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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 partiesMerger accepting risk and sharing in the potential rewards in India merger is called Amalgamation
Merger takes place in two way:- Merger Through AbsorptionMerger MERGER THROUGH CONSOLIDATION
Merger Through Absorption An Absorption is Combination ofMerger two or more companies into an existing company All companies except one lose their identity
ExamplesWestern Union Bank Of NewBank Merged New Bank Of York Merged With India Merged With Mellon IDBI With PNB Financial
Merger Through Consolidation A consolidation is a combination of two or moreMerger Companies into a new Company All companies are dissolved to form a new Company
Merger Through Consolidation Hindustan Hindustan Indian Software InstrumentsMerger Computers Ltd Co .Ltd Ltd Indian Reprographic Ltd HCL LTD
FORMS OF MERGERHorizontal VerticalMerger Conglomerate Merger Merger Cross border international M&A
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 share2. 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 buyersstock continues to be traded
Acquisition & TakeoverWhen Acquisition is unfriendly or hostile It may be called Takeover
Increased Market Power Market ShareMOTIVES & BENEFITS Bargaining Power OF MERGERS Technological Advancement Pricing Limiting Competition
PlanningSteps in Search &Analysis ScreeningOfMergers Financial& EvaluationAcquisitions Mode of Merger Negotiation Post Merger
Objective of AcquisitionsSteps in Planning Strengths & Weaknesses Business Units-droppedAnalysis or AddedOfMergers&Acquisitions Industry Data Target Firm Quality Of Mgt Market Growth Market Share Size Competition Capital Structure Ease Of Entry Profitability Capital & Labour Production &Marketing Degree of Regulation Capabilities etc
Search & ScreeningSteps inAnalysisOfMergers& Where to look for candidatesAcquisitions Is it too large or small Engaged in related or unrelated Activity Export oriented or Local Amenable or not amenable to merger
Financial EvaluationSteps inAnalysisOfMergers Current& MarketAcquisitions Value Determining •Earnings •Cash flows •Areas Of Risk Premium •Maximum Price Payable Value •How to Finance Merger
Mode of MergerSteps inAnalysisOfMergers& •RegulationsAcquisitions •Time frame •Resources •Degree of control •Assume hidden liabilities
NegotiationSteps inAnalysisOfMergers&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
Post MergerSteps inAnalysisOf Check HostilityMergers& Anticipate ProblemsAcquisitions “Art of taking over Solve Problems Company Without overtaking Treat people It” With Dignity
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 MergerEconomic AdvantageEA = VPQ - (VP + VQ)