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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