Mergers & takeovers

1. TAKEOVER & MERGER Jagjit Raman 11179 Gaurav Jhamb 11191

2. TAKEOVER Where one business acquires a controlling interest in another business, i.e. a change of ownership . A takeover bid is an offer to purchase enough share of a company to overtake the current majority shareholder. It takes place usually by acquisition or purchase from the shareholders of a company their shares at a specified price to the extent of at least controlling interest in order to gain control of the company.

3. Strategic motives Improve & develop the business Closely linked to competitive advantage E.g. economies of scale Financial motives Make best use of financial resources for shareholders Improve financial performance E.g. higher profits TAKEOVER : 3 Main Motives Managerial motives Self-interest of managers Not necessarily in the best interest of shareholders E.g. want to lead a bigger business

4. Shareholder Value - Example £10m £2m £15m

5. Takeover : Types Friendly Takeover Target company's management and board of directors agree to a merger or acquisition by another company. Hostile Takeover A takeover attempt that is strongly resisted by the target firm.

6. Acquirer Target Company Country Targeted Deal Value ($ Million) Industry Tata Steel Corus Group plc UK 12,000 Steel Hindalco Novelis Canada 5,982 Steel Videocon Daewoo Electronics Corp. Korea 729 Electronics Dr. Reddy’s Labs Betapharm Germany 597 Pharmaceutical Suzlon Energy Hansen Group Belgium 565 Energy HPCL Kenya Petroleum Refinery Ltd. Kenya 500 Oil and Gas Ranbaxy Labs Terapia SA Romania 324 Pharmaceutical Tata Steel Natsteel Singapore 293 Steel Videocon Thomson SA France 290 Electronics VSNL Teleglobe Canada 239 Telecom Top 10 Acquisitions Made By Indian Companies Worldwide:

7. E.g. Paying too much! Valuation has to strike a balance Interests of buyer shareholders Interests of target shareholders Don’t pay too much! Get the best price!

8. Example of the Winner’s Curse - RBS In 2007, RBS was part of a consortium that bid £49bn as it competed to buy ABN- Amro . RBS clearly overpaid for the takeover. Led to nationalisation of RBS in 2008 to avoid a collapse of the UK banking system.

9. Awful Deals £49bn SOLD £15bn

10. Awful Deals £ 175m SOLD £25m

11. MERGERS A combination of two previously separate businesses into a new business. The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. + = X Y + = X X Y Z

12. Synergy

13. Merger : Types Horizontal Merger Vertical Merger Conglomerate Merger

14. Mergers : India From 1991 to date, mergers are not regulated from a competition perspective. Pepsi gained a major market presence by acquiring Duke in 1988. It indicates for example – Coca Cola re-entered the Indian market in 1993 by acquiring Parle. The Asian Development Outlook 2005 mentions the impact of MERGERS in India.

15. Takeovers & Mergers : Advantages Expansion and growth Financial Synergy Creating value to stakeholders Risk reduction Gain in market share Gaining cost efficiency Improved Market Research & Industry Visibility

16. Takeovers & Mergers : Drawbacks High cost involved Clash of cultures Upset customers Problems of integration (change management) Resistance from employees Incompatibility of management styles, structures and culture Questionable motives High failure rate Diseconomies of scale

17. Two companies are more valuable, profitable than individual companies. The shareholder value is also over and above that of the sum of the two companies. M&T’s continue to be an important tool behind growth of a company. The basic reasons : To achieve economies of scale, Widen their reach, Acquire strategic skills, and Gain competitive advantage. It is the time for business houses and corporate to watch the market, and grab the opportunity.