Merger
A merger is when two companies, more or less on equal footing, decide to join forces. It is considered to be an equal transaction, with both parties accepting risk and sharing in the potential rewards
in India merger is called Amalgamation
Merger
MergerThroughAbsorption
An Absorption is Combination of two or more companies into an existing company
All companies except one lose their identity
Western UnionBank Merged
WithIDBI
New Bank OfIndia Merged
With PNB
Bank Of New York MergedWith Mellon
Financial
Examples
Merger
MergerThroughConsolidation
A consolidation is a combination of two or more Companies into a new Company
All companies are dissolved to form a new Company
Merger
MergerThroughConsolidation
HindustanComputers Ltd
HindustanInstruments
Ltd
Indian SoftwareCo .Ltd
IndianReprographic
Ltd HCL LTD
1. Horizontal• A merger in which two firms in the same industry
combine.• Often in an attempt to achieve economies of scale and/or
scope.For example, combining of two book publishers or two
luggage manufacturing companies to gain dominant market share
2. Vertical• A merger in which one firm acquires a supplier or
another firm that is closer to its existing customers.• Often in an attempt to control supply or distribution
channels.For example, joining of a TV manufacturing(assembling)
company and a TV marketing company or joining of a spinning company and a weaving company.
3. Conglomerate• A merger in which two firms in unrelated
businesses combine.• Purpose is often to ‘diversify’ the company by
combining uncorrelated assets and income streams
For example, merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investment and advertising agencies. L&T and Voltas Ltd are examples of such mergers.
4. Cross-border (International) M&As• A merger or acquisition involving a Indian and a
foreign firm a either the acquiring or target company.
Acquisition
When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded
M&AObjectives
Faster GrowthImproving ProfitabilityManagerial EffectivenessGaining Market PowerLeadershipCost Reduction
MergerAlternatives
Joint VentureStrategic AllianceEliminating Inefficient OperationsProductivity ImprovementHiring Capable Managers
MOTIVES & BENEFITS OF
MERGERS
Limit Competition Market Power Diversification Growth Economy of Scale Access to Foreign Market Resources Displace existing ManagementAggressiveness Diversifying Risk Profitability
MOTIVES & BENEFITS OF
MERGERS
Accelerated Growth
Expanding Existing MarketsEntering New MarketsExpand InternallyExpand ExternallyDeveloping Operating FacilitiesPrice Paid for Merger
MOTIVES & BENEFITS OF
MERGERS
Enhanced Profitability
Economies of ScaleOperating EconomiesSynergy
MOTIVES & BENEFITS OF
MERGERS
Reduction in Tax Liability
Carry forward Losses
Tax on Share
MOTIVES & BENEFITS OF
MERGERS
Financial Benefits
Eliminating Financial Constraints
Deploying Surplus Cash
Enhancing Debt Capacity
Lowering Financial Costs
MOTIVES & BENEFITS OF
MERGERS
Increased Market Power
Market Share
Bargaining Power
Technological Advancement
Pricing
Limiting Competition
Steps inAnalysisOfMergers&Acquisitions
Planning
Search & Screening
FinancialEvaluation
Mode ofMerger
Negotiation
PostMerger
Steps inAnalysisOfMergers&Acquisitions
Planning
Industry Data
Market GrowthCompetitionEase Of EntryCapital & LabourDegree of Regulation
Target Firm
Quality Of MgtMarket Share SizeCapital StructureProfitabilityProduction &MarketingCapabilities etc
Objective of AcquisitionsStrengths & WeaknessesBusiness Units-dropped or Added
Steps inAnalysisOfMergers&Acquisitions
Search & Screening
Where to look for candidatesIs it too large or smallEngaged in related or unrelated ActivityExport oriented or LocalAmenable or not amenable to merger
Steps inAnalysisOfMergers&Acquisitions
FinancialEvaluation
Determining
•Earnings•Cash flows•Areas Of Risk•Maximum Price Payable•How to Finance Merger
Current Market Value
PremiumValue
Steps inAnalysisOfMergers&Acquisitions
Mode ofMerger
•Regulations
•Time frame
•Resources
•Degree of control
•Assume hiddenliabilities
Steps inAnalysisOfMergers&Acquisitions
Negotiation
Your intentions should be to pay one dollar more than the value to the next highest bidder and an Amount that is less than the value to you
Steps inAnalysisOfMergers&Acquisitions
PostMerger
Check Hostility
Anticipate Problems
Solve Problems
Treat people With Dignity
“Art of taking overCompany
Without overtakingIt”
Economic Advantage (EA) if VPQ > (VP + VQ)
Where VPQ =Combined PV of merged firms
VP= Worth of Firm P
VQ=Worth of firm Q
Value Created by Merger
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