This presentation is a brief explanation about mergers and acquisition from Indian perspective and was presented by me during my tenure at Bank of America continuums, Indian.

1. The Story of Mergers and Acquisitions from
Indian perspective
By
Arpit amar

2. MERGERS AND ACQUISITIONS

3. CONTENTS
 INTRODUCTION TO M&A
 M&A REGULATION
 MOTIVES BEHIND M&A
 BUSINESS VALUATION FOR M&A
 FOLLOW-UP
 FINANCING M&A
 RISKS IN M&A
 KINDS OF M&A
 M&A BY INDIAN COMPANIES
 FOLLOW-UP

4. INTRODUCTION TO MERGERS
The merger is 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.
There is a situation when one company splits into two, generating a
second company separately listed on a stock exchange. That is
called demerger or spin–off or spin-out.
Ex.-
KINGFISHER AND AIR DECCAN IN 2010
HDFC AND CENTURION BANK OF PUNJAB IN 2008
MITTAL STEEL AND ARCELOR IN 2006

5. INTRODUCTION TO ACQUISITION
An acquisition is the purchase of one company by another company.
An acquisition may be friendly or hostile. Acquisition usually refers to
a purchase of a smaller firm by a larger one.
Sometimes, however, a smaller firm will acquire management control
of a larger or longer established company and keep its name for the
combined entity. This is known as a reverse takeover
EXAMPLES
TATA STEEL TAKEOVER OF ANGLO DUTCH STEELMAKER CORUS
GROUP IN 2006
PATNI COMPUTERS AND I-GATE IN 2010
ONGC ACQUIRED LONDON BASED FIRM IMPERIAL ENERGY IN
2009

6. A purchase deal will be called a merger when both CEOs agree that
joining together is in the best interest of both of their companies. But
when the deal is unfriendly - that is, when the target company does
not want to be purchased - it is always regarded as an acquisition or
hostile takeover.
The tactic to prevent hostile takeovers are called shark repellents.
They are
 Greenmail
 Poison pill
 Pac man defense
 White knights
 Golden parachute

7.  Greenmail- greenmailing is the practice of purchasing enough shares in a
firm to threaten a takeover and thereby forcing the target firm to buy those
shares back at a premium in order to suspend the takeover.
 Poison pill- A strategy used by corporations to discourage hostile takeovers.
With a poison pill, the target company attempts to make its stock less
attractive to the acquirer by diluting cash reserves or issuing shares at
discount.
 Pac man defense-The Pac-Man defense is a defensive option to stave off a
hostile takeover in which a company that is threatened with a hostile
takeover "turns the tables" by attempting to acquire its would-be buyer.
 White knights- is a third entity that appears with a more palatable offer for
taking over a firm when another hostile entity has already unwelcomed by
the target firm's management.
 Golden parachute-giving lucrative perks to top management in order to
avoid hostile takeover

8. M&A REGULATION
The Indian M&A environment is a strongly regulated by the following
major pieces of legislation/bodies:
 The Companies Act, 1956
 The Takeovers Code, 1997
 The Monopolies and Restrictive Trade Practices
Act, 1969
 The Foreign Exchange Management Act, 1999
 The Foreign Investment Promotion Board (FIPB)
 The Reserve Bank of India
 The Income Tax Act, 1961

9. MOTIVES BEHINDS M&A
 Diversification
 Economies of scale
 Increase market share prices
 Reduce tax obligation
 Cross selling
 Acquisition of customers
 Eliminating competition
 Access to new technology
 Economies of internal operation.
 Efficient utilization of resources.

10. BUSINESS VALUATION FOR
M&A
 Asset valuation
 Historical earnings valuation
 Future maintainable earnings valuation
 Relative valuation (comparable company & comparable
transactions)
 Discounted cash flow (DCF) valuation

11. FOLLOW-UP
Name any two shark-repellent.
Name any three motives behind M&A.
Any example of merger and acquisition.
What is discounted cash flow.
Name any two acts which regulates M&A.
What is white knights.

12. FINANCING M&A
 CASH IN HAND-it consumes financial slack (excess cash or
unused debt capacity) and may decrease debt rating. There
are no major transaction costs.
 ISSUE OF STOCK-it may improve debt rating and reduce
cost of debt. Transaction costs include fees for preparation of
a proxy statement, an extraordinary shareholder meeting and
registration.
 ISSUE OF DEBT-it may decrease debt rating and increase
cost of debt. Transaction costs include underwriting or closing
costs of 1% to 3% of the face value.
 SHARES IN TREASURY-A treasury stock or reacquired stock
is stock which is bought back by the issuing company
reducing the amount of outstanding stock on the open market.

13. REASONS FOR RISKS IN M&A
 Integration poorly planned and managed
 Underestimated cultural & human risks
 Loss of key success enablers (e.g. staff)
 Inaccurate financial due diligence
 Neglecting current business
 Legal (non participating competitor) or regulatory intervention
 market shifts during the merger process (such as changes in market
conditions of demand, financing, etc.)
 Death or departure of key personnel from the target entities.
 Failure, or inability to offer sufficient compensation to the vendors

14. TYPES OF MERGERS
 Horizontal Merger: when two companies on the same level merge, so two
that have the same market that they are trading to
and the same product type. For example: Bank of Rajasthan and Bank of
Mathura with ICICI bank. Merger of Lipton India with brook bond forming brook
bond Lipton India ltd.
 Vertical Merger: A merger between two companies producing different
goods or services for one specific finished product. For
example vertical product portfolio of Reliance industries from oil and gas
production, refining, drilling, , transporting and extracting petrochemicals.
 Conglomerate Merger : A conglomerate is a combination of two or more
corporations engaged in entirely
different businesses together into one corporate structure, usually involving a
parent company and several (or many) subsidiaries. A conglomerate is a multi-
industry company. for example: expected merger of Telecom giant Bharti with
retail giant Wal-Mart.

15. GLOBAL M&A BY INDIAN COMPANIES
 Bharti Airtel : It has completed its $9 billion acquisition of African operations
from Kuwait's Zain in a deal that makes the Indian firm the world's fifth
biggest cell phone company by subscribers. Undoubtedly the father of all
acquisition deals in India and is the biggest acquisition in the history of India.
 Tata acquired Corus: Tata Steel took over the Anglo-Dutch firm Corus Group in
2006 to create the fifth largest steel company of the world. The deal was worth
$7.6 billion (Rs. 36,650 crore) at that time.
 Hindalco acquired Novalis: Aditya Birla Group’s Hindalco Industries
Limited, India’s largest non-ferrous metals company, acquired the Canada based
firm Novalis in an all-cash transaction for $6 billion.
 Tata acquired Jaguar and Land Rover: Tata shook the automobile market once
again in 2008 when it snapped Britain’s most famous automobile
manufacturers, Jaguar and Land Rover, in a $2.3 billion deal with Ford, their
American owners. The deal showed India’s growing global ambition in owning the
best brands.
 Essel Packaging acquired Propack: Subhash Chandra’s Essel Packaging Ltd
(EPL) acquired the Swiss tube packaging major Propack, and joined hands to
become the world’s largest in laminated tubes. This deal was made way back in
2000 and an Indian MNC became the World No.1 because of it.

16.  Wockhardt acquired Negma Laboratories: In 2007, Pharmaceutical and
biotechnology major Wockhardt bought the fourth largest independent, integrated
pharmaceutical group in France, Negma Laboratories. At a deal of $265
million, Wockhardt became the largest Indian pharmaceutical company in Europe.
 Ranbaxy acquired 3 European drug-makers: In 2006, Ranbaxy Laboratories Ltd.
(RLL) created quite a stir when it announced the acquisition of 3 drug-makers in
Europe, all within a week’s time. Allen S.p.A, a division of GlaxoSmithKline (GSK)
in Italy, Romania’s largest independent generic drug producer Terapia and drug
maker Ethimed NV in Belgium, three of these firms were acquired by the Indian
firm.
 Times Group Acquired Virgin Radio: Bennett Coleman & Co Ltd, India’s largest
media group and the holding company of the Times of India group, bought Virgin
Radio in the UK in a £53.2 million (Rs 445cr approx) deal with SMG Plc. in 2008.
 Mahindra & Mahindra acquired Schoneweiss: Mahindra & Mahindra acquired
90% stakes of Schoneweiss, a leading company in the forging sector in Germany.
The deal took place in 2007, and consolidated Mahindra’s position in the global
market.
 Sterlite acquired Asarco: Sterlite Industries, a part of the Vedanta Group signed
an agreement regarding the acquisition of european copper mining company
Asarco for $ 2.6 billion in 2008. The deal surpassed Tata’s $2.3 billion deal of
acquiring Land Rover and Jaguar. After the finalization of the deal Sterlite would
become third largest copper mining company in the world.

17. FOLLOW-UP
 Name any two modes of financing of M&A deal.
 While financing M&A which option has negative effect on debt rating
 What kind of merger will happen if India today group merge with Bennet
&connect corp.ltd.
 What is horizontal merger.
 Name the two acquisition made by TATA group.
 Name any three risk that may occur during M&A deals.

18. Thank you