Major Mergers and Acquisitions in India

Recently the Indian companies have undertaken some important acquisitions. Some of those are as follows: Hindalco acquired Canada based Novelis. The deal involved transaction of $5,982 million. Tata Steel acquired Corus Group plc. The acquisition deal amounted to $12,000 million. Dr. Reddy's Labs acquired Betapharm through a deal worth of $597 million. Ranbaxy Labs acquired Terapia SA. The deal amounted to $324 million. Suzlon Energy acquired Hansen Group through a deal of $565 million. The acquisition of Daewoo Electronics Corp. by Videocon involved transaction of $729 million. HPCL acquired Kenya Petroleum Refinery Ltd.. The deal amounted to $500 million. VSNL acquired Teleglobe through a deal of $239 million. When it comes to mergers and acquisitions deals in India , the total number was 287 from the month of January to May in 2007. It has involved monetary transaction of US $47.37 billion. Out of these 287 merger and acquisition deals, there have been 102 cross country deals with a total valuation of US $28.19 billion. http://www.economywatch.com/mergers-acquisitions/india.html

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A merger is a combination of two companies where one corporation is completely absorbed by another corporation. The less important company loses its identity and becomes part of the more important corporation, which retains its identity. It may involve absorption or consolidation.

Merger is also defined as amalgamation. Merger is the fusion of two or more commercial organisations into one. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of: Transferee companys equity shares

Transferee companys Debentures Cash A blend of above.[3]

Amalgamation is defined under section 2(1 B) of Income Tax Act, 1961 as follows: [4] "Amalgamation", in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that (i) All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) All the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) Shareholders holding not less than nine-tenths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first mentioned company[5] MOTIVES BEHIND MERGERS OF THE COMPANY 1. Economies of Scale: It involves the use of increase production to decrease per unit cost. 2. Increased revenue / Market Share: This motive is to absorb the major competitor and thereby attain monopoly and the freedom to set prices. 3. Cross selling: For example, a bank buying a stock broker could then sell its banking products to the stock brokers customers, while the broker can sign up the bank customers for brokerage account. 4. Corporate Synergy: Better use of complimentary resources. It may take the form of revenue enhancement and cost savings. 5. Taxes: A profitable can buy a loss maker to use the targets tax right off i.e. wherein a sick company is bought by giants. 6. Geographical or other diversification: This is designed to smooth the earning results of a company, which over the long term smoothens the stock price of the

company giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders.

Some studies have focused on identifying the specific reasons for the failure of mergers or acquisitions. The following are the five major causes of merger failure: Poor strategic rationale. Mismatch of cultures. Difficulties in communicating and leading the organization. Poor integration planning and execution. Paying too much for the target company.[6]

TYPES OF MERGES Horizontal merger- A merger is said to be horizontal when two companies producing or rendering the same products or services or products and/or services which compete directly with each other. E.g. Ford and Volvo Vertical merger- A customer and company or a supplier and company i.e. merger of firms that have actual or potential buyer-seller relationship. Ford- Bendix, Time Warner-TBS. Conglomerate merger A Conglomerate merger is one where two or more companies with different line of work merge to diversify the products marketed. The companies may not be related to each other horizontally.

ACQUISITION Taking possession of another business is also called as a takeover or buyout. It may be share purchase (the buyer buys the shares of the target company from the shareholders of the target company. The buyer will take on the company with all its assets and liabilities) or asset purchase (buyer buys the assets of the target company from the target company)

In simple terms, A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two "equals", whereas an acquisition or takeover on the other hand, is characterized the purchase of a smaller company by a much larger one. In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity.[7]

A merger is a combination of two companies where one corporation is completely absorbed by another corporation. The less important company loses its identity and becomes part of the more important corporation, which retains its identity. It may involve absorption or consolidation.

Merger is also defined as amalgamation. Merger is the fusion of two or more commercial organisations into one. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of: Transferee companys equity shares Transferee companys Debentures Cash A blend of above.[3]

Amalgamation is defined under section 2(1 B) of Income Tax Act, 1961 as follows: [4] "Amalgamation", in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that (i) All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) All the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) Shareholders holding not less than nine-tenths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first mentioned company[5] MOTIVES BEHIND MERGERS OF THE COMPANY 1. Economies of Scale: It involves the use of increase production to decrease per unit cost. 2. Increased revenue / Market Share: This motive is to absorb the major competitor and thereby attain monopoly and the freedom to set prices. 3. Cross selling: For example, a bank buying a stock broker could then sell its banking products to the stock brokers customers, while the broker can sign up the bank customers for brokerage account.

4. Corporate Synergy: Better use of complimentary resources. It may take the form of revenue enhancement and cost savings. 5. Taxes: A profitable can buy a loss maker to use the targets tax right off i.e. wherein a sick company is bought by giants. 6. Geographical or other diversification: This is designed to smooth the earning results of a company, which over the long term smoothens the stock price of the company giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders.

Some studies have focused on identifying the specific reasons for the failure of mergers or acquisitions. The following are the five major causes of merger failure: Poor strategic rationale. Mismatch of cultures. Difficulties in communicating and leading the organization. Poor integration planning and execution. Paying too much for the target company.[6]

TYPES OF MERGES Horizontal merger- A merger is said to be horizontal when two companies producing or rendering the same products or services or products and/or services which compete directly with each other. E.g. Ford and Volvo Vertical merger- A customer and company or a supplier and company i.e. merger of firms that have actual or potential buyer-seller relationship. Ford- Bendix, Time Warner-TBS. Conglomerate merger A Conglomerate merger is one where two or more companies with different line of work merge to diversify the products marketed. The companies may not be related to each other horizontally.

ACQUISITION Taking possession of another business is also called as a takeover or buyout. It may be share purchase (the buyer buys the shares of the target company from the shareholders of the target company. The buyer will take on the company with all its assets and liabilities) or asset purchase (buyer buys the assets of the target company from the target company)

In simple terms, A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two "equals", whereas an acquisition or takeover on the other hand, is characterized the purchase of a smaller company by a much larger one. In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity.[7]