Mergers and Acquistions-IB

7/31/2019 Mergers and Acquistions-IB

1/18

Mergers &Acquisitions


2/18

Merger:

The combining of two or more companies,

generally by offering the stockholders of one

company securities in the acquiring company

in exchange for the surrender of their stock.

Amalgamation:

Merger of one or more companies with another

co to form one company


3/18

Amalgamation is the integration of two or

more companies, while merger is a process of

integration of one co with another.

amalgamations

In the nature

of merger

horizontal vertical

conglomerate

In the nature

of purchase


4/18

Types of Merger

1. Horizontal Merger

2. Vertical Merger

3. Conglomerate Merger


5/18

Horizontal Merger

Horizontal mergers are those mergers where

the companies manufacturing similar kinds of

commodities or running similar type of

businesses merge with each other.


6/18

Examples of Horizontal Merger

Lipton India and Brooke Bond.

Bank of Mathura with ICICI Bank.

BSES Ltd with Orissa Power Supply Company.

Associated Cement Companies Ltd Damodar Cement.


7/18

Vertical Merger

A merger between two companies producing

different goods or services.


8/18

Example of Vertical Merger

Time Warner Incorporated, a major cable operation, and the

Turner Corporation, which produces CNN, TBS, and other

programming.

Pixar-Disney Merger


9/18

Conglomerate Merger

A merger between firms that are involved in totally

unrelated business activities.

Two types of conglomerate mergers:

1. Pure conglomerate mergers involve firms with nothing incommon.

2. Mixed conglomerate mergers involve firms that are looking

for product extensions or market extensions.


10/18

Example of Conglomerate Merger

Walt Disney Company and the American

Broadcasting Company.


11/18

Acquisition

When one company takes over another and clearly

established itself as the new owner, the purchase is

called an acquisition.

Acquisition is generally considered negative in nature


12/18

Top AcquisitionsRank Year Purchaser Purchased

Transaction value

(in mil. USD)

1 2000America OnlineInc. (AOL)

Time Warner 164,747

2 2000Glaxo Wellcome

Plc.

SmithKline

Beecham Plc.75,961

3 2004Royal Dutch

Petroleum Co.

Shell Transport &

Trading Co74,559

4 2006 AT&T Inc.BellSouth

Corporation72,671

5 2001Comcast

Corporation

AT&T Broadband

& Internet Svcs72,041

6 2004Sanofi-Synthelabo

SAAventis SA 60,243

7 2000

Spin-off: Nortel

Networks

Corporation

59,974

8 2002 Pfizer Inc.Pharmacia

Corporation59,515

9 2004 JP Morgan Chase& Co

Bank One Corp 58,761


13/18

Takeovers

A corporate action where an acquiring

company makes a bid for an acquiree. If the

target company is publicly traded, the

acquiring company will make an offer for the

outstanding shares.


14/18

Takeover might be :

Hostile Takeover

A takeover attempt that is

strongly resisted by the

target firm

Friendly Takeover

Target company's

management and board of

directors agree to a merger oracquisition by another

company.


15/18

Top 10 acquisitions made by Indian companies

worldwide:Acquirer Target Company Country targeted Deal value ($ ml) Industry

Tata Steel Corus Group plc UK 12,000 Steel

Hindalco Novelis Canada 5,982 Steel

VideoconDaewoo

Electronics Corp.

Korea 729 Electronics

Dr. Reddys Labs Betapharm Germany 597 Pharmaceutical

Suzlon Energy Hansen Group Belgium 565 Energy

HPCLKenya Petroleum

Refinery Ltd.Kenya 500 Oil and Gas

Ranbaxy Labs Terapia SA Romania 324 Pharmaceutical

Tata Steel Natsteel Singapore 293 Steel

Videocon Thomson SA France 290 Electronics

VSNL Teleglobe Canada 239 Telecom


16/18

Methods for integration of existing cos

Amalgamation (Through merger or

purchase)

Acquisition or Takeover

Through asset route Through equity route

Merger is absorption of one co by

another. Absorbed co is dissolved

Doesnt involve transfer of assets or

liabilities

Amalgamation can be either through a

merger or through a purchase of bs

undertaking of the transferor co

No change in balance sheet of co

Involves transfer of assets and liabilities

from transferor to transferee

Compliance with take over code of SEBI is

mandatory if acquisition is in a listed co

Consideration is settled through stock

swap

Regulated by sections 391-395 of the

companies Act


17/18

Inv Banking perspectives in M&A

Two fold role:

Advising the client on the transaction

Facilitating the execution of the transaction

Main areas:

formulation of transaction and deal structure

identification of other party to transaction either

from buy side or sell side

Facilitation transaction through negotiations and

until deal is closed.


18/18

Determination of Strategic Objectives

Synergy : Diversification of product and service offerings

Increase in plant capacity

Larger market share

Access to key natural resources

Utilization of operational expertise and research and development (R&D)

Reduction of financial risk

Globalization

taxation

Documents

Mergers and Acquistions-IB