Mergers and acquisitions mean slightly different things. A merger occurs when two similar-sized firms agree to combine as a single new company, while an acquisition happens when one firm takes ownership of another. Both are used by multinationals to enter new markets. While mergers aim to create value exceeding the sum of the separate companies, cultural and organizational differences can challenge mergers. Opportunities include synergies and management benefits, but risks include overpaying, labor issues, and conflicting interests between management teams. Whether a deal succeeds ultimately depends on the SWOT analysis of the strengths, weaknesses, opportunities, and threats involved.

4. Used as though they were
synonymous, the terms
‘MERGER’ AND
‘ACQUISITION’
mean slightly different things.

5. MERGER :
Happens when two firms, often of about the
same size, agree to go
forward as a single new company rather than
remain separately owned and
operated. (Daimler-Benz and Chrysler ).
CONCEPT = MERGER OF EQUALS

7. ACQUISITION :
When ‘A’ takes over ‘B’ and clearly establishes
itself as the new owner, the purchase is called an
acquisition.
From a legal point of view, the ‘B’ ceases to exist, ‘A’
"swallows" ‘B’ and stock of ‘A’ continues to be traded.
CONCEPT = BIGGER FISH FRIES THE - WILLING
SMALLER

9. Mergers and acquisitions are a foreign direct
investment entry mode, Multinationals use
these methods for entering into new markets.

10. The key principle behind buying a company is to create shareholder
value over and above that of the sum of the two companies.
Rationale is particularly alluring when times are tough.
Strong companies will act to buy other companies to create a more
competitive, cost-efficient company .

13. • In practice, however, actual mergers of equals don't happen
very often.
• Usually, one company will buy another and, as part of the
deal's terms, simply allow the acquired firm to claim - it a
merger of equals, even if it's technically an acquisition.
• Being bought out often carries negative connotations.

14. TATA-CORUS

15. Respective profiles
PRE-aquisition
TATA CORUS (Now renamed as - TATA steel )
102 years in steel bazaar. 2nd in Europe , 1st in UK.
World’s 56th largest . World’s 6th largest.
Production Capacity of 30 Million. 371st rank in fortune list.
Founder : J.N. Tata 40,000 people worldwide.
Presence in 26 nations. Presence in 50 nations.

16. The Deal
• Tata acquired Corus, which was four times larger than its
size and the largest steel producer in U.K. .
• Was officially announced on April 2nd, 2007 at a price of
608 pence (approx. 486 Rs.) per ordinary share in cash.
• The deal was a 100% acquisition and the new entity is run
by one of Tata’s steel subsidiaries.
• Deal type – acquisition
• Approximate value – $ 12 billion (US) .

17. TATA-CORUS specific
Opportunities
1. Catapults Tata Steel into the league of top 10 global
steelmakers considering that Corus is at least three times
larger than Tata Steel (in terms of revenues and production
capacities).
2. Augmented its crude steel capacity to 27 mtpa .
3. Besides, the deal between a large player with a significant
presence and a strong distribution network (Corus) and an
outfit that is the lowest-cost producer of steel (Tata Steel)
suggests synergies.

18. Issues and challenges
1.Valuation and funding
Increasing financial risk, as Tata Steel went on a debt-
raising spree to finance a major part of the cost of
acquisition. Out of the $12 billion it financed 4
through equity .
2. Manage the cultural and
organizational differences

20. PRE-Merger Profiles
DAIMLER - BENZ CHRYSLER
Europe’s Largest Industrial Company US Based Company
Operations in Operations in
1.Passenger Cars 1.Cars
2.Commercial Vehicles 2.Minivans
3.Aerospace 3.Sport-utility vehicles
4.Services 4.Trucks
5.Directly Managed Businesses (Rail,
6.Automotive Electronics and Diesel
Engines)
Employs 3,00,000 people Motto - “We produce cars and trucks that
people will want to buy, will enjoy driving
and will want to buy again”

21. Why the merger ?
FOR DAIMLER FOR CHRYSLER
The perfect storm . Merger or perish .
For it was not able to reap
rewards fully of the booming US
economy.
High costs for Daimler .
Create a much larger global
enterprise to compete in major
world markets .

22. The Deal

23. Synergies
• World Leader in Transportation .
• Revenue Enhancement .
• Minimum overlap in Markets and Customers .
• Complete Spectrum of Products .
• Lower Costs and Higher Productivity .
• Cheaper Labor .
• Exchange of Technology .
• Higher Bargaining Power .

26. • Opposite management thinking .
• Authoritative Germans vs. Creative Americans .
• German replaces an American as Chrysler’s president .
• Lack of governance .
• Low level contact between the two top level management
• guys .
• The American dynamism faded under subtle German pressure.
• It bled cash for almost an year, owing to mismanagement.
• Cultural Differences.
• Employee bias was rampant in the merged organization.

27. Issues
• Daimler (Germans) relied heavily on quality and Chrysler (Americans) inclined
towards being cost-effective .
• Allegations of “fraud and deceit” on former Daimler executives .
• Falling share price.
• Falling sales and huge losses owing to volatile US auto industry .
• Synergies not working out to be as expected .
• Chrysler hell bent on producing “big” cars .
• Daimler Chrysler’s market cap in the recent years was almost equal to what
Daimler’s was before the merger !

28. Conclusions
We are in a position to draw the following conclusions about M&A (collectively)
conveniently .
Opportunities :
1. Synergies - Synergy is ability of merged company to generate higher shareholders
wealth than the standalone entities .
2. Benefits of better management – Since now the management is spearheaded by a
team combined with 2 different management practices , it gives the newly formed
team great opportunity to exploit resources , labor in hand .
3.Influx of capital – ‘X’ capital of one and ‘Y’ capital of another CO. combine to form
‘X+Y’ capital and undertake similar operations there by reducing the costs of
production remarkably.

29. Contd..
4. New technology – greater capital inflow gives the newly formed company
to acquire latest and advanced technology to undertake operations.
5. To get access to greater amounts of raw material , labor at cheaper costs .
6. Access to patents and trade marks.
7. Total built up capacity increases relatively .
8. Easier entry into new markets
9. Channels of distribution increase.

30. Issues and challenges :
1. Overpriced purchase – it may so happen in order to definitely
takeover a company ends up paying more than the
assessment.
2. Miscalculation regarding the purchase consideration.
3. Labor unrest – labor may be at unrest with the management ,
if the management is biased or even if labor is unhappy with
the new combined policies/new management’s policies
because change is always unwelcome .

31. Contd…
4. Conflict of interest in the two managements –
In case of a merger , even an acquisition where the purchaser is accommodating
the management of the seller , there may be conflict of interest as the two
managements may have been driven by different driving forces.
5. Affects liquidity of the purchaser –
It may happen that the purchaser decides to opt out of debt financing to lower the
financial risk ,instead pays part in cash and rest through equity-swap thereby
affecting its liquidity in a different manner.
6. Legal hurdles –
Companies opting for a merger or an acquisition may be at two different
geographical locations , having different legal frameworks.
Means that the companies will have to cross many legal hurdles to make sure that
the compliance to law holds good .

32. But on what do the issues ,
opportunities and
challenges
from a
M&A actually depend ?

33. It depends on the SWOT analysis of
the company ,which consequently would
conceive the basis of - strengths ,
weaknesses , opportunities , threats
that the company/companies
accrues/accrue from a MERGER or an
ACQUISITION .

34. Acknowledgements
Google.com
Wikipedia.com
Slideshare.com
Investopedia.com
Special thank you to teachers and
mates for constant and material
feedback.

35. THANK YOU !
Created and presented
by :
Raaghav Bhatia ,
Shaheed Bhagat Singh
college .