Presentationon „Merger and acquisition’ Presented by Vandana 843 business Mergers Amalgamation combination Acquisitions Takeovers Merger 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 parties accepting risk and sharing in the potential rewards in India merger is called Amalgamation Merger takes place in two way:- Merger Through Absorption Merger MERGER THROUGH CONSOLIDATION . Merger Through Absorption Merger An Absorption is Combination of two or more companies into an existing company All companies except one lose their identity . Examples Western Union Bank Merged With IDBI New Bank Of India Merged With PNB Bank Of New York Merged With Mellon Financial . Merger Through Consolidation Merger A consolidation is a combination of two or more Companies into a new Company All companies are dissolved to form a new Company . Ltd Indian Reprographic Ltd HCL LTD .Merger Through Consolidation Merger Hindustan Computers Ltd Hindustan Instruments Ltd Indian Software Co . FORMS OF MERGER Horizontal Merger Vertical Merger Conglomerate Merger Cross border international M&A . Vertical • • A merger in which one firm acquires a supplier or another firm that is closer to its existing customers. For example. Often in an attempt to achieve economies of scale and/or scope. .1. joining of a TV manufacturing(assembling) company and a TV marketing company or joining of a spinning company and a weaving company. combining of two book publishers or two luggage manufacturing companies to gain dominant market share 2. Horizontal • • A merger in which two firms in the same industry combine. Often in an attempt to control supply or distribution channels. For example. L&T and Voltas Ltd are examples of such mergers. electronic products.3. merging of different businesses like manufacturing of cement products. insurance investment and advertising agencies. fertilizer products. Cross-border (International) M&As • A merger or acquisition involving a Indian and a foreign firm a either the acquiring or target company. . Purpose is often to ‘diversify’ the company by combining uncorrelated assets and income streams For example. Conglomerate • • A merger in which two firms in unrelated businesses combine. 4. 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 buyer "swallows" the business and the buyer's stock continues to be traded . the target company ceases to exist. Acquisition & Takeover When Acquisition is unfriendly or hostile It may be called Takeover . M&A Objectives Faster Growth Improving Profitability Managerial Effectiveness Gaining Market Power Leadership Cost Reduction . Are there any alternatives to Mergers or acquisitions? . Merger Alternatives Joint Venture Strategic Alliance Eliminating Inefficient Operations Productivity Improvement Hiring Capable Managers . MOTIVES & BENEFITS OF MERGERS Limit Competition Market Power Diversification Growth Economy of Scale Access to Foreign Market Resources Displace existing Management Aggressiveness Diversifying Risk Profitability . Accelerated Growth MOTIVES & BENEFITS OF MERGERS Expanding Existing Markets Entering New Markets Expand Internally Expand Externally Developing Operating Facilities Price Paid for Merger . Enhanced Profitability MOTIVES & BENEFITS OF MERGERS Economies of Scale Operating Economies Synergy . Reduction in Tax Liability MOTIVES & BENEFITS OF MERGERS Carry forward Losses Tax on Share . Financial Benefits Eliminating Financial Constraints MOTIVES & BENEFITS OF Deploying Surplus Cash Enhancing Debt Capacity Lowering Financial Costs MERGERS . Increased Market Power Market Share MOTIVES & BENEFITS OF Bargaining Power MERGERS Technological Advancement Pricing Limiting Competition . Planning Steps in Analysis Of Mergers & Acquisitions Search & Screening Financial Evaluation Mode of Merger Negotiation Post Merger . Steps in Analysis Of Mergers & Acquisitions Planning Objective of Acquisitions Strengths & Weaknesses Business Units-dropped or Added Industry Data Target Firm Market Growth Competition Ease Of Entry Capital & Labour Degree of Regulation Quality Of Mgt Market Share Size Capital Structure Profitability Production &Marketing Capabilities etc . Search & Screening Steps in Analysis Of Mergers & Acquisitions Where to look for candidates Is it too large or small Engaged in related or unrelated Activity Export oriented or Local Amenable or not amenable to merger . Financial Evaluation Steps in Analysis Of Mergers & Acquisitions Determining •Earnings •Cash flows •Areas Of Risk •Maximum Price Payable •How to Finance Merger Current Market Value Premium Value . Mode of Merger Steps in Analysis Of Mergers & Acquisitions •Regulations •Time frame •Resources •Degree of control •Assume hidden liabilities . Negotiation Steps in Analysis Of Mergers & 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 Merger Steps in Analysis Of Mergers & Acquisitions Check Hostility Anticipate Problems Solve Problems Treat people With Dignity “Art of taking over Company Without overtaking It” . 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 Merger Economic Advantage EA = VPQ .(VP + VQ) . . Take over . Acquisitions.Few Mergers.