2. TAKEOVER
0Where one business acquires a controlling interest in
another business, i.e. a change of ownership.
0 A takeover bid is an offer to purchase enough share of
a company to overtake the current majority
shareholder.
0 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. TAKEOVER : 3 Main Motives
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
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
16
14
12
10
8
6
4
2
0
Original Target Combined
Business Value (£m)
£10
m
£2m
£15
m
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. Top 10 Acquisitions Made By Indian Companies Worldwide:
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
7. E.g. Paying too much!
Valuation has to strike a balance
Don’t pay too
much!
Get the best
price!
8. Example of the Winner’s Curse - RBS
0In 2007, RBS was part of a
consortium that bid £49bn
as it competed to buy ABN-Amro.
0RBS clearly overpaid for the
takeover.
0Led to nationalisation of
RBS in 2008 to avoid a
collapse of the UK banking
system.
11. MERGERS
0A combination of two previously separate
businesses into a new business.
0The 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 Z
X + Y = X
14. Mergers : India
0 From 1991 to date, mergers are not regulated from a
competition perspective.
0 Pepsi gained a major market presence by acquiring
Duke in 1988.
0 It indicates for example – Coca Cola re-entered the
Indian market in 1993 by acquiring Parle.
0 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
0 High cost involved
0 Clash of cultures
0 Upset customers
0 Problems of integration (change management)
0 Resistance from employees
0 Incompatibility of management styles, structures and
culture
0 Questionable motives
0 High failure rate
0 Diseconomies of scale
17. 0 Two companies are more valuable, profitable than individual
companies.
0 The shareholder value is also over and above that of the sum of
the two companies.
0 M&T’s continue to be an important tool behind growth of a
company.
0 The basic reasons :
To achieve economies of scale,
Widen their reach,
Acquire strategic skills, and
Gain competitive advantage.
0 It is the time for business houses and corporate to watch the
market, and grab the opportunity.
