Matrix Business School

8/14/2019 Matrix Business School

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MATRIX BUSINESSMATRIX BUSINESS

SCHOOLSCHOOL


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PRESENTATION SKILLPRESENTATION SKILL


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TOPICTOPIC

ISSUES INISSUES INMERGERMERGER&&ACQUISITIONACQUISITION


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PRESENTED BYPRESENTED BY

NAME :- RAVI BHUSANNAME :- RAVI BHUSAN

COURSE :- PGDM (MCM)COURSE :- PGDM (MCM)

ROLL NO :- 10ROLL NO :- 10SEM :- ISEM :- I


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WHAT IS MERGERS?WHAT IS MERGERS?

In business or economics aIn business or economics a mergermergeris ais acombination of two company into one largercombination of two company into one largercompany. Such actions are commonly voluntarycompany. Such actions are commonly voluntaryand involve stock swap or cash payment to theand involve stock swap or cash payment to thetarget. Stock swap is often used as it allows thetarget. Stock swap is often used as it allows the

shareholders of the two companies to share the riskshareholders of the two companies to share the riskinvolved in the deal. A merger can resemble ainvolved in the deal. A merger can resemble atakeover but result in a new company name (oftentakeover but result in a new company name (oftencombining the names of the original companies)combining the names of the original companies)

and in new branding; in some cases, terming theand in new branding; in some cases, terming thecombination a "merger" rather than an acquisition iscombination a "merger" rather than an acquisition isdone purely for political or marketing reasons.done purely for political or marketing reasons.


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TYPE OF MERGERSTYPE OF MERGERS

Horizontal MergersHorizontal Mergers

Vertical MergersVertical Mergers

Conglomerate MergersConglomerate Mergers Concentric MergersConcentric Mergers


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1.1. Horizontal MergerHorizontal Merger Combination of two or more firms operating in theCombination of two or more firms operating in the

same stage of production.same stage of production.

2.2. Vertical MergerVertical Merger Combination of two firms that operate in differentCombination of two firms that operate in different

stages of production.stages of production.

- Textiles firm merges raw materials firm.- Textiles firm merges raw materials firm.

3.3. Conglomerate MergersConglomerate Mergers Merger of firms in unrelated lines of business that areMerger of firms in unrelated lines of business that are

neither competitors nor potential or actual customersneither competitors nor potential or actual customersor suppliers of each other.or suppliers of each other.

Buying and selling ability to manageBuying and selling ability to manage

Example: General Electric buyingExample: General Electric buying

NBC televisionNBC television


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4.4. Concentric MergersConcentric Mergers Merger of two firms that are so related that there is aMerger of two firms that are so related that there is a

carryover of specific management functionscarryover of specific management functions

(research, manufacturing, finance, marketing, etc.)(research, manufacturing, finance, marketing, etc.)Example: Citigroup (principally a bank)Example: Citigroup (principally a bank)

buying Salomon Smith Barney (anbuying Salomon Smith Barney (an

investment banker/stock brokerageinvestment banker/stock brokerage

operation)operation)


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WHAT IS ACQUISITIONS ?WHAT IS ACQUISITIONS ?

AnAn acquisitionacquisition, also known as a, also known as a takeovertakeoveroror

aa buyoutbuyout, is the buying of one company (the, is the buying of one company (thetarget) by another. An acquisition may betarget) by another. An acquisition may be

friendly or hostile. In the former case, thefriendly or hostile. In the former case, thecompanies cooperate in negotiations; in thecompanies cooperate in negotiations; in thelatter case, the takeover target is unwilling tolatter case, the takeover target is unwilling tobe bought or the target's board has no priorbe bought or the target's board has no prior

knowledge of the offer. Acquisition usuallyknowledge of the offer. Acquisition usuallyrefers to a purchase of a smaller firm by arefers to a purchase of a smaller firm by a

larger one.larger one.


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contd..contd..

Sometimes, however, a smaller firm will acquireSometimes, however, a smaller firm will acquiremanagement control of a larger or longermanagement control of a larger or longerestablished company and keep its name for theestablished company and keep its name for thecombined entity. This is known as a reverse takecombined entity. This is known as a reverse takeover. Another type of acquisition is reverseover. Another type of acquisition is reversemerger, a deal that enables a private companymerger, a deal that enables a private companyto get publicly listed in a short time period. Ato get publicly listed in a short time period. Areverse mergerreverse mergeroccurs when a private companyoccurs when a private company

that has strong prospects and is eager to raisethat has strong prospects and is eager to raisefinancing buys a publicly listed shell company,financing buys a publicly listed shell company,usually one with no business and limited assets.usually one with no business and limited assets.


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Reasons for AcquisitionsReasons for Acquisitions

Increased market powerIncreased market power

Learning and Developing new capabilitiesLearning and Developing new capabilities

Overcoming entry barriersOvercoming entry barriers

Cost of new product developmentCost of new product development

Increase speed to marketIncrease speed to market

Lower risk than developing new productsLower risk than developing new products


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Google bought YouTube ($1.65B in 2006)

Why?Why?

Google bought a rival.Google bought a rival.YouTube had four times as many hits as GoogleYouTube had four times as many hits as GoogleVideoVideo

YouTube streamed nine times as many clips asYouTube streamed nine times as many clips asGoogle Video.Google Video.

Googles choice to buy rather than build markedGoogles choice to buy rather than build marked

a big strategic change.a big strategic change.YouTube = 53% of video users in theYouTube = 53% of video users in the

world.world.


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Distinction between mergers andDistinction between mergers andacquisitionsacquisitions

When one company takes over another and clearlyWhen one company takes over another and clearlyestablishes itself as the new owner, the purchase is calledestablishes itself as the new owner, the purchase is calledan acquisition. From a legal point of view, the targetan acquisition. From a legal point of view, the targetcompany ceases to exist, the buyer "swallows" thecompany ceases to exist, the buyer "swallows" the

business and the buyer's stock continues to be tradedbusiness and the buyer's stock continues to be traded

In the pure sense of the term, a merger happens when twoIn the pure sense of the term, a merger happens when twofirms, often of about the same size, agree to go forward asfirms, often of about the same size, agree to go forward as

a single new company rather than remain separately owneda single new company rather than remain separately ownedand operated. This kind of action is more precisely referredand operated. This kind of action is more precisely referredto as a "merger of equals". Both companies' stocks areto as a "merger of equals". Both companies' stocks are

surrendered and new company stock is issued in its place.surrendered and new company stock is issued in its place.


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M&A Activities in India:In 2007, there were a total of 676 M&A deals and 405

private equity deals, in 2007, the total value of M&Aand PE deals was USD 70 billion, Total M&A dealvalue was close to USD 51 billion, Private equitydeals value increased to USD 19 billion..

In year 2008.. M&A deals in India in 2008 totaled worth USD 19.8 bn

Less compared to last year which stood at 33.1 bn $.

Decline of M&A activity was in line with the global

activity. Cross border M&A totaled 8.2 bn $ compared to 18.7

bn $.


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Major M&A Deals UndertakenAbroad by India Inc.

Tata steel buys Corus Plc : 12.1$ billion

Hindalco acquired novelis: 6$ billion

Tata buy jaguar and land rover : 2.3$ billion Essar steel buys Algoma Steel: 1.58$ billion

Vodafone buys hutch : 11$ billion

POSCO to invest in building steel manufacturing

plants and facilities in India by 2016 Goldman Sachs Plans investment in private equity,

real estate, and private wealth management


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TataTata Steel has acquired the 5th largest steel producerSteel has acquired the 5th largest steel producerof theof the

world,world, CorusCorus, scoring over Brazil's CSN at $12.15 billion, scoring over Brazil's CSN at $12.15 billion

(around Rs. 55,000 crore) in cash, making it the largest(around Rs. 55,000 crore) in cash, making it the largestacquisitionacquisition by an Indian company and the secondby an Indian company and the second

largest in thelargest in the

industry after Mittal Steel's $38.3 billionindustry after Mittal Steel's $38.3 billion acquisitionacquisition ofofArcelor.Arcelor.

Tata's bid of 608p per share, which beat a price from CSNTata's bid of 608p per share, which beat a price from CSNofof

603p, was 33.6 per cent higher than its original bid. By603p, was 33.6 per cent higher than its original bid. Bysomesome

measures, it exceeded the price paid in other recentmeasures, it exceeded the price paid in other recentindustryindustry

deals, such as Mittal Steel'sdeals, such as Mittal Steel's acquisitionacquisition of Arcelor lastof Arcelor lastyear.year.


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Netherlands-based Mittal Steel on Tuesday claimed it has met theNetherlands-based Mittal Steel on Tuesday claimed it has met theminimum conditions for takeover of Arcelor by acquiring 50 per cent ofminimum conditions for takeover of Arcelor by acquiring 50 per cent ofthe Luxembourg-based company's outstanding shares.the Luxembourg-based company's outstanding shares.

"Mittal Steel announces today that... on a preliminary basis and based on"Mittal Steel announces today that... on a preliminary basis and based onstatements made by financial intermediaries, the minimum tenderstatements made by financial intermediaries, the minimum tender

condition of the offer (that is acquisition of 50 per cent of Arcelor'scondition of the offer (that is acquisition of 50 per cent of Arcelor'soutstanding shares on a fully diluted basis) has been met," the companyoutstanding shares on a fully diluted basis) has been met," the companysaid in a statement.said in a statement.

After an intense battle of nerves that lasted five months since January, theAfter an intense battle of nerves that lasted five months since January, theArcelor Board last month accepted Mittal's improved takeover bid worthArcelor Board last month accepted Mittal's improved takeover bid worth$34 billion. A merger of the two would create the world's largest steel$34 billion. A merger of the two would create the world's largest steel

entity Arcelor-Mittal, which would be three times bigger than its nearestentity Arcelor-Mittal, which would be three times bigger than its nearestrival.rival.

The results of the offer will be published on July 26, Mittal Steel said.The results of the offer will be published on July 26, Mittal Steel said.

Under the revised offer, Arcelor shareholders would get 13 Mittal SteelUnder the revised offer, Arcelor shareholders would get 13 Mittal Steelshares and 150.60 euros for every 12 Arcelor shares.shares and 150.60 euros for every 12 Arcelor shares.

If the takeover is accepted by 100 per cent of current ArcelorIf the takeover is accepted by 100 per cent of current Arcelor

shareholders, they will end up owning 50.5 per cent of the combinedshareholders, they will end up owning 50.5 per cent of the combinedgroup, with the Mittal family owning 43.6 per cent of the capital andgroup, with the Mittal family owning 43.6 per cent of the capital andvoting rights.voting rights.


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SOME FAIL CASES IN M&A.SOME FAIL CASES IN M&A.

Quaker Oats boughtQuaker Oats bought in 1994in 1994 Snapple for $ 1,7 bn.Snapple for $ 1,7 bn.

$ 500 mil. lost on announcement, $ 100 mil. a year later$ 500 mil. lost on announcement, $ 100 mil. a year later

Snapple was spun off 2 years later at 20% of priceSnapple was spun off 2 years later at 20% of price

Anheuser-BuschAnheuser-Busch bought in 1982 Campbell-Taggart at $bought in 1982 Campbell-Taggart at $560 mil560 mil

Closed down after 13y of struggling for survivalClosed down after 13y of struggling for survival

IBM bought Lotus for $ 3,2 bn. (more than 100% premium)IBM bought Lotus for $ 3,2 bn. (more than 100% premium)Probably never to be recoupedProbably never to be recouped


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TTHANK YOUHANK YOU

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Matrix Business School