ACQUISITION

A transaction where one firms buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business It also known as a takeover or a buyout It is the buying of one company by another. In acquisition two companies are combine together to form a new company altogether. Example: Company A+ Company B= Company A.

ACQUISITION:WHY & WHY NOT

WHY IS IMPORTANT i. Increased market share. ii. Increased speed to market iii. Lower risk comparing to develop new products. iv. Increased diversification v. Avoid excessive competition PROBLEM WITH ACUIQISITION

i.

Inadequate valuation of target. ii. Inability to achieve synergy. iii. Finance by taking huge debt.

ONGC-Imperial Energy:$2.8billion
January 2009 Acquisition deal ONGC paid 880 per share to the shareholders of imperial energy(represents a premium of approximately 62pc to the share price the day before the initial approach on July 11,2008)

ONGC wanted to tap the siberian market

Image: Imperial Oil CEO Bruce March.

Why this Deal???

the basic rationale of the deal is to reduce Indias dependence on oil imports by venturing into one of the worlds most prolific hydrocarbons basins (particularly Western Siberia) and to hedge the energy risk. However, considering the huge fall in oil prices (presently hovering at around $45 per barrel), the investment doesnt seems to garner more than 3-4% return (the return was about 10% at the time of the bidding). Even critics argue that ONGC should have revised the deal as the offer was made when oil prices were around $130 per barrel. The deal is over valued to the extent of around 15- 20% based on the announced production profile of 80 kbpd by Imperial in 2012 and long term crude oil prices of around $75 per barrel,says analysts.

Shareholders take-away: 90% stakeholders tender shares in open offer.

At the current exchange ratio, ONGC will have to fork out 1.28 billion pound, equivalent to $1.85 billion. In addition, the company will pay $190 million against the convertible instruments, taking the total consideration to little over $2 billion.
OVL needs to pay to all the shareholders of Imperial Energy within 14 days of the December 30,2008 who have tendered their shares. For the rest of shareholders, they will be paid after 14 days of the closure of the open offer, sources said.