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Jitendra Mohananey B. Com., LL.B., ACA, ACS Jitendra_mohananey@yahoo.

com +91 9810287311

Wk 1

Jitendra Mohananey Qualification: B.Com., LL.B., ACA, ACS Occupation: Vice President Finance - LITL Post qualification Experience: 25 years Industries Worked: IT, Telecom, Infrastructure, F & B, Oil & Gas Companies worked: JK Synthetics Ltd, YKK Corp, Brown Forman Corp, Bharti, Emerson, IGL etc. Experience: Fund Raising Banks, FIs, FIIs, ECB, IPO and Private Equity , M & A, Corporate Las, Taxation Faculty: IIPM, IILM and EBS

MERGER & ACQUISITIONS COURSE DURATION: 3 HRS PER WEEK FOR 12 WEEKS COURSE CREDITS: 3 1. FORMS OF BUSINESS ALLIANCES (7 HRS) Strategic choice of type of business alliance Merger and acquisition and take-over Introduction to restructuring problems; types of mergers; reasons for M & A; vertical, horizontal, conglomerate, concentric mergers. History of mergers the first to the fourth wave and causes thereof. The strategic Process Theories of mergers and tender offering financial synergy and managerial synergy. 2. DEFINING AND SELECTING TARGET (5 HRS) Pricing of mergers (Pricing the competitive bid for take- over) Negotiation/approach for merger Acquisition and take over contracting; implementation of M & A; managing post-merger issues 3. VALUING FIRMS AND THE DIFFERENT METHODS OF VALUATION (7 HRS) Product life cycle effect on valuation. Corporate and financial restructuring Divestiture Mechanism, process and techniques legalities involved in M & A and take-over Ethical issues of merger and take-over 4. ACCOUNTING FOR MERGERS (5 HRS) Financing the mergers and Take-overs Corporate restructuring divestment and abandonment 5. JOINT VENTURE AND ALLIANCES (7 HRS) Leveraged buyout Share repurchase. Takeover defences International take over and restructuring The M & A process Implementation and management guides for Mergers & Acquisitions. 6. LEGAL ASPECTS OF M&A (5 HRS) Legal aspects of mergers/amalgamation and acquisition; provisions of Companies Act; SEBI regulation; Takeover Code; schemes of amalgamation; court approvals REQUIRED READINGS: GAUGHAN: Mergers, Acquisition & Corporate Restructuring (John Wiley) SUDI SUDERSANAM: Creating Value from M&A (Pearson)

Internal Assessment 25 marks

Class room conduct Attendance Assignments Class room presentations by students

Meaning

Need
Types

Valuation
Financing Defenses Laws

1. Asset Based a) Book Vlaue b) Adjusted Book Value c) Replacement Value 2. Relative/Market Based 1. EBITDA Multiple 2. P/E Multiple 3. Income 1. C apitalization 2. Dividend 3. DCF

1. Companies Act 2. Banking Regulation Act 3. Competition Act 4. Income tax Act 5. SEBI - SAST (Substantial Acquisition of Shares & Take over Regulations, 2011) 6. FEMA (Cross Border M & As) 7. RBI Guidelines (Banking Companies)

Process / Procedures

Merger

Acquisition
Take over De merger Reverse merger Amalgamation Absorption Reconstruction

Merger
An arrangement where by
assets of two or more companies become vested in, or under the control of one company which may or may not be one of the original companies, which has its shareholders, all or substantially all, the shareholders of one or both of the merging companies exchanging their shares for shares in other or third company.

A Limited

B Limited

A B Limited (New or existing Company)

Impact/Result
One or more companies cease to exist Either new company is incorporated
OR

Existing company takes over assets and liabilities

A Limited

B Limited

Reverse Merger
Acquisition of Public Company (listed) by Private Company to enjoy the benefits of listing by not going to the public Normally a sick/small company is merged with healthy company, in reverse merger a healthy company is merged with small/sick company Public Company (listed) is generally a shell/sick Company
No assets No liabilities Hidden legal liabilities

Process:
A shell/sick/loss making company which is listed is identified

Identified Company issues a large number of shares to the unlisted Company/its promoters
By virtue of this the unlisted company acquires controlling stake and has virtual control over the Board of the Shell Company

Godrej soaps Ltd. (GSL) with pre merger turnover of 436.77 crores entered into scheme of reverse merger with loss making Gujarat Godrej innovative Chemicals Ltd. (GGICL) (with pre merger turnover of Rs. 60 crores) in 1994 US Airways was acquired by America West Airlines, with the goal of removing the former from Chapter 11 bankruptcy.

Demerger
A corporate entity disposes off one or more of its business units to another corporate body which may be existing or a new one
Business Unit Original Company May or may not lose control

Value split
Unlocks the value in the assets of splited unit

Unlocking the wealth


Generally in real estate Some examples
Bharti Air tel - Tower Reliance Communications Towers India Bulls Real Estate Camlin Chemical Division Zee Regional Channels & Cable Sun Pharma Innovative R & D

A Unit

B Unit

X Limited (New)

ABC Limited
C Unit Y Limited (Existing)

Take over
Transfer of Control from one ownership to another ownership
Transfer of Control
Capital Financing From Market Preferential issue
Investor

Debt Financing Technology Support

Change in the Composition of the Board of Directors

Acquisition
Purchase of one Company by another

Restructuring

Organic

Inorganic

Organic
An Organic Restructuring - Internal Change without a change in Corporate Entity

Capital/Financial Restructuring: Change in the Share Capital / Debt Issue of Shares Debentures, Bonds Sweat Equity ESOP Buy Back Reduction Redemption

Business Restructuring Rationalization of work Force Diversification/Expansion Geographic Conversions New trade or line of business

Inorganic
Restructuring of Corporate body where there is a third party element involved

Merger Reverse Merger De Merger Acquisition Take over Amalgamation Absorption Joint Ventures etc

Economies of Scale Quick way to grow Elimination of competition Diversification Integration


Backward Forward Capture new markets New products

Technology Technical/managerial manpower Trade cycles To enjoy MONOPOLY Patent Unified control and self sufficiency Personal Ambitions Government policy /pressure Tax benefits Managerial motivation

Financial benefits of M & As arise from:


Reduction in
Costs Tax Capital Requirement

Increase in
Revenue
Improved marketing New markets New products etc.

Vertical

Horizontal

Conglomerate

Vertical Merger

Two or more companies working in the manufacturing/production of an item where the out put / finished product of one becomes input/ raw material for other, the producers thus join together for mutual benefit.

Union of Customer (s) and Vendor (s) Vertical Merger can be for
Forward
Acquisition of
Existing or Prospective customers

Backward
Acquisition of
Existing or Prospective vendors

Producer of Power

PRODUCTION, TRANSMISSION & DISTRIBUTION Transmission of Power COMPANY Distribution


of Power End users

Some other examples


Indian Rayon acquired Madura Garments IBM acquired Daksh Denim producer (textile) merges with Jeans manufacturer Brewery merging with Chain of pubs Coffee grower merging with Coffee retailer e.g. Nescafe Joinery merges with Real Estate Builder Cement plant merges with Infrastructure Company Iron ore company merges with Steel producer

RIL

Textiles Gas Refineries & Oil and Only Polyester Fiber Petrochemical Exploration Vimal

Advantages:
Seamless demand and supply (Time, Quality, Price) Least uncertainty Monopoly Lower Transaction costs

Disadvantages
Higher organizational costs Monopoly Lack of competition

When two or more companies generally competitors to each other, generally with overlapping geographic markets, consolidate, said to be a horizontal merger. Example Indian
IBP & IOC Bank of Punjab & Centurion Bank ICICI Bank & Bank of Rajasthan

Global

Price Waterhouse & Coopers E & Y and Arthur Anderson Boeing & Mc Donnell Douglas Chase Manhattan Chemical Bank Sony acquired Ericson Tata Tea acquired Tetley Tea Suzlon acquired Re power system Hindalco acquired Novelis Tata Chem acquired General Industrial products

Elimination of Competition Growth & Expansion Geographic New Markets New Products New/Advance Technology Pooling of Managerial Skills Financial Benefits

What is a Conglomerate
Merger of two or more companies operating in totally unrelated activities. Mergers which are neither horizontal nor vertical are Conglomerate Mergers.

Why Needed
Diversification Extending Corporate Territories Extending Product Range

Example
PepsiCo Pizza Hut Walt Disney American Broadcasting Phillip Morris Craft Proctor & Gamble Clorox
Beauty and Grooming - Gucci, Gillette, Camay, Max Factor House Hold Care - Ariel, Tide, Mr. Clean Health & Well being Oral B, Vicks etc.

Godrej
Furniture Health and Well being Food

Wipro
Software Hardware Soaps CFLs Switches

Thank you very much

Feedback & Queries: jitendra_mohananey@yahoo.com +91 9810287311