Cross-Border Merger and Acquisition

The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate
strategy, corporate finance and management dealing with the buying, selling and combining
of different companies that can aid, finance, or help a growing company in a given industry
grow rapidly without having to create another business entity.
Merger is a tool used by companies for the purpose of expanding their operations often
aiming at an increase of their long term profitability. There are 15 different types of actions
that a company can take when deciding to move forward using M&A. Usually mergers occur
in a consensual (occurring by mutual consent) setting where executives from the target
company help those from the purchaser in a due diligence process to ensure that the deal is
beneficial to both parties. Acquisitions can also happen through a hostile takeover by
purchasing the majority of outstanding shares of a company in the open market against the
wishes of the target's board. In the United States, business laws vary from state to state
whereby some companies have limited protection against hostile takeovers. One form of
protection against a hostile takeover is the shareholder rights plan, otherwise known as the
"poison pill".
Historically, mergers have often failed to add significantly to the value of the acquiring firm's
shares. Corporate mergers may be aimed at reducing market competition, cutting costs (for
example, laying off employees, operating at a more technologically efficient scale, etc.),
reducing taxes, removing management, "empire building" by the acquiring managers, or
other purposes which may or may not be consistent with public policy or public welfare.
Thus they can be heavily regulated, for example, in the U.S. requiring approval by both the
Federal Trade Commission and the Department of Justice. In a study conducted in 2000 by
Lehman Brothers, it was found that, on average, large M&A deals cause the domestic
currency of the target corporation to appreciate by 1% relative to the acquirer's. For every $1-
billion deal, the currency of the target corporation increased in value by 0.5%. More
specifically, the report found that in the period immediately after the deal is announced, there
is generally a strong upward movement in the target corporation's domestic currency (relative
to the acquirer's currency). Fifty days after the announcement, the target currency is then, on
average, 1% stronger.

The rise of globalization has exponentially increased the market for cross border M&A. In
1996 alone there were over 2000 cross border transactions worth a total of approximately
$256 billion. This rapid increase has taken many M&A firms by surprise because the
majority of them never had to consider acquiring the capabilities or skills required to
effectively handle this kind of transaction. In the past, the market's lack of significance and a
more strictly national mindset prevented the vast majority of small and mid-sized companies
from considering cross border intermediation as an option which left M&A firms
inexperienced in this field. This same reason also prevented the development of any extensive
academic works on the subject.

Due to the complicated nature of cross border M&A, the vast majority of cross border actions
have unsuccessful results. Cross border intermediation has many more levels of complexity
to it then regular intermediation seeing as corporate governance, the power of the average
employee, company regulations, political factors customer expectations, and countries'
culture are all crucial factors that could spoil the transaction. Because of such complications,
many business brokers are finding the International Corporate Finance Group and
organizations like it to be a necessity in M&A today.
Largest M&A deals worldwide since 2000:
Rank Year Acquirer Target Transaction
Value
(in Mil.
USD)
%
1 2000 Merger : America Online Inc.
(AOL)
Time Warner 164,747 21.83
2 2000 Glaxo Wellcome Plc. SmithKline Beecham Plc. 75,961 10.06
3 2004 Royal Dutch Petroleum Co. Shell Transport & Trading
Co
74,559 9.87
4 2006 AT&T Inc. BellSouth Corporation 72,671 9.62
5 2001 Comcast Corporation AT&T Broadband &
Internet Svcs
72,041 9.54
6 2004 Sanofi-Synthelabo SA Aventis SA 60,243 7.98
7 2000 Spin-off : Nortel Networks
Corporation
59,974 7.95
8 2002 Pfizer Inc. Pharmacia Corporation 59,515 7.89
9 2004 Merger : JP Morgan Chase &
Co.
Bank One Corporation 58,761 7.79
10 2006 Pending: E.on AG Endesa SA 56,266 7.45
Total 754,738 100

Cross-border Merger and acquisition: India
Until upto a couple of years back, the news that Indian companies having acquired
American-European entities was very rare. However, this scenario has taken a sudden U
turn. Nowadays, news of Indian Companies acquiring a foreign businesses are more
common than other way round.

Buoyant Indian Economy, extra cash with Indian corporates, Government policies and
newly found dynamism in Indian businessmenhave all contributed to this new acquisition
trend. Indian companies are now aggressively looking at North American and European
markets to spread their wings and become the global players.

The Indian IT and ITES companies already have a strong presence in foreign markets,
however, other sectors are also now growing rapidly. The increasing engagement of the
Indian companies in the world markets, and particularly in the US, is not only an
indication of the maturity reached by Indian Industry but also the extent of their
participation in the overall globalization process.




Table1.2: The 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
Videocon Daewoo Electronics Corp. Korea 729 Electronics
Dr. Reddy's
Labs
Betapharm Germany 597 Pharmaceutical
Suzlon Energy Hansen Group Belgium 565 Energy
HPCL Kenya 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


If you calculate top 10 deals itself account for nearly US $ 21,500 million. This is more
than double the amount involved in US companies' acquisition of Indian counterparts.
Graphical representation of Indian outbound deals since 2000.




Indian outbound deals, which were valued at US$ 0.7 billion in 2000-01, increased
to US$ 4.3 billion in 2005 , and further crossed US$ 15 billion-mark in 2006. In fact,
2006 will be remembered in India's corporate history as a year when Indian companies
covered a lot of new ground. They went shopping across the globe and acquired a
number of strategically significant companies. This comprised 60 per cent of the total
mergers and acquisitions (M&A) activity in India in 2006. And almost 99 per cent of
acquisitions were made with cash payments.


Table 1.3: Cross-border Merger and acquisition: India
(US $ Million)
Year Sales Purchases
2000 1219 910
2001 1037 2195
2002 1698 270
2003 949 1362
2004 1760 863
2005 4210 2649
Total 10873 8249



Table 1.3 figure 1.3 exhibit Cross border merger and acquisition in India for he period 2000
to 2005. Table shows the cross border sales deals during 2000 were 1219 US $ million while
purchase deal were 910 US $ million. But during 2005, these have been increased to 4210
US $ million and 2649 US $ million. While overall sales are 10,873 US $ million and purchase
deals were 8249 US $ million during last five years. So table clearly depicts that our cross
border merger and acquisition sales deals are more than purchase deals.





Table 1.4: Foreign acquisition by Indian firms 2000-2006

Table 1.4: Reflects the foreign acquisition by Indian firms during last 6 years. Table clearly
depicts that % of foreign acquisition by Indian firms was highest in IT/Software and BPO
sector, i.e., 29.4% while foreign acquisition by Indian firms in pharmaceuticals & healthcare
sector was 20.3% during last 6 years which was second highest. Number of foreign
acquisition is also highest in IT/Software and BPO sector i.e., 90 firms while pharmaceuticals
& healthcare sector and other sectors are in second number with 62 foreign acquisition.
While in the automotive, chemical & fertilizers, Consumer goods, metals and mining and oil
and gas sectors, the number of firms acquired by Indian firms were 27 firms, 19 firms, 17
firms, 15 firms and 14 firms respectively.

Refrences:

Lien, Kathy . Mergers And Acquisitions - Another Tool For Traders. Investopedia.
Finklestein, Sydney. Cross Border Mergers and Acquisitions. Dartmouth College
Platt, Gordon. Cross-Border Mergers Show Rising Trend As Global Economy Expands.
findarticles.com.
Top Mergers & Acquisitions (M&A) Deals. Institute of Mergers, Acquisitions and
Alliances (MANDA).
UNCTAD world Investment Report-2006.
King, Lori. M&A Today Now Online at nvst.com.
http://en.wikipedia.org/wiki/Mergers_and_acquisitions/
http://ibef.org/accessed
http://www.themanager.org/me/restructuring.htm