Motives Behind Merger & Acquisition

Presented by: Arshad Arfin (01)

Economy of scale

Economy of scope

Synergy

New technology

Reduce tax obligations

Access to new suppliers, distributors, customers, products

MOTIVES OF MERGERS AND ACQUISITIONS

Motives behind Mergers & Acquisitions? Seller’s perspective

Strategic aspects Lack of growth potential High competition Other focus

Leading aspects Succession planning Incomplete / incompetent

management team

Financial aspects Distressed sale Realisation of earnings

(Private Equity, Venture Capital)

Rationing of financial resources

Opportunistic / “hidden” aspects Attractive offer Anticipated market

downturn

Motives behind Mergers & Acquisitions?Buyer’s perspective Strategic aspects

Synergies Economies of scale Technology/Know-how Growth Diversification (region /

product) Access to (leadership

resources)

Opportunistic reasons Asset stripping Take advantage of financial

difficulties of competitor

Irrational behaviour Empire building Re-investment of free cash

flows

Disadvantages

Competition is minimized Oligopoly market. Job cuts Price hikes Cultural integration becomes difficult Hidden liabilities

Failures of M&A because of negligence of people related issues.

4 major factors to make success M&A Responding organizations Effective communication Executive retention Cultural integration

Hrm Come Into The Picture

Extent of Acquisition

Tata Steel and Corus

The $8 billion Tata Steel-Corus deal is at No 5 among the top deals witnessed by the steel industry over the last couple of years.It is one of a very good examples of an Acquisition.

Purchaser: Tata SteelPurchased: CorusDeal: $12 billion

In 2005, Tata Steel was only the world's 56th biggest steel producer and its takeover of Corus represents its first expansion outside Asia.

The combined entity will have a turnover of $32 billion by 2011-12 with an EBIDTA margin of 25%

Extent of Mergers NTT DoCoMo and Tata

What happens when you combine Tata Teleservices with NTT DoCoMo (NYSE: DCM)? Well, it’s obvious, at least now – Tata DoCoMo. And that’s exactly the new name of the GSM operator owned by Tata Group and partly (26%) by the Japanese leading mobile operator.

The new brand along with the new website was developed by the Business and Technology Cooperation Committee that DOCOMO and TTSL have jointly established, and it symbolizes “the two companies’ strong partnership.”

NTT DoCoMo- JapanTATA- India

The deal gives Japan's largest mobile operator a foothold in the world's fastest growing mobile market

Acquisition StrategiesH

igh

Lo

w

Low High

Degree of change in acquired company

AbsorptionAcquired company conforms to acquirer-Cultural Assimilation

TransformationBoth the companies find new ways of operating- Cultural transformation

Best of BothAdditive from both sides- Cultural integration

PreservationAcquired company retains its independence- Cultural autonomy

Reverse mergerUnusual case of acquired company dictating terms- Cultural assimilation

Degree of change in acquiring company