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  • pg 1
    Merger is defined as combination of two or
    more companies into a single company where
    one survives and the others lose their
    corporate existence

    The survivor acquires the assets as well as
    liabilities of the merged company or
    companies. Merger is the fusion of two or more
    existing companies.

An acquisition, also known as a takeover, is the
buying of one company (the ‘target’) by another.
An acquisition may be friendly or hostile.

Acquisition refers to a purchase of a smaller
firm by a larger one. The buyer buys the shares,
and therefore control, of the target company
being purchased.
ACQUISITIONS                         MERGERS
                                   A merger happens when two
 When one company takes over
                                   firms, often of about the same
 another and clearly established
                                   size, agree to go forward as a
 itself as the new owner, the
                                   single new company rather
 purchase is called an
                                   than remain separately owned
                                   and operated. "

 But when the deal is unfriendly
 - that is, when the target        A purchase deal will also be
 company does not want to be       called a merger when both
 purchased - it is always          CEOs agree that joining
 regarded as an acquisition.       together is in the best interest
                                   of both of their companies.
              Types of Mergers

  Vertical        Horizontal       Circular
Combination      combinations    Combination

       Conglomerate     Within Stream
       Combination        Mergers
                Vertical Combination

A company would like to takeover another company or seek its
merger with that company to expand espousing backward
integration to assimilate the sources of supply and forward
integration towards market outlets.

The acquiring company through merger of another unit attempts
on reduction of inventories of raw material and finished goods,
implements it production plans as per objectives and economizes
on working capital investments

In vertical combinations, the merging undertaking would be either
a supplier or a buyer using its product as intermediary material for
final production.
              Horizontal Combination

It is a merger of two competing firms which are at the same stage
of industrial process. The acquiring firm belongs to the same
industry as the target company.

The main purpose of such mergers is to obtain economies of scale
in production by eliminating duplication of facilities and operations
and broadening the product line, reduction in investment in
working capital, elimination of competition concentration in
product, reduction of advertising costs, and increase in market
segments and exercise of better control on market
            Circular Combination

Companies producing distinct products seek
amalgamation to share common distribution and
research facilities to obtain economies by
elimination of cost of duplication and promoting
market enlargement.

The acquiring company obtains benefits in the form
of economies of resource sharing and diversification.
        Conglomerate Combination

The basic purpose of such amalgamations remains
utilization of financial resources and enlarges debt
capacity through re-organizing their financial structure
so as to service the shareholders by increased
leveraging and EPS, lowering average cost of capital.

Merger enhances the overall stability of the acquirer
company and creates balance in the company’s total
portfolio of diverse products and production
          Within Stream Mergers

Such mergers take place when subsidiary company
merges with parent company or parent company
merges with subsidiary company. The former
arrangement is called “down stream” merger
whereas the latter is called ‘up stream’ merger.

For example, recently, the ICICI Ltd. a parent
company has merged with its subsidiary ICICI Bank
signifying down stream merger. Such mergers are
very common in the corporate world.
PRODUCTION     • To obtain improved production
  FACILITIES   • Amalgamating production facilities

               • To obtain new markets
 2.MARKET      • To eliminate competition
 EXPANSION     • To reduce advertising costs
               • To strengthen distribution network

               • To improve liquidity
3.FINANCIAL    • To dispose of surplus and outdated assets
 STRENGTH      • To have greater assets backing
               • To improve EPS
   4.MANAGERIAL        • Empire building,status,power and
      MOTIVES            remuneration

                    • Due to large volume of the

  6.ECONOMIES OF    • Operating activities become

                       • Past losses of acquired subsidiary
 7.TAX ADVANTAGES        can be used to lower profits

8. DIVERSIFICATION OF • Both types of risk

1. MARKET   • Attributes of firms are compared with
              similar types of firms in the market
   BASED    • Price Earnings ratio

2.INCOME    • Takes into account net present value
 3.ASSET    • Method used when firm is running at a
  BASED     • Valuation of intangible assets

    Tender Offer by the acquiring
    • Building position by buying shares
    • File with SEC >5% shares
    • Declare intention
    • Come up with a buying price i.e. the offer
    • Tender offer is advertised along with
Target’s Response
• Accept the Offer
• Attempt to negotiate
• Execute a Poison Bill
• Find a White Knight

            Closing the deal
            • Cash for Stock (taxable)
            • Stock for Stock (non taxable)

                                    Realization of

         investment                                              Economies of
        opportunity in                                              scales

                   Acquisition of
                   human assets
                     and other                       Diversification
                   resources not                     of product line

DEALS IN                                FRINGE      FAVOR OF
TERM OF                                BENEFITS     MERGERS

    FEAR OF                                          NOT
 DISPLACEMENT                                     SUPPORTIVE

                               Not much loss of
               Structure and

                                               A private
                                            company can go
 Size of company
                                             public without
                                            much investment

• Depends on whether                                             • Mergers result in
  merger decreases or            • Lessening job                   centralization of power .
  increases competitive            opportunities, therefore      • This might initially result
  economic and productive          preventing the distribution     in a monopoly thus
  activity                         of benefits resulting from      leading to exploitation of
                                   diversification of              Public
• This impacts quality , price     production activities         • But in a free economy
  level, after sales etc.                                          other players will enter to
                                                                   reap the benefits and thus
                                                                   add to competition.

Consumers                        Workers Community               General Public
               CROSS BORDER M&A

Target Company’s domestic currency appreciates 1% relative to acquirer’s

In 1996, 2000 M&A’s took place

As increased as economies have softened

Gives companies a chance to increase their global footprint

Enables agility in terms of culture adaptation.
Economies of scope

Economies of scale

Growth or expansion

Risk diversification

Greater market capability and lesser competition

Financial synergy

Operational Efficiency
Obtaining quality staff or additional skills, knowledge of
your industry or sector and other business intelligence.

Accessing a wider customer
Sometimes situations could arise outside the company’s control and it
may increase the risk.

An acquisition could become expensive if the company end up in a
bidding war

Business performance can be damaged sometimes because of time
spent on the deal and a mood of uncertainty

Disagreement may occur upon who will run the combined business, for
how long the other owner will remain involved in the business,
organization culture and structure

Mittal    • The largest producer of steel in terms of
            volume. Despite the fact that Mittal steel
            is based in Netherlands, it is perceived that

Steel       the company is non-European because its
            CEO Lakshmi Mittal is Indian.

          • Headquartered in Luxembourg, the merger
            of three steel companies- Aceralia, Arbed
Arcelor     and Usinor led to the creation of Arcelor.
            In 2005, Arcelor had revenues of 32 billion
                  THE CONTROVERSY
In January 2006, Mittal Steel launched a $22.7 billion offer to Arcelor’s shareholders.

                       • The management was extremely hostile to Mittal
                         Steel’s bid from the beginning.
                       • The CEO of Arcelor, Guy Dolle dismissed Mittal
                         Steel as a “company of Indians” and unworthy of
                         taking over a European company.
                       • Arcelor repeatedly played the patriotic card and
Management:              tried to convince the shareholders to reject the
                         bid made by Mittal Steel.
                       • Arcelor union also feared job cuts, reduction in
                         social standards and quality of Corporate
               • The French government (despite not being
                 a shareholder) was against the deal
                 because of worries over its 28,000 Arcelor
               • Despite repeated assurances from Mittal
                 that the deal would not lead to layoffs the
                 government of France was never
  European       convinced.
               • The government of Luxembourg (a
Governments:     stakeholder) was also against the deal for a
                 variety of reasons.
               • However, the European Union approved of
                 the Mittal-Arcelor deal.
               • And most industry analysts and investment
                 banks pointed out that the deal was in
                 Arcelor‘s best interests.
Moves by arcelor to counter the bid by

              • On February 16,2006 Arcelor
                declared a dividend of 1.2 Euros,
                which was 85 percent higher than
                the previous dividend in 2004.
Declaration   • This was seen as an attempt by the
                company to convince shareholders
     of         that the situation under the
 Dividend:      current management was
                extremely positive.
              • Arcelor also made a very positive
                profit report, which was later
                found to be inflated.
          • In an attempt to thwart the offer from
            Mittal Steel, Arcelor released a 13 billion
            Euro merger plan with Severstal, a Russian
  The     • This merger would have made the new
            Severstal-Arcelor entity too big for Mittal

Russian     Steel to buy.
          • Despite the merger plan being fraught
            with loopholes, the Arcelor management
 Angle      tried to convince shareholders that this
            was the best deal for them.
          • The shareholders however rejected the
            merger with NOT EVEN ONE shareholder
            voting in favour of the merger.
Role of the Indian Government

      Most Indians were of the opinion that
      the deal was not getting pushed through
      because of Lakshmi Mittal’s nationality.

      The Indian government raised the issue
      at several International Forums
      especially through the then Commerce
      minister Kamal Nath.
         • On 25th June, 2006 the deal was finally
           clinched when the shareholders of Arcelor
           agreed to Mittal Steel’s offer.
 END     • Mittal had to considerably sweeten the
           initial offer-by raising its valuation of
           Arcelor from $22.7 billion to $32.9 billion.
RESULT   • The combined company , Arcelor Mittal
           now holds 10 percent of the global market
           share for steel and is the largest steel
           company in the world.
Some Sacrifices and Some Returns

     • Mittal conceded to the Arcelor board’s demand of greater professionalism and
       better corporate governance by agreeing to a majority representation by Arcelor
       on the board of the merged entity. Even though L.N. Mittal owns 43% equity.

     • Despite his majority ownership, Mittal has agreed to Arcelor Mittal as the new
       name of the merged entity, rather than Mittal Arcelor that he would have

     • Mittal has agreed to be co-chairman of Arcelor Mittal alongside Arcelor’s
       chairman Joseph Kinsch.
• Revenues increased from $28.123
  billion to $105.2 billion.

• Profit of the company also rose from
  $3.36 billion to $10.36 billion.

• Overall, it is seen as a very successful
Bharti Airtel – MTN Deal
         • Established in July 07, 1995.
         • Provides Mobile, Telemedia
           services (fixed line) and
           enterprise services (carriers &
Bharti     service to corporates)
         • Largest Private Telecom Company
Airtel     in India
         • 3rd Largest Wireless Operator in
           the World and Largest & Fastest
           Growing Wireless Operator in
         • Largest Telecom Company listed
           on Indian Stock Exchange
         • M-Cell incorporated MTN in South Africa
           in 1994
MTN      • Is a leading provider of communication
           services, offering cellular network access

  in       and business solutions
         • Is a multinational telecommunications

South    • Core operations in 24 countries in Africa
           and the Middle East
         • Presence in key markets such as Nigeria,
Africa     Ghana, Cameroon, Uganda etc.
         • Group subscribers up 14% to 103,2
           million from December 2008
What’s there for Bharti?

Increase the customer base which was limited to
subscriber in India and SriLanka

To capture the fast-growing and under-penetrated,
untapped telecom markets of Africa and Middle East.

To become worlds thirds largest telecom player
If deal was through

• Would create the world's sixth largest mobile operator, boasting
  over 130 million subscribers in more than 24 countries

• New and bigger market for Airtel to explore other than India and
  Sri lanka

• This transaction would have been the single largest FDI into South
  Africa($23 billion) and one of the largest outbound FDIs from India

• India’s biggest Cross-border deal, almost thrice the size of Tata
  Steel’s $13 billion buy of Corus in 2006
               Why the deal failed ?

Crossing the limit of FDI was a concern for Bharti Airtel

As per the proposed structure, Bharti would have acquired 49%
shareholding in MTN In turn MTN and its shareholders would acquire
about 36% economic interest in Bharti.

As per the provisions of the Takeover Code of SEBI Bharti cannot
acquire any voting rights through the GDR/ADR route

The South African government demanded dual listing of MTN in order
to protect the character of MTN as South African entity
                 Why the deal failed

India Denied MTN for dual listing

The deal was again called off

Also, the deal fell through because of South Africa's political

Lack of synergies between the people, culture and branding issues of
the 2 companies

The deal was a merger of equals.

            • Mergers create synergies and economies of scale,
              expanding operations and cutting costs.

            • Investors can take comfort in the idea that a merger
              will deliver enhanced market power.

Investors   • M&A comes in all shapes and sizes, and investors need
              to consider the complex issues involved in M&A.

            • Proper Financial analysis should be done befor such
Thank You

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