Team member:---- Deepali kumari

Raj gupta
Anuradha jha
Dhananjay Kumar
Rajesh pradhan
Shyam singh
Abhinav pandey
Kumari chandani
Abhijeet

MERGE
MERGE
RR

AA MERGER
is
a
MERGER is a
transaction
transactionthat
that
results
resultsin
inthe
the
transfer
transferof
of
ownership
ownershipand
and
control
of
the
control of the
corporation..

Merger
A transaction where two firms agree to

integrate their operations because they have

resources and capabilities that together may
create stronger competitive advantage.
The term merger refers to a combination of
two or more companies into a single company
and this combination may be either through
consolidated and absorption.

Consolidation/
Amalgamation
A consolidation is a combination of two or

more companies into third entirely new

company formed for the purpose.
The new company absorbs the assets, and

possibly liabilities, of both original companies

which ceases to exist.
New stocks in the name of new company are

issued

Absorption
In case of absorption one company absorbs

another company.
it purchases either the assets or shares of

that company.
The merger by absorption is always friendly in

nature

.
Amalgamation

Absorption

Types Of Merger..

Examples :

TYPES OF MERGERS
AUTOS

finished goods
A

GLASS

jeans
E

DENIM
FABRIC

RAW MATERIALS

CONGLOMERATE MERGER

A merger can takes place in following ways:

By Purchase Of Asset
The asset of company Y may be sold to

company X. Once this is done, company Y is

then legally terminated and company X
survives. By purchase of asset

By Purchase Of Common Shares

The common share of the company Y may be

purchased by company X. When company X

holds all the shares of company Y, it is
dissolved. By purchase of common shares

By Exchange Of Shares For Asset

Company X may give its shares to the

shareholders of company Y for its net assets.

Then company Y is terminated by its
shareholders who now holds shares of
company X. By exchange of shares for asset

Exchange Of Shares For Shares

Company X gives its shares to the

shareholders of company Y and then company

Y is terminated. Exchange of shares for shares

Example
Asian paints berger international
Ranbaxy tokyo base Nippon Chemiphar co. ltd
Aol sells call center to essar
Hp and Compaq product line synergy
ITC with ITC Bhadrachalam paperboards ltd.(tax

benefit).

Theory Of Mergers

Costs And Benefits Of Merger

When a company A acquires another

company B, then it is a capital investment

decision for com. A and it is a capital
disinvestment decision for com. B. Thus both
the companies require to calculate the NPV of
their decision.
To calculate the npv of company A, there is a

need to calculate the benefit and the cost of

the merger.

Contd
The benefit of the merger is equal to the

difference between the value of the combined

identity (pv of ab)and the sum of the value of
both firms as a separate identity. It can be
expressed as
BENEFIT=(PVab)-(PVa +PVb)

Merger Wave(1897-1907)
Period of horizontal mergers, affected

industries became highly concentrated in

steel, telephone ,oil ,mining, petroleum.
J.p morgan, U.S steel merged with carnage
steel
Second merger wave was a period of
vertical merger s where ford motor
company integrated from iron and coal
mines through ore boats and railroads
through steel mills to finished car.

Third merger wave characterized by

conglomerate mergers.(among unrelated

companies)
1963-Lewis B clueman did first LBO $63.4
million purchase of orkin erterminating
with $1000 investment.
July 1974-first hostile takeover bid
initiated by morgan steel.

Fourth merger wave was a period of

hostile takeover which was started with

morgan stanleys1974.
August 1982-Thomas G.pownall, ceo of

bendex corporation by initiating pac-man

defense .bendex made an unsolicited
$43/share takeover bid.five days later
martin marietta made a $75/share
takeover bid for bendex.

Fifth merger wave was an era of size

matters.
2000-9/10 largest deal happened worth of
$3.3trillion
World largest takeovers.
E.g-vodafone-mannesmann $183 billion
Aol timewarner-:$181billion.
Mci/worldcom sprint:$127billion.
Pfizer-waner lembert:$88billion.

ACQUISITION

Acquisition refers to one

company buying out another to
combine the bought entity
within itself.

Acquisition
Acquisition increases the interest of the

acquiring company in the target or acquired

company.
A transaction where one firm buys another

firm with the intent of more effectively using a

core competence by making the acquired firm
its subsidiary within its portfolio of business.
With acquisition, one firm takes over another

and establishes its power as the single owner

Often mergers and acquisitions become

synonymous, because, in many cases, a

bigger firm may buy out a relatively less
powerful one and compel it to announce the
process as a merger.
Although, in reality an acquisition takes

place, the firms declare it as a merger to

avoid any negative impression.

MOTIVES
MOTIVES
FOR
FOR M&A
M&A

MOTIVES
MOTIVES FOR
FOR
M&A
M&A
Economies
of large
scale
business

Effect of
Trade
Cycles
Desire to
enjoy
monopoly
power

Elimination
of
competition

Adoption of
modern
technology
Lack of
technical
and
managerial
talent

MERGER AND
ACQUISITION
MERGER
AND
ACQUISITION

Patent
rights
Desire to
unified
control and
self
sufficiency

MOTIVES OF M&A
Economies of large scale business:
One of the most important reasons for M&A is

that a large-scale business organization

enjoys both internal and external economies
which generally lead to reduction in cost and
increase in profits.

Elimination of competition:
This is also one of the motivating factors for

M&A because it eliminates severe, intense

and wasteful expenditure by different
competing organizations.

Adoption of modern technology :

The adoption of modern scientific technology

by a corporate organization requires large

resources which may be out of reach of an
individual firm. This may induce M&A of
different firms.

Lack of technical and managerial

talent :
In the developing countries at the earlier

stages of industrialization, scarcity of

entrepreneurial, managerial and technical
talent is also one of the important factors that
leads to M&A

Effect of Trade Cycles :

Trade cycles are the periods of ups and downs

in an economy. Ups are the periods of boom

when production is on large scale, profits are
more, employment is maximum and new firms
crop up indiscriminately in all directions.

Desire to enjoy monopoly power:

M&A leads to monopolistic control in the

market. In the situation of monopoly, a firm

can easily make adjustment in the supply and
price of products and can also increased the
profit of the firm.

Patent rights :
The exclusive right to use the invention of any

new machines, method or idea is one of the

reasons favoring M&A.

Desire to unified control and self

sufficiency :
Firms which depends on other units for their

raw material requirements or which are

engaged in different process of product for
ensuring uninterrupted supply of raw
materials are encouraged and benefited by
M&A.

ACQIUSITION
ACQIUSITION
Inability to
Inability
achieve to
achieve
synergy
synergy

INTEGRATION
INTEGRATION
DIFFICULTIES
DIFFICULTIES

Inadequate
of Inadequate
evaluation
of target
evaluation
target

Larger or
Larger or
extraordinar
extraordinar
y debt
y debt

PROBLEM
PROBLEM

Too much
Too much
diversificati
diversificati
on
on

Mangers
Mangers
overly
overly
focused
on
focused
on
acquisition
acquisition

EXAMPLE- DOMESTIC M&A

Deals of value $2.16 Billion Penta Homes Agro.
ACC Encore Cement and Addictive Cement

Dalmia Cement ,Orissa Cement($37.66mn,

45.4%)
Crompton Greaves Brook Crompton Greaves
Electricals
Havells India Standard Electricals ($25.53mn)

There are broadly two kinds of strategies that

can be employed in corporate acquisition

Process of Acquisition

Finding A Target Business

Appointing Advisers
Negotiating terms
Due Diligence
Exchange of Contracts
Completion

CASE STUDY

TATA STEEL AND CORUS

PROFILE PRE MERGER

TATA STEEL
102 years in steel
bazaar
Worlds 56th largest
Capacity of 30 Million
Founder:J.N. Tata
Presence in 26 nations

CORUS
Worlds 6th largest
2nd in Europe,1st in UK
371st rank in fortune
list
Presence in 50 nations
40,000 people
worldwide.

Acquisition
TATA-CORUS
Tata acquired Corus, which is four times larger
than its size and the largest steel producer in the
U.K. The deal, which creates the world's fifthlargest steelmaker, is India's largest ever foreign
takeover and follows Mittal Steel's $31 billion
acquisition of rival Arcelor in the same year.
Tata acquired Corus on the 2nd of April 2007 for a
price of $12 billion. The price per share was 608
pence(rs 484), which is 33.6% higher than the
first offer which was 455 pence.

Acquisition Process
Particulars

Corus
Currency: Rupee Millions

TATA Steel Ltd

Currency: Rupee Millions

Year

2006

2005

2004

2006

2005

2004

ASSETS

5,82,750.00

5,33,925.00

4,67,775.00

2,05,450.70

1,77,033.10

1,47,988.70

DEBTS

98,100.00

1,05,525.00

96,000.00

45,932.70

42,073.10

39,982.90

LIABILITIES

2,31,300.00

1,78,425.00

1,55,475.00

30,492.10

33,146.80

32,665.90

REVENUE

7,60,500.00

6,99,900.00

5,96,475.00

2,02,444.30

1,59,986.10

1,11,294.40

NET INCOME

33,900.00

33,450.00

-22,875.00

37,346.20

36,032.60

17,887.80

Appointing Advisers
CORUS

TATA

J P MORGAN

ABN AMRO

CAZENOVE

DEUTSCHE BANK

HSBC

STANDARD CHARTERED

Negotiation By Tata
September 20, 2006 : Corus Steel has decided to
acquire a strategic partnership with a Company that is a
low cost producer
October 5, 2006 : The Indian steel giant, Tata Steel
wants to fulfill its ambition to Expand its business
further.
October 6, 2006 : The initial offer from Tata Steel is
considered to be too low both by Corus and analysts.
October 17, 2006 : Tata Steel has kept its offer to 455p
per share.
October 18, 2006 : Tata still doesnt react to Corus and
its bid price remains the same.
October 20, 2006 : Corus accepts terms of 4.3 billion
takeover bid from Tata Steel
October 23, 2006 : The Brazilian Steel Group CSN
recruits a leading investment bank to offer advice on

 October 27, 2006 : Corus is criticized by the chairman

of JCB, Sir Anthony Bamford, for its decision to accept
an offer from Tata.
November 3, 2006 : The Russian steel giant Severstal
announces officially that it will not make a bid for Corus
November 18, 2006 : The battle over Corus
intensifies when Brazilian group CSN approached the
board of the company with a bid of 475p per share
December 18, 2006 : Within hours of Tata Steel
increasing its original bid for Corus to 500 pence per
share, Brazil's CSN made its formal counter bid for
Corus at 515 pence per share in cash, 3% more than
Tata Steel's
Offer.
January 31, 2007 : Britain's Takeover Panel announces
in an e-mailed statement that after an auction Tata
Steel had agreed to offer Corus investors 608 pence per
share in cash

Financing the Deal

TATA- CORUS Deal - $12 billion
Equity Contribution from Tata Steel- $3.88 billion
Credit Suisse leaded, joined by ABN AMRO and
Deutsche Bank in the consortium.
Of the $ 8.12 billion of financing , Credit Suisse
provided 45% and ABN AMRO and Deutsche
provided 27.5% each.

Global Steel Ranking:

(Ranking of Tata steel before

deal- 55)

Company

Capacity (in million

tonnes)

Arcelor - Mittal

110.0

Nippon Steel

32.0

Posco

30.5

JEF Steel

30.0

Tata Steel - Corus

27.7

Bao Steel China

23.0

US Steel

19.0

Nucor

18.5

Riva

17.5

Thyssen Krupp

16.5

Rationale Of The Corus Deal

Augmented its crude steel capacity to 27 mtpa
The combined entity forms the 5th largest Steel
company
The merged entity has brought Tata Steel to the
world platform
Provided Tata Steel access to new markets and
presence across the steel value chain
Much broader distribution network

Conclusion
A merger can happen when two companies decide to
combine into one entity

An acquisition always involves the purchase of one

company by another.

An M&A deal can be executed by means of a cash

An M&A deal can be executed by means of a cash
transaction, stock-for-stock transaction or a
transaction, stock-for-stock transaction or a
combination of both.
combination of both.

Conclusion
One size doesn't fit all
One size doesn't fit all

Some may better perform with Mergers &

Acquisition, and some may not.