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Merger and its Recent Merger and its Recent

Trends in India Trends in India

Presented by:Presented by:

Mohit AsayachMohit Asayach Pawan GandhiPawan Gandhi

Meghna GandhiMeghna Gandhi Neha GargNeha Garg

Underlying Principle for M&A Transactions

2 + 2 � 4

Additional Value of ³ Synergy´

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Merger Merger-- Basic conceptsBasic concepts

M erger M erger

ItIt isis thethe combinationcombination of of twotwo corporatecorporateentitiesentities wherewhere thethe assetsassets andand liabilitiesliabilities

of of bothboth areare vestedvested inin aa thirdthird entity,entity, withwith

thethe effecteffect thatthat bothboth former former entitiesentities loselosetheir their identitiesidentities toto formform aa newnew entityentity..

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Competition Act 2002Competition Act 2002

Section 2(a)Section 2(a)

Acquisition AcquisitionItIt isis thethe acquiringacquiring of of shares,shares, votingvoting

rights,rights, assetsassets (directly(directly or or indirectly),indirectly),

or or controlcontrol over over managementmanagement or or assets,assets, of of another another enterpriseenterprise..

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Types of MergersTypes of Mergers

Horizontal Merger Horizontal Merger

Reverse Merger Reverse Merger

Dilutive Merger Dilutive Merger

Accretive Merger Accretive Merger

Congeneric Merger Congeneric Merger

ConglomerateConglomerateMerger Merger

Vertical Merger Vertical Merger

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Horizontal Merger

It is the merger between two companiesthat are in direct competition to each

other & share the same products line

Adidas ±Reebok Merger

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VerticalVertical

VerticalVertical merger merger isis betweenbetween enterprisesenterprises

thatthat operateoperate atat differentdifferent levelslevels of of thethe

productionproduction or or distributiondistribution cyclecycle..

1.1. Vertical Forward IntegrationVertical Forward Integration ± ± Buying aBuying a customer /customer /

distributor distributor

Indian Rayon¶s acquisition of MaduraIndian Rayon¶s acquisition of Madura

Garments along with brand rights (2000)Garments along with brand rights (2000)

2.2. Vertical Backward IntegrationVertical Backward Integration ± ± Buying aBuying a supplier supplier

IBM¶s acquisition of Daksh (2004)IBM¶s acquisition of Daksh (2004)

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ConglomerateConglomerate

ItIt isis aa merger merger betweenbetween enterprisesenterprisesoperatingoperating inin differentdifferent marketsmarkets..

�� ProductProduct extensionextension conglomerateconglomerate mergersmergers

involveinvolve firmsfirms thatthat sellsell nonnon--competingcompetingproductsproducts useuse relatedrelated marketingmarketing channelschannels of of productionproduction processesprocesses..

�� MarketMarket extensionextension conglomerateconglomerate mergersmergers

join join together together firmsfirms thatthat sellsell competingcompetingproductsproducts inin separateseparate geographicgeographic marketsmarkets

�� AA purepure conglomerateconglomerate merger merger unitesunites firmsfirmsthatthat havehave nono obviousobvious relationshiprelationship of of anyany kindkind

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Motivation for Mergers

� To diversify the areas of activity and

thereby to reduce business risks

� To achieve optimum size so as to reap

the benefits of economy of scale

� To serve the customer better

� To grow without any gestation period

� Add synergy

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Adverse Effects of

Mergers� Mergers especially horizontal reduces the competition in

the market

� Mergers amongst rivals is invariably unfriendly to

consumers� Mergers often results in increased market share and

thereby leads to dominance which makes the resultant

enterprise complacent and thereby brings inefficiency in the

organization

� Mergers between healthy and unhealthy enterprises

reduces the tax liability and thereby makes the State¶s

exchequer poor

� Mergers often fail to create harmonization in human relation

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Regulatory Framework

� SEBI (substantial Acquisition of shares &Takeovers)

Regulations 1997.

� The Securities and Exchange Board of India Act,1992

� SEBI Disclosure and Investor Protection Guidelines2000.

� Securities and Exchange Board of India (Merchant

Bankers) Rules/Regulation 1992.

� SEBI (Delisting of Securities )Guidelines,2003.

� Foreign Exchange Management Act,1999.

� Companies Act,1956.

� Income Tax Act, 1961

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Acquirer Acquirer AcquiredAcquired CountryCountryAmountAmount

($ million)($ million)

IndustryIndustry

Tata SteelTata SteelCorus GroupCorus Groupplcplc

UKUK 12,00012,000 SteelSteel

HindalcoHindalco NovelisNovelis CanadaCanada 5,9825,982 SteelSteel

VideoconVideoconDaewooDaewooElectronicsElectronics

Corp.Corp.

South KoreaSouth Korea 729729 ElectronicsElectronics

Dr. Reddy¶sDr. Reddy¶sLabsLabs

BetapharmBetapharm GermanyGermany 597597PharmaceuticaPharmaceuticall

Suzlon EnergySuzlon Energy Hansen GroupHansen Group BelgiumBelgium 565565 EnergyEnergy

HP

CLHP

CL

KenyaKenyaP

etroleumP

etroleumRefinery Ltd.Refinery Ltd. KenyaKenya 500500 Oil and GasOil and Gas

Ranbaxy LabsRanbaxy Labs Terapia SATerapia SA RomaniaRomania 324324PharmaceuticaPharmaceuticall

Tata SteelTata Steel Nat steelNat steel SingaporeSingapore 293293 SteelSteel

VideoconVideocon Thomson SAThomson SA FranceFrance 290290 ElectronicsElectronics

VSNLVSNL TeleglobeTeleglobe CanadaCanada 239239 TelecomTelecom

India goes GlobalIndia goes Global

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Legal Procedures as per

Companies Act, 1956 for M & A

in India� Permission for merger ( MoA )

� Information to the stock exchange

� Approval of board of directors

� Application in the High Court

� Shareholders and creditors meetings

� Sanction by the High Court

� Filing of the Court order (to the registrar of the companies)

� Transfer of assets and liabilities

� Payment by cash or securities

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SEBI (Substantial Acquisition of Shares&Takeover) Regulations 1997

Reg-7: Disclosure to company and to stock exchange by anyperson who acquire more than 5%,10% or 14% shares

Reg-10: No acquirer shall acquire 15% or more shares unless

such acquirer makes a public announcement to acquire sharesof such company as per SAST,1997

Reg-11: If (15%-75%) shares acquired as per Law then noacquirer can acquire additional shares which entitle him toexercise 5% or more in any financial year, unless public

announcement is made.Reg-13: Before making public announcement merchantbanker is to be appointed

Reg-14: Timing of Public Announcement Offer not later than 4

working days after agreement for acquisition of shares

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.

Reg-15: Public Announcement of offer to be made in

newspaper, Hindi, regional and mostly traded area. Public

Announcement shall be submitted to: SEBI through merchant

Banker

Reg-18: Within 14 days from the date of Public Announcement

draft letter of offer to be filed with SEBI through Merchant

Banker.

Reg-19: Public announcement shall specify a date for the

purpose of determining the name of the shareholder to whom

Letter of Offer will be sent shall not be later than 30th day.

Reg-21: Minimum number of shares to be acquired by Public

offer-20%. If the public shareholding goes below 10%, delisting

of securities guidelines will apply.

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Waves of merger Waves of merger First Merger WaveFirst Merger Wave

(1897(1897--1907)1907)�The first merger wave followed the Depression of

1883.

�The first merger wave included many horizontalmergers, so the affected industries became highly

concentrated

Example, during this period J.P. Morgan merged U.S.

Steel with Carnegie Steel and more than 700 smallsteel firms. The resulting mega-steel company

controlled 70~80% of the steel production in the

United States

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Second Merger WaveSecond Merger Wave

(1916(1916--29)29) TheThe secondsecond merger merger wavewave beganbegan duringduring WorldWorld

War War II andand continuedcontinued untiluntil thethe stockstock marketmarket crashcrashof of October October 2929,, 19291929

BecauseBecause of of thethe heightenheighten governmentgovernment vigilancevigilancethatthat occurredoccurred towardtoward thethe endend of of thethe firstfirst merger merger wave,wave, mergersmergers duringduring thethe secondsecond merger merger wavewavefacedfaced increasedincreased governmentalgovernmental scrutinyscrutiny

Overall,Overall, mergersmergers of of thethe secondsecond merger merger wavewavewerewere characterizedcharacterized byby oligopoliesoligopolies rather rather thanthanmonopoliesmonopolies.. ThereThere werewere moremore verticalvertical mergersmergersthanthan horizontalhorizontal mergersmergers

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Third Merger WaveThird Merger Wave

(1965(1965--1969)1969) TheThe thirdthird merger merger wavewave coincidedcoincided withwith aa

periodperiod of of economiceconomic prosperityprosperity inin thethe

UnitedUnited StatesStates.. TheThe strongstrong economyeconomy gavegavemanymany firmsfirms thethe resourcesresources necessarynecessary toto

acquireacquire other other companiescompanies

TheThe thirdthird merger merger wavewave waswas characterizedcharacterizedbyby mergersmergers amongamong unrelatedunrelated companies,companies,

alsoalso knownknown asas conglomerateconglomerate mergersmergers

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Fourth Merger WaveFourth Merger Wave

(1981(1981--1989)1989) TheThe fourthfourth merger merger wavewave coincidedcoincided withwith thethe

presidencypresidency of of RonaldRonald Reagan,Reagan, andand thethe

economiceconomic prosperityprosperity of of thethe midmid-- toto latelate--198

0198

0ss MergersMergers of of thethe fourthfourth merger merger wavewave werewere larger larger

thanthan thosethose of of earlier earlier periodsperiods.. MergersMergers inin thethe

billionbillion--dollar dollar rangerange becamebecame commoncommon

DebtDebt waswas moremore widelywidely usedused toto financefinance mergersmergers

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Fifth Merger WaveFifth Merger Wave

(1993(1993 -- today)today) TheThe fifthfifth merger merger wavewave followedfollowed thethe economiceconomic recessionrecession

of of 19901990--9191,, andand coincidedcoincided withwith thethe presidencypresidency of of BillBillClintonClinton..

LargeLarge mergersmergers occurredoccurred atat aboutabout thethe samesame levellevel asas theytheyhadhad duringduring thethe fourthfourth merger merger wavewave;; butbut hostilehostile takeover takeover activityactivity diminisheddiminished..

WhereasWhereas manymany of of thethe mergersmergers of of thethe fourthfourth wavewave werewereexecutedexecuted for for shortshort--termterm financialfinancial gains,gains, mergersmergers of of thisthis

periodperiod emphasizedemphasized longer longer termterm businessbusiness strategiesstrategies.. DebtDebt--financedfinanced mergersmergers werewere lessless commoncommon thanthan theythey

werewere duringduring thethe fourthfourth wavewave

StrategicStrategic mergersmergers

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ThanksThanks

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