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Submitted by:


Registration No: 043-1121-0355-11

Roll No: 301-246




SUPERVISOR NAME: Suraj Bhattacharya



I hereby declare that the project work with the title MERGER AND
ACQUISITION submitted by me for the partial fulfillment of the
degree of B.Com. Honours in Accounting & Finance under the
University of Calcutta is my original work and has not been submitted
earlier to any other University for the fulfillment of the requirement
for any course of study.
I also declare that no chapter of this manuscript in whole or in part
has been incorporated in this report form earlier work done by others
or by me. However, extracts of any literature which has been used for
this report has been duly acknowledged providing details of such
literature in the references.

Place: Kolkata Signature:

Date: 14-2-2014 Name: Debjit Chaudhuri
Address:164/42 Lake
Gardens, Kolkata- 45
Registration No.:

Roll No.: 301-246

This is to verify that Mr. Debjit Chaudhuri, a student of B.Com.
Honours in Accounting & Finance of Syamaprasad College under
the Calcutta University has worked under my supervision and
guidance for her Project work with the title MERGER AND

The project report, which she is submitting is her genuine and original
work to the best of my knowledge.

Place: Kolkata Signature:

Date: 14-2-2014 Name: Suraj Bhattacharya

Name of the College:

Syamaprasad College


I would like to express my gratitude to my

teacher as well as our principal for giving me the golden

opportunity to do this project on MERGER AND

ACQUISITIONS which helped me in learning a lot on the


I am really thankful to them.

Secondly I would also like to thank my mother and brother

for helping me a lot in finding the pictures and finishing this

project within the limited time.


1 Introduction
• Meaning And Concept

• Objectives of M&A

• Business Valuation

• Research Methodology

• Literature Survey

2 Conceptual Framework

3 International Scenario

4 Presentation, Analysis & Findings

5 Conclusion

• Limitation

• M&A Failure

• Ending Thoughts

6 Bibliography


Mergers and acquisitions (abbreviated M&A) is an aspect of

corporate strategy, corporate finance and management dealing with
the buying, selling, dividing and combining of different companies
and similar entities that can help an enterprise grow rapidly in its
sector or location of origin, or a new field or new location, without
creating a subsidiary, other child entity or using a joint venture.
The distinction between a "merger" and an "acquisition" has
become increasingly blurred in various respects (particularly in
terms of the ultimate economic outcome), although it has not
completely disappeared in all situations.


The phrase M&A (abbreviated MERGERS AND

AMALGAMATIONS) refers to the aspect of corporate strategy,
corporate finance and management dealing with the buying, selling
and combining of different companies that can aid, finance, or help
a growing company in a given industry grow rapidly without
having to create another business entity.

A merger is a transaction that results in the transfer of ownership

and control of a corporation.

A transaction where two firms agree to integrate their operations so

that they together may create stronger competitive advantage is
termed as merger. The term ‘merger’ refers to a combination of
two or more companies into a single company and this
combination may be either through consolidation or absorption.

A consolidation is a combination of two or more companies into a

third entirely new company formed for the purpose. The new
company absorbs the assets, and possibly liabilities, of both
original companies which cease to exist. When two firms merge,
stocks of both are surrendered and new stocks in the name of new
company are issued. Generally, mergers take place between two
companies of more or less the same size. In case of absorption one
company absorbs another company i.e. it purchases either the
assets or shares of that company. The merger by absorption is
always friendly in nature i.e. both the companies agree to the terms
of absorption.


Every merger has its own unique reasons why the combining of two
companies is a good business decision . The underlying principle
behind merger and acquisition is simple. The joining or merging of
the two companies creates additional value which we called synergy

Synergy value takes three forms:

1. Revenue: By combining the two companies, we will realize

higher revenues then if the two companies operate separately.
2. Expenses: By combining the two companies, we will realize
lower expenses then if the two companies operate separately .
3. Cost of capital : By combining the two companies, we will
realize the lower cost of capital

The dominant rationale used to explain M&A activity is that

acquiring firms seek improved financial performance. The following
motives are considered to improve financial performance:

 Economy of scale:

This refers to the fact that the combined company can often
reduce its fixed costs by removing duplicate departments or
operations, lowering the costs of the company relative to the
same revenue stream, thus increasing profit margins.

 Economy of scope:

This refers to the efficiencies primarily associated with demand-

side changes, such as increasing or decreasing the scope of
marketing and distribution, of different types of products.

 Increased revenue or market share:

This assumes that the buyer will be absorbing a major

competitor and thus increase its market power (by capturing
increased market share) to set prices.

 Cross-selling:

For example, a bank buying a stock broker could then sell its
banking products to the stock broker's customers, while the
broker can sign up the bank's customers for brokerage accounts.
Or, a manufacturer can acquire and sell complementary

 Synergy:

For example, managerial economies such as the increased

opportunity of managerial specialization. Another example is
purchasing economies due to increased order size and associated
bulk-buying discounts.

 Taxation:

A profitable company can buy a loss maker to use the target's

loss as their advantage by reducing their tax liability. In the
United States and many other countries, rules are in place to
limit the ability of profitable companies to "shop" for loss
making companies, limiting the tax motive of an acquiring

 Geographical or other diversification:

This is designed to smooth the earnings results of a company,

which over the long term smoothens the stock price of a
company, giving conservative investors more confidence in
investing in the company. However, this does not always deliver
value to shareholders (see below).

 Resource transfer:

Resources are unevenly distributed across firms (Barney, 1991)

and the interaction of target and acquiring firm resources can
create value through either overcoming information asymmetry
or by combining scarce resources.

 Vertical integration:

Vertical integration occurs when an upstream and downstream

firm merges (or one acquires the other). There are several
reasons for this to occur. One reason is to internalize an
externality problem. A common example of such an externality
is double marginalization. Double marginalization occurs when
both the upstream and downstream firms have monopoly power
and each firm reduces output from the competitive level to the
monopoly level, creating two deadweight losses. Following a
merger, the vertically integrated firm can collect one deadweight
loss by setting the downstream firm's output to the competitive
level. This increases profits and consumer surplus. A merger
that creates a vertically integrated firm can be profitable.

 Hiring:

Some companies use acquisitions as an alternative to the normal

hiring process. This is especially common when the target is a
small private company or is in the startup phase. In this case, the
acquiring company simply hires the staff of the target private
company, thereby acquiring its talent (if that is its main asset
and appeal). The target private company simply dissolves and
little legal issues are involved.

 Absorption of similar businesses under single management:

Similar portfolio invested by two different mutual funds namely

united money market fund and united growth and income fund,
caused the management to absorb united money market fund
into united growth and income fund.

Business valuation

The five most common ways to value a business are

Asset valuation

 Historical earnings valuation,

 Future maintainable earnings valuation,
 Relative valuation (comparable company & comparable
 Discounted cash flow (DCF) valuation

Professionals who value businesses generally do not use just one of

these methods but a combination of some of them, as well as possibly
others that are not mentioned above, in order to obtain a more
accurate value. The information in the balance sheet or income
statement is obtained by one of three accounting measures: a Notice
to Reader, a Review Engagement or an Audit.

Accurate business valuation is one of the most important aspects of

M&A as valuations like these will have a major impact on the price
that a business will be sold for. Most often this information is
expressed in a Letter of Opinion of Value (LOV) when the business is
being evaluated for interest's sake. There are other, more detailed
ways of expressing the value of a business. While these reports
generally get more detailed and expensive as the size of a company
increases, this is not always the case as there are many complicated
industries which require more attention to detail, regardless of size.

As synergy plays a large role in the valuation of acquisitions it is

paramount to get the value of synergies right; synergies are different
from the "sales price" valuation of the firm, as they will accrue to the
buyer. The analysis should, hence be done from the acquiring firm's
point of view. Synergy creating investments are started by the choice
of the acquirer and therefore they are not obligatory, making them
real options in essence.

Research Methodology
The methodology adopted in conducting the proposed study are as

Nature of data – Mainly secondary data such as published reports

of various departments and companies, internet information, a few
books and business journals have been used. Reports of various
other scholars published on this topic were of immense help for
collecting the various data.

Application of statistical data – Various trends have been

depicted with the help of various statistical data like bar charts, pie
charts, tabular representation of data etc. to give a better
representation of the matter.

Literature and Survey

A brief summary of relevant research on this topic:

KAMAL GHOSH RAY- Strategy, Valuation and Integration-

brief idea on merger and amalgamation.

Merger and amalgamation-A.P.DASH

Research for classification of merger, details, valuation methods.

Merger and amalgamation-EDWIN L. MILLER-legal procedure
for merger and amalgamation.

WILLIAM J. CARNEY- Data about the Yearly Mergers And


Ministry of Petroleum and Natural gas (Govt. of India) “Annual

Reports April 2012”.

2. Conceptual Framework

Different economic rationality hypotheses exist, but the central theme

is that the merger and acquisition strategy aims at creating value for
the shareholders. This value creation is sometimes labeled synergy.
Generally, synergy exists when the total effect is greater than the sum
of the effects taken independently. Or put differently, synergy exists
when two plus two adds up to five. This general definition has also
been translated to the diversification literature whereby synergy
indicates that a corporate portfolio of businesses is worth more than
its businesses would be worth as stand-alone entities (Campbell and
Luchs, 1992). The same authors also argued that synergy can cover
other situations, for instance synergy can be created in horizontal
mergers (i.e. mergers between competitors within the same industry).
For the purpose of this study, however, we focus on synergies due to
diversification strategies.

In many articles synergy is considered as one of the main rationales

for merger and acquisition. Only few attempts have been made to link
the type of synergy to the amount of economic value created. Most
research starts from a classification of related versus unrelated
merger, but the problem with this scheme is that it lumps together the
different economic benefits and treats them as synonymous.

The major theories that indicate the sources of synergy that would be
discussed in this study include:

1. The Efficiency Hypothesis;

2. The Market Power View, and
3. The Financial Synergy Hypothesis.


Most histories of M&A begin in the late 19th Century United States.
However, mergers coincide historically with the existence of
companies. In 1708, for example, the East India Company merged
with an erstwhile competitor to restore its monopoly over Indian
trade. In 1784, the Italian Monte dei Paschi and Monte Pio banks
were united as the Monti Reuniti. In 1821, the Hudson's Bay
Company merged with the rival North West Company.

The Great Merger Movement: 1895-1905

The Great Merger Movement was a predominantly U.S. business
phenomenon that happened from 1895 to 1905. During this time,
small firms with little market share consolidated with similar firms to
form large, powerful institutions that dominated their markets. It is
estimated that more than 1,800 of these firms disappeared into
consolidations, many of which acquired substantial shares of the
markets in which they operated. The vehicles used were so-called
trusts. In 1900 the value of firms acquired in mergers was 20% of
GDP. In 1990 the value was only 3% and from 1998–2000 it was
around 10–11% of GDP. Companies such as DuPont, US Steel, and
General Electric that merged during the Great Merger Movement
were able to keep their dominance in their respective sectors through
1929, and in some cases today, due to growing technological
advances of their products, patents, and brand recognition by their
customers. There were also other companies that held the greatest
market share in 1905 but at the same time did not have the
competitive advantages of the companies like DuPont and General
Electric. These companies such as International Paper and American
Chicle saw their market share decrease significantly by 1929 as
smaller competitors joined forces with each other and provided much
more competition. The companies that merged were mass producers
of homogeneous goods that could exploit the efficiencies of large

volume production. In addition, many of these mergers were capital-
intensive. Due to high fixed costs, when demand fell, these newly-
merged companies had an incentive to maintain output and reduce
prices. However more often than not mergers were "quick mergers".
These "quick mergers" involved mergers of companies with unrelated
technology and different management. As a result, the efficiency
gains associated with mergers were not present. The new and bigger
company would actually face higher costs than competitors because
of these technological and managerial differences. Thus, the mergers
were not done to see large efficiency gains; they were in fact done
because that was the trend at the time. Companies which had specific
fine products, like fine writing paper, earned their profits on high
margin rather than volume and took no part in Great Merger

The economic history has been divided into Merger Waves based on
the merger activities in the business world as:

Period Name Facet

1897–1904 First Wave Horizontal mergers
1916–1929 Second Wave Vertical mergers
1965–1969 Third Wave Diversified conglomerate mergers
1981–1989 Fourth Wave Congeneric mergers; Hostile takeovers;
Corporate Raiding
1992–2000 Fifth Wave Cross-border mergers
2003–2008 Sixth Wave Shareholder Activism, Private Equity,


Tata acquired Corus on the 2nd of April 2007 for a price of $12 billion
making the Indian company the world’s sixth largest steel producer.
This acquisition process has started long back in the year 2005.
However, Corus itself was involved in a considerable number of
Merger & Acquisition deals and joint ventures.

Commenting, Mr Ratan Tata, Chairman of Tata Steel and Corus, said:

"The completion of this acquisition of Corus by Tata Steel is a major
step forward in the Company’s global strategy and represents an
exciting future for both businesse”

The case of Tata Steel acquiring Corus throws up several

interesting questions on emerging multinationals and traditional
multinationals in the steel industry and particularly the
complexities of the acquisition in the above context. What has been
surprising in the above case is that how could a small steel maker,
Tata Steel from a developing country like India buy up a large steel
company, Corus PLC from the United Kingdom. Prior to the
acquisition, Corus was four times bigger than Tata Steel. However, the
operating profit for Tata Steel was $840 million whereas in case of
Corus it was $860 million in the year 2006. It is also interesting to find
out why a large global steel maker, Corus decided to sell itself off to a
small steel maker from a developing country.

Brief History of TATA Steel:

TATA Steel was established by Parsi Businessman Jamshed Tata in

1907. Tata Steel holds a very vital place in the Indian business, because
it has introduced some of the most unique concepts. From Tata Steel,
Tata has started investing in various other businesses like oil mills,
airlines, tata motors, consultancy services, etc in the short span of 30
years. In the year 1945 Tata entered into Tea business by the name of
Tata Tea. Tata also entered into exports as Tata Exports which is the
most successful and the largest export house in India.
The company has been run by family members for five generations.
The current chairman of Tata group is Cyrus Mistry who succeded
Ratan Tata. The Tata group has made a number of recent acquisitions.
On February 2007, Tata steel won its bid to acquire Corus, the Anglo-
Dutch steel company. The Corus acquisitions by Tata Steel made it a
“giant among giants in Indian Inc”. The acquisition of Corus by Tata
Steel is anticipated to make Tata Steel the world’s second largest steel

Brief History of Corus Group Plc :

Corus Group Inc was formed on 6th October 1999 through the merger
of two companies British Koninklijke Hoogovens, following the
privatisation of many steel works companies by UK government. The
company consists of four divisions which include strip products, long
products, aluminium and distribution and building systems. With
headquarters in London, Corus operates as an international company
satisfying the demand of many steel customers worldwide. Its core
business comprises of manufacturing, allocation of steel and aluminium
products and services. In terms of performance the company is regarded
as the largest steel producer in UK with Pound 10142 millions of
annual revenue for 2005 and a workforce of 50,000 employees.

With the help of collection of primary source of data by way of conducting
several surveys, group discussions and other discussion forums and panels,
following information is revealed --

Liabilities of Corus Steel :

Liabilities (in GBP million) Total < 1 yr 1-3 yrs 3-5yrs >5 yrs
Long term debt obligations 1,101 - 567 534 -
Finance Lease obligations 159 24 36 26 73
Interest commitments 331 82 149 94 6
Operating lease obligations 462 75 102 76 209
Purchase obligations 350 331 13 6 -
Other long term liabilities 30 - - - 30
Total 2,433 512 867 736 318

Tata Corus - Projected Capacity :

Corus Group (in UK and The Netherlands) 19

Tata Steel - Jamshedpur 10
Tata Steel - Jharkhand 12
Tata Steel - Orissa 6
Tata Steel - Chattisgarh 5
NatSteel - Singapore 2
Millennium Steel - Thailand 1.7
Aggregate projected capacity 55.7

Global Steel Ranking :

Company Capacity (in million to tonnes )

Arcelor - Mittal 110.0
Nippon Steel 32.0
Posco 30.5
JEF Steel 30.0
Tata Steel - Corus 27.7
Bao Steel China 23.0
US Steel 19.0
Nucor 18.5

The following is the date wise process of the Merger :

11/27/06 Corus postpones shareholder meeting from

December 4 to December 20
to give Companhia Siderúrgica Nacional (CSN)
time to prepare a formal bid.

11/28/06 Corus reports a 63 per cent increase in quarterly


1/27/07 Tata Steel and CSN agreed to terms for an

auction that will begin January 30 at 4:30 p.m.
London time and end by 2:30 a.m. with an
announcement of the winner by 3:00 a.m.
There will be up to nine rounds Of bidding.

1/30/07 The British press bills the bid for Corus as a

clash between Tata Steel and CSN as a battle to
“decide the fate of more than two centuries of
British industrial history”

2/1/07 After three months of bids and counter-bids,

Tata Steel wins a fiercely contested 8-hour
closed-door auction against Brazil’s CSN for
Corus. Tata Steel acquires 21.1 percent of the
equity share capital for 608 pence per share
($11.7), besting the CSN bid of 603 pence,
paving the way to acquire Corus.

4/2/07 The courts officially approved Tata Steel’s
acquisition of Corus in a deal valued at GBP
6.2 billion ($12 billion dollars).

4/11/07 Tata Steel’s board of directors meet on 4/17 to

consider proposals for raising equity funds to
finance the Corus acquisition. Tata Steel shares
trade at Rs. 495.55 on the Bombay Stock

4/28/07 Tata Steel announces it will raise $4.1 billion

equity capital as partial payment for
Corus using a rights issue and a
convertible preference share issue
along with other financial

5/4/07 Tata Steel will borrow $7.3 billion in loans as

part of its long-term financing arrangements in
the takeover of Corus. It took advantage of
high liquidity in the leveraged loan market and
went with a long-term arrangement with
Citigroup, Standard Chartered and ABN Amro.

5/17/07 Tata Steel announced plans that would

potentially make it the second largest steel
maker in the world within five years.
Manufacturing capacity is planned to increase
from about 25 million tons a year to 40 million
by 2012, and then to 50 million by 2015.

After effect of Merger :

On July 23, 2007, Tata Steel stock reached a 52-week high close of
721.00 on the Bombay Stock Exchange’s (BSE) 30-stock Sensex after
hitting a low of 399.00 on March 8, 2007. Tata Steel was one of the
market leaders for the BSE Sensex up 27% in 2007. Standard &
Poor’s Ratings Services cut its credit rating to BB from BBB and
removed them from the negative watch list on which they were placed
after the financing structure for the acquisition of Corus was
announced. The rating was changed to a positive outlook. According
to one Standard & Poor’s analyst, “the rating remains constrained by
the weak business profile of Corus, which is characterized by lack of
integration or upstream linkages and relatively high cost of operations
in the UK, resulting in lower-than average profitability.” However,
S&P maintains that the strategic significance and size of Corus, along
with its importance to Tata Steel’s future plans, give strong economic
impetus to support the acquisition (Forbes.com, 2007, July 11).
Unfortunately, the current global economic downturn has wiped all
previous gains. By February 2009, Tata Steel’s stock price had
declined to Rs. 168.05, after a 52-week low of Rs.145.35 and a 52-
week high of Rs. 925.00.
Clearly, Tata Steel gambled on a strategy based on anticipation of
global consolidation of the steel industry. Along with Arcelor-Mittal,
it may still be poised to emerge as one the few
global steel producers. Tata Steel’s strategy will pay off if
consolidation in the European steel leads to a more stable pricing
structure if not now, by 2011. Second, if potential customers like
Toyota want to buy steel in different countriesn in Europe as well as in
India, this would give global steel producers (like Tata Steel) a
competitive advantage (Financial Times, 2007, February 1, 12).
Clearly, the global steel industry and Tata Steel in particular will be
closely watched in the years ahead, as some experts continue to
maintain that the steel industry is a forecaster of overall global
economic well-being.



The present study has seen limitations that need to be taken into

account when considering the study and its contributions.

In this research report there are certain things which are needed to

be explored and should be investigating at a big approach.

There were also some time constraints which limited my

research work. With more time, the Case Study could have been

more elaborate and accurate.

In addition to winding up the limitation of the project, it was very

interesting to investigate about the topic and do the various

market analysis.

M&A failure

Despite the goal of performance improvement, results from mergers

and acquisitions (M&A) are often disappointing compared with
results predicted or expected. Numerous empirical studies show high
failure rates of M&A deals. Studies are mostly focused on individual
determinants. A book by Thomas Straub (2007) "Reasons for frequent
failure in Mergers and Acquisitions" develops a comprehensive
research framework that bridges different perspectives and promotes
an understanding of factors underlying M&A performance in business
research and scholarship. The study should help managers in the
decision making process. The first important step towards this
objective is the development of a common frame of reference that
spans conflicting theoretical assumptions from different perspectives.
On this basis, a comprehensive framework is proposed with which to
understand the origins of M&A performance better and address the
problem of fragmentation by integrating the most important
competing perspectives in respect of studies on M&A Furthermore
according to the existing literature relevant determinants of firm
performance are derived from each dimension of the model. For the
dimension strategic management, the six strategic variables: market
similarity, market complementarities, production operation similarity,
production operation complementarities, market power, and
purchasing power were identified having an important impact on
M&A performance. For the dimension organizational behavior, the
variables acquisition experience, relative size, and cultural differences
were found to be important. Finally, relevant determinants of M&A
performance from the financial field were acquisition premium,
bidding process, and due diligence. Three different ways in order to
best measure post M&A performance are recognized: Synergy
realization, absolute performance and finally relative performance.


One size doesn't fit all. Many companies find that the best way to get
ahead is to expand ownership boundaries through mergers and
acquisitions. For others, separating the public ownership of a
subsidiary or business segment offers more advantages. At least in
theory, mergers create synergies and economies of scale, expanding
operations and cutting costs. Investors can take comfort in the idea
that a merger will deliver enhanced market power.

By contrast, de-merged companies often enjoy improved operating

performance thanks to redesigned management incentives. Additional
capital can fund growth organically or through acquisition.
Meanwhile, investors benefit from the improved information flow
from de-merged companies.

M&A comes in all shapes and sizes, and investors need to consider
the complex issues involved in M&A. The most beneficial form of
equity structure involves a complete analysis of the costs and benefits
associated with the deals.

To conclude mergers and acquisitions donot create immediate

shareholders wealth and margins for the acquiring firm in the
immediate short term. However from a longer perspective a
consolidated company would be able to better cope up with the
competition, increased pressure to cut cost and grow in the changing
business environment.


 en.wikipedia.org/wiki/Mergers_and_acquisitions
 www.investopedia.com/terms/m/merger.asp
 http://indiamergers.co.in/
 http://en.wikipedia.org/wiki/Tata_Corus_acquisition
 http://tata-corus.blogspot.in/
 http://www.britannica.com/EBchecked/topic/376016/merger
 Tata Steel ratings cut to ‘BB’ with positive outlook after Corus
 AFX News Limited, TFN.newsdesk@thomson.com at
 Tata Steel Makes It to Fortune 500 List, Indiaserver.com
 www.domain-b.com
 www.Businessweek.com/print/globalbiz/content/Jan
 www.forbes.com/2006/10/22/tata-corus-mna-biz-
cx_cx_rd_1022corus_print.html on
 www.iht.com/bin/print.php?id-4414416
 www.tatasteel.com