MERGERS

Mergers and takeovers are permanent form of combinations which vest in management complete

control and provide centralized administration which are not available in combination of holding

company and its partly owned subsidiary. Shareholders in the selling company gain from the

merger and takeovers as the premium offered to induce acceptance of the merger or takeover

offers much more price than the book value of shares. Shareholders in the buying company gain

in the long run with the growth of the company not only due to synergy but also due to “boots

trapping earnings”.

Mergers and acquisitions are caused with the support of shareholders, manager’s ad promoters

of the combing companies. The factors, which motivate the shareholders and managers to lend

support to these combinations and the resultant consequences they have to bear, are

briefly noted below based on the research work by various scholars globally.

(1) From the standpoint of shareholders

Investment made by shareholders in the companies should enhance in value. The sale of shares

from one company’s shareholders to another and holding investment in shares should give rise to

greater values i.e. The opportunity gains in alternative investments. Shareholders may gain from

merger in different ways viz. From the gains and achievements of the company i.e. through

(a)Realization of monopoly profits;

(b)Economies of scales;

(c)Diversification of product line;

(d)Acquisition of human assets and other resources not available otherwise;

( e ) Better investment opportunity in combinations

One or more features would generally be available in each merger where shareholders may have

attraction and favor merger.

(2)From the standpoint   of managers

Managers are concerned with improving operations of the company, managing the affairs of the

company effectively for all round gains and growth of the company which will provide them

better deals in raising their status, perks and fringe benefits. Mergers where all these things are

the guaranteed outcome get support from the managers. At the same time, where managers have

fear of displacement at the hands of new management in amalgamated company and also

resultant depreciation from the merger then support from them becomes difficult.

(3) Promoter’s gains

Mergers do offer to company promoters the advantage of increasing the size of their company

and the financial structure and strength. They can convert a closely held and private limited

company into a public company without contributing much wealth and without losing control.

4) Benefits to general public

Impact of mergers on general public could be viewed as aspect of benefits and costs to:

(a) Consumers

The economic gains realized from mergers are passed on to consumers in the form of

lower prices and better quality of the product which directly raise their standard of living and

quality of life. The balance of benefits in favour of consumers will depend upon the fact whether

or not the mergers increase or decrease competitive economic and productive activity which

directly affects thedegree of welfare of the consumers through changes in price level, quality of

products, after sales service, etc.

(b) Workers community

The merger or acquisition of a company by a conglomerate or other acquiring company may

have the effect on both the sides of increasing the welfare in the form of purchasing power and

other miseries of life. Two sides of the impact as discussed by the researchers and academicians

are:

firstly, mergers with cash payment to shareholders provide opportunities for them to invest this

money in other companies which will generate further employment and growth to uplift of the

economy in general. Secondly, any restrictions placed on such mergers will decrease the growth

and investment activity with corresponding decrease in employment.

Both workers and communities will suffer on lessening job Opportunities, preventing the

distribution of benefits resulting from diversification of production activity.

(c) General public

Mergers result into centralized concentrate of power. Economic power is to be understood as the

ability to control prices and industries output as

monopolists. Such monopolists affect social and political environment to till everything in their

favour to maintain their power ad expand their business empire. These advances result into

economic exploitation.

But in a free economy a monopolist does not stay for a longer period as other companies enter

into the field to reap the benefits of higher prices set in by the monopolist. Every merger of two

or more companies has to be viewed from different angles in the business practices which

protects the interest of the shareholders in the merging company and also serves the national

purpose to add to the welfare of the employees, consumers and does not create hindrance in

administration of the Government polices.

REGULATIONS OF MERGER AND ACQUISTIONS

Mergers and acquisitions are regulated under various laws in India. The objective of the laws is

to make these deals transparent and protect the interest of all shareholders. They are regulated

through the provisions of:-

The Companies Act, 1956

The Act lays down the legal procedures for mergers or acquisitions:-

Permission for merger : - Two or more companies can amalgamate only when the

amalgamation is permitted under their memorandum of association. Also, the acquiring

company should have the permission in its object clause to carry on the business of the

acquired company. In the absence of these provisions in the memorandum of association,

it is necessary to seek the permission of the shareholders, board of directors and the

Company Law Board before affecting the merger.

Information to the stock exchange   : - The acquiring and the acquired companies should inform

the stock exchanges (where they are listed) about the merger.

Approval of board of directors: - The board of directors of the individual companies should

approve the draft proposal for amalgamation and authorize the managements of the

companies to further pursue the proposal.

Application in the High Court: - An application for approving the draft

amalgamation proposal duly approved by the board of directors of the individual

companies should be made to the High Court.

Shareholders'   and creators'   meetings:   - The individual companies should hold separate

meetings of their shareholders and creditors for approving the amalgamation scheme. At

least, 75 percent of shareholders and creditors in separate meeting, voting in person

or by proxy, must accord their approval to the scheme.

Sanction by   the High Court: - After the approval of the shareholders and creditors, on the

petitions of the companies, the High Court will pass an order, sanctioning the

amalgamation scheme after it is satisfied that the scheme is fair and reasonable. The date

of the court's hearing will be published in two newspapers, and also, the regional

director of the Company Law Board will be intimated.

Filing of the Court order: After the Court order, its certified true copies will be filed with

the Registrar of Companies.

Transfer of   assets and   liabilities   : - The assets and liabilities of the acquired company will

be transferred to the acquiring company in accordance with the approved scheme, with

effect from the specified date.

Payment by cash or securities :- As per the proposal, the acquiring company will exchange

shares and debentures and/or cash for the shares and debentures of the acquired company.

These securities will be listed on the stock exchange.

The Competition Act, 2002

The Act regulates the various forms of business combinations through Competition. Under the

Act, no person or enterprise shall enter into a combination, in the form of an acquisition,

merger or amalgamation, which causes or is likely to cause an appreciable adverse effect on

competition in the relevant market and such a combination shall be void. Enterprises intending to

enter into a combination may give notice to the Commission, but this notification is voluntary.

But, all combinations do not call for scrutiny unless the resulting combination exceeds the thresh

old limits in terms of assets or turnover as specified by the Competition Commission of India.

The Commission while regulating a 'combination' shall consider the following factors:-

• Actual and potential competition through imports;

• Extent of entry barriers into the market;

• Level of combination in the market;

• Degree of countervailing power in the market;

• Possibility of the combination to significantly and substantially increase prices or profits;

• Extent of effective competition likely to sustain in a market;

• Availability of substitutes before and after the combination;

• Market share of the parties to the combination individually and as a combination;

• Possibility of the combination to remove the vigorous and effective competitor or competition

in the market;

• Nature and extent of vertical integration in the market;

• Nature and extent of innovation;

• Whether the benefits of the combinations outweigh the adverse impact of the combination.

Thus, the Competition Act does not seek to eliminate combinations and only aims to eliminate

their harmful effects.

PROCEDURE OF MERGERS & ACQUISITIONS

Public announcement:

To make a public announcement an acquirer shall follow the following procedure:

1. Appointment of merchant banker :

The acquirer shall appoint a merchant banker registered as category – I with SEBI to advise him

on the acquisition and to make a public announcement of offer on his behalf.

2. Use of media for announcement :

Public announcement shall be made at least in one national English daily one Hindi daily a done

regional language daily newspaper of that place where the shares of that company are listed and

traded.

3. Timings of announcement:

Public announcement should be made within four days of finalization of negotiations or entering

into any agreement or memorandum of understanding to acquire the shares or the voting rights.

4. Contents of announcement:

Public announcement of offer is mandatory as required under the SEBI Regulations.

(1)Paid up share capital of the target company, the number of fully paid up and partially paid up

shares.

( 2 ) Total number and percentage of shares proposed to be acquired from public subject to

minimum as specified in the sub-regulation (1) of Regulation 21 that is:

a) The public offer of minimum 20% of voting capital of the company to the shareholders; 

b ) The public offer by a raider shall not be less than 10% but more than 51% of  shares of voting

rights. Additional shares can be had @ 2% of voting rights in any year.

(3)The minimum offer price for each fully paid up or partly paid up share;

( 4 ) Mode of payment of consideration;

(5 ) The identity of the acquirer and in case the acquirer is a company, the identity of

the promoters and, or the persons having control over such company and the group, if any, to

which the company belong;

( 6 ) The existing holding, if any, of the acquirer in the shares of the target company, including

holding of persons acting in concert with him;

(7) Salient features of the agreement, if any, such as the date, the name of the seller, the price at

which the shares are being acquired, the manner of payment of the consideration and the number

and percentage of shares in respect of which the acquirer had entered into the agreement to

acquirer the shares or the consideration, monetary or otherwise, for the acquisition of control

over the target company, as the case may be;

(8)The highest and the average paid by the acquirer or persons acting in concert with him for

acquisition, if any, of shares of the target company made by him during the twelve

month period prior to the date of the public announcement;

( 9 ) Objects and purpose of the acquisition of the shares and the future plans of the acquirer for

the target company, including disclosers whether the acquirer proposes to dispose of or

otherwise encumber any assets of the target company:

Provided that where the future plans are set out, the public announcement shall also

set out how the acquirers propose to implement such future plans;

(10 ) The ‘specified date’ as mentioned in regulation 19;

(11)The date by which individual letters of offer would be posted to each of the shareholders;

( 12 ) The date of opening and closure of the offer and the manner in which and the date by which

the acceptance or rejection of the offer would be communicated to the shareholders;

(13)The date by which the payment of consideration would be made for the shares in respect of

which the offer has been accepted;

(14) Disclosure to the effect that firm arrangement for financial resources required to implement

the offer is already in place; including the details regarding the sources of the funds whether

domestic i.e. from banks, financial institutions, or otherwise or foreign i.e. from Non-resident

Indians or otherwise;

(15 ) Provision for acceptance of the offer by person who own the shares but are not the

registered holders of such shares;

(16)Statutory approvals required to obtained for the purpose of acquiring the shares under the

Companies Act, 1956, the Monopolies and Restrictive Trade Practices Act, 1973,and/or any

other applicable laws;

(17 ) Approvals of banks or financial institutions required, if any;

( 1 8 ) Whether the offer is subject to a minimum level of acceptances from the shareholders;

(19)Such other information as is essential fort the shareholders to make an informed design in

regard to the offer.

WHY MERGERS FAIL?

It's no secret that plenty of mergers don't work. Those who advocate mergers will argue that

the merger will cut costs or boost revenues by more than enough to justify the price premium. It

can sound so simple: just combine computer systems, merge a few departments, use sheer size

to force down the price of supplies and the merged giant should be more profitable than its parts.

In theory, 1+1 = 3 sounds great, but in practice, things can go awry.

Historical trends show that roughly two thirds of big mergers will disappoint on their own terms,

which means they will lose value on the stock market. The motivations that drive mergers can be

flawed and efficiencies from economies of scale may prove elusive. In many cases, the problems

associated with trying to make merged companies work are all too concrete.

FINANCIAL IMPLICATIONS OF BANKING M&A

These indicators include measures of financial performance:

asset and liability composition

capital structure

liquidity

risk exposure

profitability

financial innovation and efficiency

As dependent variable, we measure change of performance as the difference between the merged

banks two-year average return on equity (ROE ) after the acquisition and the weighted average of

the ROE of the merging banks two years before the acquisition.

COST OF MERGERS AND ACQUISITIONS

Costs of mergers and acquisitions are an important and integral part of mergers and acquisitions process. Before going for any merger or acquisition, both the companies calculate the costs of mergers and acquisitions to find out the viability and profitability of the deal. Based on the calculation, they decide whether they should go with the deal or not.

In mergers and acquisitions, both the companies may have different theories about the worth

of the target company. The seller tries to project the value of the company high, whereas buyer

will try to seal the deal at a lower price. There are a number of legitimate methods for valuation

of companies.

REASONS FOR MERGERS AND ACQUISITIONS

Capacity

Economies of Scale

Accessing technology or skills

Tax reasons

Growth with External Efforts

Deregulation

Technology

New Products/Services

Over Capacity

Customer Base

Merger of Weak Banks

CONCLUSION

One of the most common reasons for mergers and acquisitions is the belief that

"synergies" exist, allowing the two companies to work more efficiently together than

either would separately. Suchsynergies may result from the firms' combined ability to

exploit economies of scale, eliminate duplicated functions, share managerial expertise,

and raise larger amounts of capital. Another reason for banks to move towards merger is

that they are motivated by a desire for greater market power.

The 'human factor' is a major cause of difficulty in making the integration between

two companies work successfully. If the transition is carried out without sensitivity

towards the employees who may suffer asa result of it, and without awareness of the vast

differences that may exist between corporate cultures, the result is a stressed, unhappy

and uncooperative workforce - and consequently a drop in productivity Decision to carry

out a merger or acquisition should consider not only the legal and financial implications,

but also the human consequences - the effect of the deal upon the two companies'

managers and employee

Almost 60 -70% mergers and acquisitions and the reason for the failure is cultural

differences, flawed intentions, and sometimes decisions are taken without properly

analysis the future of the merger.

BIBLOGRAPHY

1. www.investopedia.com 2. www.business.mapsofindia.com

3. www.bloomberg.com 4. www.legalserviceindia.com

5. www.slideboom.com 6. www.papercamp.com