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Cross Border

Merger & Acquisition

Merger
Merger refers to a situation when two or more
existing firms combine together and form a new
entity. Either a new company may be
incorporated for this purpose or one existing
company (generally a bigger one) survives and
another existing company (which is smaller) is
merged into it. Laws in India use the term
amalgamation for merger. It is done in two ways
Merger through absorption
Merger through consolidation

Merger through Absorption


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.
An example of this type of merger is the absorption of
Tata Fertilizers Ltd (TFL).
TFL transferred its assets, liabilities and shares to TCL.
TCL, an acquiring company (a buyer), survived after
merger while TFL, an acquired company ( a seller),
ceased to exist.

Merger through Consolidation


A consolidation is a combination of two or more
companies into a new company . In this type of merger,
all companies are legally dissolved and a new entity is
created.
In a consolidation, the acquired company transfers its
assets, liabilities and shares to the acquiring company for
cash or exchange of shares.
Example of consolidation:
The merger of Hindustan Computers Ltd., Hindustan
Instruments Ltd., and Indian Reprographics Ltd., to an entirely
new company called HCL Ltd.
The merger of Bank of Punjab and Centurian Bank Resulting
in the formation of Centurian Bank of Punjab.

Types of Merger

Horizontal merger

A merger is horizontal if it involves the


joining together of two companies which
are producing essentially the same
products or services which compete
directly with each other
Ex: TOMCO with HLL

Vertical merger
It is a merger which takes place upon the
combination of two companies which are
operating in the same industry but at different
stages of production or distribution system.
If a company takes over its supplier/producers of
raw material, then it may result in backward
integration of its activities
Ex: Merger of Reliance Petro Chemicals Ltd with
Reliance Industries Ltd is a Back ward
Integration

Co generic Merger

In this merger the acquirer and target companies are


related through basic technologies, production
processes or markets.
The acquired company represents an extension of
product line, market participants or technologies of
the acquiring companies.
An example of a this merger is Citigroup's acquisition
of Travelers Insurance. While both were in the
financial services industry, they had different product
lines.

Conglomerate merger

These mergers involve firms engaged in


unrelated type of business activities i.e. the
business of two companies are not related to
each other neither horizontally nor vertically.
Ex: The Torrent group has acquired
Ahmadabad Electric Company and Surat
Electric Company in order to diversify the risk
of its existing line of pharmaceuticals business.

Acquisition
Acquisition refers to the acquiring of
ownership right in the property and asset
without any combination of companies.
Thus in acquisition two or more companies
may remain independent, separate legal
entity, but there may be change in control
of companies

Business combination, corporate


restructuring and corporate
reorganizations are terms used to cover
mergers, acquisitions, amalgamations and
takeovers.
M & A are very important tools of corporate
growth and thus used worldwide.

Motives behind mergers and


Aquisitions :

Quicker way to growth


Accessing new markets
Taking on the global competition
Improving operating margins and efficiencies
Acquiring visibility and international brands
Buying cutting-edge technology
Developing new product mix
Exploiting financial opportunities
Diversifying and spreading risk wider

M&As over time


(before the recession hit)
Year

No of M7As across
the globe

2003

61

2004

78

2005

110

2006

151

2007

188

2008

256

Mergers and Acquisitions in


India: the Latest Trends
Till recent past, the incidence of Indian
entrepreneurs acquiring foreign enterprises was not
so common. The situation has undergone a sea
change in the last couple of years.
Acquisition of foreign companies by the Indian
businesses has been the latest trend in the Indian
corporate sector.

There are different factors that played their role in


facilitating the mergers and acquisitions in India.
Favorable government policies,
optimism in economy,
additional liquidity in the corporate sector
dynamic attitudes of the Indian entrepreneurs

These are the key factors behind the changing


trends of mergers and acquisitions in India.

India Inc. Goes Global


Fortis Healthcare, acquired
Hong
Kongs
Quality
Healthcare Asia Ltd
Tata Steel acquired UK based
Corus for $12.2 billion
Suzlon Energy Ltd acquired
German
firm
Repower
Systems AG
United Spirits bought Scotch
whisky distiller Whyte &
Mackay for US$ 1.11 billion
Hindalco acquired Novelis for
$ 6 billion

TATA Chemical acquired US based Soda Ash Maker


General Industrial Products for $ 1 billion
Indian shipping company Great Offshore acquired UK
based Sea Dragon for US$ 1.4 billion
Essar Energy acquired 50% stake in Kenya
Petroleum refineries ltd.
Banswara Syntex to acquired France firm Carreman
Michel Thierry for around US$ 125 million
Bharti Airtel acquired Kuwait based Zain Telecom's
African business for USD 10.7 billion.
Reliance Industries acquired Infotel broadband for
USD 1 Billion.

Reliance Communication merged its telecoms tower


business with GTL infrastructure Ltd for US $ 11 billion.
The acquisition of the generic drug unit of Piramal Health
care by USA based drug maker Abbot Laboratories
(ABT) for US $ 3720 million.
Hinduja group acquired Luxembourg based KBL
European private bankers SA for US $ 1.69 billion.
Mahindra acquired a 70% controlling stake in troubled
South Korea auto major Ssang Yong at US $ 463 million

A snapshot of Indias acquisition just


before recession hit
Acquirer

Target

Date

Tata Steel

Corus

Jan 2007

Hindalco

Novelis

Feb 2007

ONGC Videsh

Imperial Energy

Aug 2008

Tata Motors

Jaguar Land Rover

Jun 2008

Essar Group

Algoma Steel

Apr 2007

Suzlon

Repower

May 2007

United Spirits

Whyte & Mackay

May 2007

GMR Infra

Inter Gen

Jun 2008

Tata Chemicals

General Chemicals Industrial


Products

Jan 2008

HCL Tech

Axon Group

Dec 2008

Wipro

Infocrossing

Aug 2007

Rain Commodities

Cll carbon

Jul 2007

Essential of Successful
Merger & Acquisition
There are more failed acquisitions than
successes, and numerous factors
influence whether an acquisition/merger
succeeds or fails.
A broad set of strategic factors must be
considered to make reasonable judgments
on whether to move forward.

Generally related M&A succeed better than


unrelated M&A
Create and communicate a strong, clear
vision
The acquired/merged business must be
properly integrated with the acquiring firm
Cross company training of managers
needs to be provided

Example of successful M&A


America West acquired US Airways. They are
now called US Airways
NationsBank acquired Bank of American. They
are now called Bank of America
Gant Sports acquired The Sports Authority. They
are now called The Sports Authority
Oracle purchased = PeopleSoft (this was a BIG
deal), Sun, Business Objects, and a bunch of
other companies
Tata Steel acquired Corus. They are called Tata
Corus

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