Mergers and acquisitions

• 1. Mergers & AcquisitionsAnurag Savarnya10MI32003Prateek Kishore10MI10029

2. MergeroA transaction where two firms agree to integrate theiroperations on a relatively co-equal basis because theyhave resources and capabilities that together may create astronger competitive advantage.oThe combining of two or more companies, generally byoffering the stockholders of one company securities in theacquiring company in exchange for the surrender of theirstockoExample: Company A+ Company B= Company C. 3. ACQUISITIONA transaction where one firms buys another firm withthe intent of more effectively using a corecompetence by making the acquired firm asubsidiary within its portfolio of business It also known as a takeover or a buyout It is the buying of one company by another. In acquisition two companies are combine togetherto form a new company altogether. Example: Company A+ Company B= Company A. 4. DIFFERENCE BETWEEN MERGER ANDACQUISITION: MERGERACQUISITIONi. Merging of two organization ini. Buying one organization by to one.another.ii.It is the mutual decision.ii.It can be friendly takeover oriii. Merger is expensive than hostile takeover. acquisition(higher legal cost). iii. Acquisition is less expensiveiv.Through merger shareholdersthan merger. can increase their net worth. iv.Buyers cannot raise theirv. It is time consuming and the enough capital. company has to maintain so much legal issues.v. It is faster and easiertransaction.vi.Dilution of ownership occurs in merger.vi.The acquirer does notexperience the dilution ofownership. 5. MERGER:WHY & WHY NOT WHY IS IMPORTANTPROBLEM WITH MERGERi. Increase Market Share.ii.Economies of scale i. Clash of corporateiii. Profit for Research and cultures development. ii.Increased businessiv.Benefits on account ofcomplexity tax shields like carried iii. Employees may be forward losses or resistant to change unclaimed depreciation.v. Reduction of competition. 5 6. ACQUISITION:WHY & WHY NOT WHY IS IMPORTANT PROBLEM WITH ACUIQISITIONi. Increased market share.ii.Increased speed to i. Inadequate marketvaluation of target.iii. Lower risk comparing ii.Inability to achieve to develop newsynergy. products.iii. Finance by takingiv.Increased diversification huge debt.v. Avoid excessive competition6 7. TYPES OF M&AM&AMarket-extension Product-extensionConglomerationmergermerger Two companies thatTwo companies selling Two companies thatsell the samedifferent but relatedhave no common products in differentproducts in the same business areasmarkets market 8. M&A DEALS 9. 1. TATA STEEL-CORUS: $12.2 BILLION January 30, 2007 Largest Indian take-over After the deal TATASbecame the 5th largestSTEEL co. 100 % stake in CORUSpaying Rs 428/- pershareImage: B Mutharaman, Tata Steel MD; RatanTata, Tata chairman; J Leng, Corus chair; and P Varin, Corus CEO. 10. 2. VODAFONE-HUTCHISON ESSAR: $11.1BILLION TELECOM sector 11th February 2007 2nd largesttakeover deal 67 % stake holdingin hutchImage: The then CEO of VodafoneArun Sarin visits HutchisonTelecommunications head office inMumbai. 11. 3. HINDALCO-NOVELIS: $6 BILLION June 2008 Aluminium and copper sector Hindalco Acquired Novelis Hindalco entered the Fortune-500 listing of worlds largest companies by sales revenuesImage: Kumar Mangalam Birla(center), chairman of Aditya BirlaGroup. 12. 4. RANBAXY-DAIICHI SANKYO: $4.5 B Pharmaceuticals sector June2008 Acquisition deal largest-ever deal in theIndian pharma industry Daiichi Sankyo acquiredthe majority stake ofmore than 50 % inRanbaxy for Rs 15,000crore 15th biggest drugmakerImage: Malvinder Singh (left), ex-CEOof Ranbaxy, and Takashi Shoda,president and CEO of Daiichi Sankyo. 13. 5. ONGC-IMPERIAL ENERGY:$2.8BILLION January2009 Acquisition deal Imperial energy is abiggest chinese co. ONGC paid 880 pershare to theshareholders ofimperial energy ONGC wanted to tapthe siberian marketImage: Imperial Oil CEO Bruce March. 14. 6. NTT DOCOMO-TATA TELE: $2.7 B November 2008 Telecom sector Acquisition deal Japanese telecom giant NTT DoCoMo acquired 26 per cent equity stake in Tata Teleservices for about Rs 13,070 cr.Image: A man walks past a signboard ofJapans biggest mobile phone operatorNTT Docomo Inc. in Tokyo. 15. 7. HDFC BANK-CENTURION BANK OF PUNJAB: $2.4 BILLION February, 2008 Banking sector Acquisition deal CBoP shareholdersgot one share ofHDFC Bank for every29 shares held bythem. 9,510 croreImage: Rana Talwar (rear) CenturionBank of Punjab chairman, DeepakParekh, HDFC Bank chairman. 16. 8. TATA MOTORS-JAGUAR LAND ROVER: $2.3BILLION March2008 (just a year after acquiring Corus) Automobile sector Acquisition deal Gave tuff competition to M&M after signing the deal with fordImage: A Union flag flies behind aJaguar car emblem outside adealership in Manchester, England. 17. 9. STERLITE-ASARCO: $1.8 BILLION May 2008 Acquisition deal Sector copperImage: Vedanta Group chairmanAnil Agarwal. 18. 10. SUZLON-REPOWER: $1.7 BILLION May 2007 Acquisition deal Energy sector Suzlon is now the largest wind turbine maker in Asia 5th largest in the world.Image: Tulsi Tanti, chairman & M.D of Suzlon Energy Ltd. 19. 11. RIL-RPL MERGER: $1.68 BILLION March2009 Merger deal amalgamation of itssubsidiary ReliancePetroleum with theparent companyReliance industriesltd. Rs 8,500 crore RIL-RPL mergerImage: Reliance Industrieschairman Mukesh Ambani. swap ratio was at16:1 20. WHY INDIA? Dynamic government policies Corporate investments in industry Economic stability Ready to experiment attitude ofIndian industrialists 21. AMONGST BRIC NATIONS, INDIA SECOND MOSTTARGETED COUNTRY FOR MERGERS &ACQUISITIONS(2010): 22. MERGER & ACQUISITION(2010-11) :22 23. PROCESS OF MERGER & ACQUISITION IN INDIA: The process of merger and acquisition has the following steps: i.Approval of Board of Directors ii. Information to the stock exchange iii.Application in the High Court iv. Shareholders and Creditors meetings v.Sanction by the High Court vi. Filing of the court order vii.Transfer of assets or liabilities viii. Payment by cash and securities Maximum Waiting period:210 days from the filing of notice(or the order of the commission - whichever earlier). 24. IMPACT OF MERGERS AND ACQUISITIONS 25. WHY MERGERS AND ACQUISITIONS FAIL? Cultural Difference Flawed Intention No guiding principles No ground rules No detailed investigating Poor stake holder outreach 26. HOW TO PREVENT THE FAILURE Continuous communication employees,stakeholders, customers, suppliers andgovernment leaders. Transparency in managers operations Capacity to meet new culture highermanagement professionals must be ready togreet a new or modified culture. Talent management by the management 27. MERGER BETWEEN AIR INDIA ANDINDIAN AIRLINES The government of India on 1 march 2007approved the merger of Air India and Indian airlines. Consequent to the above a new company calledNational Aviation Company of India limited wasincorporated under the companies act 1956 on 30march 2007 with its registered office at New Delhi.27 28. AIM OF THE MERGER Create the largest airline in India and comparable to other airlines inAsia. Provide an Integrated international/ domestic footprint which willsignificantly enhance customer proposition and allow easy entry intoone of the three global airline alliances, mostly Star Alliance withglobal consortium of 21 airlines. Enable optimal utilization of existing resources through improvementin load factors and yields on commonly serviced routes as well asdeploy freed up aircraft capacity on alternate routes.The merger had created a mega company with combined revenueof Rs 150 billion ($3.7billion) and an estimated fleet size of 150. Ithad a diverse mix of aircraft for short and long haul resulting in betterfleet utilization. Provide an opportunity to fully leverage strong assets, capabilitiesand infrastructure. Provide an opportunity to leverage skilled and experiencedmanpower available with both the Transferor Companies to theoptimum potential. Provide a larger and growth oriented company for the people and thesame shall be in larger public interest.28 29. AIM OF THE MERGER Potential to launch high growth & profitability businesses (GroundHandling Services, Maintenance Repair and Overhaul etc.) Provide maximum flexibility to achieve financial and capitalrestructuring through revaluation of assets. Economies of scale enabled routes rationalization and eliminationof route duplication. This resulted in a saving of Rs1.86 billion,($0.04 billion) and the new airlines will be offering morecompetitive fares, flying seven different types of aircraft and thusbeing more versatile and utilizing assets like real estate, humanresources and aircraft better. However the merger had alsobrought close to $10 billion (Rs 440 billion) of debt. The new entity was in a better position to bargain while buyingfuel, spares and other materials. There were also majoroperational benefits. Traffic rights - The protectionism enjoyed by the national carrierswith regard to the traffic right entitlements is likely to continueeven after the merger. This will ensure that the merged Airlineswill have enough scope for continued expansion, necessitateddue to their combined fleet strength. 29 30. 30 31. 31 32. 32 33. POST MERGER SCENAREO NACILs employee-to-aircraft ratio: at 222:1 (the global average is150:1), resulting in a surplus employee strength of almost 10,000. Fleet Expansion: NACILs fleet expansion seems out of sync with thetimes. Most airlines are actually rounding their fleet and cancelling ordersfor new planes. While NACIL plans to induct around 85 more aircraftswhich means their debt going forward. Mutual Distrust and strong unions: Strong opposition from unionsagainst managements cost-cutting decisions through their salaries haveled to strikes by the employees. Increased Competition: Air Indias domestic market share dropped from19.8% in August 2007, when the merger took place, to 13.9% in January2008 before rising to 17.2% in February 2009. Lower load factor: The companys load factor is decreasing year byyear, in 2005- 06 load factor is 66.2% which is more than present loadfactor. Air India load factor is likely to be low because of the much higherfrequency operated on each route. Lower load factor could decrease thecompanys margins. 33 34. 34 35. REASONS FOR FAILURE The merger coincided with a flurry of increaseddomestic and international competition. Weak management and organization structure. More attention to non-core issues such as longterm fleet acquisitions and establishing subsidiariesfor ground handling and maintenance, than toaddressing the state of the flying business. Bloated workforce Unproductive work practices Political impediments to shedding staff35 36. SUCCESS & FAILURE RATE(2009-10): 36 37. EXPERIENCES IN M&A Learn from mistakes of others Define your objectives clearly Complete strategy to achieve goal. SWOT analysis for the merged business - amust Conservative attitude necessary at evaluationdeskstrong arguments to support project Pick holes in strategy to get the best Will merged units be able to work at efficient /ideal level? Acquire expertise to interpret changes