Merger and Acquisition Intro

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Mergers and AcquisitionsClick to edit Master subtitle style

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Restructure

Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs.

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Con..Reasons for restructuring

change of ownership or ownership structure merger, demerger, acquisition and consolidation.5/5/12

Merger, consolidation and AmalgamationA merger is said to occur when two or more business combine into new one. This can happen through absorption of existing companies. A consolidation, which is a form of merger, a new company is formed to takeover existing business of two orto edit Master subtitle style Click more companies. In India, mergers are called amalgamations in legal parlance.

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Acquisition and Takeover

An acquisition is the purchase of one business or company by another company or other business entity. A acquisition is a combination of two or more corporations in which only one corporation survives and the merged corporations go out of business. Statutory acquisition is a merger where the acquiring company assumes the assets and the liabilities of the acquired or target company . A subsidiary acquisition is a merger of two companies where the target company becomes a subsidiary or part of a subsidiary of the parent company The takeover refers to the acquisition of controlling interest 5/5/12 existing company. A takeover is same as acquisition, in an

Takeover can beHostile TakeoverA takeover attempt that is strongly resisted by the target firm.

Friendly TakeoverTarget company's management and board of directors agree to a merger or acquisition by another company

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Examples of Acquisition

Lipton India is acquired by Brooke Bond.

Bank of Mathura and Bank of Rajasthan is purchased by ICICI Bank.

BSES Ltd purchased Orissa Power Supply Company.

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Associated Cement Companies Ltd has acquired Damodar Cement.

Demerger Spin off and Spin out

The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situation where one company splits into two, generating a second company separately listed on a stock exchange.

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Con.. :Market Impact

Demergers tend to go in and out of fashion. When share prices are rising, companies like to use their paper (shares) to acquire other companies, so their advisers encourage merger activity. In a market of falling prices, mergers and IPOs are less popular, and the 5/5/12 merchant banks that earn their fees

Con.. :Tax Liability

From a tax point of view, when a company splits into two or more parts and distributes shares in each part to its original shareholders, there is no disposal for capital gains tax purposes.

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Types of mergers

Vertical Merger Horizontal Merger Conglomerate Merger Cross boarder Merger5/5/12

Vertical merger

A vertical merger is one of the most common types of mergers. When a company merges with either a supplier or a customer to create an extension of the supply chain, it is Oracles purchase of Sun Microsystems and PepsiCos known as a vertical merge or acquisition integration. of two of its bottlers. IBP and IOC merger. Ex:5/5/12

ConHorizontal mergers are types of mergers that involve companies in direct competition with one another. Often horizontal mergers are considered hostile, which means a larger company "takes over" a smaller one in more of an acquisition than a merger.Buying a competitor

Glaxosmithkline merger AT&T merger into SBC enables the latter to access the corporate customer base and exploit the predictable cash flows typical of this telephony section

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Conglomerate mergers are types of mergers that are in different market businesses. There is no relationship between the type of business one company is in and the type the other is in. The merger is typically part of a desire on the part of one company to grow its financial wealth.5/5/12

EX: Walt Disney Company and the

Cross Boarder

Cross-border Mergers and Acquisitions (M&As) are defined as the joining of two firms or the takeover of one firm by another when the parties involved are based in different national economies. In some instances, M&As between foreign affiliates and firms located within the same country are included. 5/5/12

Mergers and acquisition in India

The volume of merger and acquisition deals in India had manifested three-folds to USD 67.2 billion in 2010 from USD 21.3 billion in 2009. Now, in 2011, M&As in India surged a whopping 270 percent in the first three months alone. India has emerged into the one of 5/5/12 top countries in the M&A deals. the

Top 10 cross border acquisitions made by Indian companies worldwide:Acquirer Tata Steel Hindalco Videocon Dr. Reddys Labs Suzlon Energy HPCL Target Company Corus Group plc Novelis Daewoo Electronics Corp. Betapharm Country targeted UK Canada Korea Germany Deal value ($ Industry ml) 12,000 5,982 729 597 565 500 324 293 290 239 Steel Steel Electronics Pharmaceutical Energy Oil and Gas Pharmaceutical Steel Electronics Telecom

Hansen Group Belgium Kenya Petroleum Refinery Ltd. Natsteel Thomson SA Teleglobe Kenya Romania Singapore France Canada

Ranbaxy LabsTerapia SA Tata Steel Videocon 5/5/12 VSNL

Benefits of merger

Diversification of product and service offerings.

AOL and TIME WARNER merger -Time Warner the world's largest media and AOL online services company.

Increase in plant capacity Reduction of financial risk5/5/12

Con..

Larger market share Utilization of operational expertise and research and development (R&D) Example:UK based pharmaceutical companies Glaxo Wellcome and SmithKline Beecham - Glaxo SmithKline is the largest drug company.

The National Health Service in Britain refuses to prescribe a drug if it is too expensive. Rising research and development costs have meant that drug companies have been unable to go it alone and have had to utilise the expertise and resources of other drug companies in order to survive in a cut5/5/12 throat market.

SummaryMerger

The combination of two firms into a new legal entity A new company is created Both sets of shareholders have to approve the transaction. A genuine merger in which both sets of shareholders approved the transaction Requires a fairness opinion by an independent expert on the true value of the firms shares when a public minority exists The transfer of control from one ownership group to another.

Amalgamation

Takeover

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Top Acquisitions by other than Indian companiesRank Year Purchaser Purchased

Transaction value (in mil. USD)

1 2 3 4 5 6 7 8

2000 2000 2004 2006 2001 2004 2000 2002 2004

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America Online Inc. Time Warner (AOL) Glaxo Wellcome SmithKline Plc. Beecham Plc. Royal Dutch Shell Transport & Petroleum Co. Trading Co BellSouth AT&T Inc. Corporation Comcast AT&T Broadband Corporation & Internet Svcs Sanofi-Synthelabo Aventis SA SA Spin-off: Nortel Networks Corporation Pharmacia Pfizer Inc. Corporation JP Morgan Chase & Bank One Corp Co

164,747 75,961 74,559 72,671 72,041 60,243 59,974 59,515 58,761

Need of Mergers , Acquisitions & Takeovers

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Benefits of merger

Diversification of product and service offerings Monopoly Increase in plant capacity Larger market share Utilization of operational expertise and research and

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Why do mergers fail ?

Lack of human integration Mismanagement of cultural issues Lack of communication

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SYNERGIES RELATED TO ACQUISITION

Economies of scale

Staff reductions

Acquiring new technology5/5/12

Two companies that are recognized as among the best at making successful . acquisitions are General Electric and Cisco Systems. These companies have been star performers in growing shareholder value. The core principal that runs through almost every acquisition is integration. Over the past 10 years Cisco Systems has acquired 81 companies. Their stock price is up a remarkable 1300%. GE outperformed the S&P 500 index over the same period by 300%. There are several categories of 5/5/12 strategic acquisition that can produce some

WHY SHOULD FIRMS TAKEOVER?

To gain opportunities of market growth more quickly than through internal means To seek to gain benefits from economies of scale To seek to gain a more dominant position in a national or global market To acquire the skills or strengths of 5/5/12 another firm to complement the

Need of Merger and Acquisition

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ACQUIRE CUSTOMERS - this is almost always a factor in strategic acquisitions. Some companies buy another that is in the same business in a different geography. They get to integrate market presence, brand awareness, and market momentum

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OPERATING LEVERAGE - the major focus in this type of acquisition is to improve profit margins through higher utilization rates for plant and equipment. A manufacturer of cardboard containers that is operating at 65% of capacity buys a smaller similar manufacturer. The acquired company's plant is sold, all but two machines are sold, the G&A staff are 5/5/12 let go and the new customers are

CAPITALIZE ON A COMPANY STRENGTH - this is why Cisco and GE have been so successful with their acquisitions. They are so strong in so many areas, that the acquired company gets the benefit of many of those strengths. A very powerful business acceler