Mergers acquisitions and takeovers

Mergers ,
Acquisitions &
Takeovers
BY SAJNA FATHIMA,smbs,mgu

What Does Merger Mean?
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.
BY SAJNAFATHIMA,smbs,mgu

Benefits of merger
• Diversification of product and service offerings
• Increase in plant capacity
• Larger market share
• Utilization of operational expertise and research and
development (R&D)
• Reduction of financial risk

Why do mergers fail ?
• Lack of human integration
• Mismanagement of cultural issues
• Lack of communication

A merger is a transaction that result in
the transfer of ownership and control of a
corporation.
When one company purchases another
company of an approximately similar size.
The two companies come together to
become one.
Two companies usually agree to merge
when they feel that they can do something
together that they can not do one their
own.

 Rajasthan bank and ICICI bank
 Arcelor & Mittal
 Renault and Nissan

Horizontal Merger
• Horizontal mergers are those mergers where
the companies manufacturing similar kinds of
commodities or running similar type of
businesses merge with each other.

Examples of Horizontal Merger
• Lipton India and Brooke Bond.
• Bank of Mathura with ICICI Bank.
• BSES Ltd with Orissa Power Supply Company.
• Associated Cement Companies Ltd with Damodar Cement.

Vertical Merger
• A merger between two companies producing
different goods or services.

Example of Vertical Merger
• Time Warner Incorporated, a major cable operation, and the
Turner Corporation, which produces CNN, TBS, and other
programming.
• Pixar-Disney Merger

Conglomerate Merger
A merger between firms that are involved in totally
unrelated business activities.
Two types of conglomerate mergers:
1. Pure conglomerate mergers involve firms with nothing in
common.
2. Mixed conglomerate mergers involve firms that are looking
for product extensions or market extensions.

Example of Conglomerate Merger
• Walt Disney Company and the American
Broadcasting Company.

Concentric Merger
A merger of firms which are into similar type
of business.

Example of Concentric Merger
• Nextlink is a competitive local exchange
carrier offering services in 57 cities and
building a nationwide IP network.
• Concentric, a national ISP, offers dedicated
and dial-up Internet access, high-speed DSL
and VPN services across the U.S. and overseas.

Ways of merger – A merger can take place
in following ways:
By purchasing of assets
 By purchase of common shares
 By exchanging of shares for assets
 By exchanging of shares for shares

By purchase of
assets
By purchase of
common shares

By exchanging of
shares for assets
By exchanging of
shares for shares

Reasons
of
merger
Future
goals Mutual
benefits
Maximizi
ng profits
Expansio
n of
business
Economy
of scale
Increase
market
share
Cost
maximi
zation
Diversific
ation of
risk
Goodwill
Product
improvement

Acquisition
•When one company takes over another and clearly
established itself as the new owner, the purchase is
called an acquisition.
•Acquisition is generally considered negative in nature

SYNERGIES RELATED TO ACQUISITION
• Economies of scale
• Staff reductions
• Acquiring new technology
• Improved market reach and industry visibility
• Taxation

Top Acquisitions
Rank Year Purchaser Purchased
Transaction value
(in mil. USD)
1 2000
America Online
Inc. (AOL)
Time Warner 164,747
2 2000
Glaxo Wellcome
Plc.
SmithKline
Beecham Plc.
75,961
3 2004
Royal Dutch
Petroleum Co.
Shell Transport &
Trading Co
74,559
4 2006 AT&T Inc.
BellSouth
Corporation
72,671
5 2001
Comcast
Corporation
AT&T Broadband
& Internet Svcs
72,041
6 2004
Sanofi-Synthelabo
SA
Aventis SA 60,243
7 2002 Pfizer Inc.
Pharmacia
Corporation
59,515
8 2004
JP Morgan Chase
& Co
Bank One Corp 58,761

Pac-Man defense
• Scare off by purchasing large amounts of the acquiring
company's stock.
• Resisting company may even sell off non-vital assets to
procure enough assets to buy out the acquirer.
Example
Attempted acquisition of Martin Marietta by Bendix
Corporation in 1982 :
• Martin Marietta's management responded to takeover
attempt by selling non-core businesses in order to attempt a
takeover of its own - of Bendix Corporation. In the end
• Bendix Corporation was bought by Allied Corporation

ACQUISITION
• Purchase of one company by another
company.
Company 1 Company 2
Newly Formed Company

TYPES OF ACQUISITIONS
• Depending upon
– Acquiree or merging is or isn’t listed in public
markets.
– How the communication is done and received by
the target.

THE FIRST CLASSIFICATION
ACQUISITION
PUBLIC (IF ACQUIREE
LISTED IN PUBLIC
MARKETS)
PRIVATE (IF ACQUIREE
NOT LISTED IN PUBLIC
MARKETS

THE SECOND CLASSIFICATION
ACQUISITION
FRIENDLY HOSTILE

CONFIDENTIALITY BUBBLE
• Quite normal for M&A deal communication to
take place in a so called ‘confidentiality
bubble’.
• Here information flows are restricted due to
confidentiality agreements.

FRIENDLY ACQUISITIONS
• Companies cooperate in negotiations.
• Synonymous to merger of equals.

HOSTILE ACQUISITIONS
• Takeover target unwilling to be purchased.
• It can also be if the acquiree company has no
prior knowledge of offer.
• Hostile takeovers do turn friendly in the end.
Most of the times.
• For the above thing to happen, offer is usually
improved.

REVERSE TAKEOVERS
• Acquisition usually refers to purchase of
smaller firm by larger firm.
• Sometimes, smaller firm acquire management
control of a larger / longer established
company.
• Keep its name for combined entity.
• Known as reverse takeover.

REVERSE MERGER
• Another type of acquisition.
• Is a deal enabling a private company to become a
public company.
• The deal enables private company by listing in a short
time period.
• Occurs when a private company has strong prospects
and is eager to raise financing, buys a publicly listed
shell company.
• Usually the public one is one with
– No business
– Limited assets

SOME STATISTICS
• Achieving acquisition successfully has proven
to be tough.
• Various studies show 50% of them are
unsuccessful.
• Process very complex, many dimensions
influence its outcome.
• Variety of structures used in securing asset
control.
• Different tax and regulatory implications

THE ACQUISITION PROCESS
• Buyer buys shares of target company
• Ownership control conveys effective control over assets,
but since company is going concern, liabilities come as well.
• Buyer buys assets of target company.
• Cash target receives from sell-off is paid back to its
shareholders by
– Dividend
– Through liquidation
• If buyer buys out entire assets, then target company =
empty shell.
• Buyer often cherry picks his assets

TAKEOVER OF COMPANIES

Takeovers
• A corporate action where an acquiring
company makes a bid for an acquire. If the
target company is publicly traded, the
acquiring company will make an offer for the
outstanding shares.

Takeover might be :
Hostile Takeover
A takeover attempt that is
strongly resisted by the
target firm
Friendly Takeover
Target company's
management and board of
directors agree to a merger or
acquisition by another
company.

WHAT IS TAKEOVER???
• General term referring to transfer of control of a
firm from one group of shareholders to another
group of shareholders. Change in the controlling
interest of a corporation, either through a friendly
acquisition or an unfriendly, hostile, bid.
• When an "acquirer" takes over the control of the
"target company", it is termed as Takeover.
• When an acquirer acquires "substantial quantity of
shares or voting rights" of the Target Company, it
results into substantial acquisition of shares.BY SAJNAFATHIMA,smbs,mgu

WHY SHOULD FIRMS TAKEOVER?
• To gain opportunities of market growth more quickly
than through internal means
• To seek to gain benefits from economies of scale
• To seek to gain a more dominant position in a national
or global market
• To acquire the skills or strengths of another firm to
complement the existing business
• To acquire a speedy access to revenue streams that it
would be difficult to build through normal internal
growth
• To diversify its product or service range to protect itself
against downturns in its core markets

SEBI GUIDELINES FOR TAKEOVER
• As per 2011 takeover code, its mandate for an acquire to place an
offer for at least 26% of the total shares of the target company.
• An acquirer with 15% shareholding and increasing it by another
20% through an open offer would have only got a 35%
shareholding in the target company .
• An acquirer with a 25% shareholding and increasing it by another
26% through the open offer under the Takeover Code of 2011 can
accrue 51% shareholding.
• The regulation further talks about acquirers who already have
55% or more shares but less than 75% shares of the target
company but intend to acquire more shares, this can only be done
if the acquirer makes a public announcement in this regard.BY SAJNAFATHIMA,smbs,mgu

WHY TAKEOVER IS DONE???
• To gain opportunities of market growth more quickly than
through internal means.
• To seek to gain benefits from economies of scale.
• To seek to gain a more dominant position in a national or
global market.
• To acquire the skills or strengths of another firm to
complement the existing business.
• To acquire a speedy access to revenue streams that it
would be difficult to build through normal internal growth.
• To diversify its product or service range to protect itself
against downturns in its core markets.BY SAJNAFATHIMA,smbs,mgu

KNIGHTS AND SQUIRES
• In the case of a hostile takeover, the firm making the bid can be
referred to as a 'black knight'.
• ‘White knight' is a firm that may enter the fray as a 'friendly'
bidder.
• A 'grey knight' is a third firm that is not welcomed by the
'victim', seeking to exploit the situation to their own advantage.
• ‘Yellow knight' is a firm who originally seeks to launch a hostile
takeover bid but then moderates its stance and negotiates on the
basis of a merger.
• ‘White squires‘ is a firm which may not be big enough to be able
to take control of another firm but may well seek to buy into the
'victim' firm to prevent the 'black knight' from being able to
achieve its takeover plans.BY SAJNAFATHIMA,smbs,mgu

PANKAJ PIYUSH TRADE & INVESTMENT
LTD
• Name of the Acquirer – Mr. Vinod Kumar Bansal.
• No. of shares – 1,04,000 equity shares.
• Price for shares – Rs. 34 per share.
• Date – April 17, 2012.
• Name of the Target Company – Pankaj Piyush Trade & Investment Ltd
• Reasons to Acquire –
1. In the last 3 years, the target co. has achieved very low turnover & profit
after tax. Even EPS is very Low.
2. The fair value of shares issued by Avesh Patel (C.A.) is Rs. 33.53 per
equity share which is lower than the offer price of Rs. 34 per equity share.
3. There has been no trading of shares on BSE. Thus it’s highly illiquid on
BSE. It will provide an exit opportunity to the existing shareholders.

M/S SURABHI CHEMICALS & INVESTMENTS
LIMITED
• Name of the Acquirer – M/s. Mahadhan Vincom Pvt. Ltd, Mr. Bishnu
Dutt Goenka, Mrs. Bina Agarwal & Mr. Santosh Sharma.
• Date – 26 March, 2012.
• Name of the Target Company – M/s. Surabhi Chemicals & Investment
Ltd.
• Size of the offer - Rs. 6,91,54,328. (No. of shares X Price for shares)

ESAB INDIA LIMITED
• Name of the Acquirer – Colfax Corporation.
• Price for shares – Rs. 550.10 per share.
• Date – 19 March, 2012.
• Name of the Target Company – ESAB Indi Ltd.
• Size of the offer - Rs. 2,201.60 million.

SHARP TRADING & FINANCE LIMITED
• Name of the Acquirer – Mr. Tarachand Varma
• No. of shares – 2,45,000equity shares.
• Date – 02 April,2012.
• Name of the Target Company – Sharp Trading & Finance Ltd.
• Book value per share – Rs.6.16.

Difference Between Mergers and
Acquisitions
Merger Acquisition
The case when two companies (often of
same size) decide to move forward as a
single new company instead of operating
business separately.
The case when one company takes over
another and establishes itself as the new
owner of the business.
The stocks of both the companies are
surrendered, while new stocks are issued
afresh.
The buyer company “swallows” the
business of the target company, which
ceases to exist.
For example, Glaxo Wellcome and
SmithKline Beehcam ceased to exist and
merged to become a new company,
known as Glaxo SmithKline.
Dr. Reddy's Labs acquired Betapharm
through an agreement amounting $597
million.

What is the difference
between Merger and Takeover?

Takeover and Acquisition
Takeover Acquisition
A takeover is usually a hostile
act, where the acquirer will
surpass the target company’s
board of directors and will
purchase more than 50% of
the shares to obtain a
controlling stake in the firm.
An acquisition is quite similar
to a takeover in that one
company will purchase the
other; however, usually on a
preplanned and orderly
manner in which both parties
strongly agree if beneficial to
both firms.

Thank You…

Mergers acquisitions and takeovers

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