Mergers and Acquisitions

Course Outline
Introduction M&A Process Valuation Deal Structuring and Financing Accounting for Acquisitions Regulatory considerations Takeover Tactics and Defenses Cross Border Acquisitions Alternative Restructuring Strategies

Reference Sources
Mergers Acquisitions and Other Restructuring Activities Donald DePamphilis Mergers and Acquisitions Text and Cases Rajesh Kumar Mergers, Restructuring And Corporate Control Fred Weston, Kwang S Chung, Susan E Hoag Corporate Finance-Theory And Practice Ashwath Damodaran http://www.ventureintelligence.in/malogin.php (IP based log in)

Course Evaluation
Internal Evaluation 60%
Assignments 30 (due every class) Quiz 30 (tentative split all assignments are compulsory, average would be considered. Check on assignment due if you miss a class)

External Evaluation 40%

Mergers and Acquisitions

Fortune 500 Firms in 1959 vs. 2009

86% Are Gone
Group A. American Motors, Studebaker, Eastman Kodak, Maytag and National Sugar Refining. Group B. Boeing, Campbell Soup, Deere, IBM and Whirlpool. Group C. Cisco, eBay, McDonald's, Microsoft and Yahoo. All the companies in Group A were in the Fortune 500 in 1959, but not in 2009. All the companies in Group B were in the Fortune 500 in both 1959 and 2009.

All the companies in Group C were in the Fortune 500 in 2009, but not 1959.

Definitions (Investopedia)
Mergers - The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.

Note : One of the two may be the surviving company or a new company could be formed

Acquisition - A corporate action in which a company buys most, if

not all, of the target company's ownership stakes in order to assume control of the target firm.

Dollar Value of M&As Worldwide

5000 4000 3000 2000 1000 0
1995 1997 1999 2001 2003 2005 2007 2009 2011

$Billions
Source: Thompson Reuters, Thompson Financial Securities Data Corporation and Dealogic

Indian Deals
M&As involving Indian companies touch $60.7 billion in 2010: E&Y Hit by adverse global and domestic factors, the value of deals fell to $34.4 billion in 2011. The number of M&A transactions involving Indian entities also dropped to 806 in 2011 from 1,135 deals in 2010.

Outlook for 2012

In the first two months of this year M&A deals worth $16.06 billion has been announced, hinting that the year 2012 likely to witness a host of M&A deals. The total value of outbound deals in February this year was $441 million (5 deals) as against $206 million (11 deals) a year ago (Economic Times) The most targeted Emerging Market nation so far this year was China, with 674 deals worth a combined US$31.3 billion. Brazil and India followed, with US$21.2 billion and US$10.6 billion of activity, respectively. (Thomson Reuters) Materials was the most active sector during the year accounting for 18% of Emerging Market volumes with US$24.4 billion in deal activity, closely followed by Financials with US$23.8 billion. (Thomson Reuters)

Motorola Mobility Price: $9.8 billion Date: August 15, 2011 Type: Company takeover

A few large International Deals of 2011 Google agrees to buy

Microsoft Agrees to Buy Skype Price: $8.5 billion Date: May 10, 2011 Type: Private equity, cross border, company takeover

Googles (GOOG) largest acquisition to date will expand both mobile patents and hardware, such as the Xoom tablet, above. Google paid a 63 percent premium on Motorola's stock price in a deal that increases Google's competitiveness in cell phones and tablets.

Potentially Microsofts (MSFT) largest acquisition, bigger may not be better, considering Microsofts unenviable track record of integrating purchases into the company. This bid is all about Microsofts mobile operating system, Windows Phone, and a joint agreement with Nokia.

Large Indian M&A deal in 2011

The Reliance BP deal
Reliance Industries signed a 7.2 billion dollar deal with UK energy giant BP buying 30 percent stake in 21 oil and gas blocks operated in India. In March 2011, the Vodafone Group announced that it would buy 33 percent stake in its Indian joint venture for about 5 billion dollars after the Essar Group sold its holding and exited Vodafone. In September 2011, Indias second largest hospital chain, Fortis Healthcare (India) Ltd, announced that it will merge with Fortis Healthcare International Pte Ltd., the promoters privately held company. In May 2011, IT firm iGate completed its acquisition of its midsized rival Patni Computers for an estimated 1.2 billion dollars.

Essar exits Vodafone

The Fortis Healthcare merger

iGate acquires majority stake in Patni Computers

GVK Power acquires Hancock Coal

In one of the biggest overseas acquisitions initiated by India in September 2011, Hyderabad-based GVK Power bought out Australias Hancock Coal for about 1.26 billion dollars. The acquisition includes a majority of the coal resources, railway line and port infrastructure of Hancock Coal, along with the option for long term coal supply contracts.

Motivations for Mergers and Acquisitions

Synergy
Operating (Economies of Scale and Economies of Scope) Financial

Diversification (New Product, New Market, Both)

Portfolio Theory /Developing countries

Strategic Realignment
Regulatory Changes Technological changes

Q Ratio- Buying undervalued assets Mismanagement Hubris Tax Consideration

Forms of Mergers
Horizontal Vertical Conglomerate

International Merger Waves (Boom Periods)

Horizontal Consolidation (1897-1904) Increasing Concentration (1916-1929) The Conglomerate Era (1965-1969) The Retrenchment Era (1981-1989) Age of Strategic Megamerger (1992-2000) Age of Cross Border and Horizontal Megamergers (2003-2007)

Merger Waves in India

First Wave (1980s) Swaraj Paul, RP Goenka, Manu Chabria Second Wave (1992-1995) FEMA and SEBI Takeover code Third Wave (1997-2002) Cement and Telecom Fourth Wave (2004-2006) Cross Border deals, Technology and IT