 A merger is…

◦ a combination of two or more businesses

◦ in which one acquires the assets and the liabilities
of the other
◦ in exchange of stock or cash or both.

 Companies are dissolved and assets and

liabilities are combined and new stock is
issued
 Horizontal Mergers
 Vertical Mergers
 Concentric mergers
 Conglomerate mergers
 Consolidation mergers
 Horizontal Mergers
◦ Combination of firms engaged in the same business

◦ E.g. Tata steel and Natsteel of Singapore

 Vertical mergers
◦ Combination of different firms engaged in activities
complementary to each other

◦ Like supply of raw materials, production, marketing etc

◦ E.g. merger of A.P.Lightings with Phillips

 Concentric mergers
◦ Combination of firms related to each other in terms of
customer groups/functions/technology.

◦ E.g. combination of firms producing television, washing

machines, kitchen appliances etc

 Conglomerate mergers
◦ Combination of firms unrelated to each other in terms of
customer groups/functions/technology.

◦ E.g. A publishing company and an automobile company

 Consolidation mergers
◦ A subsidiary company merges into a holding
company for consolidated strength, tax and cash
flow advantages, process advantages etc.

◦ Eg. RPL merging into RIL

 Strategic Issues
◦ Relate to the commonality of interest for merger
between the firms
◦ Both firms get the advantage of the strength of
each other after the merger
 Financial issues
◦ Like valuation of the firm, sources of financing for
merger etc
◦ Value of the selling firm may be assessed based on
the assets, market standing, earning potential,
share prices etc
 Managerial issues
◦ Critical in merger
◦ Significant changes in the top management
◦ Changes even at middle and lower level
 Legal issues
◦ Concerned with provisions with various laws
relating to mergers
◦ They include, Chapter V of the companies act, 1956
& MRTP act and section 72 A(I) of the Income Tax
act.
 Economies of scale

 Optimum utilization of resources

 Increased revenue by increased level of operations

 Higher productivity

 Revival of sick units and avoidance of mortality of loss

making organizations

 Easier to buy an existing firm rather than establishing a

new company
 The merger provides an easy entry into the
market along with the customers loyalty

 Also helps the buying company easy access

to source of raw material, finance and human
resources

 The organizational life cycle can be expanded

 Negative attitude of the senior partners towards the
junior firm may result in failure

 The executives of the acquired firm may get low status,

authority and power

 Performance and the profitability of the combined firms

may decline

 The merger may lead to concentration of economic

power, monopolistic condition and thereby political
power, higher prices, restricted supply, black marketing
etc.
 Paying too much for the acquired firm
 Assuming that a growing market/product will
continue its performance
 Leaping into merger without carefully
studying the consequences
 Diversifying into unrelated area in which the
firm has limited knowledge
 Buying too large firm and incurring large debt
 Trying to merge disparate corporate cultures
 Counting on key personnel staying after the
merger
 Careful planning
 Human considerations should be given due
consideration
 The valuation of the merger is critical aspect
 Legal factors must be carefully addressed
 Synergizing effect needs to be developed
 The benefit of the merger should be distributed to
people of both the firms
 Authority and responsibility clearly defined for top
level executives
• A joint venture is an entity formed
between two or more parties to
undertake economic activity together.

• The parties agree to create a new

entity by both contributing equity, and
then they share in the revenues,
expenses, and control of the
enterprise.
 JVs are partnership in which two or more
firms carry out a specific project in a selected
area of business
 The ownership of the firm remains
unchanged
 Separate legal identity and operate as per the
act
 JVs help in transferring ‘tacit knowledge’
 Mahindra & Renault
 Tata & AIG
 Bharti & Airtel
 Maruti & Suzuki
 TVS & Suzuki
 Kinetic & Honda
 Hero & Honda
 ICICI & Lombard
 When an activity is uneconomical for an
organization to do alone
 To leverage the strengths
 To enter at a low risk or to share the business
risk
 To pool the distinctive competence of two or
more organizations
 Government regulations
 Projects with multidimensional technology
requirement
 Spread costs
 Combined knowledge and resources
 ‘trial marriage’ before undertaking a merger
 Useful in international markets
 Partners in domestic company interprets local
customs and cultures
 (All major benefits of strategic alliances)
 Problems of equity participation
 Foreign exchange regulations imposed by
both the Governments
 Co-ordination becomes crucial to success
 Differences of cultures and customs
 Division of profits
 No control over the other firm
 Possible conflict and blaming each other at
the time of failure
 There are cases of JV falling apart due to lack
of synergy.
 For example- the 40:60 JV between Godrej and GE
formed in 1993 , was called off in 2001because-
 The JV failed to meet the projected turnover of Rs
35 billion and managed only 1.83 billion in 1998-
99.
 There was poor cultural integration between the
two partners. GE alleged lack of professionalism in
the Indian partner.
 Inadequate preplanning for the joint
venture.
 The hoped-for technology never developed.
 Agreements could not be reached on
alternative approaches to solving the basic
objectives of the joint venture.
 People with expertise in one company
refused to share knowledge with their
counterparts in the joint venture.
 Parent companies are unable to share
control or compromise on difficult issues
 Kinetic Honda
 TVS Suzuki
 Tata IBM
 LML Piaggio
 TATA Fiat