PROJECT REPORT

ON

Mergers and Acquisitions

Submitted in partial fulfillment of requirement of the Award of Degree in Masters of Business Administration of
Maharishi Dayanad University, Rohtak. 2004-2006

Under the guidance of:

Mrs. MEERA BAMBA
(ASST. PROFESSOR)

Submitted By:
RIMPI MAKKAR ROLL NO.395 MBA IV SEM

SHRI BABA MAST NATH INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH, ASTHAL BOHAR, ROHTAK MAHARISHI DAYANAND UNIVERSITY, ROHTAK

DECLARATION
I RIMPI MAKKAR ROLL NO 395 CLASS MBA 4TH SEM STUDENT OF SHRI BABA MASTNATH INSTITUTE OF MANAGEMENT STUDIES & RESERCH, ASTHAL BOHAR, ROHTAK HERE BY DECLARE THAT THE PROJECT ENTITLED MERGERS AND ACQUISITIONS IS AN ORIGINAL WORK &THE SAME HAS NOT BEEN SUBMITTED TO ANY OTHER INSTITUTE FOR THE AWARD OF ANY OTHER DEGREE.THE INTERIM REPORT WAS PRESENTED IN THE SUPERVISION OF MRS. MEERA BAMBA.

Signature of the supervisor

Signature of thecandidate

FORWARDED BY
DIRECTOR OF THE INSTITUTE

PREFACE
The project report presented here is the part of the syllabus of the M.B.A degree provided by MAHARSHI DAYANAD UNIVERSITY, ROHTAK. Each student pursuing this course is required to submit a particular project on the topic assigned to him in his course. Students have to study on a particular problem & try to find out its results. The main objective of such a report is to test various skills of the students .the report presented here as been prepared by my keeping all the main aspects in to consideration. Efforts are made to make the text simple, so that the reader can easily understand the concepts.

RIMPIMAKKAR

ACKNOWLEDGEMENT
PROJECT WORK DEMANDS SPECIAL CARE AND EFFORTS AND WHEN A PROJECT IS BEING UNDERTAKEN. IT REQUIRE INCESSANT LABOUR AND OUTRIGHT COMMITMENT AND EXHAUSTING HARD WORK. BUT I ENJOYED THE WHOLE TASK DUE TO MY SPECIAL INTEREST IN THE AREA OF FINANCIAL RESEARCH. I WOULD LIKE TO EXPRESS MY HEARFUL GRATITUDE TO MR. H.P.DHUSSA (DIRECTOR) OF SBMNIMSAR AND OTHER FACULTY MEMBERS OF THE INSTITUDE OF MANAGEMENT STUDIES. FOR HELPING ME IN THE FIELD WORK WITHOUT WHICH IT WOULD NOT HAVE BEEN POSSIBLE. I ALSO EXPRESS MY HEARTIEST GRATITUDE TO MRS. MEERA BAMBA FACULTY OF SHRI BABA MASTNATH INSTITUTE OF MANAGEMENT STUDIES & RESERCH, ROHTAK WHO HELPED ME IN THIS PROJECT BY PROVIDING SUCH STRESS FREE & FRIENDLY ENVIRONMENT TO WORK. WE ARE ALSO GRATEFUL TO MY CLASSMATES & MY FAMILY MEMBERS WHO HELPED US COLLECT INFORMATION FOR THE REPORT.

RIMPI MAKKAR

INDEX
Acknowledgement Preface Declaration PART 1: Introduction & Objective Of Project Introduction Objective Mergers & acquisitions History Types of M&A

PART 2:Review Of Literature

PART 3: Reasons For High Rate Of M&A PART 4:Procedure The planning phase Screening approach &merger criteria

Financing Techniques

 The Execution Stage Post Merger Integration Plans

Part 5: Regulations Of Mergers And Acquisitions In India Part 6: Research Methodology.. Part 7: How To Ensure That Your M&A Is A Success Part 8:Parameter To Judge Success/Failure Of Merger Part 9: Why Do Mergers &Acquisitions Fail.. Part 10: Findings . Part 11: Limitations Of The Study . Part 12: Conclusion Part 13: Bibliography...

INTRODUCTION
While there are multiple reasons that may justify a takeover, the final bottom line that determines the attractiveness of such a proposition is the MAXIMISATION OF SHAREHOLDERS WEALTH. All corporate strategy & action including corporate takeovers should be necessarily based on their impact on shareholders wealth. One way of maximizing shareholders wealth is to start or invest in new projects that would yield superior returns as compared to cost of capital. Mergers & Acquisitions are an answer to this dilemma. Internationally, M& A is an integral part of corporate strategy. The American experience with mergers and acquisitions has been the most profound one in the international scene. Since 1980s the total annual value of M& As has been in $ trillions. Following the economic reforms in India in the post 1991 period, there is a discernible trend among promoters and established corporate groups towards consolidation of market share and diversification into new areas through mergers/amalgamation and also through acquisition/takeovers. The New Industrial Policy of 1991 led to an economic environment where industrial undertakings could maneuver themselves to their advantage much easily than in the pre 1991 days. It lowered the restrictions on transfer and acquisition of equity that enabled business establishments to gather or dispose equity with relative ease, then ever before. Naturally companies are in a position to take over or merge with others as per their requirement without worrying excessively about the government or its erstwhile obstacles. That is why the rate of Mergers and Acquisitions in the industrial sector has increased many times since 1992-93.

Objectives

To have an idea about the therotical framework of mergers and Acquisitions Types of Mergers Types of Acquisitons Procedures and processes involved in mergers and acquisitions Success ratings of Mergers in India

MERGERS and ACQUISITIONS

Mergers/Amalgamation
A merger is a combination of two or more firms in which only one firm would survive and the other would cease to exist, its assets and liabilities being taken over by the surviving firm. The term mergers along with amalgamation are used (interchangeably) as a form of business organization to seek external growth of business. Amalgamation is an arrangement in which the assets/liabilities of two or more firms become vested in another firm. As a legal process, it involves joining of two or more firms to form a new entity or absorption of two/more firms with another. Here the amalgamating/merging firms loose their identity and its shareholders become the shareholders of the amalgamated / merged firm. Section 2(1A) of the Income Tax Act 1961 defines amalgamation as a merger of one or more companies with another company or the merger of two or more companies (called amalgamating company or companies) to form a new company(called amalgamated company) in such a way that all assets and liabilities of the amalgamating company or companies become assets and liabilities of the amalgamated company and shareholders holding not less than nine-tenths in value of shares in the amalgamating company or companies become shareholders of the amalgamated company.

Mergers can take two forms: Merger through absorption Merger through consolidation

Absorption is a combination of two or more companies into an existing company. All companies except one lose their identity in a merger through absorption. Consolidation is a combination of two or more companies into a new company. In this form of merger, all companies are legally dissolved and a new entity is created.

Acquisition/Takeovers
Acquisition implies taking over controlling interest in a company by another company. It means a change in the controlling interest in a company through the acquisition of its shares by another group. An Acquisition is a means to an end, the end being the achievement of certain strategic objective of the acquirer. These strategic objectives may vary, including growth of the firm gaining competitive advantage in existing product markets, market of product extension, or risk reduction like all other strategic decisions.

TYPES OF MERGERS
After understanding what a merger, it is important to analyze and understand the various types of mergers.
The types of mergers can be classified primarily into 7 categories:

Horizontal Mergers Vertical Mergers Circular Mergers Conglomerate Mergers Reverse Mergers Potential competition Mergers Transnational Merger

Horizontal Mergers
Horizontal Mergers involves two firms operating and competing in the same kind of business activity, which are at the same stage of industrial process. Such merger result into forming a larger firm that may bring benefits of economies of scale. But it also has a negative side; as horizontal merger decreases the number of firms in an industry, this make it easier for the industry members to collude for monopoly profits.

In a horizontal merger, the acquisition of a competitor could increase market concentration and increase the likelihood of collusion. The elimination of head-to-head competition between two leading firms may result in unilateral anticompetitive effects. Pfizer-Pharmacia Merger-Pfizer and Pharmacia Corporation have merged into a $48 billion pharmacy giant. Both the companies are pharmacy companies and have merged to put pressure on Glaxo SmithKline, Merck and Bristol MyersSquibb. This deal has resulted to Pfizer to enter into anti-cancer drugs and ophthalmology along with its renowned drugs like Benadryl. The merger will also put Pharmacias Celebrex drug to the combined entity. (Source: ET 15th July 2002) Nestle-Dreyers Merger-Nestle is to merge with US market leader Dreyers Ice Cream brand. This merger is a horizontal merger as 2 companies of the same industry (ice cream) are merging at the same industrial level.

Vertical Mergers
Vertical mergers involve firms in a buyer-seller relationship -- a manufacturer merging with a supplier of component products, or a manufacturer merging with a distributor of its products. A vertical merger can harm competition by making it difficult for competitors to gain access to an important component product or to an important channel of distribution. This is called a "vertical foreclosure" or "bottleneck" problem. It is a merger in which the company expands backwards towards the source of raw material or forward in the direction of the customer. In other words, its a merger that occurs between firms in different stages of production operation. This is achieved by merging with either a supplier or buyer, using its product or intermediary material for final production.

JVSL- Jisco Merger- Jindal Vijaynagar & Steel Limited (JVSL) is weighing options to merge with Jindal Iron and Steel Company (Jisco). JVSL is a producer of hot rolled coils and Jisco requires hot rolled coils as a raw material in

production of its finished product of galvanized coils and sheets. This is a vertical merger as JVSL is a supplier of raw material (hot rolled coils) to Jisco and JVSL is merging forward i.e. with its buyer Jisco.

RIL-RPL Merger-The recent merger of RIL & RPL reflects the vertical nature of merging entities. RIL is a petrochemical company that requires Naphtha for the production of its finished product. This naphtha is provided by RPL that is a petroleum company. Here, the merger is backwards as the company (RIL) is merging with its supplier (RPL) of raw material.

Circular Mergers
Companies producing distinct products seek amalgamation to share common distribution and research facility to obtain economies by elimination of duplication of cost. Acquiring company also benefits in the form of economies of resource sharing and diversification. AT&T-Comcast merger-AT&T Corporation and Comcast have obtained approval for a merger of the 2 companies. This merger is circular in nature because this would create the nations biggest cable television operator. This merger will benefit Comcast as it will more than double its cable TV subscriber base and cable based telephone services to its product mix. AT&T will benefit as it will give the company telephone and data operations serving 50 residential customers and 4 million corporate customers. The combined company will serve most of the US top metropolitan markets and 41 states.

Pfizer-Parke Davis (PD) Merger-the pharmaceutical companies Pfizer and PD have merged with a swap ratio of 9:4. The benefit of this merger to Pfizer is that it will capture the combined strengths of the 2 companies that have similar values. It will also give Pfizer an opportunity to increase sales and earnings. Also the merger has brought Pfizers popular drugs like Corex Cough Syrup and

PDs Benadryl cough syrup in a common basket benefiting both the companies. (Source: ET)

Conglomerate Mergers
A conglomerate merger is amalgamation of two companies engaged in unrelated industries. Basic purpose of this kind of amalgamation remains utilization of financial resources and enlarged debt capacity & also to synergies managerial functions. The following examples explain the conglomerate merger in the corporate world: AOL-Time Warner Merger- The media house giant AOL-Time Warner is an example of a conglomerate merger. It is a merger between AOL (American Online), a Software Company and renowned media house of Time Warner. Kelso-Nortek Merger-Kelso's acquisition of Nortek is an example of conglomerate merger. The two companies are totally unrelated. Nortek Inc. is a leading international designer, manufacturer and marketer of building products while Kelso & Company, L.P. is a private equity firm based in New York City.

Reverse Mergers
As normally understood, it is merger of a healthy company into a sick /loss making company as compared to normal merger under which loss making company merges into profit making company (tax friendly merger). Though it is not normally understood as such but merger of an unlisted company into a listed company can also be considered as reverse merger (listing friendly merger). It is resorted to mainly to save on direct taxes and to get benefits of loss and other tax benefits available to loss making company, most of which is lost in normal merger. It also avoids necessity of getting special permission under tax laws (section 72A of Income

Tax act, 1961 or under special stature for rehabilitation of sick industrial companies) It is also resorted to for variety of other reasons like to save on stamp duty, to save on public issue expenses, to obtain quotation on a stock exchange etc. ICICI-ICICI Bank Merger- The Industrial Credit and Investment Corporation of India Limited (ICICI Ltd) was formed to encourage and assist industrial development and investment in India. ICICI Bank was a commercial banking outfit set up by the ICICI Group. ICICI Ltd merged with ICICI Bank so as to overcome any threat of acquisition and to compete with other banks in terms of customer satisfaction in the banking sector. As ICICI bank fits into the overall strategy of ICICI Ltd., a proactive action was taken by merging ICICI with the parent ICICI Bank. Bhushan Ltd (BL) -Bhushan Steel and Strips Ltd. (BSSL) Merger -Bhushan Ltd merging with BSSL. The swap ratio decided at 123 shares of BL for 121 shares BSSL. This merger is justified as a reverse merger as it is a step towards the integration of Bhushan Groups operational and financial strengths with the focus on core competence of manufacturing value added products, greater economies of scale, reduction in overheads and better utilization of resources. This merger will place the company in competition with international players of the category.

Potential competition mergers

A potential competition merger is the acquisition of a company that is planning to enter a market and compete with the acquiring company (or vice versa). It results in the elimination of a potential competitor. That can be harmful in two ways. For one thing, it can prevent the increased competition that would result from the firms entry. For another, a firm can have a pro-competitive effect on a market simply by being recognized as a possible entrant. The reason? The firms already in the market will avoid raising prices to levels that would make the outside firms entry more likely. The elimination of the potential entrant through a merger would remove the threat of entry and make anticompetitive pricing a real possibility.

 The Questar Corp., which operated the only pipeline transporting natural gas to Salt Lake city, tried to acquire a major part of a firm that was planning to begin service to the city. The potential entrant was already having a pro-competitive effect on pricing. The FTC blocked the merger, preserving the price benefits for Salt Lake City consumers.

Transnational Merger
Transnational mergers are the mergers across countries or boundaries. When companies of different nationalities merge, it is known as the transnational mergers.

British Petroleum (BP)-Amoco Merger- This is a merger of a British company British Petroleum with an American rival company Amoco. This merger has resulted in formation of BP into the worlds third largest oil company. (Source: www.bbc.co.uk) Vodafone-Airtouch Merger- this merger is between UKs biggest mobile phone company Vodafone and its American rival Airtouch. (Source: www.bbc.co.uk)

TYPES OF ACQUISITIONS

Like the mergers, acquisitions can also be of various kinds. There are primarily 5 kinds of acquisitions: Negotiated/Friendly Acquisition Open market/Hostile Acquisition Bail Out Down Raid Saturday Night Special

Negotiated or a Friendly Acquisition

As the name suggests, the takeover is friendly in nature and is done w i t h t h e m u t u a l c o n s e n t a n d u n d e r s t a n d i n g o f b o t h t h e p a r t i e s . Friendly acquisitions occur when the target firm agrees to be acquired. In the present corporate world, most of the acquisitions are of this type. P o w e r G e n t o o k o v e r T o r r e n t G r o u p : The Torrent Group sold off its 46.3% stake in Gujarat Torrent Energy Corporation (GTEC) to PowerGen for Rs 11 billion in July 1999. It was a part of a core competency and corporate restructuring drive by the Torrent Group whereby they wanted to retire from this business. After identifying power generation and distribution as a key thrust area, the group changed track and decided to focus on its core business of pharmaceuticals. Power Gen was interested in this acquisition since it looked to consolidate its presence in India. This made the company the majority shareholder in GTEC. Bharti Acquires Spice Cellular: In an all cash deal, Bharti Cellular acquired Spice Cellular- the mobile service provider in Kolkatta, for a whopping $ 90 million (Rs. 425 Cr.). Modicorp owned the company and Hong Kong based Distacom in 51:49 ratio. Rs 100 Cr. was paid as advance payment. It will lead to presence of Bharti in all the metro circles in the country where maximum cellular growth is taking place, and make it the No.1 cellular company. They will also get hold of well-established telecom network, a huge customer base of 80,000 and an established brand name. Bhartis main motive behind this deal was a value driven acquisition strategy and to reach new geographic areas. Spice Cellular moved out, as it was not in a position to compete with Hutchison in the Kolkatta market and hence needed a bailout. Modicorp wanted to retire from Kolkatta market and explore opportunities for growth through realignment with emerging national cellular players.

Open Market/Hostile Acquisition

This is a takeover attempt that is strongly resisted by the target firm. The hostile acquisitions are also termed as RAID on the company. In order to take over the management of, or acquire controlling interest in the target company, a person /group of persons acquire shares from the open market/financial institutions/mutual funds/willing shareholders at a price higher than the prevailing market price. These types of takeovers are usually bad news since the employee morale of the target firm can quickly turn to animosity against the acquiring firm. There is usually a reason why the acquirer had to resort to a hostile takeover rather than a friendly one.

Bail Out
When a profit earning company takes over a financially sick company to bail it out, it is known as Bailout acquisition/takeover. Such acquisitions are in pursuance of a scheme of rehabilitation approved by public financial institutions / schedule banks. C&W taking over Digital Island: British Telecom Company Cable & Wireless (C&W) has bought struggling US web services firm Digital Island for $340 million in cash, including some $49 million of net debt. C&W, which has been under pressure from its shareholders to give back, some of its six billion pound cash pile, said the deal would boost its offering in content delivery, managed hosting and Internet services. This acquisition will accelerate the implementation of C&W global IP and data strategy in the key areas of value added services. The combined company will be able to offer a comprehensive range of IP/data transport, hosting, content delivery and other value added services to business customers in U.S.A., Europe and Japan. The recent acquisition of Global Trust Bank by Oriental Bank of Commerce is also an example of a bail out acquisition.

Down Raid

Here a firm or investor buys, first thing in the morning when the stock markets open, a substantial amount of shares in a company. Usually a brokerage does the buying on behalf of the acquirer (the "predator") to avoid drawing attention to the buying. It builds up a substantial stake in its target (the "victim") at the current stock market price. Because this is done early in the morning, the target firm usually doesn't get informed about this until it is too late, when the acquirer has already scooped up controlling interest.

Saturday night Special

This is a sudden attempt of one company to take over another by making a public tender offer. The name comes from the fact that this practice used to be done over the weekends.

REVIEW OF LITERATURE
Introduction
The prime objective of a firm is to grow profitably. The growth can be achieved either through the process of introducing or developing new products or by expanding or enlarging the capacity of existing products. External growth can be achieved externally by acquisition of existing business firm (Ghosh and Das, 2003). Mergers and Acquisitions (M&As) are quite important forms of external growth. The last decade of 20th century has seen substantial increase in both number and volume of M&A activity. In fact, consolidation through M&As has become a major trend across

the globe. This wave was driven by globalization, liberalization, technological changes, and market deregulation and liberalization (Schweiger, 2003). Almost all industries are going through reorganization and consolidation. M&A activity has been predominant in sectors like steel, aluminum, cement, auto, banking and finance, computer software, pharmaceuticals, consumer durables, food products, agro-chemicals, textiles, etc. ( Maheswari, 2002, Sirower,2000). Generally M&As aim at achieving greater efficiency, diversification, market power, etc. The synergistic gains by M&A activity accrue from more efficient management, economies of scale and scope, improved production techniques, combination of complementary resources, redeployment of assets to more profitable uses, the exploitation of market power or any number of value enhancing mechanisms that fall under the rubric of corporate synergy (Bradley, Desai and Kim, 1988, Kumar, 2004). M&As are indispensable strategic tools for expanding product portfolios, entering new markets, acquiring new technologies and building new generation organization with power and resources to compete on a global basis (Yadav and Bhaskar,2005). M&As may also be under taken by managers of firm driven by nonvalue maximizing motive of empire building or prestige by managing a larger post acquisition entity (Malatesta, 1983: Roll, 1986). Though the M&As basically aim at enhancing the shareholders value or wealth, the results of several empirical studies reveal that on average, M&As consistently benefit the target companys shareholders but not the acquirer company shareholders. A majority of corporate mergers fail. Failure occurs on average, in every sense, acquiring firm stock prices likely to fall when mergers are announced; many acquired companies sold off; and profitability of the acquired company is lower after the merger relative to comparable non-merged firms. Consulting firms have also estimated that from one half to two thirds of M&As do not come up to the expectations of those transacting them, and many resulted in divestitures (Scheiger, 2003). In this backdrop, the paper tries to analyse the reasons for the failure of M&As by drawing the results of existing empirical studies.

Theoretical Background of Mergers and Acquisitions

When M&As are taking place all over the world irrespective of the industry, it is necessary to understand the basic concepts pertinent to this. The term merger involves coming together of two or more concerns resulting in continuation of one of the existing entities or forming of an entirely new entity. When one or more concerns merge with an existing concern, it is the case of absorption. The merger of Global Trust Bank (GTB) with Oriental Bank of Commerce (OBC) is an example of absorption. After the merger, the identity of the GTB is lost. But the OBC retains its identity. Amalgamation involves the fusion of two or more companies and forming of a new company. The merger of Bank of Punjab and Centurion Bank resulting in formation of Centurion Bank of Punjab is an example of amalgamation. Acquisition is an act of acquiring effective control over the assets or management of the corporate without any combination of both of them.

When the acquisition is forced or unwilling, it is generally called takeover. Though, the terms merger, amalgamation, acquisition and takeover have specific meanings, they are generally used interchangeably. Mergers may be horizontal, vertical or conglomerate. Further, they may be friendly or hostile. Generally, mergers are friendly whereas tender offers are hostile. M&As aim at optimum utilization of all available resources, exploitation of unutilized and under utilized assets and resources including human resources, eliminating or limiting the competition, achieving synergies, achieving economies of scale, forming a strong human base, installing an integrated research platform, removing sickness, achieving savings in administrative costs, reducing tax burden and ultimately improving the profits.

Findings of Empirical Studies on the Impact of Mergers and Acquisitions on Shareholders

Lot of research has been undertaken in the area of M&As and on their impact on the shareholders. There are two research approaches generally employed in addressing the question of impact of M&As on shareholders. One approach is to employ share price data to establish the distribution of gains and losses to shareholders. The other approach is to focus on the profitability of companies involved, using accounting data. Security Price studies mostly based mainly on event study methodologies that have focused on announcement period returns with an identification of the wealth gains or losses to the various group of shareholders. Very few studies have been undertaken to study the long-run impact of M&As on the shareholders. Findings of most of the studies

conducted to study the impact on shareholders wealth for both short-run and long-run have revealed that M&As fail to create value or wealth for the shareholders of acquiring companies.

1. Stock Price Studies

The results of some of the studies on stock prices are presented here: A study by Dodd (1980) finds that stockholders of target firms earn large positive abnormal returns from the announcement of merger proposals i.e. approximately 13 % at the announcement of the offer and 33.96 % average over the duration of the merger proposal (10days before and 10 days of the announcement). But the stock holders of bidder firms in both completed and cancelled merger proposals experience negative abnormal return of -7.22% and - 5.50%, over the duration of the proposals. A Study by Porter (1987) based on an analysis of acquisitions made by 33 Fortune 500 firms, concludes that acquisitions have been unsuccessful as over half of them subsequently divested. An examination of acquisition of 96 acquisitions completed between 1974 and 1983, by Varaiya and Kenneth (1987) reveal that the winning bid premium did, on average, overstate the markets estimate of the expected takeover gain. Further, cumulative average excess returns to the winning bidder, measured over the period from 20 days before to 100 days after the acquisition announcement, was significantly negative. For the 58 % of the acquisitions in which the bid premium overstated expected takeover gains average excess return to the winning bidder was -14 per cent. In the cases in which the premium did not overstate expected gain, average excess return was a positive13.4 %. The study by Caves (1989) finds that shareholders of target firms gain substantially and total gains to bidders and target together is thin. The excess return studies show their shareholders at best break even at the time of announcement and they have been doing worse recently. After the announcement they seem to suffer additional losses. The evidence on the ex-post profitability of merger is similar but a little more pessimistic; the average acquiring firm at best realized no net profit on its consolidated assets and may do substantially worse.

A study by Revenscraft and Scherer (1989) concludes that, on average, acquiring firms have not been able to maintain the pre-merger levels of profitability of the targets. Firth (1990) examines mergers and takeover activity in the UK. specifically, the impact of takeovers on shareholders returns and management benefits. The research showed that mergers and takeovers resulted in benefits to the acquired firms shareholders and to the acquiring companies managers but that losses were suffered by the acquiring companies shareholders. The results show that takeovers being motivated more by managements motive rather than the maximization of shareholders wealth. Agrawal, Jaffe and Mandelker (1992) showed that the results obtained by Frank et al. (1991) were timespecific (1975-84) and a function of the sample of acquisition examined. Agrawal et al. (1992) also reported that acquisitions undertaken in the time period 1955 to 1987 are followed by significant negative returns over a five-year period after the outcome announcement date. Datta, et.al (1992) based on the 75 observations for bidders and 79 for targets find that bidders on average, gain nil or statistically insignificant gains from announcement of mergers while target firms shareholders experienced over 20 per cent increase in value. Loderer and Martin (1992) control for size effects, changes in the risk free rate and changes in systematic risk and find that, on average, acquiring firms do not under perform a control portfolio during the first 5 years following the acquisition. They simply earn their required rate of return, no more or no less. There was some negative performance for the first three years, especially during the second and third years after the acquisition but it is most prominent in the 1960s, it diminishes in the 1970s and disappears completely in 1980s. The study by Sullian et al. (1994) finds that bidding firm shareholders experience insignificant returns, and these returns are not affected by the medium of exchange. Sudarsanam, Holl and Salomi (1996) in their study find that marriage between companies with a complementary fit in terms of liquidity slack and surplus investment opportunities is value creating for both groups of shareholders. However, when highly rated firms acquire less highly rated targets, the acquiring firm shareholders experience wealth losses

whereas target shareholders experience wealth gains. This result is consistent with acquiring managers acting out of hubris. Loughran and Vijh (1997) in their study of 947 acquisitions during 1970-1989, find that five years following the acquisition, on average, firms that complete stock mergers earn significantly negative excess returns of -25 % whereas firms that complete cash tender offers earn significantly positive excess returns of 61.77 %. Over the combined pre-cquisition and post-acquisition period, target shareholders who hold on the acquirer stock received as payment in stock mergers do not earn significantly positive excess returns. The study by Gregory, (1997) shows that the post-takeover performance of UK firms undertaking large domestic acquisition is unambiguously negative, on overage, in the long-run. Under all benchmarks used the conclusion is unaltered. Rau and Vermaelon (1998) explain the acquirers performance in terms of three ariables- the type of acquisition i.e. merger or tender offer, the pre-bid valuation of the acquirer i.e. glamour or value acquirer, and method of payment. They find that acquirers in mergers under-perform in the three years after the acquisition while in tender offers earn a small but statistically significant positive abnormal return. However, the long-term under performance of acquiring firms in mergers is not uniform across firms. It is predominantly caused by the poor post acquisition performance of low book to market glamour acquirers who perform much worse than other glamour stocks and earn significantly negative bias adjusted abnormal return of -17 % in mergers Kumar (2004) in his study of effects of merger of RIL-RPL on shareholders wealth by following Market adjusted model and Market model for a window period of 40 days reveal that this merger is not positive in net present value activities for acquiring firms and merger programme was not consistent with the value maximizing behaviour of management. Study by Weber and Camerer (2003) by undertaking laboratory experiments prove that failures to coordinate activity based on cultural conflict, contribute to the widespread failure of corporate merger. Further, the likelihood of cultural conflict and coordination failure is underestimated, which explains why firms enter into so many mergers that are

doomed in the first place. Sudarsanam and Mahate (2003) in their study of UK takeovers completed between 1983 and 1996 find acquirers experience Buy and Hold Abnormal Returns in the range of -1.4% at the time of the bid announcement and an average of -15% across the various benchmark models, over a three year, post acquisition period and value acquirers outperform glamour acquirers. Limmack (2003) opines that while Sudarsanam and Mahate find that glamour stocks consistently under-perform value stocks in the long run following takeovers, they nevertheless find that, on average, value stocks also record significantly negative abnormal returns. Abyankar, Ho, and Zhao (2005) in their study found that acquiring firms do not significantly under perform in three years after merger since no evidence of first-or second-order stochastic dominance relation between acquirer and benchmark portfolios is observed.

2. Operating Performance Studies

Studies based on analysis of accounting data have attempted to assess the economic impact of acquisitions by testing for changes in profitability of the combined firm. Most accounting studies, whether based on UK or US data, support the view that acquisitions are non-value maximizing to shareholders. Examples of such studies include those of Mueller (1980), Revenscraft and Scherer (1987), Ali and Gupta (1999), Pawaskar (2001), Ghosh (2001), and Fee and Thomas (2004). Findings of a few studies are presented below: A study by Ali and Gupta (1999) examines the potential motives and effects of corporate takeovers that occurred in Malaysia during the period 1980 through 1993 finds that the acquirer firms have achieved larger size at the expense of reduced profit both for themselves and the acquired firms. Bidder firms in Malaysia in general, have lower profitability, higher risks and leverage vis--vis the control bidder firms.

Study by Ghosh (2001) focuses on merging firms operating performance following corporate acquisitions. Using firms matched on performance and size as a benchmark, he finds no evidence that operating performance improve following acquisitions. A few studies have presented conflicting results that M&As will lead to increased post acquisition profits for the shareholders of acquirers, e.g. Studies by Healy, Palepu and Ruback (1992), and Rahman and Limmack (2004), which are presented below: The Study by Healy Palepu and Ruback (1992) examined the post-acquisition operating performance of merged firms using a sample of the 50 largest mergers completed in the period 1979 to mid 1984 and their findings indicate that merged firms have significant improvements in operating cash flow returns after the merger, resulting from the increases in asset productivity relative to their industries. These improvements are particularly strong for transactions involving firms in overlapping businesses. The study by Rahman and Limmack (2004) has tested for evidence of operating improvements in Malaysian acquisitions by examining operating performance for a sample of 94 quoted acquiring and 113 target Malaysian companies involved in acquisitions over the period January 1, 1988 to December 31, 1998. The analysis of the components of operating cash flow indicates that improvement in post-acquisition performance are driven both by an increase in asset productivity and also by the higher levels of operating cash flow generated per unit of sales. Thus, most of the studies carried out to study the impact of M&As on stock prices as well as on the operating profits following mergers and in the long run have shown that M&As have failed to create wealth of shareholders and they have often failed.

Reasons for High Rate of M&A Activity

Lots of theories have been propounded in support of Mergers and acquisitions. The principle benefit from the merger is that the value of the merged entity is expected to be greater than the sum of the independent entities. In other words, i.e. mathematically speaking M & A gives us 2 + 2 =5. This is basically due to cost reduction in management expenses, reduced administrative staff costs, increased sales due to wider network, and elimination of competitive costs and better terms with creditors. Another theory is The Replacement Theory. Setting up a new business, especially in the manufacturing sector costs more with time. But take over of companies with their low initial value comes cheap. Some other reasons why M & A is gaining such worldwide popularity are listed below.

 Tax savings - If a healthy company acquires a sick unit through merger, it can avail of income tax benefit under Section 72-A of Income-tax Act. The said section stipulates that subject to the: merger fulfilling certain conditions, the healthy company's profits can be set off against the accumulated losses of the sick unit. The tax savings thus accruing to the healthy company must be used for revival of the sick unit. To improve operating economies - The merger of two or more firms realize certain operating economies. To expand rapidly - The acquirer reduces the time for ordering and installing machinery, producing and trying to gain market shares To enter lines of business which are being privatized - To enter into power sector, the fastest way to do is to acquire a power company To enter new markets - To obtain new market outlets and diversify into new areas. To reduce Costs - Cost incurred like expenditure incurred on training new employees can be eliminated or substantially reduced Adding to shareholders value - The value of shareholder's holdings increases due to value creation and value capture and assist the shareholders to realize true market value for their shares. Easy procurement of supplies - Taking over the source of supplies safeguards the supplies and obtains economies of purchase. Revamping production facilities - To achieve economies of scale by improved production technology & standardize product specifications. Market expansion - To eliminate competition in the existing market & to obtain new market outlets. Economies of large scale business Improvement in net worth, earning per share, promoters' holding

 Encashment of market value of properties held by the company for years together Consolidation of operations Marketing and products synergies Consolidation of finances for better returns Reverse mergers for rehabilitation and tax breaks R&D and marketing synergies Consolidation of core business Streamlining of product folio Financial rehabilitation of ailing firm Increased leverage for funding new projects

PROCEDURE OF M&A
The Planning phase
The key behind successful mergers is a combination of keen conceptual preparation and incisive and timely implementation. One without the other is an invitation to disaster. While planning a merger one must keep in mind that the main objective of a merger is to increase shareholders wealth.

Selection for strategic fit: Related or Unrelated

The initial selection of merger targets depends on the preferences of the company and its management. The most important consideration is whether the target company is in a related or an unrelated business. A related merger is essentially a growth or expansion thrust aimed at increasing market share, expanding product line, acquiring necessary resources or fully utilizing existing capabilities. Whereas, an unrelated merger is aimed at diversifying into a different field and hence diversifying the total earnings and risks. Unrelated mergers are much more difficult to implement and run the risk of misunderstanding and mismanaging the new business.

Understanding yourself: SWOT Analysis

Before a firms strategy can be met, top management must identify its own internal Strengths, Weaknesses, Opportunities and Threats in areas such as availability of management time, finances, quality of management, culture, reputation in the marketplace and long-term strategy. Many corporations tend to take this analysis lightly and end up developing their strategy based on incomplete internal knowledge leading to failure. Many strategic plans do not include an objective recognition of a companys culture. Culture is said to embody the beliefs and values of the companys management that influence the behavior of all the employees in the company. Culture includes managements perception of its image and identity, the companys the work ethics, its attitudes towards employees, customers, and the community. It is seen that a mismatch of cultures in a deal can result in a tension filled post merger period resulting in loss of management of both the companies and eventually a complete failure of the merger.

Screening Approach and Merger Criteria

After a firm understands its own strengths and weaknesses, strategic goals and alternatives, a merger criteria and a screening process can be developed. Criteria should be broad and flexible while reviewing potential merger candidates so that an opportunistic candidate is not shunted aside very early. After eliminating some unsuitable candidates the list can be narrowed down by looking at some very important features. The following criteria are required at this stage: 1. Due Diligence 2. Valuation

Due Diligence
Due diligence is done in order to determine the fair value of the target company and to assess the benefits and problems of the proposed acquisition or merger by inquiring into all the relevant aspects of the business to be acquired. The entire exercise is broken down into the following sub reviews: Business due diligence Financial due diligence Human Resource due diligence Legal and Tax due diligence Systems due diligence

Business Due Diligence

This requires looking at the following factors and evaluating them to bring out the benefits and problems, which might arise from them and as such affect the value of the companies involved. The following factors need to be looked at:

 Companys perceived strengths and weaknesses compared to those of the acquirer Nature of Company's Industry: Growing, maturing or declining, competitive environment, regulations and public's perception. Comparison of the target company to its competitors in the industry with relation to Financial Statement Ratios, Size, Products, Services, Management, Fixed Assets, Debts. Is the company average, above or below average in relation to its industry and why? Value of company's goodwill and impact on the goodwill due to change in management. Willingness of suppliers to continue with new management with or without changes in terms of contracts. Type of Customer Base Its positive and negative impacts on the acquirer.

Financial

Due Diligence

The objective of the financial due diligence is to establish the authenticity of disclosed financial statements. The process of establishing the veracity of disclosed financial information generally involves The targets potential financial results if it continues as an independent entity Establishing fairness of accounting policies adopted Identification of off balance sheet items Establishing authenticity of the disclosed financial figures Financial ratio analysis Under / over valuation of assets and liabilities Compliance with Accounting Standards

Ensuring liquidity and solvency position

Human Resource Due Diligence

Human Resource due diligence involves the study of the employees of the company with respect to their expertise, leadership qualities and ability to manage the entity. Employee strength - whether over or under staffed Costs involved in recruiting or laying off employees as the case may be. Labour problems, if any. Employee Turnover Ratio Relationship with management Wage increment policies

Legal and Tax Due Diligence

The aims of Legal and Tax due diligence are Ensure that the subject company has complied with the provisions of all the relevant statutes and there would be no potential liability on account of noncompliance. Assess the impact of likely results of current and potentially pending litigation and result of recently concluded litigation. Assess the current and anticipated future impact of government regulations on the entity's cost level. To analyze the impact of unpaid taxes/contingent liability

Systems Due Diligence

Systems due diligence is undertaken to ensure that there is proper management and adequate security of the data / information systems. Material Procurement systems Inventory updation System & Logistics Support Invoicing System Review of IT security policy and procedures, Review of disaster recovery and business continuity plans.

The result of the due diligence has got a direct bearing on determining the value and viability of the investment. A report normally outlines the current status of all the abovementioned aspects, their scope, investment required for improvement and post investment action plan.

VALUATION
There are different methods of valuation used by different companies and are generally dependent upon the particular industry. Normally a Chartered Accountant or a category I Merchant Banker is appointed to work out the value of shares of companies involved in the merger and based on the values so computed the exchange ratio is worked out.

General Characteristics Of Valuation

The value of an item is the amount at which a buyer and seller would make a deal. Valuation involves peeking into the future and that usually involves expression of an opinion. Valuation is a: Art: Valuation requires a lot of creativity, ingenuity and subjectivity.

 Subjectivity concept: Valuation is subjective and hence no two valuers can arrive at the same decision as their own perceptions of future may vary. Relative concept: Valuation for merger is a relative value and not an absolute value. Thus similar assumptions and methods should be used to get values of transferee and Transferor Company on same level and thus work out exchange ratios. Quantitative and qualitative: Not only assets and profitability but other qualitative and quantitative factors have to be taken into consideration.

Factors Affecting Valuation

There are certain basic factors, which affect the value of a company's share. Some of the factors are listed below The nature of company's business The expertise of management Expansion prospects Financial structure of the company The legal implications The incidence of taxes Government policy in general and in relation to particular industry Current market price of shares

Valuation Of Shares
Valuation of shares may be classified as valuation for quoted shares and valuation for unquoted shares. In order to decide the exchange ratio the most important part is the valuation of shares. Shares may then be valued using any of the following methods:

 Profitability Based Methods Market Value Based Methods Asset Value Based Methods

Profitability Based Methods

The profitability-based valuation can be further classified into: 1. Discounted Cash Flow Method 2. Future Maintainable Profit Method 3. Yield Method 4. Profit Earning Capacity Value Method

1. Discounted Cash Flow Method This method is based on time value of money and is suitable when future cash flows are uneven and inconsistent. This is the most popular method and is used often. The discounted cash flow technique uses the expected free cash flows from the business for determining the value of business. The value of business is equal to the sum of the present value of various future cash flows to the business. The merger will be useful to the acquiring company if the present value of the target is greater than the cost of acquisition. Computation Determine the number of years for which the future cash flow can be worked out on reasonable assumptions. Determine the end values of the business. Determine the discounting rates. Determine the future cash flows. Determine the discounted value.

 Add the residual value of the business at the end of the period of work to the discounted value. From the value arrived at above, deduct the amount of loans, if any. Divide the value at above by the total no. of shares to arrive at the value of per share.

2. Future Maintainable Profit Method This method is highly popular and is often used. The working under this method includes valuation on the basis of pre-determined earnings based on future earnings. Usually future maintainable profit method is used for going concern companies. Accurate future projections are difficult to calculate and therefore majority of the valuations are based on past profits by giving some weightage to the future growth projections. Computation Estimate future maintainable profits after adjusting for any extra-ordinary or nonrecurring items. Decide on the rate of capitalization of profits Capitalize the future maintainable profits Divide the capitalized profits by the number of equity shares to arrive at the value per share. 3. Yield Method This method considers dividend as the base for valuation of shares. Future maintainable profit is estimated and the same is capitalized by a predetermined rate of capitalization. This method is not very popular and is used very rarely. It is used only in case of small shareholdings. Computation Calculate the average dividend per share.

 Project future dividend for a period of say three to five years. Calculate weighted average for the estimated future dividend. Project the rate of capitalization The weighted average dividend is capitalized based on the dividend yield rate of the shares of listed companies. 4. Profit Earning Capacity Value Method The valuation under this method is based on the capacity of the company to earn profits in the future. Under this method the valuation is done on the basis of past trends and future expected profitability of the company. Computation The average profits before tax for the last three years are computed on the basis of simple or weighted average. Provisions for tax and preference dividend are deducted there from. The profits arrived are divided by number of shares to compute the EPS. The Profit Earning Capacity Value is calculated as: EPS / Capitalization rate. Mostly inverse of P/E ratio is used as the capitalization rate.

Market Value Based Methods

It is based on the value of shares in the existing market. The justification of this method as an estimate of the true wealth of a company is derived from the fact that market quotations by and large indicate the consensus of investors as to the firms earning potentials and corresponding risk. This is one of the most widely used methods for valuing of especially large listed firms. In actual practice, a certain percentage premium above the market is often offered as an inducement for the current owners to sell their shares.

The value of unquoted and unlisted shares is arrived at after discounting the value arrived for quoted and listed shares. The discounting rate depends upon the liquidity factor, current profitability, management policies, asset holding etc.

Asset Value Based Methods

This method is used generally when profit trends cannot be established or when the company is under liquidation. Under this method the valuation is arrived at on the basis of the assets available with the company. The total assets of the company as reduced by the total liabilities are called the net asset value of the company. It represents the true net worth of the business after providing for all the outside, present and potential liabilities. It is generally used when the business is acquired as a going concern. Computation Total Assets - Total Liabilities = Net assets or Net Worth OR Share capital (equity capital) + Free Reserves - Contingent Liabilities = Net assets or Net Worth Net Asset Value per share = Net Worth / Number of shares including fresh and bonus shares

Valuation of Assets Some companies may prefer to takeover or merge only the assets of the target company to avoid the burden of liabilities of the target company. The assets can be valued under three methods: 1. Market Value Method

2. Book Value Method 3. Replacement Method 1. Market Value Method The value for which the assets are available in the open market is considered for its valuation. 2. Book Value Method The assets acquired are acquired at the value in which they appear in the books. This method is generally used when the target company is under liquidation. 3. Replacement Value Method The total cost of replacing the assets to be acquired is computed considering the following aspects Gestation period Basic infrastructure cost Cost of transport & installation Cost of finance to purchase the assets, if any Valuation is not a mere calculation of figures and numbers but it is a lot more than that. The final valuation under any one method for two different companies is bound to vary as valuation is a subjective concept and also the assumptions and future projections vary from company to company and valuer to valuer.

FINANCING TECHNIQUES
After the value of the firm has been determined, the next step is the choice of the method of payment to the acquired firm. The choice of financial instrument and techniques in

acquiring a firm usually has an effect on the purchasing agreement. The payment may take the form of: Cash offer A cash offer is a straightforward means of financing a merger. It doesnt cause any dilution in the EPS and the ownership of the existing shareholders of the acquiring company. The shareholders of the target company get cash for selling their shares to the acquiring company. This may involve tax liability for them. Share Exchange A share exchange offer will result into the sharing of ownership of the acquiring company between its existing shareholders and new shareholders. The earnings and benefits would also be shared between these two groups of shareholders. The precise extend of net benefits that accrue to each group depends on the exchange ratio in terms of the market prices of the share of the acquiring and the acquired companies. In an exchange of shares the receiving shareholders would not pay any ordinary income tax immediately. They would pay capital gains tax when they sell their shares after holding them for the required period.

The share exchange ratio = Share price of the acquired firm (Pb) Share price of the acquiring firm (Pa) Example: Firm A is thinking of acquiring Firm B through exchange of shares in proportion of the market value per share. Firm A Rs. 40,000 10,000 Rs. 60 15 Rs. 6,00,000 Firm B Rs. 8,000 4,000 Rs. 15 7.5 Rs. 60,000

PAT No. Of Shares Market value per share P/E ratio Total Market Cap

Since the basis of the exchange of shares is the market value per share of the acquiring firm and the acquired firm, firm A would offer 0.25 of its shares to the shareholders of firm B Share exchange ratio = Pb / Pa = 15 / 60 = 0.25 In terms of market value per share of the combined firm after the merger, the position of firm Bs shareholders would remain the same; i.e. Their per share value would be : Rs.60 X 0.25 = Rs. 15 The total number of shares offered by firm A to firm B would be 0.25X4,000 = 1,000 Total number of shares after the merger would be:= Na + 0.25 Nb = 10,000 + 1,000 = 11,000 The combined earnings after the merger would be Rs.40,000 + Rs. 8,000 = Rs. 48,000 and the EPS after the merger would be : Post merger combined EPS = Post merger combined PAT / Post merger combined shares = 48,000 / 11,000 = Rs. 4.36 Weighted average of pre-merger P/E Ratio of the two firms = Post-merger weighted P/E Ratio = (15) (40,000/48,000) + (7.5) (8,000/48,000) = 13.75

FIRM A B Merged A+B

P/E Ratio 15 7.5 13.75

EPS 4 2 4.36

Market Value (MV) 60 15 60

(For firm B shareholders value in terms of their shareholding in firm B is MV after merger X 0.25 )

We observe that the shareholders of both the acquiring and the acquired firms neither gain nor lose in value terms if post merger P/E ratio is merely a weighted average of the pre merger P/E ratios of the individual firms. The acquiring company would lose in value if post merger P/E ratio was less that the weighted P/E ratio. Both companies would gain in value if the post merger P/E ratio was more that the weighted P/E ratio.

Debt and Preference Share Financing In an attempt to tailor a security to the requirement of investors who seek dividend/interest income in contrast to capital appreciation, convertible debentures and preference shares might be used to finance mergers. Tender offer A tender offer involves a bid by the acquiring company for controlling interest in the acquired firm. The essence of this approach is that the purchaser approaches the shareholders of the firm rather than the management to encourage them to sell their shares generally at a premium over the current market price. Since the tender offer is a direct appeal to the shareholders, prior approval of the management of the target firm is not required.

The Execution Stage

A merger has to be implemented according to the procedure prescribed by the various rules and regulations. A thorough knowledge of the procedural formalities is essential for the timely completion of a merger. The procedure formalities for a merger is given below

Prepare scheme of amalgamation Board meeting Application to the high court Extraordinary general meeting Petition Registrar of companies I. Prepare scheme of amalgamation
The scheme of amalgamation has to be prepared giving all the proper clauses and sub clauses wherever necessary. This includes deciding on a Transfer date, Effective date, having arrangements with the creditors, distribution of shares to shareholders etc.

II.

Board
involves the following:

meeting

Call for board meeting of both the transferor & transferee companies. This

Notice & agenda of meeting accompanied by approval of the scheme, ratio, & person authorized to make representations in the high court with relation to the scheme. "Effective date " of the above coming into existence to be clearly mentioned. After board meeting the following matters to be looked into

In case of company's listed on the stock exchange, notification of the same should be made. Press release of the above for members Seek consent of financial institutions/banks/trustees to debentureholders.

III.

Application for amalgamation to the high court

given under Section 391 of Companies (court) Rules, 1959 ): Form 33: summons for direction to convene the meeting. Form 34: affidavit

of both the

companies has to be made accompanied by the following documents (details

Form 35: order by judge is summons-convening meeting of members of transferor & Transferee Companys to approve the scheme. Appointment of chairman Fix quorum for the meeting IV.

Extraordinary general meeting:

Following procedure to be adopted

Notices to be sent in the name of the chairman Draft to be approved by the registrar of the high court Place where the meeting to be held Documents to be sent are statement u/s 393, copy of scheme, & a proxy form. If advertised in the newspaper, the same should be in a manner, as the court may direct not less than 21 days before the meeting. At the meeting Question & answer session. Decision by poll - vote by majority Chairman of the meetings to submit a report in form 39 within time limit fixed by the judge (i.e. within seven days of the meeting) After the members approve the scheme the companys must within seven days of the filing of report by the chairman, present a petition to the court for

confirmation of scheme. Copy to be served upon the regional director, company law board.

Petition
All correspondences to be addressed to the regional director, Company Law Board Court fixes date for hearing of petition Official liquidator himself scrutinizes the books of the transferor co or nominates a chartered accountant from his panel & accordingly reports on his findings.

Registrar of companies
After the court obtains the inspection report it orders for dissolution from the date specified in the order. It is important that a certified copy of the approved scheme, memorandum and articles of association along with the courts order be filed with the registrar of companies within 30 days from the date of which the order has been passed (Form 41)

Post merger Integration Plans

Preliminary post-merger integration plans should be formulated even before negotiations take place. For example, if the target is very entrepreneurial and the acquirer is a large, structured company, it might be wise to state at the initial contact that the acquirer's intent is to have a hands-off policy after the merger if it wants to preserve the target's entrepreneurial flair. More important, however, the acquirer should anticipate some of the potential problems that may occur, particularly if relocation may be involved or if overlapping functions exist between merger partners. Integration plans should take into account personnel conflicts that may result from duplicate functions. Some recent methods used by corporations to ease the transition have included establishment of transition teams before the merger takes place, inviting management to social functions before and after the merger, and conducting attitude surveys on a confidential basis soon after the transaction is completed. The worst decision is to leave a conflict unresolved; this will lead to demoralized employees, lower productivity, and ultimately to lower stock values if news of such problems reaches the public. The post-merger plan needs to address the fear of changeregardless of whether actual changes are planned-in each component of the business including: Establishing which managers in the target company will be directly responsible for the target company or any of its activities after the merger. Planning for possible incentive compensation programs to motivate and assure retention of key managers of the target company. Developing probable reporting relationships and the degree of autonomy to be given the merger candidate. Analyzing which functions will probably be integrated and which will remain separate from the acquiring firm. Preparing for potential personnel conflicts, and identifying areas where such conflicts may occur. This will permit swift action in cases of irreconcilable differences and conflicts.

 Identifying cultural dissimilarities, deciding whether the functions that are not integrated can or should retain their own cultures, and determining how cultural assimilation that is necessary can take place over time. Customers' fears of product or service changes Suppliers' fears of detrimental changes in the acquiree's financial strength or buying habits Labor's fears of major layoffs Managers' fears of staff redundancy Some executives' fears of additional administrative burdens Target management's fears of loss of resources, especially financial, as a subsidiary company The acquiree's fears of becoming a "stepchild" (the "we-they" syndrome) in the combined company.

The post-merger plan should draw heavily on the information gained during the merger review, and focus especially on the particular attributes that comprise the substance of the business. The key managers-organizationally, operationally, and politically-need to be identified, addressed as to their futures, and provided with incentives to promote the desired changes. The overall level of operational autonomy needs to be decided with an eye to the perceptions of customers, suppliers, and employees, as well as the level of autonomy (or dependence) with which the buyer feels comfortable. Decisions regarding qualitative aspects of the business must be reached on such questions as: How does the proposed level of autonomy fit with the acquiree's corporate style and culture? How much internal competition is desirable? What steps will be taken to foster the level of cooperation and/or competition desired between the employees of the acquirer and target?

 What changes in accounting and clerical procedures should be made to provide better administrative contacts to the acquiree as well as the requisite information to the acquirer? Though the exact recommendations for integration varies depending on the type of merger. PEOPLE : AFTER THE WEDDING The "wedding" the actual combining of the two merger partners takes place after months of courtship, when the key people from both sides have gotten to know each other. When its acrimonious, as in the case of a hostile offer, knowledge of the other people is limited and strongly tinged by rumor-tainted perceptions. Of the preliminaries, the marriage has taken place and the human side ignored. There are at this point a number of key issues to be handled in implementing the plan. Identifying people to Be Retained and Shed Management of the acquiring company faces a stiff challenge in identifying who to keep and who to dismiss. Basically, it has taken on a pool of personnel and is not familiar with each person's talents. There is, furthermore, a problem in deciding which people from the acquired company it will listen to in reaching its decisions. And the buyer's management always must confront the knotty issues of whether a "good" employee in its own organization is better or worse "good" employee at the target. If management takes too long in reaching important decisions, it risks the corrosive effects on performance and morale of prolonged periods of uncertainty. Thus, management is working against time to choose the winners.

Slotting People in the Right Jobs An acquiring management may have to take some risks when putting some people into jobs in the combined organization. But a winner will perform well even if the job is outside the area of his or her previous experience. Hanging on to the Winners How do you hang on to the winners? How do you get them to stay during difficult postmerger periods of ambiguity, or even corporate dysfunction? One tactic is to include them in some sort of transition or integration task force. Winners need and seek challenge. Putting them on a critical integration team will contribute to job satisfaction because they will be able to see an immediate impact on the merging organizations from their contributions. Of course, there are more direct ways, such as an appeal to the pocketbook. Alternatives that have worked include bonuses based on performance two or three years down the road, as well as an up-front stock position in the parent corporation with a rider that delays exercise of stock purchase options for two or three years. Creating a Healthy Cultural Fabric while Reducing Staff There are few areas in which management will be as closely scrutinized by the winners as in dealing with post-merger outplacement. One-on-one counseling will be appreciated not only by those who are released, but by those who stay. It is a bit of dignity that will be highly appreciated by everyone involved. Being "overly generous" when letting people go-such as allowing discretionary extras like the use of a company car for a few weeks, use of an office as a base for conducting a job search, and a generous pension settlementwill yield handsome returns in goodwill among the employees who remain.

Patterns of success A successful integration begins with proper handling of people, and those companies that achieved the most satisfactory combinations were those that skillfully addressed the four people issues just described. The way in which these issues were addressed, in fact, set the pattern for the remaining integration issues.

REGULATIONS OF MERGERS AND ACQUISITIONS IN INDIA

Mergers and acquisitions may degenerate into the exploitation of shareholders, particularly minority shareholders. They may also stifle competition and encourage monopoly and monopolistic corporate behaviour. Therefore, most countries have legal framework to regulate the merger and acquisitions activities. In India, mergers and acquisitions are regulated through the provision of the: Companies Act, 1956 Foreign Exchange Regulation Act (FERA), 1973 Income Tax Act, 1961 Securities and Controls (Regulations) Act (SCRA), 1956. Securities and Exchange Board of India (SEBI) has issued guidelines to regulate mergers, acquisitions and takeovers.

Legal Measures against Takeovers

The Companies Act restricts an individual a company or a group of individuals from acquiring shares, together with the shares held earlier, in a public company to 25 per cent of the total paid up capital. Also, the Central Government needs to be intimated whenever such holding exceeds 10 per cent of the subscribed capital. The Companies Act also provides for the approval of shareholders and the Central Government when a company, by itself or in association of an individual or individuals purchases shares of another company in excess of its specified limit. The approval of the Central Government is necessary if such investment exceeds 10 per cent of the subscribed capital of another company. These are precautionary measures against the takeover of public limited companies.

Refusal to Register the Transfer of Shares

In order to defuse situation of hostile takeover attempts, companies have been given power to refuse to register the transfer of shares. It this is done, a company must inform the transferee and the transferor within 60 days, a refusal to register transfer is permitted if: A legal requirement relating to the transfer of shares have not be complied with; or The transfer is in contravention of the law; or The transfer is prohibited by a court order; or The transfer is not in the interests of the company and the public.

Protection of Minority Shareholders interests

In a takeover bid, the interests of all shareholders should be protected without a prejudice to genuine takeovers. It would be unfair if the same high price is not offered to all the shareholders of prospective acquired company. The large shareholders (including financial institutions, banks and individuals) may get most of the benefits because of their accessibility to the brokers and the takeover dealmakers. Before the small shareholders know about the proposal, it may be too later for them. The Companies Act provides that a purchaser can force the minority shareholder to sell their shares if: The offer has been made to shareholders of the company; The offer has been approved by at least 90 percent of the shareholders of the company whose transfer is involved, within 4 months of making the offer, and The minority shareholders have been intimated within 2 months from the expiry of 4 months referred above.

If the purchaser is already in possession of more than 90 percent of the aggregate value of all the shares of the company, the transfer of the shares of minority shareholders is possible if: The purchaser offers the same terms to all shareholders and the tenders who approve the transfer, besides holding at least 90 percent of the value of shares, should also form at least 75 percent of the total holders of shares.

Guidelines for Takeovers

SEBI has provided guidelines for takeovers. The guidelines have been strengthened recently to protect the interests of the shareholders from takeovers. The salient features of the guidelines are: Notification of takeover : If an individual or a company acquires 5 percent or more of the voting capital of a company, the target company and the stock exchange shall be notified immediately. Limit to share acquisition: An individual or a company can continue acquiring the shares of another company without making any offer to other shareholders until the individual or the company acquires 10 percent of the voting capital. Public offer: If the holding of the acquiring company exceeds 10 percent, a public offer to purchase a minimum of 20 percent of the shares shall be made to the remaining shareholder through a public announcement. Offer price: Once the offer is made to the remaining shareholders, the minimum offer price shall not be less thank the average of the weekly high and low of the closing prices during the last six months preceding the date of announcement. Disclosure : The offer should disclose the detailed terms of the offer, identity the offeror, details of the offerers existing holdings in the offeree company etc. and the information should be made available to all shareholders at the same time and in the same manner.

 Offer document: The offer document should contain the offers financial information, its intention t continue the offeree companys business and to make major change and long-term commercial justification for the offer. The objectives of the Companies Act and the guidelines for takeover are to ensure full disclosure about the mergers and takeovers and to protect the interests of the shareholders, particularly the small shareholders. The main thrust is that public authorities should be notified within two days. In a nutshell, an individual or company can continue to purchase the shares without making an offer to other shareholders until the shareholding exceeds 10 percent. Once the offer is made to other shareholders, the offer price should not be less than the weekly average price in the past 6 months or the negotiated price.

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done systematically. Every research has to design methodology for his problem. To understand the system better and to make practical suggestion for improvement it is imperative to think in an innovative manner and within the constraints imposed by the system Research methodology is understood as a science of studying how research is done scientifically. In it various steps are studied that are generally adopted by a researcher in studying his research problem along with the logic behind them. Thus, Research Methodology includes not only research methods but also consider the logic behind the methods we use in the context of our research study and explain why are we using this particular method.. To affect this plan and to get deeper into the system, the following methodology was adopted: -

Research Design: A research design is an arrangement of conditions for collection and analysis of data in manner that aims to combine relevance to the research purpose. The research design used in this project is Descriptive in nature. This study is descriptive in the sense that it aims at analyzing the present market scenario in the state in which it exists at present and which are the causes for it. Variables are not under control. Only suggestions can be given that may prove to be helpful in improving the present situation.

Data Source: The data, which is used in the project, is collected from the secondary resource. Secondary data is collected from the various books, magazines, newspapers and internet.

RESEARCH METHODOLOGY Research problem: -Mergers and Acquisitions Research Design: - Descriptive Data collection Data type: - Secondary Data collection tool: -Internet, Newspaper, magazines Secondary data has been collected through

Secondary Data- The secondary data has been collected from books, websites, magazines & other materials.

HOW TO ENSURE THAT YOUR M&A IS A SUCCESS?

In todays markets, companies change hands all the time through restructuring, acquisitions and mergers. However, companies tend to overlook the security of the new venture in their zeal to finalize the deals. It is true that mergers and acquisitions give rise to largest and more efficient firms but simultaneously nothing can guarantee that the new shiny firm will bring with it the untold riches, nor can it be assured that the partners wont be exposing their sensitive information and assets to risk by coupling their network structures. Its true that these risks are not completely avoidable but steps can be taken to mitigate the risk of a costly and an embarrassing security breach.

The risks that the management needs to be careful about are: Assess the business risk:
How would a business be affected if information were compromised as a result of the merger or acquisition? Reputation loss, legal liability, regulatory impact and financial loss are all the possible risks that a company can be exposed to if a wrong or a hasty decision is taken regarding the merger or acquisition. The systems that the company is connecting to will also impact everything that a business does. Therefore, it is essential for any company or companies proposing joining hands to ensure analysis and detailed study of financial, legal and other necessary transactions than just exchanging details through meetings and e-mails.

Analyze the external perimeters:

It is extremely essential for the company to have an overview of how well the external perimeter (better understood as the external environment) of an organization is being controlled. This can be done by performing an external analysis, which is actively supported by an overview of the infrastructure of the merging entities. Any problem overlooked at this stage can pose serious loopholes in the resultant enterprise.

Pay attention to attitude:

The company is supported by its employees, creditors, suppliers, contractors, and consultants. It is essential for a company going for a merger or acquisition to ensure that they have full support of the employees as any resistance can prove to be a hindrance in the efficient and successful working of the resulting organization. Also, it is the requirement of the organization to seek the approval of the merger/ acquisition from the suppliers and creditors, as they are the people who support the company and will support the merged/acquired firm in raw materials and funds. The consultants of the organization also need to be consulted as they can provide an expert advice to the company.

Review the companys security program:

It is also important for the firm(s) to understand and evaluate a top-down perspective of how the overall IT and physical security programs are administered. The firm should be in complete possession of any information related to capability of the security personnel, the personnel responsible, the budget allocated to security purposes, the allocation of security roles and responsibilities and the effectiveness of the program.

Review critical applications:

If time and effort permit, the organization should also look into key applications of the business and if possible conduct a simple security assessment.

Example, if the merger is to happen with banking, then the firm should pick one of the aspects of banking like online banking and assess its authentication, access control etc. this way of testing of individual application will enable the organization to find the serious issues involved in banking and its applications.

PARAMETERS TO JUDGE SUCCESS/FAILURE OF M&A

Close to 75% of the mergers that take place all over the world end up as failures. So the issue which needs to be addressed is 'How to judge whether the merger is successful or not? Here is a set of parameters or criteria, which can be applied to judge the success or failure of a merger. Whether it resulted in boosting profits through elimination of overlapping

activities & generating savings from post-merger economies of scale (i.e. 2+2>4) Whether it increased borrowing opportunities through improved gearing

and paving the way for raising Equity through attractive financial ratios losses Whether it improved "shareholders value" by increasing market Whether it offered tax-breaks where one merging company is making

capitalization and helping boost share prices Whether it resuscitated sick companies by converting debt into equity Whether it offered the possibility of raising equity holdings to ward off

Takeovers Control focus Whether the profit of one company is being used to subsidies the other's Whether Contradictory compulsions have made the Company lose its Whether organizations & operations have become too big/large to

losses perpetually. Whether Companies in diverse businesses are merged for financial gains

i.e. one-off gains, which are not available in subsequent years.

Whether cultural misfit between the organization being merged is not

allowing merged company to realize gains arising out of merger Whether Productivity levels of the merging companies are wildly unequal

which has created problems in dealing with workers of different units. Whether only Financial Re-engineering was not enough to take care of

needs of merged company, as Strategic synergy was a missing factor. Merger often camouflages the poor performance of an inefficient unit.

This is bad for the company in long run Big may not always be beautiful Unrelated acquisition can lead to growth which can at times be counter

productive Cost of merger because of heavy stamp duty and taxation disadvantages

may become very heavy & not beneficial in the long run.

Why Do Mergers and Acquisitions quite often Fail?

Corporate mergers and acquisitions (M&As) have become popular across the globe during the last two decades thanks to globalization, liberalization, technological developments and intensely competitive business environment. The synergistic gains from M&As may result from more efficient management, economies of scale, more profitable use of assets, exploitation of market power, the use of complementary resources, etc. Interestingly, the results of many empirical studies show that M&As fail to create value for the shareholders of acquirers. In this backdrop, the paper discusses the causes for the failure of M&As by drawing the results of the extant research.

Causes for Failure of Mergers and Acquisitions

The American Management Association examined 54 big mergers in the late 1980s and found that roughly one-half of them led to fall in productivity or profits or both (Chandra 2001). At least one in three employees will, during the course of their working life undergo an acquisition or merger. Yet statistics show that roughly half of acquisitions are not successful. The recent Pan-European KPMG study held in the year 1997 found that contrary to their objectives, acquisition systematically destroyed rather than created shareholder value. A Mckinsey study found that over a ten year period, only 23 per cent

of acquisitions ended up recovering the cost incurred during the acquisition (Hubbard 1999). A Mercer Management Consulting Study shows that less than 50 per cent of acquirers outperform industry average and nearly 50 per cent of senior executives in acquired firms leave in the first year (Prayag, 2005). It is clear from the findings of the earlier studies that M&As fail quite often and fail to create value or wealth for shareholders of the acquirers. A definite answer as to why mergers fail to generate value for acquiring shareholders cannot be provided because mergers fail for a host of reasons. Some of the important reasons for failures of mergers are discussed below: 1. Size Issues A mismatch in the size between acquirer and target has been found to lead to poor acquisition performance. Many acquisitions fail either because of acquisition indigestion through buying too big targets or failed to give the smaller acquisitions the time and attention it required. 2. Diversification Very few firms have the ability to successfully manage the diversified businesses. Lot of studies found that acquisitions into related industries consistently outperform acquisitions into unrelated (Salter and Weinhold,1979, Lubatkin,1983, 1987; Sing and Montgomery 1987). Around 42% of the acquisitions that turned sour were conglomerate acquisitions in which the acquirer and acquired companies lacked familiarity with each others business (Chandra, 2001). Unrelated diversification has been associated with lower financial performance, lower capital productivity and a higher degree of variance in performance for a variety of reasons including a lack of industry or geographic knowledge, a lack of focus as well as perceived inability to gain meaningful synergies. Unrelated acquisitions which may appear to be very promising may turn out to be big disappointment in reality.

For example, Datta et al. 1992, find that multiple bidders and conglomerate acquisitions have a negative impact on the wealth of the bidding shareholders. 3. Previous Acquisition Experience While previous acquisition experience is not necessarily a requirement for future acquisition success, many unsuccessful acquirers usually have little previous acquisition experience. Previous experience will help the acquirers to learn from the previous acquisition mistakes and help them to make successful acquisitions in future. It may also help them by taking advice in order to maximize chances of acquisition success. Those serial acquirers, who possess the in house skills necessary to promote acquisition success as well trained and competent implementation team, are more likely to make successful acquisitions. 4. Unwieldy and Inefficient Conglomerate mergers proliferated in 1960s and 1970. Many conglomerates proved unwieldy and inefficient and were wound up in 1980s and 1990s. (Mobile sold its interest in Montgomery ward in 1988). The unmanageable conglomerates contributed to the rise of various types of divestitures in the 1980s and 1990s (Ogden, Jen and Connor). 5. Poor Organisation Fit Organisational fit is described as the match between administrative practices, cultural practices and personnel characteristics of the target and acquirer (Jemison and Sitkin, 1986, p147). It influences the ease with which two organizations can be integrated during implementation. Mismatch of organation fit leads to failure of mergers. 6. Poor Strategic Fit A Merger will yield the desired result only if there is strategic fit between the merging companies .But once this fit is assured, the gains will outweigh the losses (Maitra,1996). Mergers with strategic fit can improve profitability through reduction in overheads, effective utilization of facilities, the ability to raise funds at a lower cost, and deployment

of surplus cash for expanding business with higher returns. But many a time lack of strategic fit between two merging companies especially lack of synergies results in merger failure. Strategic fit can also include the business philosophies of the two entities (return on investment vs market share), the time frame for achieving these goals (shortterm vs long term) and the way in which assets are utilized (high capital investment or an asset stripping mentality). For example, P&G Gillette merger in consumer goods industry is a unique case of acquisition by an innovative company to expand its product line by acquiring another innovative company which was described analysts as a perfect merger (Chaturvedi and Sinha, 2005). 7. Striving for Bigness Size no doubt is an important element for success in business. Therefore there is a strong tendency among managers whose compensation is significantly influenced by size to build big empires (Chandra 2001).The concern with size may lead to acquisitions. Size maximizing firms may engage in activities which have negative net present value (Malatesta, 1983). Therefore when evaluating an acquisition it is necessary to keep the attention focused on how it will create value for shareholders and not on how it will increase the size of the company. 8. Paying Too Much (Over paying) In a competitive bidding situation, a company may tend to pay more. Often highest bidder is one who overestimates value out of ignorance. Though he emerges as the winner, he happens to be in a way the unfortunate winner. This is called winners curse hypothesis (Chandra, 2000; Roll, 1986).When the acquirer fails to achieve the synergies required to compensate the price, the M&As fails. More you pay for a company, the harder you will have to work to make it worthwhile for your shareholders (Banerjee, 2005b).When the price paid is too much, how well the deal may be executed, the deal may not create value (Koller, 2005) 9. Poor Cultural Fit

The relationship between cultural fit and acquisition implementation is highly related. It is difficult, if not impossible, to undergo a successful implementation without adequately addressing the cultural fit issues. Cultural fit between an acquirer and a target is one of the most neglected areas of analysis prior to the closing of a deal. However, cultural due diligence is every bit as important as careful financial analysis. Without it, the chances are great that merger or acquisition will quickly amount to misunderstanding, confusion and conflict. Cultural due diligence involve steps like determining the importance of culture, assessing the culture of both target and acquirer. It is useful to know the target management behaviour with respect to dimensions such as centralized versus decentralized decision making, speed in decision making, time horizon for decisions, level of team work, management of conflict, risk orientation, openness to change, etc. It is necessary to assess the cultural fit between the acquirer and target based on cultural profile. Potential sources of clash must be managed. It is necessary to identify the impact of cultural gap, and develop and execute strategies to use the information in the cultural profile to assess the impact that the differences have. This is followed by the strategies that need to be considered to manage such differences. Cultural issues can become major if not addressed properly.If one organization is very paternal and feudalistic and the other more open and transparent, when both get together, culture can definitely become an issue (Prayag 2005). Merger of Dailmer and Chryster is an example for merger failure due to cultural differences. 10. Poorly Managed Integration Integration of the companies require a high quality management. Integration is very often poorly managed with little planning and design. As a result implementation fails. The key variable for success is managing the company better after the acquisition than it was

managed before ( Prayag, 2005 ).Even good deals fail if they are poorly managed after the merger. 11. The Hubris Hypothesis or Behaviour Roll (1986) offered Hubris hypothesis or an explanation for an acquisition or takeover. He argues that the bidders management overvalues the target because they overestimate their ability to create value once they take control of the target assets. The hubris hypothesis predicts that around takeover: a) the combined value of the target and bidding firms fall slightly, b) the value of the bidding firm should decrease; and c) the value of the target should increase. The empirical study of Roll supports the hubris hypothesis. 12. Incomplete and Inadequate Due Diligence Lack of due diligence is lack of detailed analysis of all important features like finance, management, capability, physical assets as ell as intangible assets results in failure. ISPAT Steel is a corporate acquirer that conducts M&A activities after elaborate due diligence (Machhi, 2005).

13. Limited Focus If merging companies have entirely different products, markets systems and cultures, the merger is doomed to failure (Maitra, 1996). Added to that as core competencies are weakened and the focus gets blurred the fallout on bourses can be dangerous. Purely financially motivated mergers such as tax driven mergers on the advice of accountant can be hit by adverse business consequences. Conglomerates that had built sprawling and unfocused business portfolios were forced to sell non-core business that could not withstand competitive pressures. The Tatas for example, sold their soaps business to Hindustan Lever (Banerjee, 2005a) 14. Failure to Get Figures Audited

It would be serious mistake if the takeovers were concluded without a proper audit of financial affairs of the target company however well known the merchant bankers and advisors be. Though the company pays for the assets of the target company, it also assumes responsibility to pay all the liabilities. Areas to look for are stocks, salability of finished products, receivables and their collectibility, details and location of fixed assets, unsecured loans, claims under litigation, loans from the promoters, etc. A London Business School study in 1987 highlighted that an important influence on the ultimate success of the acquisition is a thorough audit of the target company before the takeover (Arnold, 2005). When ITC took over the paper board making unit of BILT near Coimbatore, it arranged for comprehensive audit of financial affairs of the unit. Many a times the acquirer is mislead by window-dressed accounts of the target (Hariharan, 2005). 15. Failure to Get an Objective Evaluation of the Target Company Condition Risk of failure will be minimized if there is a detailed evaluation of the target companys business conditions carried out by the professionals in the line of business. Detailed examination of the manufacturing facilities, product design, features, rejection rates, distribution systems, profile of key people and productivity of the workers is done. Acquirer should not be carried away by the state of the art physical facilities like a good head quarters building, guest house on a beach, plenty of land for expansion, etc.

16.Failure to Take Immediate Control Control of the new unit should be taken immediately after signing of the agreement. ITC did so when they took over the BILT unit even though the consideration was to be paid in 5 yearly installments. ABB put new management in place on day one and reporting systems in place by three weeks. (Hariharan 2005). 17. Failure to Set the Pace for Integration

The important task in the merger is to integrate the target with acquiring company in every respect. All function such as marketing, commercial, finance, production, design and personnel should be put in place. In addition to the prominent persons of acquiring company the key persons (people) from the acquired company should be retained and given sufficient prominence opportunities in the combined organization. Positive aspects of earlier culture should be preserved while discarding those not needed. Delay in integration leads to delay in product shipment, development and slow down in the companys road map. Acquisition of Scientific Data Corporation by Xerox in 1969 and AT&Ts acquisition of computer maker NCR Corporation in 1991 were troubled deals, which resulted in large write offs. Arun Thygarajan, former MD and Country Manager , ABB India Ltd., says that once the merger announcement is made not only should things move in a flash but decisions be seen as fair, correct and impartial (Prayag, 2005). The speed of integration is extremely important because uncertainty and ambiguity for longer periods destabilizes the normal organizational life. It puts greater stress on employees and distracts them from the actual work. Thus earlier the chaos and confusion is sorted out, the better it is for the organizations economic health (Yadav and Bhaskar). The disadvantage with a slow approach to integration is that it tends to dissipate momentum and enthusiasm. Moreover, delays can dilute the financial benefits of a deal. 18. Failure of Top Management to Follow-Up After signing the M&A agreement the top management should not sit back and let things happen. First 100 days after the takeover determine the speed with which the process of tackling the problems can be achieved. It is very rarely that the bought out company is firing on all cylinders and making a lot of money. Top management follow-up is essential to go with a clear road map of actions to be taken and set the pace for implementing once the control is assumed. 19. Incompatibility of Partners

Alliance between two strong companies is a safer bet than between two weak partners. Frequently many strong companies actually seek small partners in order to gain control while weak companies look for stronger companies to bail them out. But experience shows that the weak link becomes a drag and causes friction between partners. A strong company taking over a sick company in the hope of rehabilitation may itself end up in liquidation.

20. Ego Clash Ego clash between the top management and subsequently lack of coordination may lead to collapse of company after merger. The problem is more prominent in cases of mergers between equals. 21. Merger between Equals Merger between two equals may not work. The Dunlop Pirelli merger in 1964 which created the worlds second largest tyre company ended in an expensive divorce (Hariharan 2005). Manufacturing plants can be integrated easily, human beings cannot. Merger of equals may also create ego clash. 22. Mergers between Lame Ducks Merger between two weak companies does not succeed either. The example is the Studebacker- Packard merger of 1955 when two ailing carmakers joined hands. By 1964 both companies were closed down (Hariharan 2005). 23. Over Leverage Cash acquisitions results in the acquirer assuming too much debt. Future interest cost consumes too great a portion of the acquired companys earnings. (Business India 2005).

24. Lack of Proper Communication Lack of proper communication after the announcement of M&As will create lot of uncertainties. Apart from getting down to business quickly companies have to necessarily talk to employees and constantly. Regardless of how well executives communicate during a merger or an acquisition, uncertainty will never be completely eliminated. The objective of proper communication is to minimize as much uncertainty as possible, especially with regard to issues that directly impact people and organization. Failure to manage communication results in inaccurate perceptions, lost trust in management , morale and productivity problems, safety problems, poor customer service, and defection of key people and customers. It may lead to the loss of the support of key stakeholders at a time when that support is needed the most. 25. Failure of Leadership Role Some of the role leadership should take seriously are modeling, quantifying strategic benefits and building a case for M&A activity and articulating and establishing high standard for value creation. Walking the talk also becomes very important during M&As. 26. Inadequate Attention to People Issues Not giving sufficient attention to people issues during due diligence process may prove costly later on. While lot of focus is placed on the financial and customer capital aspects, not enough attention is given to aspects of human capital and cultural audit. Well conducted HR due diligence can provide very accurate estimates and can be very critical to strategy formulation and implementation. 27. Strategic Alliance as an Alternative Strategy Another feature of 1990s is the growth in strategic alliances as a cheaper, less risky route to a strategic goal than takeovers.

28. Loss of Identity Merger should not result in loss of identity which is a major strength for the acquiring company. Jaguars car image dropped drastically after its merger with British Leyland. 29. Diverging from Core Activity In some cases it reduces buyers efficiency by diverting it from its core activity and too much time is spent on new activity neglecting the core activity. 30. Expecting Results too quickly Immediate results can never be expected except those recorded in red ink. Whirlpool ran up a loss $100 million in its Philips white goods purchase. R.P.Goenks takeovers of Gramaphone Company and Manu Chhabrias takeover of Dunlops fall under this category. Gordon Woodroffe and

M&A IN RECENT YEARS

1.) WOCKHARDT AND CP PHARMA (2003) The Deal Indian pharma major Wockhardt Ltd has acquired UK based CP Pharmaceuticals Ltd. . 2.)TVS ELECTRONICS AND TVS E-TECHNOLOGY (2003) The Deal In a reverse merger, Indias largest computer peripheral manufacturer and a listed company TVS Electronics (turnover: Rs 210 crore) has decided to merge itself with group company TVS e-Technology (turnover: Rs 10 crore). TVS e-Technology, provider of customer support, technology support and maintenance services (TMS), offers field customer support to TVS-E products. In 2002, e-Tech entered into an agreement with Verifone Inc US - provider of payment solutions - and has been carrying out distribution and service activities in relation to point of sale of terminals in India. 3). POLARIS AND ORBITECH (2003) The deal A 100 per cent subsidiary of the Citigroup, OrbiTech Solutions Ltd, merged with Polaris Software Lab Ltd

4) . AT & T, TATA AND BIRLA (2001) The deal Birla AT&T has now merged with Tata Telecom. They have also bought over RPG Cellular in Madhya Pradesh.

5) COMCAST AND WALT DISNEY (2004) The deal Comcast chief executive officer Brian Roberts had suggested to Disney chairman and CEO Michael Eisner to merge for $50bn offer. 6). IDBI and IDBI bank The deal IDBI has kept options open to merge its private banking arm IDBI Bank with itself or with a bank or even sell it off in future.

About the deal There are four options before for IDBI Bank -- one, it continue on its own; two, merge it with IDBI; three, sell it off; and fourth, merge it with another bank. Finally IDBI, the country's largest financial institution, said today it will merge IDBI Bank, its private banking arm, with itself in this fiscal. The expected deal is seen as crucial to help turn around the state-run parent financial institution, which has huge bad debts. In its budget last month, the government announced a bailout package worth Rs 90 billion ($1.94 billion) aimed at taking over its bad loans. The two entities would now work out the share swap ratio, complete the valuation and seek shareholders' and regulators' nod.

FINDINGS
Merers and acquisitions often fails and are particularly not successful in India M&As fail to create value or wealth for the shareholders of acquiring companies. On average, acquiring firms have not been able to maintain the pre-merger levels of profitability of the targets. Mergers and takeovers resulted in benefits to the acquired firms shareholders and to the acquiring companies managers but that losses were suffered by the acquiring companies shareholders. The results show that takeovers being motivated more by managements motive rather than the maximization of shareholders wealth. On average, acquiring firms do not under perform a control portfolio during the first 5 years following the acquisition. They simply earn their required rate of return, no more or no less. That bidding firm shareholders experience insignificant returns, and these returns are not affected by the medium of exchange. When highly rated firms acquire less highly rated targets, the acquiring firm shareholders experience wealth losses whereas target shareholders experience wealth gains. Failures to coordinate activity based on cultural conflict, contribute to the widespread failure of corporate merger. Acquirer firms have achieved larger size at the expense of reduced profit both for themselves and the acquired firms.

Merged firms have significant improvements in operating cash flow returns after the merger, resulting from the increases in asset productivity relative to their industries. These improvements are particularly strong for transactions involving firms in overlapping businesses. Improvement in post-acquisition performance are driven both by an increase in asset productivity and also by the higher levels of operating cash flow generated per unit of sales.

LIMITATIONS

Time span was very short. Dual to the lack of the data results were not accurate. Topic chosen was very wide and the new one involving lot of technicalities.

Findings are as per individuals point of view.

Conclusion
Historically Mergers and Acquisitions were mostly looked at simply from the point of tax benefits. Selling was synonymous with failure. And companies were reluctant to change in management. This is no longer the case for most Indian firms. Fiscal 2003-04 saw 1,118 merger and acquisition deals, including 72 open offers, aggregating Rs 35,981 crore. In 2002-03, 1,224 M&A deals were struck but aggregating only Rs 23,785 crore (source: Business Standard). Globally, the last few years have been record years for M&A with rarely a day going by when a billion-dollar deal did not break the previous records. The significant catalyst to the M&A wave has been the liberalization that was unleashed in the early 90s. With increasing globalization, declining tariff barriers, price decontrol, customers becoming choosy as they had more options, there was a desperate need to consolidate. And this wave will probably touch almost every sector. What the M&A activity is doing today is to help companies restructure, gain market share or access to markets, rationalize costs and acquire brands. And given the large number of small players we have in almost every sector and growing competition from both domestic and international players, M&A will provide corporates a handy tool for fighting for growth and survival. Now that the M&A game has arrived in India, it will be interesting to see how the company management bears the legal and moral responsibility of maximizing shareholders wealth.

M&As have become very popular over the years especially during the last two decades owing to rapid changes that have taken place in the business environment. Business firms now have to face increased competition not only from firms within the country but also from international business giants thanks to globalization, liberalization, technological changes, etc. Generally the objective of M&As is wealth maximization of

shareholders by seeking gains in terms of synergy, economies of scale, better financial and marketing advantages, diversification and reduced earnings volatility, improved inventory management, increase in domestic market share and also to capture fast growing international markets abroad. But astonishingly, though the number and value of M&As are growing rapidly, the results of the studies on the impact of mergers on the performance from the acquirers shareholders perspective have been highly disappointing. In this paper an attempt has been made to draw the results of only some of the earlier studies while analyzing the causes of failure of majority of the mergers. Making the mergers work successfully is not that easy as here we are not only just putting the two organizations together but also integrating people of two organizations with different cultures, attitudes and mindsets. Meticulous pre-merger planning including conducting proper due diligence, effective communication during the integration, committed and competent leadership, speed with which the integration plan is integrated all this pave for the success of M&As. While making the merger deals, it is necessary not only to make analysis of the financial aspects of the acquiring firm but also the cultural and people issues of both the concerns for proper post-acquisition integration.

BIBLIOGRAPHY

Financial Management
By: I M Pandey Eighth Edition

Financial Services
By: M Y Khan Second Edition

Laws & Practices of Mergers & Acquisitions

By: Jayant M. Thakur

Journals
Journal of Business Strategy Vol 25, No. 3, 2004 Harvard Business Review July August,2005 Indian Mangement Jume 2004 Journal of Finance Vol LIX, No. 1, 2005

Websites:
www.mergersindia.com www.business-standard.com www.economictimes.com www.indiainfoline.com www.bvdep.com www.forbes.com