MERGERS AND ACQUISITIONS

BY

ANEKETH T GUDURU JYOTHSNA RAGHURAM SALGUTI NAVYA DEEPTHI TALLURI -

2009AAPS048H 2009AAPS051H 2009AAPS058H 2009AAPS059H

Agenda
Introduction Definition Differences Motives Types
Process Strategies Conclusion

Merger
Combination of two or more companies into a single

company. Both companies' stocks are surrendered and new company stock is issued in its place. Usually a merger of equals takes place. e.g., Sony Ericsson , Maruti Suzuki

ACQUISITION

Acquisition
One firm takes over another and establishes its power

as the single owner. The acquired company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. Generally, the firm which takes over is the bigger and stronger one.

M&A
Whether a purchase is considered a merger or an

acquisition really depends on whether the

deal is friendly or hostile, and

how it is announced.
Often mergers and acquisitions become synonymous.

Key principle - to create shareholder value over and above that of the sum of the two companies.

Motives behind M&A

Improved market reach and industry visibility Elimination of competition

Economies of scale
Acquiring new technology Personal ambition

Varieties Of Mergers
Horizontal Merger

Mergers

Vertical Merger ProductExtension Merger Market-Extension Merger Conglomeration

Horizontal Merger
Also called horizontal integration Two companies that are in direct competition and

share the same product lines and markets merge. e.g., The formation of Brook Bond Lipton India Ltd. through the merger of Lipton India and Brook Bond.

Vertical Merger
A distributor and company or supplier and company.

Expansion of activities

- downstream is forward integration, - upstream is backward integration.

No integration
Raw materials

Backward integration
Raw materials

Forward integration
Raw materials

Intermediate manufacturing

Intermediate manufacturing Assembly

Intermediate manufacturing

Assembly
Assembly
Distribution

Distribution

Distribution

End costumer

End costumer

End costumer

Vertical Merger
Advantages Reduction in transportation costs Improved supply chain coordination. Drawbacks Capacity balancing issues Potentially higher costs due to low efficiencies resulting from lack of supplier competition Decreased flexibility due to previous upstream or downstream investments.

Product-extension Merger
Two companies selling different but related products

in the same market.

Example: Acquisition of Mobilink Telecom Inc. by Broadcom

Market-extension Merger
Two companies that sell the same products in different

markets. Example: Acquisition of Eagle Bancshares Inc. by the RBC Centura. Now whats the difference between the two?

Conglomeration
Two companies that have no common business areas

India created some of Asia's largest conglomerates,

such as the Tata Group,Reliance Industries, Aditya Birla Group and the Bharti Enterprises.

DOING THE DEAL

Doing the deal

Acquiring company starts buying up shares in the

target company. A tender offer is then given by the acquiring company to the target company. The target firm can respond in any of the following ways to the offer:
accept the terms of the offer

attempt to negotiate
execute a poison pill scheme find a white knight

Impact on stake holders

On employees Layoffs & Pay cuts Top level management Clash of egos Cultural differences Share holders Of acquiring firm Of target firm

Managing impact on stake holders

Retain key people
Implement an Effective Communication model Ensure a two way feedback Should be honest and proactive Messages should be consistent and repeated Ensure there is no misfit due to cultural issues Continue to finance profitable projects of the Target

company

Reasons for failure

Bad basis for decision making on the part of the

company leadership Failure to consider and/or incorporate the new company Overestimating the valuation of the acquired corporation e.g., Marks and Spencers acquisition of Book Brothers. Cultural clashes

Conclusion
Mergers can fail for many reasons including a lack of

management foresight, the inability to overcome practical challenges and loss of revenue momentum from a neglect of day-to-day operations. In spite of this, M&As continue to be an important tool behind growth of a company Reason being, the expansion is not limited by internal resources, no drain on working capital - can use exchange of stocks, is attractive as tax benefit and above all can consolidate industry - increase firm's market power

THANK YOU