merger as a solution to the global economic meltdown

1. Global economic meltdown
• IS taking its toll on the world
• Cost cutting to achieve Economies of
scale is the need of the hour.
• While taking cost cutting steps companies
cannot ignore the sentiments of the
market as well the people
• Though these are normal corporate
procedures it could portray the company in
bad shape

2. • Thus for the current scenario companies
need to device methods
• Which not only expand business but also
provide for economies of scale
• Therefore a bright solution for the current
scenerio would be
CORPORATE MERGERS &
ACQUSITIONS

3. WHAT IS A MERGER?
• An arrangement whereby assets of two
companies become vested in
• or under the control of one company
• Shareholders of both companies
exchange their shares for shares of the
new company
• Or shareholders of a weaker company
surrender their shares for new shares

4. To know what is merger we need to know its
synonym Amalgamation though used
together they have a thin line of difference
• Amalgamation • Merger
• It is blending of 2 or • Joining together of 2
more existing companies to form a
undertaking into one third company
undertaking
• Only the company • Both the companies
which blends with the cease to exist after a
other ceases to exist MERGER

5. Benefits of corporate mergers
• Helps to achieve economies of scale in operation
• Helps to reduce gestation period for new
business which would be complementary to
existing business
• To be a Global player
• To use liquidity available with the new company
for achieving growth through diversification
• To acquire and minimise the available managerial
skill to increase the profitability
• To take advantage of concession given to tax laws

6. WAYS TO MERGE
a) Horizontal Mergers
• 2 or more companies which are producing or
rendering essentialy the same products or
services and compete with each other directly
like sugar artificial sweeteners
• Benefits
• Eliminates duplication
• Broadens productline
• Reduction in finance for working capital
• Reduces unhealthy competition
• Widens market area

7. b) Vertical mergers
• Companies which supply basic inputs for manufacture of
final product
• The latter company merges with former
• Benefits
• Assured of supplies , able to control quality of production
company achieves economies and improves profitability
of final product
• For instance a global infrastructure company acquires a
domestic cement company to reap the benefits
c) Conglomerate mergers
• 2 or more companies carrying different business are
acquired and merged to diversify products marketed
• Company may not be related to each other horizontally
• No relation in production marketing research

8. • Benefits
• Achieves stability through diversification of
business
• To utilize spare resources whether management
or capital
• Pooling of staff and allocating them to needy
sectors
• To provide outlet for ambitions of management
where anti monolpoly laws make further
acquisition in companies own field impracticable
Now why should a company go
for a merger?

9. Why H & co should wish to acquire
control of, or to merge with S & co
• H & co can aquire shares of S & co at a discount through merger
rather than open market operation which will be costly
• As S & co was unaware of the true value of assets and not utilized it
to the max
• Shares have a poor market rating for some irrational reason
• Ineficient capital structure
• Profits earned by H & co will be at a lower multiple owing to
acquisition of shares at a discount thus earning increase
• Bringing 2 companies together will result in the combined enterprise
producing greater or more earnings than the sum of 2 companies
thereby accelerating learning processand ensuring economies of
scale
• Takeover may also be on the desire of S & co for tax reasons to
provide a proprietor with capital gains on his profit after tax

10. A glimpse of the recent successful
HCL-AXON merger
• Country's fifth largest software exporter HCL Technologies
completed the acquisition of UK-based firm Axon in a 441 million-
pound deal and the new entity would pursue deals worth 1.2 billion
dollars
• HCL Axon will be the SAP services division of HCL Technologies
and has been formed by the reverse merger of HCL’s SAP practice
and Axon Group
• The combined entity will have 4,500 consultants, with the estimated
revenues of about $500-600 million.
• The acquisition catapults HCL among the top 10 SAP services
players globally
• The acquisition brings HCL Axon’s expertise in designing,
implementing and supporting solutions for companies using SAP as
their enterprise platform. From an 11% contribution to revenues,
EAS will now account for 25% of HCL revenues