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Introduction
Merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. Mergers and acquisitions are almost a daily occurrence in the life sciences. Competition is fierce, and companies must team up to survive in an industry where specialized knowledge is king. One of the largest, most critical, and most difficult parts of a business merger is the successful integration of the enterprise networks of the merger partners. 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. This wave was driven by globalization, liberalization and technological changes.
Capacity
Capacity refers to the amount of output that a firm is capable of producing given its existing assets. Acquiring another business might enable it to be able to increase its capacity relatively quickly.
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Economies of Scale
Economies of scale are the advantage of large scale production that result in lower cost per unit produced.
Tax reasons
Businesses are always looking for ways to reduce their tax exposure. A firm has large sums of money lying idle, using these sums to acquire another business that would not only enhance its operations but would also reduce its tax liability
Hindalco- Novels
HINDALCO
Two strategic businesses-Al, Cu
Asia's largest integrated primary producer of aluminum and among the most cost-efficient
producers globally Hindalco has operated at the lower end of the value chain
Novelis is a global leader with presence in four continents. It is very rare to be able to acquire a global leader in any industry.
WHY NOVELIS?
Entry into new markets. 40% of Al consumed is in the form of rolled products. Will become 5th largest Al company in the world. Entry into list of Fortune 500 Co. Access to high technology Move up to the high end of the value chain Access to new customer base
FY2005 8,363
FY2004 7,755
FY2003 6,221
Net sales
7,3777
7,224
5,938
7,962
7,145
5,737
153 149
399 148
401 194
610 48
484 33
Net Income
-170
32
90
55
157
ASSETS
NET SALES REGIONAL INCOME
1,487
2,841 64
2,3912
2,688 208 14 PLANTS 1 RECYCLING FACILITY
1,021
1,235 70 3 PLANTS
814
626 122 2 PLANTS 2 SMELTERS 1 REFINERY 2 BAUXITE MINE
Deal structure
Divided into 2 parts1)100% of Novelis equity @44.93$ per share which add up to $3.6b 2)$2.4b debt on Novelis balance sheet - No Option of Leverage buyout unlike TATA Corus
rights basis @ Rs. 96 per share Ratio of 3:7 in September, Aggregating to 525,802,403 shares. Total Amount receivable of Rs. 5,047.70 Cr Company has received Rs. 4,545 Cr Rs. 124.90 Cr spent on related expenses of the rights issue Balance amount utilized to repay the bridge loan taken for acquisition of Novelis.
Banks involved
2007 :Hindalco-Novelis deal, UBS (along with ABN AMRO & Bank of America) threw the Birla company a $2.8 billion debt lifeline. 2008: waiver due to default in Debt/EBITA ratio for novelis 2008: $1-billion loan was taken on Hindalcos books, and the banks that participated in the exercise included ABN Amro, Barclays Capital, Bank of Tokyo-Mitsubishi UFJ, Calyon, Citigroup, Deutsche Bank, HSBC, Mizuho Financial and Sumitomo Mitsui Financial. 2009:Hindalco took a syndicated loan of $982 million (Rs 4,910 crore at current rate) from 11 foreign banks to repay the bridge loan taken two years ago for the Novelis acquisition.
Valuation @ Premium
If we earn $10 for every $100 of aluminum we sell, we will now be able to earn another $10 for every $100 worth of aluminum that Novelis processes into rolled products. --Debu Bhattacharya. MD "Acquisitions are not geography dependent. They depend on value-creation and will have to be in sync with existing businesses Kumar Mangalam Birla, 2007 The valuation depends on the intrinsic capability of an asset. He points out that it would have taken Hindalco at least 10 years to create that kind of capacity on the downstream front. The acquisition is a good strategic fit and the way we see it, there is a lot of upside potential in aluminum as a commodity. He speaks of areas like transportation, architecture, packaging and pharmaceuticals which will be big markets in the future for aluminum. Sunirmal Talukdar, CFO, Hindalco Why pay 44.36$ a share for a 30$ share Analysts
due to availability of inexpensive engineers. Hindalco has set Novelis a target of seven to 12 stock turns per year by 2010,which could free around $300 million in working capital
Benefits:
Post acquisitions, the company will get a strong global footprint. After full integration, the joint entity will become insulated from
the fluctuation of LME Aluminium prices The deal will give Hindalco a strong presence in recycling of aluminium business. Novelis has a very strong technology for value added products and its latest technology Novelis Fusion is very unique one Novelis being market leader in the rolling business has invested heavily in developing various production technologies. One of such technology is a fusion technology that increase formability of aluminium.(Useful in designing products like car)
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BIBLIOGRAPHY
www.bnknetindia/com/banking/finance
http://en.wikipedia.org/wiki/bankingfinancialcompan
Background
In 2008, RBI sanctioned merger of CBoP with HDFC
All branches of CboP => branches of HDFC Bank Nationwide network of 1,167 branches Deposit base
History - CBOP
30 June 94 Incorporation of Centurion Bank
JV - Century Finance and Keppel Group 2005 - Bank of Punjab merges with Centurion bank -
History-HDFC BANK
August 1994 Incorporation of HDFC Bank 2000- Times Bank Limited 2008- Centurion Bank of Punjab Limited
HDFC Strategy
Increase market share in India
Maintain low cost of funds Strong asset quality Disciplined risk management High earnings growth with low volatility
Environment
Despite the economic crunch worldwide Indian
competition posed by foreign banks looking to enter on account of RBIs liberal policies and the domestic competition posed by ICICI bank CBoP had traditionally been strong in high yielding SME and retail segments, while HDFC Bank had an enviable retail deposit franchise Both the banks had a strong foothold in vehicle financing, which formed the basis for a natural synergy
Intent of Merger
Increase in scale of operations
Increase in geography Management bandwidth
number of equity shares to HDFC Limited on a preferential basis at a rate of Rs. 1,530.13 each.
Capital and the Kephinance Investment (Mauritius) decided to move away from this partnership.
No single lay off of employee Pooling of interest method used for accounting
Roadblocks
Technological Issues Finacle Vs Finware
HR Issues Mapping of Employees Operational Issues Account opening, cheque book
Roadblocks
Infrastructural Issues Multiplicity of branches, ATMs
Risk Issues NPA , cost of funds, CASA Ongoing agitation by unions of public sector banks
Net profit by 44.6% to Rs. 4.6 billion Net Interest Income by 74.9% to Rs.17.2 billion Advances grew by 79.8% & deposits by 60.4% High level of write-offs due to bad asset quality of CBoP in personal loans and 2 wheeler loans Net interest margins and CASA were impacted adversely
Gains to Shareholders
The combined entity would have a nationwide network of 1167 branches; a strong deposit base of around Rs.1,22,000 crores and net advances of around Rs.89,000 crores. The balance sheet size of the combined entity would be over Rs.1,63,000 crores.
On March 27, 2008, the shareholders of the Bank accorded their consent to a scheme of amalgamation of Centurion Bank of Punjab Limited with HDFC Bank Limited. The shareholders of the Bank approved the issuance of one equity share of Rs.10/- each of HDFC Bank Limited for every 29 equity shares of Re. 1/- each held in Centurion Bank of Punjab Limited. This is subject to receipt of Approvals from the Reserve Bank of India, stock exchanges and
Other requisite statutory and regulatory authorities. The shareholders Also accorded their consent to issue equity shares and/or warrants
convertible into equity shares at the rate of Rs.1,530.13 each to HDFC Limited and/or other promoter group companies on preferential basis, subject to final regulatory approvals in this regard. The Shareholders of the Bank have also approved an increase in the authorized capital from Rs.450 crores to Rs.550 crores.
Key Learning
Integrating of IT systems without disrupting customer
service Mapping of Employees Customer communication Elimination of redundancies Top management vision Coordination between different functions Structuring of the deal and tax implications
BIBLIOGRAPHY
www.bnknetindia/com/banking/finance
http://en.wikipedia.org/wiki/bankingfinancialcompan
THANK YOU