MERGERS AND ACQUISITIONSAN OVERVIEW

This presentation tries to look into the issue of mergers and acquisitions. Mergers and acquisitions (M&A) are being increasingly used the world over, for improving competitiveness of companies through gaining greater market share, for entering new markets and geographies, and capitalizing on economies of scale. This presentation is structured in three parts. The introductory section provides an overview of the definition of mergers and acquisition and its various types, the second section deals with the laws regulating m&a , the third section outlines the overseas prospective of M&A.
The Main Idea behind m&a. is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. Merger is when two or more companies combine to form a single company.In India mergers are called amalgamation. Mergers are done through:1) Absorption (absorption of 2 or more comp into an existing comp, all comp except 1 lose their identity) eg: tata Oil Mills Ltd. (TOMCO) with Hindustan Lever Ltd. (HLL) 2) Consolidation (combination of 2 or more comp into a New comp, all comp are dissolved and a new comp is formed) eg: Hindustan Computers Ltd + Hindustan Instruments Ltd + Indian Software Co. Ltd + Indian Reprographic Ltd = Hindustan Computers Ltd(HCL) Apart from these there are 5 types of mergers mention in the project namely:a) horizontal merger whereby two comp who are direct competitors of each other are merged.They serve the same mkt and sell the same product Eg Brook Bond Lipton India ltd. b) vertical merger where a customer and a comp or a supplier or a comp merge Eg a bat comp merging with a wood comp, Pixar and Disney c) conglomerate merger:-A merger between firms that are involved in totally unrelated business activities Eg a shoe company merging with a soft drink comp d) A market extension merger takes place between two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market

e) product extn merger:- A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. It allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits. Acquisition: an act of acquiring effective control by one company over assets or management of another company without any combination of companies. Companies may remain independent, separate But there may be change in control of Companies (hostile takeover: eg HP taking over COMPAQ)

Mangalore Chemicals Limited Is yet another hostile takeover likely?

July 12th, 2013 No Comments
Mangalore Chemicals and Fertilisers Limited, a company belonging to Vijay Mallya is in the news. There was a stake purchase by friend SarojPoddar in Mangalore Chemicals through Zuari Industries of roughly 10%. This stake was of Vijay Mallyas pledged shares to SBI. Then in the beginning of the month Deepak Fertilisers bought 24.46% of the equity of the company at a weighted average price of Rs 61.75. There seemed to be a lull for the next 10 days or so and then Mr Poddar and Zuari were back in action buying around 42 lakh shares or 3.5% at around Rs 61 per share. What is interesting to note is that the shares owned by Vijay Mallya are now less than those owned by Deepak Fertilisers. Secondly the bulk of the shares owned by Vijay Mallya are pledged and therefore the company ownership has become vulnerable. Whats at stake? The ownership of the company and the importance of the same for Deepak Fertilisers is that this becomes an entry for the company into the Southern states where they are not currently focused or present. Second is the fact that the company Mangalore Chemicals has surplus land which allows the company to expand its existing capacity and the plant has made changes to accept a dual feed of natural gas and the present feedstock of napha. The plants location on the port makes material handling economical and effective. Zuari would like to leverage the friendship between the promoters and if necessary act as the white knight in the whole deal. Trading today saw the stock locked at the upper circuit and volumes on the NSE was74.30 lac shares while on the BSE it was 16.77 lac shares. Delivery volume and who the buyers and sellers were would be known later but very clearly in a dull market which seems to be going nowhere inspite of the heightened volatility, this scrip is a stand out. The share price is at Rs 68 which means a PE of 12.10 times based on its EPS of Rs 5.62 for the year ended March 2013. The share is certainly not cheap when compared to its peers like Chambal Fertilisers a company promoted by Zuariand Deepak Fertilisers who happen to be the players in the probable take over drama. Deepak Fertilisers had an EPS of Rs 16.66 for the year ended March 2013 and at its current price of Rs 96 is available at a PE multiple of

5.76 times while Chambal Fertilisers with an EPS of Rs 7.34 and a market price of Rs 37.65 trades at a PE of 5.13 times. There is a fight likely to brew over the control of the company and as long as the fight continues there would be action. However the market price is already too high and the PE more than expensive considering and taking into account that there is a battle on hand. There is a premium for blood and control but what happens when the blood is of the investor. Be cautious and take informed decisions on a scrip which is becoming interesting but frightfully expensive.