Mergers

and

business

ombination

Acquisitions

Mergers

and

Acquisitions

Mergers

business

Amalgamation

Acquisitions

ombination

Takeovers

Mergers

and

Acquisitions

When two or more companies

combines into one company

may merge with existing co,
Merger
form new company
in India merger is called
Amalgamation

Mergers

and

Acquisitions

Merging Companies
are called

Amalgamating
Companies
Merger
New Company is
called

Amalgamated
Company

Mergers

and

Acquisitions

Merger
Through
Absorption
Merger
MERGER
THROUGH
CONSOLIDATION

Mergers

and

Acquisitions

Merger
Through
Absorption

Merger

An Absorption is Combination of
two or more companies into an
existing company
All companies except one lose
their identity

Mergers

Western Union
Bank Merged
With
IDBI

and

New Bank Of
India Merged
With PNB

Acquisitions

Bank Of New
York Merged
With Mellon
Financial

Mergers

and

Acquisitions

Merger
Through
Consolidation

Merger

A consolidation is a combination of two or more

Companies into a new Company

All companies are dissolved to form a new Company

Mergers

and

Acquisitions

Merger
Through
Consolidation

Merger

Hindustan
Computers Ltd

Indian
Reprographic
Ltd

Hindustan
Instruments
Ltd

Indian Software
Co .Ltd

HCL LTD

Mergers

and

Acquisitions

Types of Merger
Statutory merger is a merger where the
acquiring company assumes the assets
and the liabilities of the merged companies
A subsidiary merger is a merger of two
companies where the target company
becomes a subsidiary or part of a
subsidiary of the parent company

Mergers

and

Acquisitions

Acquisition
An Acquisition may be an act of acquiring
effective control by one company over assets
or management of another company without
any combination of companies..
Companies may remain independent, separate
But there may be change in control of
Companies..

Mergers

and

Acquisitions

Acquisition
Obtaining Control over management of a Company
MRTP ACT-at least 25% voting right of a Company
Investment of more than 10% share into a company
Require approval of Shareholders & C Govt.

Mergers

and

Acquisitions

Dabur Pharma to acquire Thai company

Aditya Birla Group to acquire Trinethra
Chinas largest Bank to take over
Indonesian Bank

Mergers

and

Acquisitions

Acquisition & Takeover

When Acquisition is unfriendly or hostile

It may be called Takeover

Mergers

and

Acquisitions

A Takeover is the purchase of one firm by

another firm
If the takeover is friendly, then it is
basically an acquisition, (IBMs acquisition
of Lotus in 1995)
If the takeover is not friendly, then it is
known as hostile takeover, (Oracles bid
for PeopleSoft in 2003)

Tactics to Defend
Acquisitions
Mergers
andTakeover..Merger

Divestiture
Crown Jewels
Poison Pill
Greenmail
White Knight
Golden parachutes

Mergers

and

Acquisitions

FORMS OF MERGER

Horizontal
Merger

Vertical
Merger

Conglomerate
Merger

Mergers

and

Acquisitions

Horizontal: a firm acquires another firm in the same

industry (Daimler Chrysler in 1998)

Vertical: a firm acquires another firm in a different

stage (backward or forward) of the production process
(GM - Fisher Body)

Conglomerate (merger): combination of two firms in

unrelated industries (Mobil Oil Montgomery Ward in
1974)

Mergers

Merger
Objectives

and

Acquisitions

Faster Growth
Improving Profitability
Managerial Effectiveness
Gaining Market Power
Leadership
Cost Reduction

Mergers

and

Acquisitions

Are there any alternatives to Mergers or acquisitions?

Mergers

Merger
Alternatives

and

Acquisitions

Joint Venture
Strategic Alliance
Eliminating Inefficient
Operations
Productivity Improvement
Hiring Capable
Managers

Mergers

MOTIVES & BENEFITS

OF

MERGERS

and

Acquisitions

Limit Competition
Market Power
Diversification
Growth
Economy of Scale
Access to Foreign Market
Resources
Displace existing Management
Circumvent Govt Regulations
Aggressiveness
Diversifying Risk
Profitability

Mergers

and

Acquisitions

Accelerated Growth

MOTIVES & BENEFITS

OF

MERGERS

Expanding Existing Markets

Entering New Markets
Expand Internally
Expand Externally

Mergers

and

Acquisitions

Reduction in Tax Liability

MOTIVES & BENEFITS

OF

MERGERS

Carry forward Losses

Tax on Share

Mergers

and

Acquisitions

Financial Benefits
Eliminating Financial Constraints

MOTIVES & BENEFITS

OF

MERGERS

Deploying Surplus Cash

Enhancing Debt Capacity
Lowering Financial Costs

Mergers

and

Acquisitions

Increased Market Power

Market Share

MOTIVES & BENEFITS

OF

MERGERS

Bargaining Power
Technological Advancement
Pricing
Limiting Competition

Mergers

and

Acquisitions

Planning
Search &
Screening
Financial
Evaluation
Mode of
Merger

Steps in
Analysis
Of
Mergers
&
Acquisitions

Negotiation
Post
Merger

Mergers

Steps in
Analysis
Of
Mergers
&
Acquisitions

and

Planning

Acquisitions

Objective of Acquisitions
Strengths & Weaknesses
Business Units-dropped
or Added

Industry Data
Target Firm
Market Growth
Competition
Ease Of Entry
Capital & Labour
Degree of Regulation

Quality Of Mgt
Market Share Size
Capital Structure
Profitability
Production &Marketing
Capabilities etc

Mergers

and

Acquisitions

Search &
Screening
Steps in
Analysis
Of
Mergers
&
Acquisitions

Where to look for candidates

Is it too large or small
Engaged in related or unrelated Activity
Export oriented or Local
Amenable or not amenable to merger

Mergers

and

Acquisitions

Financial
Evaluation
Steps in
Analysis
Of
Mergers
&
Acquisitions

Determining
Earnings
Cash flows
Areas Of Risk
Maximum Price Payable
How to Finance Merger

Current
Market
Value

Premium
Value

Mergers
Mode of
Merger
Steps in
Analysis
Of
Mergers
&
Acquisitions

Regulations
Time frame
Resources
Degree of control
Assume hidden
liabilities

and

Acquisitions

Mergers

and

Acquisitions

Negotiation
Steps in
Analysis
Of
Mergers
&
Acquisitions

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

Mergers

and

Acquisitions

Post
Merger
Steps in
Analysis
Of
Mergers
&
Acquisitions

Check Hostility
Anticipate Problems
Solve Problems
Treat people
With Dignity

Art of taking over

Company
Without overtaking
It

Mergers

and

Acquisitions

Value Created by Merger

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
Mergers
and Acquisitions

Economic Advantage
EA = VPQ - (VP + VQ)

Mergers

and

Acquisitions

CASE STUDY
HP COMPAQ
Merger

Mergers

and

Acquisitions

Arguments About The Merger

Supporters
. HP-COMPAQ will become the leader in most
of the sub-sectors
. Ability to offer better solutions to customers
demands
. New strategic position will make it possible to
increase R&D efforts and customer research

Mergers

and

Acquisitions

. Decrease in costs and increase in

profitability
. Financial strength to provide chances to
invest in new profitable areas

Mergers

and

Acquisitions

Arguments About The Merger

Opponents
. Acquiring market share will not mean the
leadership
. No new significant technology capabilities
added to HP
. Large stocks will increase the riskiness of
the company (Credit rating of the HP is
lowered after the merger announcement)
. Diminishing economies of scale sector which
both companies have already a great scale.

Mergers

and

Acquisitions