Merger and Acquisition Introduction of Mergers and acquisitions

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall treet invest!ent ban"ers arrange M&A transactions, which bring separate co!panies together to for! larger ones. When they#re not creating big co!panies fro! s!aller ones, corporate finance deals do the reverse and brea" up co!panies through spinoffs, carve$outs. %ot surprisingly, these actions often !a"e the news. &eals can be worth hundreds of !illions, or even billions, of dollars. 'hey can dictate the fortunes of the co!panies involved for years to co!e. (or a )E*, leading an M&A can represent the highlight of a whole career. And it is no wonder we hear about so !any of these transactions+ they happen all the ti!e. %e,t ti!e you flip open the newspaper-s business section, odds are good that at least one headline will announce so!e "ind of M&A transaction. ure, M&A deals grab headlines, but what does this all !ean to investors. 'o answer this question, this tutorial discusses the forces that drive co!panies to buy or !erge with others, or to split$off or sell parts of their own businesses. *nce you "now the different ways in which these deals are e,ecuted, you#ll have a better idea of whether you should cheer or weep when a co!pany you own buys another co!pany $ or is bought by one. /ou will also be aware of the ta, consequences for co!panies and for investors.

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Merger and Acquisition

Defination
Definition of Merger

0oluntary a!alga!ation of two fir!s on roughly equal ter!s into one new legal entity. Mergers are effected by e,change of the pre$!erger stoc" (shares) for the stoc" of the new fir!. *wners of each pre$!erger fir! continue as owners, and the resources of the !erging entities are pooled for the benefit of the new entity. 1f the !erged entities were co!petitors, the !erger is called hori2ontal integration, if they were supplier or custo!er of one another, it is called vertical integration.

Definition of 'Acquisition

A corporate action in which a co!pany buys !ost, if not all, of the target co!pany#s ownership sta"es in order to assu!e control of the target fir!. Acquisitions are often !ade as part of a co!pany#s growth strategy whereby it is !ore beneficial to ta"e over an e,isting fir!#s operations and niche co!pared to e,panding on its own. Acquisitions are often paid in cash, the acquiring co!pany#s stoc" or a co!bination of both.

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Merger and Acquisition Distinction between Mergers and Acquisitions

Although they are often uttered in the sa!e breath and used as though they were ynony!ous, the ter!s !erger and acquisition !ean slightly different things. When one co!pany ta"es over another and clearly established itself as the new owner, the purchase is called an acquisition. (ro! a legal point of view, the target co!pany ceases to e,ist, the buyer 3swallows3 the business and the buyer#s stoc" continues to be traded. 1n the pure sense of the ter!, a !erger happens when two fir!s, often of about the sa!e si2e, agree to go forward as a single new co!pany rather than re!ain separately owned and operated. 'his "ind of action is !ore precisely referred to as a 3!erger of equals.3 4oth co!panies# stoc"s are surrendered and new co!pany stoc" is issued in its place. (or e,a!ple, both &ai!ler$4en2 and )hrysler ceased to e,ist when the two fir!s !erged, and a new co!pany. 1n practice, however, actual !ergers of equals don#t happen very often. 5sually, one co!pany will buy another and, as part of the deal#s ter!s, si!ply allow the acquired fir! to proclai! that the action is a !erger of equals, even if it#s technically an acquisition. 4eing bought out often carries negative connotations, therefore, by describing the deal as a !erger, deal !a"ers and top !anagers try to !a"e the ta"eover !ore palatable. A purchase deal will also be called a !erger when both )E*s agree that 6oining together is in the best interest of both of their co!panies. 4ut when the deal is unfriendly $ that is, when the target co!pany does not want to be purchased $ it is always regarded as an acquisition. Whether a purchase is considered a !erger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. 1n other words, the real difference lies in how the purchase is co!!unicated to and received by the target co!pany#s board of directors, e!ployees and shareholders.

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Merger and Acquisition Types of Mergers

Horizontal Mergers:
7ori2ontal !ergers raise three basic co!petitive proble!s. 'he first is the eli!ination of co!petition between the !erging fir!s, which, depending on their si2e, could be significant. 'he second is that the unification of the !erging fir!s# operations !ight create substantial !ar"et power and !ight enable the !erged entity to raise prices by reducing output unilaterally. 'he third proble! is that, by increasing concentration in the relevant !ar"et, the transaction !ight strengthen the ability of the !ar"et#s re!aining participants to coordinate their pricing and output decisions. 'he fear is not that the entities will engage in secret collaboration but that the reduction in the nu!ber of industry !e!bers will enhance tacit coordination of behavior.

Vertical Mergers:
0ertical !ergers ta"e two basic for!s8 forward 1ntegration, by which a fir! buys a custo!er, and bac"ward integration, by which a fir! acquires a supplier. 9eplacing !ar"et e,changes with internal transfers can offer at least two !a6or benefits. (irst, the vertical !erger internali2es all transactions between a !anufacturer and its supplier or dealer, thus converting a potentially adversarial relationship into so!ething !ore li"e a partnership. econd, internali2ation can give !anage!ent !ore effective ways to !onitor and i!prove perfor!ance. 0ertical integration by !erger does not reduce the total nu!ber of econo!ic entities operating at one level of the !ar"et, but it !ight change patterns of industry behavior. Whether a forward or bac"ward integration, the newly acquired fir! !ay decide to deal only with the acquiring fir!, thereby altering co!petition a!ong the acquiring fir!#s suppliers, custo!ers, or co!petitors. uppliers !ay lose a !ar"et for their goods+ retail outlets !ay be deprived of supplies+ or co!petitors !ay find that both supplies and outlets are bloc"ed. 'hese possibilities raise the concern that vertical integration will foreclose co!petitors by li!iting their access to sources of supply or to custo!ers. 0ertical !ergers also !ay be
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antico!petitive because their entrenched !ar"et power !ay i!pede new businesses fro! entering the !ar"et.

Conglo erate Mergers:

)onglo!erate transactions ta"e !any for!s, ranging fro! short$ter! 6oint ventures to co!plete !ergers. Whether a conglo!erate !erger is pure, geographical, or a product$line e,tension, it involves fir!s that operate in separate !ar"ets. 'herefore, a conglo!erate transaction ordinarily has no direct effect on co!petition. 'here is no reduction or other change in the nu!ber of fir!s in either the acquiring or acquired fir!#s !ar"et. )onglo!erate !ergers can supply a !ar"et or 3de!and3 for fir!s, thus giving entrepreneurs liquidity at an open !ar"et price and with a "ey induce!ent to for! new enterprises. 'he threat of ta"eover !ight force e,isting !anagers to increase efficiency in co!petitive !ar"ets. )onglo!erate !ergers also provide opportunities for fir!s to reduce capital costs and overhead and to achieve other efficiencies. )onglo!erate !ergers, however, !ay lessen future co!petition by eli!inating the possibility that the acquiring fir! would have entered the acquired fir!#s !ar"et independently. A conglo!erate !erger also !ay convert a large fir! into a do!inant one with a decisive co!petitive advantage, or otherwise !a"e it difficult for other co!panies to enter the !ar"et. 'his type of !erger also !ay reduce the nu!ber of s!aller fir!s and !ay increase the !erged fir!#s political power, thereby i!pairing the social and political goals of retaining independent decision$!a"ing centers, guaranteeing s!all business opportunities.

Mergers and Acquisitions: T!e "ationale and #enefits

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Merger and Acquisition

Mergers and acquisitions (M&A) are often referred to as a single ter!. 'hough there are !ore si!ilarities in the! than there are differences, the !ain factor distinguishing the two is the co!panies- willingness for the M&A to ta"e place. A !erger happens when two co!panies decide on 6oining forces in their respective fields of business : they !ay be identical, si!ilar or totally different. 4oth their shareholders and !anage!ent agree on surrendering their shares and revaluing and re$registering the! under the new co!pany. 1n &ece!ber ;<<=, Malaysian co!panies i!e &arby 4erhad, >olden 7ope ?lantations 4erhad and >uthrie 7oldings 4erhads !erged to create the largest plantations co!pany worldwide worth appro,i!ately 5 &@A billion (largest listed co!pany in Malaysia). 'hey retained the na!e i!e &arby due to its established brand na!e. &riven by the value in synergy : three plantation co!panies !erged to beco!e the largest listed Malaysia enterprise. acquisition happens when one of the co!panies, "nown as the target co!pany, displays hostility towards the acquiring co!pany. 1n acquisitions, the acquiring co!pany buys over the target co!pany-s shares. Manage!ent also changes, and !ore often than not, favours the !e!bers of the acquiring co!pany. A pro!inent acquisition in the sports gear industry too" place in Banuary ;<<C, when Adidas$ alo!on A> (Adidas) acquired 5 1nternational Dtd (9eebo"). 'here are also several types of M&As that a co!pany can parta"e in. A hori2ontal M&A denotes the !erging of two co!petitors that share the sa!e product lines and !ar"ets. A vertical M&A on the other hand, represents the !erging of two co!panies that reflect a custo!er$co!pany or co!pany$supplier relationship. A !ar"et$e,tension M&A ta"es place when the co!panies sell si!ilar products in different !ar"ets whereas a product$e,tension M&A sees two co!panies selling related products in the sa!e !ar"et. A conglo!eration represents two co!panies that have no co!!on business focus. An e,a!ple would be the acquisition of 'e,as >as 9esources (natural gas trans!ission) by ) E )orporation (railroad transportation) : conglo!eration usually ta"es place between two cyclical F seasonal business !odels that co!pli!ent each other. 9eebo"

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Merger and Acquisition T!e Main $urpose of Mergers and Acquisitions

)o!panies engage in !ergers and acquisitions for the !ain purpose of creating a higher shareholder value than the su! of the co!panies involved. 'his happens when the M&A provides an opportunity for the new or acquiring co!pany to either increase revenue or to reduce cost. 'here are several ways a co!pany can increase revenue through M&A-s. &utch airlines, GDM, a pro!inet airline in Europe, purchased controlling sta"e in %orthwest Airlines to e,pand their clientele to flyers who frequented routes to and fro A!erica and Asia. 'he e,pansion in the target !ar"et allowed the! to increase their sales revenue. When )o!!erce 1nternational Merchant 4an" 4erhad ()1M4), acquired Malaysian 4u!iputera )o!!erce 4an" 4erhad (4)4), they spread their services to retail ban"ing based on the 4)4-s previous business !odel as an individual co!pany. 'hey later went on to acquire outhern 4an" 4erhad ( 44), which, at the ti!e, offered investors a leading !utual fund product. )1M4 then repac"aged the e,isitng invest!ent tool as )1M4$Wealth.

T!e co pany is able to increase product range:

Multinationals ?rocter & >a!ble, producers of fast !oving consu!er goods, engaged in M&A-s to increase their product range. 'hey acquired 9ichardson$0ic"s, capturing revenue fro! *il of *lay and 0idal assoon brands+ they also acquired %o,ell )orporation, "nown for their products %o,e!a and )over >irl. Deading natural and organic food super!ar"et retailer in the 5 , Whole (oods Mar"et 1nc, acquired (resh and Wild 7oldings Di!ited, the leading organic foor retailer in the 5G. 'his provided Whole (oods Mar"et 1nc a new geographic business opportunity 6ust by e,panding beyond the 5 and )anada. 7ass 7assan, chair!an of (resh and Wild 7oldings co!!ented that the M&A was set to H!a"e i!prove!ents Iin their storesJK in the 5G and around Europe. 'o co!pound the value of shareholder earnings, the co!pany !ay also reduce costs with respects to the new consolidation of cost centres through the M&A.

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Merger and Acquisition

T!e co pany capitalises on products of t!e pre%iously indi%idual co panies:
'he 9eebo" : Adidas M&A allowed Adidas to capitalise on 9eebo"-s specialty products : wo!en-s sportswear. Adidas alone is positioned to serve the soccer industry, which is do!inated by !en. 'he M&A pooled !ar"et share fro! sales in football gear and wo!en-s apparel, without incurring new product research and develop!ent costs. 'he co!pany is able to eli!inate redundant technology8 Deading search engine, >oogle, bought over video co!!unity website, /outube, in recent years. 'his eli!inated /outube-s redundancy in search engine opti!isation through the use of >oogle-s business !odel as a search engine. >oogle was also able to fill in their void of hosting videos.

T!e co pany is able to strea line staff:

After the 44 acquisition, )1M4 offered close to 5 &LA !illion worth of co!pensation pac"ages to strea!line the co!bined hu!an capital. 'his cost was perceived as part of the e,penditure inherent in restructuring but was i!ple!ented to curb costs in the long$run. i!e &arby-s new status as the largest listed upstrea! pal! oil group globally and the largest stoc" traded on 4ursa Malaysia inevitably instigates higher bargaining power with industrial consu!ers both locally and internationally.

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Merger and Acquisition #enefits of a Merger

ynergy is a co!!on word associated with M&As. ynergy or synergistic effects can be represented by a si!ple arith!etic equation of @M@ N L. 'his translates into the increase in co!bined shareholder value over and above the su! of the two original co!paniesshareholding values. 'he !aterialisation of synergy, however, can be curbed by intangible factors that challenge the benefits of M & As. 'hey are discussed in the following points8 An M&A facilitates the strea!lining of the crea! of the crop. When co!panies !erge, !a6or changes occur in corporate culture, !anage!ent styles, business direction, and "ey operating procedures. *nly those who are fle,ible and adaptable to changes would be elected to stay on in the new co!pany. 'his gives opportunity for hu!an capital to be strea!lined and for top !anage!ent to "eep those who are !ost co!petent and valuable to the co!pany. 5nfortunately, power struggles and political clans also e,ist+ this hinders the strea!lining process. 'hese si!ple hu!an factors can !isrepresent the selection of candidates that should be retained in the new co!pany. 'here are other factors that curb the synergistic effects of strea!lining hu!an capital. 1t is not suprising to see a fair a!ount of de!otivation a!ongst retained e!ployees. 'his can be due to the! losing their displaced colleagues. 4lending in two different corporate fa!ilies with different corporate cultures can also be a stressful phase, especially when new alliances are for!ed and accli!atisation ta"es a longer ti!e. %ew hierarchial structures can also cause resent!ent, especially if certain personnel are sidelined fro! long$awaited pro!otions. 9eporting lines can change drastically leaving new wor"ing tea!s with newer learning curves altogether.

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Merger and Acquisition

T!e acquiring of t!e ost effecti%e tec!nology

Advance!ents in technology syste!s nearly always guarantee synergy. )o!panies that acquire technology$focus fir!s that are relevant to their business application can develop a co!petitive edge. i!ilarly, new technology can lead to aggressive product develop!ent and cost reduction. Again however, there are several factors that can curb synergy. 'here is a cost involved of training and transferring technical "now$how to a!ateur !e!bers of the new co!pany. 'raining ta"es ti!e and space, which inevitably leads to cost. )oupled with resistance to changes, so!e e!ployees (who use older syste!s) !ay want to revert bac" to for!er ways, 6ust to accentuate their i!portance and e,pertise in the co!pany. Another disadvantage !ay be the ris" of reliance on self$developed technology. 5nless the technology tea! is able to operate aggressively in the !ar"et and respond to co!petition as if they were an individual co!pany, !aintaining in$house developed technology can lead to saturated develop!ent. o!eti!es, co!panies receive better support syste!s and services when they outsource fro! technology$focused service providers.

Increase in

ar&et do inance and growt! opportunities

ynergy also !aterialises through increased !ar"et share and growth opportunities. Merged co!panies e,perience an increase in !ar"et share. 'he M&A between 9eebo" and Adidas in early ;<<C is now a !a6or threat to %i"e-s !ar"et leadership. Merged fir!s have also the opportunity to raise !ore capital as a larger and !ore cost efficient fir!. 1n so!e cases however, a !erger also changes the perception of the co!pany, especially when different brands are added to the product lines. o!e !ergers !ay have negative or confusing effects on consu!er perception when a change of products and services fail to retain their interests.

'cono ies of scale

Econo!ies of scale can also be achieved through !ergers. %ew technology can wipe out !anual wor". A !erged co!pany has better bargaining power with suppliers. More wor" can be done in$house, such as advertising. All these changes lead to cost reduction. i!e

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&arby i!!ediately announced a @<O growth rate in ;<<P, after the !erger was co!pleted illustrating their confidence in their !ar"et leadership in ter!s of si2e. 1n general, si2e does !atter, and si2e does bring in lower cost figures. 7owever, !ergers that are classified as conglo!erations, where two different business$natured co!panies !erge, econo!ies of scales can not always be achieved, especially if the !erger is not !anaged adequately. 'his is because, essentially, with two or !ore different business focuses, cost centres !ay not be consolidated as effectively as any one of the other for!s of M&As. 'he different focuses and ideals !ay require separate cost ele!ents to sustain the different business !odels. i!ilarly, co!panies engaging in an M&A can not e,pect i!!ediate econo!ies of scales. )o!pensation pac"ages fro! downsi2ing, ti!e allocation for new training progra!!es, new branding and !ar"eting sche!es, are all !a6or e,penditures at the inception and the short$run following the M&A.

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Merger and Acquisition Ad%antages

*ne of the first issues which deserves particular attention in a proposed ban"ing !erger is to be deter!ined the incite!ent for the suggested union. 'he fact that the !erger will result in a ban" larger than what each individual ban" was before the occurred !erging is not a strong reason per se for the !erger to ta"e place. 1n order for a !erger to be 6ustified there should definitely be predeter!ined and speciali2ed targets. 'o su! up, we could na!e the following advantages that lead to the buyout and the !erging of ban"s8 i. Econo!ies of scale and of purpose ii. 'a, benefits iii. 9eplace!ent of inefficient, in the wide co!petitive environ!ent, in speciali2ed issues !anage!ent and confrontation of the increased co!petition iv. 9eduction of ris" using new techniques of !anaging financial ris" v. 'he e,ploitation of the co!parative advantage and the acquisition of oligopoly power vi. Ma,i!i2ation of shareholdersQ return vii. 1nfiltration into new !ar"ets and their e,ploitation !ore easily viii. )reation of a new co!!ercial logo and the supply of products and services at a co!petitive cost and high added value i,. More efficient confrontation of the pheno!enon of disinter!ediation

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In ore detail( t!e ad%antages t!at result fro t!e ergers and

acquisitions of ban&s are t!e following:

@) 'he !a,i!i2ation of shareholders value. 'he buyouts and the !ergers add a dyna!ic to the new financial group which acquires the confidence of the investors and secures the rise of its stoc" price. 'his is even bigger if an increase in share capital will follow. 'hese e,pectations ta"e effect in the short ter!. )onstant and long ter! rise of the share price will be observed if the group e,pands its profits in the following years. ;) )onfrontation of the increased co!petition on the condition that the group will offer new and differentiated products of high quality and at attractive prices, that is to say, with a lower co!!ission and at a lower interest rate. All these on the condition that the operational cost and especially the e,penses for personnel salaries will be lowered. 'he cost savings could cli!b to @AO (Western Europe and 5. .A. ources8 9hoades tephen A., @RPAb, SMergers and Acquisitions by )o!!ercial 4an"s, @RC< : @RPL+ )lar", Beffrey A., @RPP, SEcono!ies of cale and cope of &epository (inancial 1nstitutions and in so!e cases where the !ar"ets in which the !erged financial institutions operate are related, it could rise to ;AO (4al"ans ource8 outh Eastern Europe and Mediterranean E!erging Mar"et Econo!ies &ecade tudies ;<<< : ;<<R fro! the %ational 4an" of >reece). L) 'he acquisition of oligopoly power increases the profits of the credit institutions. 'he ban"s !aintain or increase the !argin of the interest rates of deposits and loans in the retail ban"ing !ar"et, while they cannot do the sa!e in the wholesale ban"ing !ar"et where the custo!ers have access to alternative sources of financing. T) 'he need for creating large financial institutions through buyouts and !ergers is also required fro! the advances in technology which increases the econo!ies of scale in the production and distribution of financial services. 'he introduction of new technology is, in !ost cases, e,pensive and thus, !ore affordable by the large groups. ?hone ban"ing, internet ban"ing, ho!e ban"ing, have all de!onstrated greater econo!ies of scale than the traditional ban"ing networ" based on branches.

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A) 'he new tools of the financial !anage!ent of ris", li"e derivative products and the ite!s which do not appear on the balance sheet that provide collateral, can be applied in a !ore efficient way by financial institutions of a large si2e. C) 'he !ore efficient confront!ent of the pheno!enon of disinter!ediation, that is, the direct connection of depositors and loan recipients outside the ban"ing syste!. 'he ban"s create affiliate co!panies which can offer alternative financial products beyond the traditional loan granting. 'he buyouts and !ergers of the affiliates have the purpose to create new, large and all$powerful subsidiaries with the purpose of the relevant reinter!ediation, that is, the offering fro! the beginning the whole spectru! of services through ban"ing groups. =) 'he need for creating large financial institutions through buyouts and !ergers is also required fro! the advances in technology which increases the econo!ies of scale in the production and distribution of financial services. 'he introduction of new technology is, in !ost cases, e,pensive and thus, !ore affordable by the large groups. ?hone ban"ing, internet ban"ing, ho!e ban"ing, have all de!onstrated greater econo!ies of scale than the traditional ban"ing networ" based on branches.

Disad%antages
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'he possible difficulties, that should be weighed and e,a!ined properly, counterbalance so!eti!es the strong advantages, which result fro! one !erger. disadvantages are8 @. 'he difficulties that arise for the personnel of the !erged ban"s to get acquainted with the new fellow wor"ers, the new policies and the new procedures. ;. Bealousies and internal co!petition as well as frictions that often ta"e place a!ong the staff !e!bers of the !erged ban"s. L. 'here is a possibility that the reduction of the personnel and equip!ent as a result of the !erger will be da!aging. T. 'he proble!s of branches and other facilities that !ight not be needed after the !erger and could not be leased or sold. A. 1n so!e instances of !ergers there will be required, new logos, new writing !aterial, new for!s or publications etc., and thus new stoc"s for e,pendable supplies and equip!ent ite!s that already e,ist at an additional cost. C. 'he uncertainty with regards to the approval of the !erger by the proper authorities (the 4an" of >reece and the )o!!ittee for )o!petition in >reece) =. 'he uncertainty as to the a!ount of the !erged ban"s activities that will be retained after the !erger and the uncertainty as to what degree so!e substantial part of a desired activity of any participating in the !erger ban" will be lost as a byproduct of the !erger P. 'he possibility that the ban" that will be created after the !erger will have surplus personnel in so!e depart!ents or positions. (or e,a!ple, it is possible to ta"e place a necessary doubling of specialists in !atters of foreign e,change !ar"ets, in !atters of personnel training etc. R. A possible overopti!istic pro6ection for the si2e of profitability that will result fro! the co!bination of operations of the !erged ban"s will have as a result the buying ban" to pay an e,orbitant price for the ban" being bought out. @<. 1n !any cases, the returns of the share of the ban"s that !ade buyouts of other ban"s was lower than the return of the sector as a whole,
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o!e of the possible

Merger and Acquisition

@@. 'he shareholders of the ban" that !ade the buyout profit while the shareholders of the ban" which was bought out lose @;. 1f the do!estic !ar"et is fully integrated and co!petitive, there is not !uch roo! for acquiring a bigger share of the !ar"et and that on the condition that the products being offered are differentiated by high quality and technology. @L. 'he cost reductions that are achieved through the econo!ies of scale and spectru! and the synergies are a one$ti!e reduction. @T. 'here arise considerable difficulties of ad6ust!ent such as the unification of the different corporate cultures of the ban"s, of the different salary scales, of the subsidies and benefits and of the different ways of pro!otions. @A. 7igh social cost because it is usually observed a reduction in e!ploy!ent resulting fro! lying off personnel.

Acquisitions
As you can see, an acquisition !ay be only slightly different fro! a !erger. 1n fact, it !ay be different in na!e only. Di"e !ergers, acquisitions are actions through which co!panies see" econo!ies of scale, efficiencies and enhanced !ar"et visibility. 5nli"e all !ergers, all acquisitions involve one fir! purchasing another $ there is no e,change of stoc" or

consolidation as a new co!pany. Acquisitions are often

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congenial, and all parties feel satisfied with the deal. *ther ti!es, acquisitions are !ore hostile. 1n an acquisition, as in so!e of the !erger deals we discuss above, a co!pany can buy another co!pany with cash, stoc" or a co!bination of the two. Another possibility, which is co!!on in s!aller deals, is for one co!pany to acquire all the assets of another co!pany. )o!pany E buys all of )o!pany /#s assets for cash, which !eans that )o!pany / will have only cash (and debt, if they had debt before). *f course, )o!pany / beco!es !erely a shell and will eventually

liquidate or enter another area of business. reverse !erger,

a deal that enables

Another type of acquisition is a a

private co!pany to get publicly$listed in a relatively short ti!e period. A public co!pany, and

reverse !erger occurs when a private co!pany that has strong prospects and is eager to raise financing buys a publicly$listed shell co!pany, usually one with no business and li!ited assets. 'he private co!pany reverse !erges into the

together they beco!e an entirely new public corporation with tradable shares. 9egardless of their category or structure, all !ergers and acquisitions have one co!!on goal8 they are all !eant to create synergy that !a"es the value of the co!bined co!panies greater than the su! of the two parts. 'he success of a !erger or acquisition depends on whether this synergy is achieved.

Mergers and Acquisitions: Valuation Matters

1nvestors in a co!pany that are ai!ing to ta"e over another one !ust deter!ine whether the purchase will be beneficial to the!. 1n order to do so, they !ust as" the!selves how !uch the co!pany being acquired is really worth. %aturally, both sides of an M&A deal will have
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different ideas about the worth of a target co!pany8 its seller will tend to value the co!pany at as high of a price as possible, while the buyer will try to get the lowest price that he can. 'here are, however, !any legiti!ate ways to value co!panies. 'he !ost co!!on !ethod is to loo" at co!parable co!panies in an industry, but deal !a"ers e!ploy a variety of other !ethods and tools when assessing a target co!pany. 7ere are 6ust a few of the!8

)*Co parati%e "atios $ 'he following are two e,a!ples of the !any co!parative
!etrics on which acquiring co!panies !ay base their offers8 @) ?rice$Earnings 9atio (?FE 9atio) $ With the use of this ratio, an acquiring co!pany !a"es an offer that is a !ultiple of the earnings of the target co!pany. Doo"ing at the ?FE for all the stoc"s within the sa!e industry group will give the acquiring co!pany good guidance for what the target#s ?FE !ultiple should be. ;)Enterprise$0alue$to$ ales 9atio (E0F ales) $ With this ratio, the acquiring co!pany !a"es an offer as a !ultiple of the revenues, again, while being aware of the price$to$sales ratio of other co!panies in the industry.

+*"eplace ent Cost $ 1n a few cases, acquisitions are based on the cost of replacing the
target co!pany. (or si!plicity#s sa"e, suppose the value of a co!pany is si!ply the su! of all its equip!ent and staffing costs. 'he acquiring co!pany can literally order the target to sell at that price, or it will create a co!petitor for the sa!e cost. %aturally, it ta"es a long ti!e to asse!ble good !anage!ent, acquire property and get the right equip!ent. 'his !ethod of establishing a price certainly wouldn#t !a"e !uch sense in a service industry where the "ey assets $ people and ideas $ are hard to value and develop.

,*Discounted Cas! -low .DC-/ 0 A "ey valuation tool in M&A, discounted cash flow
analysis deter!ines a co!pany#s current value according to its esti!ated future cash flows. (orecasted free cash flows (net inco!e M depreciationFa!orti2ation $ capital e,penditures $ change in wor"ing capital) are discounted to a present value using the co!pany#s weighted average costs of capital (WA))). Ad!ittedly, &)( is tric"y to get right, but few tools can rival this valuation !ethod.
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1ynergy: T!e $re iu for $otential 1uccess

(or the !ost part, acquiring co!panies nearly always pay a substantial pre!iu! on the stoc" !ar"et value of the co!panies they buy. 'he 6ustification for doing so nearly always boils down to the notion of synergy+ a !erger benefits shareholders when a co!pany#s post$!erger share price increases by the value of potential synergy. Det#s face it, it would be highly unli"ely for rational owners to sell if they would benefit !ore by not selling. 'hat !eans buyers will need to pay a pre!iu! if they hope to acquire the co!pany, regardless of what pre$!erger valuation tells the!. (or sellers, that pre!iu! represents their co!pany#s future prospects. (or buyers, the pre!iu! represents part of the post$!erger synergy they e,pect can be achieved. 'he following equation offers a good way to thin" about synergy and how to deter!ine whether a deal !a"es sense. 'he equation solves for the !ini!u! required synergy8

1n other words, the success of a !erger is !easured by whether the value of the buyer is enhanced by the action. 7owever, the practical constraints of !ergers, which we discuss in part five, often prevent the e,pected benefits fro! being fully achieved. Alas, the synergy pro!ised by deal !a"ers !ight 6ust fall short.

Mergers and Acquisitions: Doing T!e Deal

1tart wit! an 2ffer When the )E* and top !anagers of a co!pany decide that they
want to do a !erger or acquisition, they start with a tender offer. 'he process typically begins with the acquiring co!pany carefully and discreetly buying up shares in the target co!pany, or building a position. *nce the acquiring co!pany starts to purchase shares in the open !ar"et, it is restricted to buying AO of the total outstanding shares before it !ust file
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with the E). 1n the filing, the co!pany !ust for!ally declare how !any shares it owns and whether it intends to buy the co!pany or "eep the shares purely as an invest!ent. Wor"ing with financial advisors and invest!ent ban"ers, the acquiring co!pany will arrive at an overall price that it#s willing to pay for its target in cash, shares or both. 'he tender offer is then frequently advertised in the business press, stating the offer price and the deadline by which the shareholders in the target co!pany !ust accept (or re6ect) it.

T!e Target's "esponse

*nce the tender offer has been !ade, the target co!pany can do one of several things8

)*Accept t!e Ter s of t!e 2ffer $ 1f the target fir!#s top !anagers and shareholders
are happy with the ter!s of the transaction, they will go ahead with the deal.

+*Atte pt to 3egotiate $ 'he tender offer price !ay not be high enough for the target
co!pany#s shareholders to accept, or the specific ter!s of the deal !ay not be attractive. 1n a !erger, there !ay be !uch at sta"e for the !anage!ent of the target $ their 6obs, in particular. 1f they#re not satisfied with the ter!s laid out in the tender offer, the target#s !anage!ent !ay try to wor" out !ore agreeable ter!s that let the! "eep their 6obs or, even better, send the! off with a nice, big co!pensation pac"age. %ot surprisingly, highly sought$after target co!panies that are the ob6ect of several bidders will have greater latitude for negotiation. (urther!ore, !anagers have !ore negotiating power if they can show that they are crucial to the !erger#s future success.

,*'4ecute a $oison $ill or 1o e 2t!er Hostile Ta&eo%er Defense : A poison

pill sche!e can be triggered by a target co!pany when a hostile suitor acquires a predeter!ined percentage of co!pany stoc". 'o e,ecute its defense, the target co!pany grants all shareholders $ e,cept the acquiring co!pany $ options to buy additional stoc" at a dra!atic discount. 'his dilutes the acquiring co!pany#s share and intercepts its control of the co!pany.

5*-ind a 6!ite 7nig!t $ As an alternative, the target co!pany#s !anage!ent !ay see"
out a friendlier potential acquiring co!pany, or white "night. 1f a white "night is found, it will offer an equal or higher price for the shares than the hostile bidder.
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Mergers and acquisitions can face scrutiny fro! regulatory bodies. (or e,a!ple, if the two biggest long$distance co!panies in the 5. ., A'&' and print, wanted to !erge, the deal would require approval fro! the (ederal )o!!unications )o!!ission (())). 'he ()) would probably regard a !erger of the two giants as the creation of a !onopoly or, at the very least, a threat to co!petition in the industry.

Closing t!e Deal

(inally, once the target co!pany agrees to the tender offer and regulatory require!ents are !et, the !erger deal will be e,ecuted by !eans of so!e transaction. 1n a !erger in which one co!pany buys another, the acquiring co!pany will pay for the target co!pany#s shares A cash$for$stoc" transaction is fairly straightforward8 target co!pany shareholders receive a cash pay!ent for each share purchased. 'his transaction is treated as a ta,able sale of the shares of the target co!pany. 1f the transaction is !ade with stoc" instead of cash, then it#s not ta,able. 'here is si!ply an e,change of share certificates. 'he desire to steer clear of the ta, !an e,plains why so !any M&A deals are carried out as stoc"$for$stoc" transactions. When a co!pany is purchased with stoc", new shares fro! the acquiring co!pany#s stoc" are issued directly to the target co!pany#s shareholders, or the new shares are sent to a bro"er who !anages the! for target co!pany shareholders. 'he shareholders of the target co!pany are only ta,ed when they sell their new shares. When the deal is closed, investors usually receive a new stoc" in their portfolios.

Mergers and Acquisitions: #rea& 8ps or De0Mergers

As !ergers capture the i!agination of !any investors and co!panies, the idea of getting s!aller !ight see! counterintuitive. 4ut corporate brea"$ups, or de$!ergers, can be very attractive options for co!panies and their shareholders.

Ad%antages
'he rationale behind a spinoff, trac"ing stoc" or carve$out is that 3the parts are greater than the whole.3 'hese corporate restructuring techniques, which involve the separation of a business unit or subsidiary fro! the parent, can help a co!pany raise additional equity funds. A brea"$up can also boost a co!pany#s valuation by providing powerful incentives to the people who wor" in the separating unit, and help the parent#s !anage!ent to focus on core operations.
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Most i!portantly, shareholders get better infor!ation about the business unit because it issues separate financial state!ents. 'his is particularly useful when a co!pany#s traditional line of business differs fro! the separated business unit. With separate financial disclosure, investors are better equipped to gauge the value of the parent corporation. 'he parent co!pany !ight attract !ore investors and, ulti!ately, !ore capital. Also, separating a subsidiary fro! its parent can reduce internal co!petition for corporate funds. (or investors, that#s great news8 it curbs the "ind of negative internal wrangling that can co!pro!ise the unity and productivity of a co!pany. (or e!ployees of the new separate entity, there is a publicly traded stoc" to !otivate and reward the!. toc" options in the parent often provide little incentive to subsidiary !anagers, especially because their efforts are buried in the fir!#s overall perfor!ance.

Disad%antages
'hat said, de$!erged fir!s are li"ely to be substantially s!aller than their parents, possibly !a"ing it harder to tap credit !ar"ets and costlier finance that !ay be affordable only for larger co!panies. And the s!aller si2e of the fir! !ay !ean it has less representation on !a6or inde,es, !a"ing it !ore difficult to attract interest fro! institutional investors.

Meanwhile, there are the e,tra costs that the parts of the business face if separated. When a fir! divides itself into s!aller units, it !ay be losing the synergy that it had as a larger entity. (or instance, the division of e,penses such as !ar"eting, ad!inistration and research and develop!ent (9&&) into different business units !ay cause redundant costs without increasing overall revenues.

"estructuring Met!ods
'here are several restructuring !ethods8 doing an outright sell$off, doing an equity carve$ out, spinning off a unit to e,isting shareholders or issuing trac"ing stoc". Each has advantages and disadvantages for co!panies and investors. All of these deals are quite co!ple,.

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1ell02ffs
A sell$off, also "nown as a divestiture, is the outright sale of a co!pany subsidiary. %or!ally, sell$offs are done because the subsidiary doesn#t fit into the parent co!pany#s core strategy. 'he !ar"et !ay be undervaluing the co!bined businesses due to a lac" of synergy between the parent and subsidiary. As a result, !anage!ent and the board decide that the subsidiary is better off under different ownership.

4esides getting rid of an unwanted subsidiary, sell$offs also raise cash, which can be used to pay off debt. 1n the late @RP<s and early @RR<s, corporate raiders would use debt to finance acquisitions. 'hen, after !a"ing a purchase they would sell$off its subsidiaries to raise cash to service the debt. 'he raiders# !ethod certainly !a"es sense if the su! of the parts is greater than the whole. When it isn#t, deals are unsuccessful.

'quity Car%e02uts
More and !ore co!panies are using equity carve$outs to boost shareholder value. A parent fir! !a"es a subsidiary public through an initial public offering (1?*) of shares, a!ounting to a partial sell$off. A new publicly$listed co!pany is created, but the parent "eeps a controlling sta"e in the newly traded subsidiary. A carve$out is a strategic avenue a parent fir! !ay ta"e when one of its subsidiaries is growing faster and carrying higher valuations than other businesses owned by the parent. A carve$out generates cash because shares in the subsidiary are sold to the public, but the issue also unloc"s the value of the subsidiary unit and enhances the parent#s shareholder value. 'he new legal entity of a carve$out has a separate board, but in !ost carve$outs, the parent retains so!e control. 1n these cases, so!e portion of the parent fir!#s board of directors !ay be shared. shareholders, ince the parent has a controlling sta"e, !eaning both fir!s have co!!on the connection between the two will li"ely be strong.

'hat said, so!eti!es co!panies carve$out a subsidiary not because it#s doing well, but because it is a burden. uch an intention won#t lead to a successful result, especially if a carved$out subsidiary is too loaded with debt, or had trouble even when it was a part of the parent and is lac"ing an established trac" record for growing revenues and profits.
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)arve$outs can also create une,pected friction between the parent and subsidiary. ?roble!s can arise as !anagers of the carved$out co!pany !ust be accountable to their public shareholders as well as the owners of the parent co!pany. 'his can create divided loyalties.

1pinoffs
A spinoff occurs when a subsidiary beco!es an independent entity. 'he parent fir! distributes shares of the subsidiary to its shareholders through a stoc" dividend. ince this transaction is a dividend distribution, no cash is generated. 'hus, spinoffs are unli"ely to be used when a fir! needs to finance growth or deals. Di"e the carve$out, the subsidiary beco!es a separate legal entity with a distinct !anage!ent and board. Di"e carve$outs, spinoffs are usually about separating a healthy operation. 1n !ost cases, spinoffs unloc" hidden shareholder value. (or the parent co!pany, it sharpens !anage!ent focus. (or the spinoff co!pany, !anage!ent doesn#t have to co!pete for the parent#s attention and capital. *nce they are set free, !anagers can e,plore new opportunities. 1nvestors, however, should beware of throw$away subsidiaries the parent created to separate legal liability or to off$load debt. *nce spinoff shares are issued to parent co!pany shareholders, so!e shareholders !ay be te!pted to quic"ly du!p these shares on the !ar"et, depressing the share valuation.

Trac&ing 1toc&
A trac"ing stoc" is a special type of stoc" issued by a publicly held co!pany to trac" the value of one seg!ent of that co!pany. 'he stoc" allows the different seg!ents of the co!pany to be valued differently by investors. Det#s say a slow$growth co!pany trading at a low price$earnings ratio (?FE ratio) happens to have a fast growing business unit. 'he co!pany !ight issue a trac"ing stoc" so the !ar"et can value the new business separately fro! the old one and at a significantly higher ?FE rating. Why would a fir! issue a trac"ing stoc" rather than spinning$off or carving$out its fast growth business for shareholders. 'he co!pany retains control over the subsidiary+ the two businesses can continue to en6oy synergies and share !ar"eting, ad!inistrative support functions, a headquarters and so on. (inally, and !ost i!portantly, if the trac"ing stoc"
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cli!bs in value, the parent co!pany can use the trac"ing stoc" it owns to !a"e acquisitions. till, shareholders need to re!e!ber that trac"ing stoc"s are class 4, !eaning they don#t grant shareholders the sa!e voting rights as those of the !ain stoc". Each share of trac"ing stoc" !ay have only a half or a quarter of a vote. 1n rare cases, holders of trac"ing stoc" have no vote at all.

Mergers and Acquisitions: 6!y T!ey Can -ail

1t#s no secret that plenty of !ergers don#t wor". 'hose who advocate !ergers will argue that the !erger will cut costs or boost revenues by !ore than enough to 6ustify the price pre!iu!. 1t can sound so si!ple8 6ust co!bine co!puter syste!s, !erge a few depart!ents, use sheer si2e to force down the price of supplies and the !erged giant should be !ore profitable than its parts. 1n theory, @M@ N L sounds great, but in practice, things can go awry. 7istorical trends show that roughly two thirds of big !ergers will disappoint on their own ter!s, which !eans they will lose value on the stoc" !ar"et. 'he !otivations that drive !ergers can be flawed and efficiencies fro! econo!ies of scale !ay prove elusive. 1n !any cases, the proble!s associated with trying to !a"e !erged co!panies wor" are all too concrete.

-lawed Intentions (or starters, a boo!ing stoc" !ar"et encourages !ergers, which can
spell trouble. &eals done with highly rated stoc" as currency are easy and cheap, but the strategic thin"ing behind the! !ay be easy and cheap too. Also, !ergers are often atte!pt to i!itate8 so!ebody else has done a big !erger, which pro!pts other top e,ecutives to follow suit.
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A !erger !ay often have !ore to do with glory$see"ing than business strategy. 'he e,ecutive ego, which is boosted by buying the co!petition, is a !a6or force in M&A, especially when co!bined with the influences fro! the ban"ers, lawyers and other assorted advisers who can earn big fees fro! clients engaged in !ergers. Most )E*s get to where they are because they want to be the biggest and the best, and !any top e,ecutives get a big bonus for !erger deals, no !atter what happens to the share price later. *n the other side of the coin, !ergers can be driven by generali2ed fear. >lobali2ation, the arrival of new technological develop!ents or a fast$changing econo!ic landscape that !a"es the outloo" uncertain are all factors that can create a strong incentive for defensive !ergers. o!eti!es the !anage!ent tea! feels they have no choice and !ust acquire a rival before being acquired. 'he idea is that only big players will survive a !ore co!petitive world.

T!e 2bstacles to Ma&ing it 6or&

)oping with a !erger can !a"e top !anagers spread their ti!e too thinly and neglect their core business, spelling doo!. 'oo often, potential difficulties see! trivial to !anagers caught up in the thrill of the big deal. 'he chances for success are further ha!pered if the corporate cultures of the co!panies are very different. When a co!pany is acquired, the decision is typically based on product or !ar"et synergies, but cultural differences are often ignored. 1t#s a !ista"e to assu!e that personnel issues are easily overco!e. (or e,a!ple, e!ployees at a target co!pany !ight be accusto!ed to easy access to top !anage!ent, fle,ible wor" schedules or even a rela,ed dress code. 'hese aspects of a wor"ing environ!ent !ay not see! significant, but if new !anage!ent re!oves the!, the result can be resent!ent and shrin"ing productivity. More insight into the failure of !ergers is found in the highly acclai!ed study fro! McGinsey, a global consultancy. 'he study concludes that co!panies often focus too intently on cutting costs following !ergers, while revenues, and ulti!ately, profits, suffer. Merging co!panies can focus on integration and cost$cutting so !uch that they neglect day$ to$day business, thereby pro!pting nervous custo!ers to flee. 'his loss of revenue !o!entu! is one reason so !any !ergers fail to create value for shareholders.

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4ut re!e!ber, not all !ergers fail. i2e and global reach can be advantageous, and strong !anagers can often squee2e greater efficiency out of badly run rivals. %evertheless, the pro!ises !ade by deal !a"ers de!and the careful scrutiny of investors. 'he success of !ergers depends on how realistic the deal !a"ers are and how well they can integrate two co!panies while !aintaining day$to$day operations.

Mergers and Acquisitions in India

'he process of !ergers and acquisitions has gained substantial i!portance intoday#s corporate world. 'his process is e,tensively used for restructuring the business organi2ations. 1n 1ndia, the concept of !ergers and acquisitions was initiated by thegovern!ent bodies. o!e well "nown financial organi2ations also too" thenecessary initiatives to restructure the corporate sector of 1ndia by adopting the!ergers and acquisitions policies. 'he 1ndian econo!ic refor! since @RR@ has opened up a whole lot of challenges both in the do!estic and international spheres. 'he increasedco!petition in the global !ar"et has pro!pted the 1ndian co!panies to go for !ergers and acquisitions as an i!portant strategic choice. 'he trends of !ergers and acquisitions in 1ndia have changed over theyears. 'he i!!ediate effects of the !ergers and acquisitions have also beendiverse across the various sectors of the 1ndian econo!y. 1ndia has e!erged as one of the top countries with respect to !erger and acquisition deals. 1n ;<<=, the first two !onths alone accounted for !erger and acquisition deals worth UT< billion in 1ndia.

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Ma9or

erger and acquisitions in india

9ecently the india co!panies have underta"en so!e i!portant acquisitions. o!e of those are as follows.
@) 7indalco acquired )anada base novelis.the deal involved transactions of UA,RP; !illion.

;)'ata steel acquired corus group plc. 'he acquisition deal a!ounted to U @;,<<< !illion.

L)&r. 9eddies labs acquired 4etaphar! through a deal worth of UAR= !illion.

T)9anba,y Dabs acquired 'erapia A. 'he deal a!ounted to UL;T !illion.

A) u2lon Energy acquired 7ansen >roup through a deal of UACA !illion.

C)'he acquisition of &aewoo Electronics )orp. by 0ideocon involvedtransaction of U=;R !illion.

=)T7?)D acquired Genya ?etroleu! 9efinery Dtd. 'he deal a!ounted to UA<<!illion.

0 %D acquired 'eleglobe through a deal of U;LR !illion.When it co!es to !ergers and acquisitions deals in 1ndia, thetotal nu!ber was ;P= fro! the !onth of Banuary to May in ;<<=. 1t has involved !onetary transaction of 5 UT=.L= billion. *ut of these ;P=
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!erger and acquisition deals, there have been @<; cross country deals with a totalvaluation of 5 U;P.@R billion.

Mergers and Acquisitions in #an&ing 1ector

About Mergers and Acquisitions in #an&ing 1ector
Mergers and acquisitions in ban"ing sector have beco!e fa!iliar inthe !a6ority of all the countries in the world.A large nu!ber of international and do!estic ban"s all over the worldare engaged in !erger and acquisition activities. *ne of the principal ob6ectives behind the !ergers and acquisitions in the ban"ing sector is to reap the benefits of econo!ies of scale. With the help of !ergers and acquisitions in the ban"ingsector, the ban"s can achieve significant growth in their operations and !ini!i2etheir e,penses to a considerable e,tent.Another i!portant advantage behind this "ind of !erger is that in this process, co!petition is reduced because !erger eli!inates co!petitors fro! the ban"ing industry. Mergers and acquisitions in ban"ing sector are for!s of hori2ontal !erger because the !erging entities are involved in the sa!e "ind of business or co!!ercial activities. o!eti!es, non$ban"ing financial institutionsare also !erged with other ban"s if they provide si!ilar type of services.1n the conte,t of !ergers and acquisitions in the ban"ing sector, it can be rec"oned that si2e does !atter and growth in si2e can be achieved through!ergers and acquisitions quite easily. >rowth achieved by ta"ing assistance of the !ergers and acquisitionsin the ban"ing sector !ay be described as inorganic growth. 4oth govern!ent ban"s and private sector ban"s are adopting policies for !ergers and acquisitions.1n !any countries, global or !ultinational ban"s are e,tending their operationsthrough !ergers and acquisitions with the regional ban"s in those countries. 'hese !ergers and acquisitions are na!ed as cross$border !ergersand acquisitions in the ban"ing sector or international !ergers and acquisitions inthe ban"ing sector. 4y doing this, global ban"ing corporations are able to placethe!selves into a do!inant position in the
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ban"ing sector, achieve econo!ies of scale, as well as garner !ar"et share. Mergers and acquisitions in the ban"ingsector have the capacity to ensure efficiency, profitability and synergy. 'hey alsohelp to for! and grow shareholder value.

1n so!e cases, financially distressed ban"s are also sub6ect tota"eovers or !ergers in the ban"ing sector and this "ind of !erger !ay result in!onopoly and 6ob cuts. &eregulation in the financial !ar"et, !ar"et liberali2ation,econo!ic refor!s, and a nu!ber of other factors have played an i!portantfunction behind the growth of !ergers and acquisitions in the ban"ing sector. %evertheless, there are !any challenges that are still to be overco!e throughappropriate !easures. Mergers and acquisitions in ban"ing sector are controlled or regulated by the ape, financial authority of a particular country. (or e,a!ple, the!ergers and acquisitions in the ban"ing sector of 1ndia are overseen by the9eserve 4an" of 1ndia (941).

Mergers and Acquisitions inTeleco

1ector
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T!e nu ber of ergers and acquisitions inTeleco increasing significantly

1ector !as been

'eleco!!unications industry is one of the !ost profitable and rapidly developing industries in the world and it is regarded as an indispensableco!ponent of the worldwide utility and services sector. 'eleco!!unication industry deals with various for!s of co!!unication !ediu!s, for e,a!ple !obile phones, fi,ed line phones, as well as 1nternet and broadband services. )urrently, aslew of !ergers and acquisitions in 'eleco! throughout the world. 'he ai! behind such !ergers is to attain co!petitive benefits in theteleco!!unications industry. 'he !ergers and acquisitions in 'eleco! ector areregarded as hori2ontal !ergers si!ply because of the reason that the entities goingfor !erger or acquisition are operating in the sa!e industry that isteleco!!unications industry. 1n the !a6ority of the developed and developing countries around theworld, !ergers and acquisitions in the teleco!!unications sector have beco!e anecessity. 'his "ind of !ergers also assists in creation of 6obs. 4oth transnationaland do!estic teleco!!unications services providers are "een to try !erger andacquisition options because this will help the! in !any ways. ector are going on

Mergers and Acquisitions: Conclusion

*ne si2e doesn#t fit all. Many co!panies find that the best way to get ahead is to e,pand ownership boundaries through !ergers and acquisitions. (or others, separating the public
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ownership of a subsidiary or business seg!ent offers !ore advantages. At least in theory, !ergers create synergies and econo!ies of scale, e,panding operations and cutting costs. 1nvestors can ta"e co!fort in the idea that a !erger will deliver enhanced !ar"et power. 4y contrast, de$!erged co!panies often en6oy i!proved operating perfor!ance than"s to redesigned !anage!ent incentives. Additional capital can fund growth organically or through acquisition. Meanwhile, investors benefit fro! the i!proved infor!ation flow fro! de$!erged co!panies. M&A co!es in all shapes and si2es, and investors need to consider the co!ple, issues involved in M&A. 'he !ost beneficial for! of equity structure involves a co!plete analysis of the costs and benefits associated with the deals. Det#s recap what we learned in this tutorial8 @.A !erger can happen when two co!panies decide to co!bine into one entity or when one co!pany buys another. An acquisition always involves the purchase of one co!pany by another. ;.'he functions of synergy allow for the enhanced cost efficiency of a new entity !ade fro! two s!aller ones $ synergy is the logic behind !ergers and acquisitions. L.Acquiring co!panies use various !ethods to value their targets. o!e of these !ethods are based on co!parative ratios $ such as the ?FE and ?F ratios $ replace!ent cost or discounted cash flow analysis. T.An M&A deal can be e,ecuted by !eans of a cash transaction, stoc"$for$stoc" transaction or a co!bination of both. A transaction struc" with stoc" is not ta,able. A. 4rea" up or de$!erger strategies can provide co!panies with opportunities to raise additional equity funds, unloc" hidden shareholder value and sharpen !anage!ent focus. &e$!ergers can occur by !eans of divestitures, carve$outs spinoffs or trac"ing stoc"s.

C.Mergers can fail for !any reasons including a lac" of !anage!ent foresight, the inability to overco!e practical challenges and loss of revenue !o!entu! fro! a neglect of day$to$ day operations.
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#I#:I2;"A$H<

4oo"s8 $ Merger, Acquisition and corporate restructuring in 1ndia (9achna 6awa) (inancial services Lrd edition (M./."han)

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Website8 $ www.google.co! www.wi"ipedia.co! www.icicidirect.co! www.!ergersindia.co! www.!ergerdigest.co!

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