main project(fsm) mergerts and aquisition

8/13/2019 Main Project(FSM) mergerts and aquisition

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MERGERS AND ACQUISITIONS

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION 1

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the

corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions,

which bring separate companies together to form larger ones. When they're not creating big

companies from smaller ones, corporate finance deals do the reverse and break up companies

through spinoffs, carve-outs or tracking stocks.

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 all the assets as

well as liabilities of the merged company or companies. Generally, the surviving company is the

buyer, which retains its identity, and the extinguished company is the seller. Merger is also

defined as amalgamation. Merger is the fusion of two or more existing companies. All assets,

liabilities and the stock of one company stand transferred to Transferee Company.

Acquisition in general sense is acquiring the ownership in the property. In the context of

business combinations, an acquisition is the purchase by one company of a controlling interest in

the share capital of another existing company.

There are many types of mergers and acquisitions that redefine the business world with

new strategic alliances and improved corporate philosophies. From the business structure

perspective, some of the most common and significant types of mergers and acquisitions are

Horizontal Merger, Vertical Merger, Co-generic Merger and Conglomerate Merger.

Merger and acquisition process is the most challenging and most critical one when it

comes to corporate restructuring. One wrong decision or one wrong move can actually reverse

the effects in an unimaginable manner. It should certainly be followed in a way that a company

can gain maximum benefits with the deal.

Merger agreement is a contract that comprehensively lists down all details governing the

merger of one or more companies. It is a main document that is legally binding on all the parties

to the contract. To make it enforceable, the agreement has to be approved by and duly signed by


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the authorized parties. It can be cancelled under circumstances where any party fails to comply

with the laid down terms and conditions.

With a view to facilitating consolidation and emergence of strong entities

and providing an avenue for non disruptive exit of weak/unviable entities in the banking sector, it

has been decided to frame guidelines to encourage merger/amalgamation in the sector. Although

the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank to formulate a

scheme with regard to merger and amalgamation of banks, the

State Governments have incorporated in their respective Acts a provision for obtaining prior

sanction in writing, of RBI for an order.

India in the recent years has showed tremendous growth in the M&A deal. It has been

actively playing in all industrial sectors. It is widely spreading far across the stretches of all

industrial verticals and on all business platforms. The increasing volume is witnessed in various

sectors like that of finance, pharmaceuticals, telecom, FMCG, industrial development,

automotives and metals.

Corporate merger and acquisition is defined as the process of buying, selling, and

integrating different corporations with the desire of expansion and accelerated growth

opportunities. This kind of association in any form plays an integral role when it comes to

business and economy as it results in significant restructuring of a business.

Companies can enter into various arrangement with its foreign related company to

increase their market share and efficiency. However, prior approval of RBI has to be sought. In a

merger of a listed company into an unlisted company, the specific provisions under 2013 Act

would also have to be considered apart from the securities law regulations


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PURPOSE OF THE STUDY:-

The basic purpose behind the study was to get detailed knowledge about the

Mergers and Acquisitions. The study was basically aimed to know more about the

Process, RBI Guidelines , Success, Strategies of mergers and acquisitions and also

the difference between Mergers And Acquisitions. And also to get knowledgeabout the Implications Of Companies Act, 2013-Mergers And Restructuring.

OBJECTIVES OF THE STUDY:-

To study about Mergers and Acquisitions.

To study about process of Mergers and Acquisitions.To study about RBI guidelines for Mergers and Acquisitions.To study about success of Mergers and Acquisitions.To study about strategies of Mergers and Acquisitions.To study about the difference between Mergers And Acquisitions.To Study About The Implications Of Companies Act, 2013-Mergers And

Restructuring


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CHAPTER 1: mergers and acquisitions

1.1 INTRODUCTION

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the

corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions,

which bring separate companies together to form larger ones. When they're not creating big

companies from smaller ones, corporate finance deals do the reverse and break up companies

through spinoffs, carve-outs or tracking stocks.

Not surprisingly, these actions often make the

news. Deals can be worth hundreds of millions, or

even billions, of dollars. They can dictate the

fortunes of the companies involved for years to

come. For a CEO, leading an M&A can represent the

highlight of a whole career. And it is no wonder we

hear about so many of these transactions; they happen all the time. Next time you flip open the

newspapers business section, odds are good that at least one headline will announce some kind

of M&A transaction.

Sure, M&A deals grab headlines the forces that drive companies to buy or merge with

others, or to split-off or sell parts of their own businesses. Once you know the different ways in

which these deals are executed, you'll have a better idea of whether you should cheer or weep

when a company you own buys another company - or is bought by one. You will also be aware

of the tax consequences for companies and for investors.

WHAT IS MERGER?

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

all the assets as well as liabilities of the merged company or

companies. Generally, the surviving company is the buyer,


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which retains its identity, and the extinguished company is the seller. Merger is also defined as

amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and

the stock of one company stand transferred to Transferee Company in consideration of payment

in theform of:

Equity shares in the transferee company, Debentures in the transferee company, Cash, or A mix of the above modes.

WHAT IS ACQUISITION?

Acquisition in general sense is acquiring the

ownership in the property. In the context of business

combinations, an acquisition is the purchase by one company

of a controlling interest in the share capital of another existing

company.

Methods of Acquisition:

An acquisition may be affected by

a) Agreement with the persons holding majority interest in the company management likemembers of the board or major shareholders commanding majority of voting power;

b) Purchase of shares in open market;c) To make takeover offer to the general body of shareholders;d) Purchase of new shares by private treaty;e) Acquisition of share capital through the following forms of considerations viz. Means of

cash, issuance ofloan capital, or insurance of sharecapital.


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1.2 HISTORY OF MERGERS AND ACQUISITIONS IN INDIA

The concept of merger and acquisition in India was not popular until the year 1988.

During that period a very small percentage of businesses in the country used to come together,

mostly into a friendly acquisition with a negotiated deal. The key factor contributing to fewer

companies involved in the merger is the regulatory and prohibitory provisions of MRTP Act,

1969. According to this Act, a company or a firm has to follow a pressurized and burdensome

procedure to get approval for merger and acquisitions.

The year 1988 witnessed one of the oldest

business acquisitions or company mergers in India.

It is the well-known ineffective unfriendly takeover

bid by Swaraj Paul to overpower DCM Ltd. and

Escorts Ltd. Further to that many other Non-

Residents Indians had put in their efforts to take

control over various companies through their stock

exchange portfolio.

Volume is tremendously increasing with an estimated deal of worth more than $ 100

billions in the year 2007. This is known to be two times more than that of 2006 and four times

more than that of the deal in 2006. Further to that, the percentage is continuously increasing with

high end success in business operations.

As for mow the scenario has completely changed with increasing competition and

globalization of business. It is believed that at present India has now emerged as one of the top

countries entering into merger and acquisitions.


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1.3 TYPES OF MERGERS

There are many types of mergers and acquisitions that redefine the business world with

new strategic alliances and improved corporate philosophies. From the business structure

perspective, some of the most common and significant types of mergers and acquisitions are

listed below:

Horizontal Merger:-This kind of merger exists between two companies who compete in the same industry

segment. The two companies combine their operations and gains strength in terms of improved

performance, increased capital, and enhanced profits. This kind substantially reduces the number

of competitors in the segment and gives a higher edge over competition.

Types

Horizontal

Merger

Vertical

Merger

Co-generic

Merger

Conglomerate

Merger


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Vertical Merger:-Vertical merger is a kind in which two or more companies in the same industry but in

different fields combine together in business. In this form, the companies in merger decide to

combine all the operations and productions under one shelter. It is like encompassing all the

requirements and products of a single industry segment.

Co-Generic Merger:-Co-generic merger is a kind in which two or more companies in association are some

way or the other related to the production processes, business markets, or basic required

technologies. It includes the extension of the product line or acquiring components that are all

the way required in the daily operations. This kind offers great opportunities to businesses as it

opens a hue gateway to diversify around a common set of resources and strategic requirements.

Conglomerate Merger:-Conglomerate merger is a kind of venture in which two or more companies belonging to

different industrial sectors combine their operations. All the merged companies are no way

related to their kind of business and product line rather their operations overlap that of each

other. This is just a unification of businesses from different verticals under one flagship

enterprise or firm.


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1.4 PURPOSE OF MERGERS & ACQUISITIONS

The purpose for an offer or company for acquiring another company shall be

reflected in the corporate objectives. It has to decide the specific objectives to be achieved

through acquisition. The basic purpose of merger or business combination is to achieve faster

growth of the corporate business. Faster growth may be had through product improvement and

competitive position. Other possible purposes for acquisition are short listed below: -

1. Procurement of supplies:a) To safeguard the source of supplies of raw materials or intermediary product.

1. Procurement of supplies

2. Revamping production facilities

3. Market expansion and strategy

4. Financial strength

5. General gains

6. Own developmental plans

7. Strategic purpose

8. Corporate friendliness

9. Desired level of integration


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b) To obtain economies of purchase in the form of discount, savings in transportationcosts, overhead costs in buying department, etc.

c) To share the benefits of suppliers economies by standardizing the materials.

2. Revamping production facilities:a) To achieve economies of scale by amalgamating production facilities through more

intensive utilization of plant and resources.

b) To standardize product specifications, improvement of quality of product, expanding.c) Market and aiming at consumers satisfaction through strengthening after sale

Services.

d) To obtain improved production technology and know-how from the offeredcompany.e) To reduce cost, improve quality and produce competitive products to retain and

Improve market share.

3. Market expansion and strategy:a) To eliminate competition and protect existing market.b) To obtain a new market outlets in possession of the offeree.c) To obtain new product for diversification or substitution of existing products and to

enhance the product range.d) Strengthening retain outlets and sale the goods to rationalize distribution;5.To reduce

advertising cost and improve public image of the offeree company;6.Strategic control

of patents and copyrights.

4. Financial strength:a) To improve liquidity and have direct access to cash resource.b) To dispose of surplus and outdated assets for cash out of combined enterprise.c) To enhance gearing capacity, borrow on better strength and the greater assets backin.d) To avail tax benefits;5.To improve EPS (Earning Per Share).

5. General gains:a) To improve its own image and attract superior managerial talents to manage itsaffairs.


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b) To offer better satisfaction to consumers or users of the product.

6. Own developmental plans:a) The purpose of acquisition is backed by the offeror companys own

developmental plans.

b) A company thinks in terms of acquiring the other company only when it has arrivedat its own development plan to expand its operation having examined its own internal

strength where it might not have any problem of taxation, accounting, valuation, etc.

c) It has to aim at suitable combination where it could have opportunities to supplementits funds by issuance of securities, secure additional financial facilities, eliminate

competition and strengthen its market position.

7. Strategic purpose:The Acquirer Company view the merger to achieve strategic objectives through

alternative type of combinations which may be horizontal, vertical, product expansion,

market extensional or other specified unrelated objectives depending upon the corporate

strategies. Thus, various types of combinations distinct with each other in nature are

adopted to pursue this objective like vertical or horizontal combination.

8. Corporate friendliness:Although it is rare but it is true that business houses exhibit degrees of

cooperative spirit despite competitiveness in providing rescues to each other from hostile

takeoversand cultivate situations of collaborations sharing goodwill of each other to achie

ve performance heights through business combinations. The combining corporate aim at

circular combinations by pursuing this objective.

9. Desired level of integration:Mergers and acquisition are pursued to obtain the desired level of

integration between the two combining business houses. Such integration could be

operational or financial. This gives birth to conglomerate combinations. The purpose and


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the requirements of the offer or company go a long way in selecting a suitable partner

for merger or acquisition in business combinations.

1.5 BENEFITS OF MERGERS AND ACQUISITIONS

Merger and acquisition has become the most prominent process in the corporate world.

The key factor contributing to the explosion of this innovative form of restructuring is the

massive number of advantages it offers to the business world.

Following are some of the known advantages of merger and acquisition:

The very first advantage of M&A is synergy that offersa surplus power that enables enhanced performance

and cost efficiency. When two or more companies get

together and are supported by each other, the

resulting business is sure to gain tremendous profit

in terms of financial gains and work performance.

Cost efficiency is another beneficial aspect of merger andacquisition. This is because any kind of merger actually improves the purchasing power as

there is more negotiation with bulk orders. Apart from that staff reduction also helps a great

deal in cutting cost and increasing profit margins of the company. Apart from this increase in

volume of production results in reduced cost of production per unit that eventually leads to

raised economies of scale.

With a merger it is easy to maintain the competitive edge because there are many issues andstrategies that can e well understood and acquired by combining the resources and talents of

two or more companies.

A combination of two companies or two businesses certainly enhances and strengthens thebusiness network by improving market reach. This offers new sales opportunities and new

areas to explore the possibility of their business.

With all these benefits, a merger and acquisition deal increases the market power of thecompany which in turn limits the severity of the tough market competition. This enables the


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merged firm to take advantage of hi-tech technological advancement against obsolescence

and price wars.

1.6 PROBLEMS OF MERGERS AND ACQUISITIONS IN INDIA

It's a well known fact that a good number of mergers fail because of various factors

including cultural differences and flawed intentions. Most companies when sign an agreement

often get a create a bigger picture of their expectations as they believe in pure concept of higher

capital gains when two are combining together. This belief is not always true as conditions in the

market and economy often rules the operation and functioning of any company.

The history of merger and acquisitions

have revealed that almost two thirds of the

mergers taking place experience failure and feel

disappointed on their own terms and pre defined

parameters. At times even the motivation driving

the mergers can prove to be intangible.

There are many factors contributing to the failure and elements that are problems of

mergers and acquisition. There are many aspects that should be understood and analyzed before

signing an agreement because even one small mistake in taking a decision can completely dump

both the companies with an irreversible impact.

Some of the prominent issues with regards to failure of M&A are as follows:

A flawed intention in terms of unethical motivationor high expectations can eventually lead to failure of

the merger. If any company desires high capital gainalong with glory and fame irrespective of the

corporate strategy defined to fulfill the requirements

of the company, the merger fails.


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Any kind of agreement based completely on the optimistic stock market condition canalso lead to failure as stock market is an uncertain entity. In such cases more risks are

involved with the prevailing merger.

Cultural difference is also a big problem in case of a merger. When two companies fromdifferent corporate cultures come together it becomes a really challenging task to

integrate the cultures of both the companies. It is certainly difficult to maintain the

difference and move ahead for success without any kind of integration.


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CHAPTER 2: PROCESS OF MERGERS AND ACQUISITIONS

Merger and acquisition process is the most challenging and most critical one when it

comes to corporate restructuring. One wrong decision or one wrong move can actually reverse

the effects in an unimaginable manner. It should certainly be followed in a way that a company

can gain maximum benefits with the deal.

Following are some of the important steps in the M&A process:

1. Business Valuation:-Business valuation or assessment is the first process of merger and acquisition. This step

includes examination and evaluation of both the present and future market value of the target

company. A thorough research is done on the history of the company with regards to capital

gains, organizational structure, market share, distribution channel, corporate culture, specific

business strengths, and credibility in the market. There are many other aspects that should be

considered to ensure if a proposed company is right or not for a successful merger.

Business Valuation

Proposal Phase

Planning Exit

Structuring

Business Deal

Stage of

Integration

Operating

the

Venture


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2. Proposal Phase:-Proposal phase is a phase in which the company sends a proposal for a merger or an

acquisition with complete details of the deal including the strategies, amount, and the

commitments. Most of the time, this proposal is send through a non-binding offer document.

3. Planning Exit:-When any company decides to sell its operations, it has to undergo the stage of exit

planning. The company has to take firm decision as to when and how to make the exit in an

organized and profitable manner. In the process the management has to evaluate all financial and

other business issues like taking a decision of full sale or partial sale along with evaluating on

various options of reinvestments.

4. Structuring Business Deal:-After finalizing the merger and the exit plans, the new entity or the take over company

has to take initiatives for marketing and create innovative strategies to enhance business and its

credibility. The entire phase emphasize on structuring of the business deal.

5. Stage of Integration:-This stage includes both the company coming together with their own parameters. It

includes the entire process of preparing the document, signing the agreement, and negotiating the

deal. It also defines the parameters of the future relationship between the two.

6. Operating the Venture:-After signing the agreement and entering into the venture, it is equally important to

operate the venture. This operation is attributed to meet the said and pre-defined expectations of

all the companies involved in the process. The M&A transaction after the deal include all the

essential measures and activities that work to fulfill the requirements and desires of the

companies involved.


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CHAPtER 3: MERGER AGREEMENT

Merger agreement is a contract that comprehensively lists

down all details governing the merger of one or more

companies. It is a main document that is legally binding on

all the parties to the contract. To make it enforceable, the

agreement has to be approved by and duly signed by the

authorized parties. It can be cancelled under

circumstances where any party fails to comply with the

laid down terms and conditions.

The agreement should take into account all possibilities and lay down the plan of action

for the same. The legal terminology should be correctly and carefully used. Moreover, any

spelling mistake in the names can nullify the contract.

A number of formats are easily available for drafting a merger agreement. But due to the

level of complexity and accountability involved, they are normally drafted by law firms for their

clients.

Some of the important components of the agreement are:

Agreement date

Names of the merging parties

Type of industry

Type of sector

Jurisdiction


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Agreement date - It is the date on which the agreement became enforceable. Names of the merging parties - Complete names of all the companies merging their

business.

Type of industry - It refers to the industry in which the merger is taking place. Forinstance, merger of two drug-making companies belong to the industry Biotechnology &

Drugs.

Type of sector - In the above example, the sector is Healthcare. Jurisdiction - It is important to identify the laws governing the jurisdiction. Other important details like members of the management, valuation of shares, liability of

the members, valuation of tangible assets, etc.


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CHAPTER 4: RBI Guidelines on Mergers & Acquisitions of

Banks

With a view to facilitating consolidation and emergence of strong entitiesand providing an avenue for non disruptive exit of weak/unviable entities in the banking sect

or, it has been decided to frame guidelines to encourage merger/amalgamation in the sector.

Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank toformulate a scheme with regard to merger and amalgamation of banks, the

State Governments have incorporated in their respective Acts a provision for obtaining prior

sanction in writing, of RBI for an order.

The request for merger can emanate from banks registered under the same State Act or frombanks registered under the Multi State Co-operative Societies Act(Central Act) for takeover

of a banks registered under the State Act. While the State Acts specifically provide for

merger of co-operative societies registered under them, the position with regard to take over

of a co-operative bank registered under the State Act by a co-operative bank registered under

the CENTRAL.

Although there are no specific provisions in the State Acts or the Central Act for the mergerof a co-operative under the State Acts with that under the Central Act, it is felt that if allconcerned including administrators of the concerned Acts are agreeable to order merger/

amalgamation, RBI may consider proposals on merits leaving the question of compliance

with relevant statutes to the administrators of the Acts.


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CHAPTER 5: MERGERS AND ACQUISITIONS

5.1 MERGERS AND ACQUISITIONS IN INDIA

India in the recent years has showed tremendous growth in the M&A deal. It has been

actively playing in all industrial sectors. It is widely spreading far across the stretches of all

industrial verticals and on all business platforms. The increasing volume is witnessed in various

sectors like that of finance, pharmaceuticals, telecom, FMCG, industrial development,

automotives and metals.

The volume of M&A transactions in India has apparently increased to about 67.2 billion

USD in 2010 from 21.3 billion USD in 2009. At present the industry is witnessing a whopping

270% increase in M&A deal in the first quarter of the financial year. This increasing percentage

is mainly attributed to the increasing cross-border M&A transactions. Over that increasing

interest of foreign companies in Indian companies has given a tremendous push to such

transactions.

Large Indian companies are going through a phase of growth as all are exploring growth

potential in foreign markets and on the other end even international companies is targeting Indian

companies for growth and expansion. Some of the major factors resulting in this sudden growth

of merger and acquisition deal in India are favorable government policies, excess of capital flow,

economic stability, corporate investments, and dynamic attitude of Indian companies.

The recent merger and acquisition 2011 made by Indian companies worldwide are those

of Tata Steel acquiring Corus Group plc, UK based company with a deal of US $12,000 million

and Hindalco acquiring Novelis from Canada for US $6,000 million.

With these major mergers and many more on the annual chart, M&A services India is

taking a revolutionary form. Creating a niche on all platforms of corporate businesses, merger

and acquisition in India is constantly rising with edge over competition.


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5.2 BANK MERGERS AND ACQUISITIONS

Mergers and acquisitions in the banking sector is a common phenomenon across the

world. The primary objective behind this move is to attain growth at the strategic level in terms

of size and customer base. This, in turn, increases the credit-creation capacity of the merged bank

tremendously. Small banks fearing aggressive acquisition by a large bank sometimes enter into a

merger to increase their market share and protect themselves from the possible acquisition.

Banks also prefer mergers and acquisitions to reap the benefits of economies of scale

through reduction of costs and maximization of both economic and non-economic benefits. This

is a vertical type of merger because all banks are in the same line of business of collecting and

mobilizing funds. In some instances, other financial institutions prefer merging with a bank in

case they provide a similar type of banking service.

Another important factor is the elimination of competition between the banks. This way

considerable amount of funds earlier used for sustaining competition can be channelized to grow

the banking business. Sometimes, a bank with a large bad debt portfolio and poor revenue will

merge itself with another bank to seek support for survival. However, such types of mergers are

accompanied with retrenchment and a drastic change in the organizational structure.

Consolidating the business also makes the bank robust enough to sustain in the every-

changing business environment. They find it easier to adapt themselves quickly and grow in the

domestic and international financial markets.


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5.3 CORPORATE MERGERS AND ACQUISITIONS

Corporate merger and acquisition is defined as the process of buying, selling, and

integrating different corporations with the desire of expansion and accelerated growth

opportunities. This kind of association in any form plays an integral role when it comes to

business and economy as it results in significant restructuring of a business.

The key objective of corporate mergers and acquisitions is to increase market

competition. This can be done in various ways using different methods of merger like horizontal

merger, conglomeration merger, market extension merger, and product extension merger. All the

types work towards a common goal but behold different characteristics suited to get the best

outcome in terms of growth, expansion, and financial performance.

In many significant ways, this kind of restructuring a business proves to be beneficial to

the corporate world. It greatly helps to share all resources, skills, talents, and knowledge that

eventually increases the wisdom bar within the company. This can further help to combat the

competitive challenges existing in the market.

Further to that, elimination of duplicate departments, possibility of cross selling,

reduction of tax liability, and exchange of resources are other big time benefits of corporatemerger and acquisition. This not only helps to cut the extra cost involved in the operation and

gain financial gains but also help to expand across boundaries and enhance credibility. This in

the long run help increase revenue and market share, fulfillment of the only desire that drives the

growth of M&A.


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5.4 RECENT MERGERS AND ACQUISITIONS

Global M&A is one of the most happening and fundamental element of corporate

strategy in today's world. Many companies around the world have merged with each other with a

motive to expand their businesses and enhance revenue.

In the span of few years there are many companies coming together for betterment across

the globe. Recent mergers and acquisitions 2011 are Lipton Rosen & Katz in New York,

Sullivan & Cromwell LLP in New York, Slaughter & May in London, Mallesons Stephen Jaques

in Sydney, and Osler Hoskin & Harcourt LLP in Toronto.

Even in India merger and acquisition has become a fashion today with a cut throat

competition in the international market. There are domestic deals like Penta homes acquiring

Agro Dutch Industries, ACC taking over Encore Cement and Addictive, Dalmia Cement

acquiring Orissa Cement, Edelweiss Capital acquiring Anagram Capital. All these are recent

merger and acquisition 2010 valued at about USD 2.16 billion.

Apart from these there are other successful mergers in India as follows:

Tata Chemicals took over British salt based in UK with a deal of US $ 13 billion. This isone of the most successful recent mergers and acquisitions 2010 that made Tata even

more powerful with a strong access to British Salt's facilities that are known to produce

about 800,000 tons of pure white salt annually.

Merger of Reliance Power and Reliance Natural Resources with a deal of US $11 billionis another biggest deal in the Indian industry. This merger between the two made it

convenient and easy for the Reliance power to handle all its power projects as it now

enjoys easy availability of natural gas.

Airtel acquired Zain in Africa with an amount of US $ 10.7 billion to set newbenchmarks in the telecom industry. Zain is known to be the third largest player in Africa

and being acquired by Airtel it is deliberately increasing its base in the international

market.


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ICICI Bank's acquisition of Bank of Rajasthan at aout Rs 3000 Crore is a greta move byICICI to enhance its market share across the Indian boundaries especially in northern and

western regions.

Fortis Healthcare acquired Hong Kong's Quality Healthcare Asia Ltd for around Rs 882Crore and is now on move to acquire the largest dental service provider in Australia, the

Dental Corp at about Rs 450 Crore.


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5.5 SUCCESS OF MERGERS AND ACQUISITIONS

Mergers & Acquisitions have become a common strategy to consolidate business. The

basic aim is to reduce cost, reap the benefits of economies of scale and at the same time expand

market share. For many people, mergers simply mean

sharing resources and costs to increase

bottomlines. However, it is not as simple as it

sounds. According to statistical reports, more than

64% of the times the mergers fail to accomplish the

promised results. They suffer from a decline in the

shareholders' wealth and conflicts in management.

Therefore, a success of any merger initiative

primarily depends upon the objective behind the need for a merger.

Following globalization, many small organizations hastily got into mergers to stand

against highly-competitive, large scale multinational corporations. They took mergers as a

protective strategy to save their business from being perished in the newly created dynamic

environment. Unfortunately, in many cases, it did not work due to lack of proper planning and

implementation of the planned merger. Moreover, the high costs of business consolidation

(professional fees of bankers, lawyers, advisors, paperwork, etc.) could not be covered by the

combined revenue of the merged organization leading to its failure.

Another reason for an unsuccessful merger is the lack of efficient management to unite

different organizational cultures. The most challenging task is to bring together people and make

them work as a team. Establishing a new organizational structure that fits all the employees is

also difficult. Hence, many fearing retrenchment resign leading to a complete break-down at the

operational level.


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5.6 STRATEGIES OF MERGERS AND ACQUISITIONS

Strategies play an integral role when it comes to merger and acquisition. A sound

strategic decision and procedure is very important to ensure success and fulfilling of expected

desires. Every company has different cultures and follows different strategies to define their

merger. Some take experience from the past associations, some take lessons from the

associations of their known businesses, and some hear their own voice and move ahead without

wise evaluation and examination.

Following are some of the most essential strategies of merger and acquisition that can

work wonders in the process:

The first and foremost thing is to determine business plan drivers. It is very important toconvert business strategies to set of drivers or a source of motivation to help the merger

succeed in all possible ways.

There should be a strong understanding of the intended business market, market share, andthe technological requirements and geographic location of the business. The company should

also understand and evaluate all the risks involved and the relative impact on the business.

Then there is an important need to assess the market by deciding the growth factors throughfuture market opportunities, recent trends, and customer's feedback.

The integration process should be taken in line with consent of the management from boththe companies venturing into the merger.

Restructuring plans and future parameters should be decided with exchange of informationand knowledge from both ends. This involves considering the work culture, employee

selection, and the working environment as well.

At the end, ensure that all those involved in the merger including management of the mergercompanies, stakeholders, board members, and investors agree on the defined strategies. Once

approved, the merger can be taken forward to finalizing a deal.


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CHAPTER 6 : Implications of Companies Act, 2013-

Mergers and Restructuring

6.1 The Companies Act, 2013: An overview

The Companies Act, 2013 (2013 Act), enacted on 29 August, 2013 on accord of

Honble Presidents assent, has the potential to be a historic milestone, as it aims to improve

corporate governance, simplify regulations, enhance the interests of minority investors and for

the first time legislates the role of whistle-blowers. The new law will replace the nearly 60 year

old Companies Act, 1956 (1956 Act).

The 2013 Act provides an opportunity to catch up and make our corporate regulations

more contemporary, as also potentially to make our corporate regulatory framework a model to

emulate for other economies with similar characteristics.

The 2013 Act is more of a rule-based legislation containing only 470 sections, which

means that the substantial part of the legislation will be in the form of rules. There are over 180+

sections in the 2013 Act where rules are being prescribed and the first set of draft rules (16

chapters released) for 2013 Act are currently available for public comments. It is widely

expected that the 2013 Act and indeed the rules will provide for phased implementation of theprovisions.

The 2013 Act contains a number of provisions which have implications on Mergers and

Restructurings. In this bulletin we analyse some of the key provisions and also identified certain

action steps and challenges associated with the implementation of these provisions for companies

to consider.

"There are some pragmatic reforms such as: fast-track schemes, which being cost and

time effective will encourage corporate restructurings for small and group companies; merger of

an Indian company into a foreign company should give impetus to cross-border M&A activity;

introducing the threshold for raising objections to a scheme would deter frivolous objections and

postal ballot approval would ensure a wider participation of the stakeholders. However, multi-

authority appraisal of the restructuring scheme in the 2013 Act may be a dampener, considering

that the present framework envisages a single-window clearance. -By Pallavi J Bakhru


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The 2013 Act additionally allows the approval of the scheme by postal ballot. This will

involve wider participation of the shareholders of the company in voting and will protect

shareholders interest.

6.5 Valuation certif icate

The 1956 Act does not mandate disclosing the valuation report to the shareholders.

Though in practice, valuation reports are included in documents shared with the shareholders and

also to the Court as part of the appraisal process of the scheme by the Courts.

The 2013 Act now mandatorily requires the scheme to contain the valuation certificate.

The valuation report also needs to be annexed to the notice for meetings for approval of the

scheme.This will enable the shareholders to understand the business rationale of the transaction

and take an informed decision.

The valuation report obtained by the company should be robust as the same will now

have to stand scrutiny of various stakeholders.

6.6 Compliance with accounting standards

The 2013 Act has introduced a new requirement, that no scheme of compromise or

arrangement, whether for listed company or unlisted company shall be sanctioned unless the

companys auditor has given a certificate that the accounting treatment of the proposed scheme is

in conformity with the prescribed accounting standards.

Further, the application with respect to reduction of share capital has to be sent to the

Tribunal along with the auditors certificate stating it is in compliance with accounting standards.

The 2013 Act aligns the SEBI requirement which existed for listed companies for all companies,

to ensure that the scheme aimed to use innovative accounting treatments for financial re-

modeling are not sanctioned by the Courts.

As the scheme tends to have overriding effect with respect to accounting treatment

(specifically mentioned in accounting standard 14 with respect to treatment of reserves), the onus

has been shifted on the auditor to confirm that accounting standards have been followed.


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6.7 Objection to compromise or arr angement

Under the 1956 Act, any shareholder, creditor or other interested person can object to

the scheme of compromise or arrangement before a court if such persons interests are adversely

affected.

The 2013 Act states that the objection to compromise or arrangement can be made only

by persons:

Holding not less than 10% of shareholding or; Having debt amounting not less than 5 % of the total debt as per latest audited financial

statements

The new threshold limit for raising objections in regard to scheme or arrangement willprotect the scheme from small shareholders and creditors frivolous litigation and objection.

6.8 Merger or amalgamation of company with f oreign company

The 1956 Act does not contain provisions for merger of Indian company into a foreign

company (transferee company has to be an Indian company).

The 2013 Act states that merger between Indian companies and companies in notified

foreign jurisdiction shall also be governed by the same provisions of the 2013 Act. Prior

approval of Reserve Bank of India would be required and the consideration for the merger can be

in the form of cash and or of depository receipts or both.

The 2013 Act will provide an opportunity of growth and expansion to Indian Company

by permitting amalgamation with foreign company or vice versa. This will provide opportunity

to form corporate strategies on a global scale. It has to be seen if the implementation mechanism

is smooth enough.

The 2013 Act suggests that all cross border merger will now be governed by the said

chapter. Presently, its possible for a foreign company of any jurisdiction to merge into an Indian

company. This may now be limited to only companies in notified jurisdiction.


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6.9 Merger of a l isted company into unl isted company

The 2013 Act requires that in case of merger between a listed transferor company and an

unlisted transferee company, transferee company would continue to be unlisted until it becomes

listed. Further, the 2013 Act also proposes that transferee company would have to provide an exit

opportunity.

Listing or delisting regulations, as applicable, under securities laws would still have to be

considered. Further, it seems that exit opportunity may have to be provided whether or not the

transferor company chooses to list.

6.10 Fast-track merger

Under the 1956 Act, all mergers and amalgamations require court approval. The 2013

Act requires that mergers and amalgamations between two or more small companies or between

holding companies and its wholly-owned subsidiary (or between such companies as may be

prescribed) does not require court approval. However, notice has to be issued to ROC and

official liquidator and objections / suggestions has to be placed before the members.

The scheme needs to be approved by members holding at least 90 percent of the total

number of shares or by creditors representing nine-tenths in value of the creditors or class of

creditors of respective companies.

Once the scheme is approved, notice would have to be given to the Central Government,

ROC and Official Liquidator.

This will reduce the time consumed in court proceedings and will result in faster disposal

of the matter.

It will help remove the bureaucratic barriers involved in court proceedings and in turn

simplify the process.

Presently, it seems that in such fast-track mergers, there is also no requirement for

sending notices to RBI or income-tax or providing a valuation report or providing auditor

certificate for complying with the accounting standard.

The 2013 Act does not specify transitional provisions relating to restructuring in progress

and presently there is a lack of clarity in this regard.


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CHAPTER 7 : DIFFERENCE BETWEEN MERGERS AND

ACQUISITIONS

Merger and acquisition is often known to be a single terminology defined as a process of

combining two or more companies together. The fact remains that the so-called single

terminologies are different terms used under different situations. Though there is a thin line

difference between the two but the impact of the kind of completely different in both the cases.

Merger is considered to be a process when two or more companies come together to

expand their business operations. In such a case the deal gets finalized on friendly terms and both

the companies share equal profits in the newly created entity.

When one company takes over the other and rules all its business operations, it is known

as acquisitions. In this process of restructuring, one company overpowers the other company and

the decision is mainly taken during downturns in economy or during declining profit margins.

Among the two, the one that is financially stronger and bigger in all ways establishes it power.

The combined operations then run under the name of the powerful entity who also takes over the

existing stocks of the other company.

Another difference is, in an acquisition usually two companies of different sizes come

together to combat the challenges of downturn and in a merger two companies of same size

combine to increase their strength and financial gains along with breaking the trade barriers. A

deal in case of an acquisition is often done in an unfriendly manner, it is more or less a forceful

or a helpless association where the powerful company either swallows the operation or a

company in loss is forced to sell its entity. In case of a merger there is a friendly association

where both the partners hold the same percentage of ownership and equal profit share.


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CHAPTER 8 : Nokia Acquisition

Introduction

Nokia being the largest manufacturer of mobile phones in the world with a share of 39%

of all the mobile phones across the world in the year 2009 has acquired many organisations to

continue to be the leader in the market. Nokia has global revenue of 37.2 billion GBP annually

with an operating profit of 1 billion GBP globally (Nokia, 2010).

Major Acquisiti on by Nokia

The major acquisition done by Nokia to date is theacquisition of the Navteq, a United States based company.

Nokia has paid 5.3 billion GBP for this acquisition which

is a huge amount. Navteq is a major provider of GIS

(geographical Information Systems) accounting to a

market share of 85% and has many clients such as BMW,

Mercedes Benz etc.,(Nokia acquisitions, 2008).

Purpose of this Acquisiti on

The main purpose of this major acquisition done by Nokia is to be the leader in the

mobile communications sector providing the consumers with the advantage of GPS on their

Nokia mobile devices. There were many problems in this acquisition as the entire value of

Navteq is a mere 398 million GBP at the time of acquisition (High beam, 2008). Paying a huge


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amount to navteq was considered a high risk by many analysts. However, some analysts support

this acquisition by saying that as navteq has a high growth profile, and as Nokia has already got a

broken business model in the Navigation sector due to the available free services from

companies like Google and other organisations.

Di sadvantages due to the Acquisit ion

Taking in to consideration the acquisition, the shares of nokia was driven down by 2% as

soon as this deal was finalised (High beam, 2008). This was considerably a big blow to nokia.

However, nokia continued with the acquisition as it believed that this small price can drive the

GPS business to greater heights. Nokia then planned to provide location based services to its

users with the help of navteq.


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chapter 9 : CONCLUSION

Many companies find that the best way to get

ahead is to expand ownership boundaries through

mergers and acquisitions. For others, separating the

public ownership of a subsidiary or business segment

offers more advantages. At least in theory, 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.

By contrast, de-merged companies often enjoy improved operating performance thanks to

redesigned management incentives. Additional capital can fund growth organically or through

acquisition. Meanwhile, investors benefit from the improved information flow from de-merged

companies.

There are alternatives to growth by acquisition. It is sometimes argued that as markets

become more global mergers are required to allow companies to be large enough to compete. For

example, telecommunications companies need to be very large to support the required research

and development overhead. Other industries have, however, found ways round this problem. Joint ventures

in the car industry between Honda/BL and Ford/Mazda are examples of alternatives to merger


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Recommendation

Not all mergers are failures; some in fact are very successful. On average, however,

research shows that expansion based on merger and takeover seems to bring few value gains

to acquiring company shareholders.

Mergers, however, are often in the interests of managers. They view success in a different light

from shareholders and are often more concerned with the job security and career prospects

brought by sheer size.

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

involved in M&A. The most beneficial form of equity structure involves a complete analysis of

the costs and benefits associated with the deals.

The companies have to look for other option to retain control and to maintain liquidity as

post-merger all the intercompany investment will be cancelled and no further shares will be

issued in lieu of the intercompany investment.

In a merger of a listed company into an unlisted company, the specific provisions under

2013 Act would also have to be considered apart from the securities law regulations. Companies

can enter into various arrangement with its foreign related company to increase their market

share and efficiency. However, prior approval of RBI has to be sought.


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MERGERS AND ACQUISITIONSBIBLIOGRAPHY

BOOKS:-

Indian Banking in New Millennium- G.V.R Manian

Banking Development In India-Niti Bhasin

Banking Theory and Practice- K.C. Shekhar and Lekshmy Shekhar

Mergers & Takeover Functioning and Reforms- Amit Bhasak

WEBSITES:-

www.indiatimes.com en.wikipedia.org/wiki/mergers and acquisition. http://www.theguardian.com/business/mergers-and-

acquisitions

http://gtw3.grantthornton.in/assets/Companies_Act-Mergers_and_restructuring.pdf
http://www.theguardian.com/business/mergers-and-acquisitionshttp://www.theguardian.com/business/mergers-and-acquisitionshttp://www.theguardian.com/business/mergers-and-acquisitionshttp://www.theguardian.com/business/mergers-and-acquisitionshttp://www.theguardian.com/business/mergers-and-acquisitionshttp://gtw3.grantthornton.in/assets/Companies_Act-Mergers_and_restructuring.pdfhttp://gtw3.grantthornton.in/assets/Companies_Act-Mergers_and_restructuring.pdfhttp://gtw3.grantthornton.in/assets/Companies_Act-Mergers_and_restructuring.pdfhttp://gtw3.grantthornton.in/assets/Companies_Act-Mergers_and_restructuring.pdfhttp://gtw3.grantthornton.in/assets/Companies_Act-Mergers_and_restructuring.pdfhttp://gtw3.grantthornton.in/assets/Companies_Act-Mergers_and_restructuring.pdfhttp://gtw3.grantthornton.in/assets/Companies_Act-Mergers_and_restructuring.pdfhttp://www.theguardian.com/business/mergers-and-acquisitionshttp://www.theguardian.com/business/mergers-and-acquisitions

main project(fsm) mergerts and aquisition

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