Rashmi Merger

8/8/2019 Rashmi Merger

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Mergers and Acquisitions

BY :RASHMI

Presented By:


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What is all about?

The buying, selling and combining of differentcompanies to grow rapidly without having to

create another business entity.


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What Does Merger Mean?

The combining of two or more companies, generally

by offering the stockholders of one companysecurities in the acquiring company in exchange for

the surrender of their stock.


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Benefits of merger

Diversification of product and service offerings

Increase in plant capacity

Larger market share Utilization of operational expertise and research and

development (R&D)

Reduction of financial risk


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Why do mergers fail ?

Lack ofhuman integration

Mismanagement of cultural issues

Lack of communication


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Acquisition

When one company takes over another and clearly

established itself as the new owner, the purchase is

called an acquisition.

Acquisition is generally considered negative innature.


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SYNERGIES RELATED TO ACQUISITION

Economies of scale

Staff reductions

Acquiring new technology

Improved market reach and industry visibility

Taxation


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Corporate Strategies in M&A

Why?Gain market share

Economies of scale

Enter new marketsAcquire technologies

Strategic Benefit

Complementary resource

Tax shieldsUtilization of surplus funds

Managerial Effectiveness

Integrate vertically


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Mechanics of a Merger

Legal Procedure

The MOA to be scrutinized

Intimation to Stock Exchanges

Approval of draft amalgamation proposal

Application to the Court

Notice to shareholders and creditors

Filing the order

Transfer of assets and liabilities

Issue of shares and debentures


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Mechanics of Merger (Cont..)

Tax Aspects

Section 2(a) of the Income Tax Act defines amalgamation

Depreciation for tax purposes

Accumulated losses

Unabsorbed Depreciation

Capital Gains Tax

Accounting for Amalgamation is done according to Accounting

Standard 14 (AS-14) issued by the Institute ofChartered

Accountants of India


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Problems inAchieving Success

Problems inAchieving Success

IntegrationIntegrationdifficultiesdifficulties

InadequateInadequateevaluation of targetevaluation of target

Too much

Too much

diversificationdiversification

Large orLarge orextraordinary debtextraordinary debt

Inability toInability toachieve synergyachieve synergy

Managers overlyManagers overlyfocused on acquisitionsfocused on acquisitions

Too largeToo large

IncreasedIncreasedmarket powermarket power

OvercomeOvercomeentry barriersentry barriers

Lower riskLower riskcompared to developingcompared to developing

new productsnew products

Cost of new

Cost of newproduct developmentproduct development

Increased speedIncreased speedto marketto market

IncreasedIncreaseddiversificationdiversification

Avoid excessiveAvoid excessivecompetitioncompetition

M & AM & A

Reasons forM & A


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Gains from M&As

Synergy is the additional value created (V) :

Where:VT = the pre-merger value of the target firm

VA -T = value of the post merger firm

VA = value of the pre-merger acquiring firm

)V-(VVV TATA !(


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Reasons for Acquisitions

IncreasedMarket PowerAcquisition intended to reduce the competitive balance of the

industry

Overcome Barriers to EntryAcquisitions overcome costly barriers to entry which may make start-ups

economically unattractive

Buying established businesses reduces risk of start-up ventures

Lower Cost and Risk of New Product Developmen


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Reasons for AcquisitionsReasons for Acquisitions

Increased Speed to MarketClosely related to Barriers to Entry, allows market entry in a more

timely fashion

Diversification

Quick way to move into businesses when firm currently lacks experience

and depth in industry


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Types of Merger

1. Horizontal Merger

2. Vertical Merger

3. Conglomerate Merger

4. Concentric Merger


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Horizontal Merger

Horizontal mergers are those mergers where

the companies manufacturing similar kinds of

commodities or running similar type of businesses merge with each other.


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Examples of Horizontal Merger

Lipton India and Brooke Bond.

Bank of Mathura with ICICI Bank.

BSES Ltd with Orissa PowerSupply Company.

Associated Cement Companies Ltd Damodar Cement.


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Vertical Merger

A merger between two companies producing

different goods or services.


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Example of Vertical Merger

Time Warner Incorporated, a major cable operation, and the

Turner Corporation, which produces CNN, TBS, and other

programming.

Pixar-Disney Merger


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Conglomerate Merger

A merger between firms that are involved in totally

unrelated business activities.

Two types of conglomerate mergers:

Pure conglomerate mergers involve firms with nothing in

common.

Mixed conglomerate mergers involve firms that are looking

for product extensions or market extensions.


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Example ofConglomerate Merger

Walt Disney Company and the

American Broadcasting Company.


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Concentric Merger

A merger of firms which are into similar type

of business.


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Example ofConcentric Merger

Next link is a competitive local exchange carrier offering

services in 57 cities and building a nationwide IP network.

Concentric, a national ISP, offers dedicated and dial-up

Internet access, high-speed DSL and VPN services across

the U.S. and overseas.


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Top Acquisitions

Rank Year Purchaser PurchasedTransaction value

(in mil. USD)

1 2000America Online

Inc. (AOL)Time Warner 164,747

2 2000

Glaxo Wellcome

Plc.

SmithKline

Beecham Plc. 75,961

3 2001Comcast

Corporation

AT&T Broadband

& Internet Svcs72,041

4 2004

Sanofi-Synthelabo

SA Aventis SA 60,243

5 2002 Pfizer Inc.Pharmacia

Corporation59,515

6 2004

JP Morgan Chase &

Co Bank One Corp 58,761


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Conclusion


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Rashmi Merger

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