Types of mergers and acquisitions

(Types including examples of mergers and acquisitions from Indian context)

1. TYPES OF MERGERS AND ACQUISITIONS SUBMITTED BY- ALISHA M.COM (Hons.), SEMESTER-3  

2. MERGER Merger is said to occur when two or more companies combine into one company . Merger is defined as a ‘transaction involving two or more companies in the exchange of securities and only one company survives ’. When the shareholders of more than one company, usually two, decide to pool resources of the companies under a common entity, it is called ‘merger’ .

3. ACQUISITION Acquisition is an act of acquiring effective control by a company over the assets ( purchase of assets either by lump sum consideration or by item-wise consideration) Or management (purchase of stocks/shares or gaining control over Board) of another company without combining their businesses physically. Generally, a company acquires effective control over the target company by acquiring majority shares of that company.

4. MOTIVES/ REASONS FOR MERGER AND ACQUISITION Economies of large scale business Rapid growth Market power Elimination of competition Unique capabilities Expansion and Diversification Adoption of modern technology Tax issues (to get tax benefit) International goals

5. KINDS OF MERGERS & ACQUITIONS (M&A)

6. TYPES OF MERGERS AND ACQUISITIONS

7. a) On the basis of lines of business activity 1. Horizontal M&A - When two or more companies dealing in similar lines of activity combine together then horizontal M&A takes place. E.g. The merger of Tata Oils Mills Company Ltd . (TOMCO) with Hindustan Lever Ltd. (HLL) is a horizontal merger .

8. 2 . Vertical M&A - A vertical M&A is one in which the company expands backwards by M&A with a company supplying raw materials or expands forward in the direction of the ultimate consumer. Thus, Vertical M&A may take the form of forward or backward M&A. The vertical M&A will bring the companies of same industry together who are involved in different stages of production, process or operation. E.g. a) The merger of Reliance Petrochemicals Limited (RPCL) with Reliance Industries Limited (RIL) is a vertical merger with backward linkage as far as RIL is concerned . b) The merger of Cement manufacturing company with civil construction company is also a vertical merger with forward linkage.

9. 3. Conglomerate M&A- It involves the integration of companies entirely involved in a different set of activities, products or services. E.g. a) L&T and Voltas Ltd . b) The merger of Mohta Steel Industries Limited with Vardhaman Spinning Mills Limited is a conglomerate M&A.

10. Some other types of M&A 4. Market-extension merger- It involves two companies that sell the same products in different markets . E.g. RBC Centura's acquisition of Eagle Bancshares, Inc. 5. Product-extension merger- It involves two companies selling different but related products in the same market . E.g. Broadcam’s acquisition of Mobilink Telecom, Inc. is an example of a products extension merger. 

11. 6. Cross Border Merger: Cross Border Merger involves merger of companies belonging to different countries in the world. Such mergers have been basically due to massive economic forces like globalization of market place for many products, increasing competition which has assumed a global character, explosion of technology based on massive investments in R&D, privatization of state enterprises etc. E.g. a) Vodafone's acquisition  of a controlling interest in Hutchison Essar and b) Tata Steel's  acquisition of the European steelmaker, Corus headlined a frenzy of  acquisitions  of foreign companies by  Indian  corporate enterprises in the past year.

12. b) On the basis of bid of controlling interest Friendly M&A :- When the management of acquiring and target companies mutually and willingly agrees for takeover, it is called friendly M&A . E.g. Facebook takeover to WhatsApp is another big example of a friendly takeover where Facebook bought WhatsApp in $19 Billion.

13. 2. Hostile M&A :- When the acquisition is ‘forced’ or against the wish of the target management , it is called hostile M&A . E.g. a) The takeover of Shaw Wallace, Dunlop, Mather & Platt and Hindustan Dorr Oliver by Chhabrias and b) The takeover of Ashok Leyland by Hindujas are the examples of hostile M&A.

14. 3. Bailout M&A :- These are resorted to bailout the sick companies, to allow the company for rehabilitation as per the schemes approved by the financial institutions . E.g. Morgan Stanley  was bailed out by The Bank of Tokyo-Mitsubishi UFJ in 2008.

15. c) On the basis of strategic transactions Strategic M&A- It involves operating synergies, i.e., two companies are more profitable combined than separate. F inancial M&A - In this, the bidder usually believes that the price of the company’s stock is less than the value of company’s assets. Reverse M&A- is the merger of a large (financially sound/ profit-making) company with a small (financially weak/ loss-making) company . E.g. Godrej Industries Ltd. with Gujrat Godrej Innovative Chemicals Ltd to form Godrej Soaps Ltd.

16. 4. Downstream M&A- is the merger of a parent company with its own subsidiary . E.g. ICICI Ltd. a parent co. merged with it's subsidiary co. ICICI bank 5. Upstream M&A- is the merger of a subsidiary company with its own parent company. E.g. Bhadrachalam paper Board with the parent ITC Ltd .

17. 6. Defacto M&A- has economic effect of merger as per legal provisions, but is entered in the form of acquisition of assets. 7 . Cash M&A- occurs when certain shareholders accept cash for their shares, while other shareholders receive shares in the surviving company. 8 . Short-Term M&A- takes place when a parent company acquires the total voting power in a subsidiary.

18. TOP M&A DEALS in India 1. Vodafone-Idea merger | Deal size: USD 23 billion On 31 August 2018, Vodafone India merged with Idea Cellular, and was renamed as Vodafone Idea Limited. Currently , the  Vodafone Group holds a 45.1% stake in the combined entity, the  Aditya Birla Group holds 26% and the remaining shares will be held by the public . And now, Vodafone Idea Limited is India's largest telecom operator.

19. 2. Vodafone-Hutchison Essar | Deal size: USD 11.1 billion In July 2011, Vodafone Group  acquired the mobile phone business of its partner Essar  . On 11 February 2007, Vodafone agreed to acquire the controlling interest of 67% held by  Hutch-Essar for US$11.1 billion, which was the biggest deal in the sector.

20. 3. Ranbaxy-Daiichi Sankyo | Deal size: USD 4.6 billion Daiichi acquired 34.82% stake in Ranbaxy for USD 2.4 billion on 11 th June, 2008. The total deal value was USD 4.6 billion. As per the deal, total value of Ranbaxy was USD 8.5 billion. It was an all cash transaction .

21. 4. Snapdeal and Freecharge | Deal size: USD 400 million E-commerce start-up Snapdeal acquired mobile recharge service Freecharge in April 2015. The cash plus stock deal was pegged at USD 400 million , making it the biggest acquisition in the history of India's internet industry. After a turbulent last few months, Snapdeal finally sold Freecharge to Axis Bank for USD 60 million.

22. 5. Flipkart and Myntra | Deal size: USD 300 million - 330 million India's premier e-commerce start-up Flipkart acquired its fashion-focused rival Myntra in May 2014, a move which was in light of Amazon's expanding presence in India. According to the reports, the cash and stock deal was between USD 300 million and USD 330 million.

23. 6. Ola and TaxiForSure | Deal size: USD 200 million Ola , one of India's largest ride-hailing service, acquired the smaller-but-value-centric TaxiForSure for USD 200 million in a cash and equity deal in March 2015 . Even as both companies initially operated as separate entities, Ola shut down TFS in August 2016 and laid off 1,000 of its employees.

24. Recent Headlines at a Glance Reliance Brands, a subsidiary of Reliance Industries has completed acquisition (100% stake) of British toy retailer Hamleys for GBP 67.96 million (about Rs 620 crore) in an all-cash deal, in J uly 2019 . After the merger of Bank of Baroda with Dena Bank and Vijaya Bank, the amalgamated lender is focusing on integrating the sprawling technology systems of the three financial firms to provide a smooth customer experience.  HDFC buys Apollo Munich Health for Rs 1,347 crore. HDFC will acquire 50.8 percent from the Apollo Hospitals group for Rs 1,337 crore. GSK Consumers Healthcare gets shareholders' approval for merger with HUL. The company has received 99.99 per cent votes in favour of the scheme of amalgamation.