MAJOR PROJECT REPORT

On

MERGERS AND ACQUISITIONS:

ANALYSIS OF KINGFISHER AIRLINES
AND
AIR DECAN MERGER

Submitted in the Partial fulfillment of the degree of

Bachelors of Business Administration at
Guru Gobind Singh Indraprastha University, Delhi.

Ansal Institute of Technology

1
 EVALUATION OF PROJECT
This is to certify that the project titled “Mergers and Acquisitions : Analysis of its
Market And Trends” submitted by BBA, Semester 6 of AIT affiliated to GGSIP
University, Delhi has been examined by the following examiners:

Internal Examiner External Examiner

2
 CERTIFICATE
This is to certify that the project titled “Mergers and Acquisitions: An Understanding
and Study” submitted by of BBA General, Semester 6 of Ansal Institute Of Technology
(AIT) affiliated to GGSIP University, Delhi is original and authentic. This has been
carried/done under my supervision and guidance.

Supervisor

3
 AKNOWLEDGEMENT

Any accomplishment requires the effort of many people and this work is not any
different.

I would also like to extend my sincere regards to my project faculty guide at Ansal
Institute Of Technology, Gurgaon for her guidance, suggestions and support in carrying
out this project. My learning has been immeasurable and working on this project has been
a great experience.

Last but not the least I also wish to thank everybody who helped me through the
successful completion of the project. The learning from this experience has been
immense and would be cherished throughout my life.

4
 TABLE OF CONTENTS

Sr.No. Topic Page No.

1 Introduction to Mergers and Acquisitions 6
2 Mergers 8
3 Acquisitions 9
4 The Great Merger Movement of Mergers and Acquisitions. 11
5 Distinction between Mergers and Acquisitions 14
6 Types of Mergers 15
7 Motives behind Mergers and Acquisitions 17
8 Benefits and Drawbacks of Mergers and Acquisitions 22
9 Procedure of Mergers 25
10 Valuation of Mergers 28
11 Participants of Mergers and Acquisitions 30
12 Success and Failure of Mergers and Acquisitions 31
13 Difficulties of Mergers and Acquisitions 34
14 Financing Mergers and Acquisitions 36
15 Mergers and Acquisition Laws 37
16
17 PART-II
18 TREND ANALYSIS AND MARKET ANALYSIS
19 STUDY OF MAJOR M&A’s
20 Objectives 41
21 Research Methodology 42
22 Trends Overview 43
23 Major Mergers and Acquisitions 45
24 Data Interpretation and Analysis 59
25 Conclusion 65
26 Questionnaire 69

5
6
 INTRODUCTION TO MERGERS & ACQUISITIONS

In a general sense, mergers and acquisitions are very similar corporate actions -
they combine two previously separate firms into a single legal entity. Significant
operational advantages can be obtained when two firms are combined and, in fact, the
goal of most mergers and acquisitions is to improve company performance and
shareholder value over the long-term.

The motivation to pursue a merger or acquisition can be considerable; a company that

combines itself with another can experience boosted economies of scale, greater sales
revenue and market share in its market, broadened diversification and increased tax
efficiency. However, the underlying business rationale and financing methodology for
mergers and acquisitions are substantially different.

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". The combined business,
through structural and operational advantages secured by the merger, can cut costs and
increase profits, boosting shareholder values for both groups of shareholders. A typical
merger, in other words, involves two relatively equal companies, which combine to
become one legal entity with the goal of producing a company that is worth more than the
sum of its parts. 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.

A takeover, or acquisition, on the other hand, is characterized as the purchase of a smaller

company by a much larger one. This combination of "unequal" can produce the same
benefits as a merger, but it does not necessarily have to be a mutual decision. A larger
company can initiate a hostile takeover of a smaller firm, which essentially amounts
to buying the company in the face of resistance from the smaller company's management.
Unlike in a merger, in an acquisition, the acquiring firm usually offers a cash price per
share to the target firm's shareholders or the acquiring firm's share's to the shareholders of
the target firm according to a specified conversion ratio. Either way, the purchasing

7
company essentially finances the purchase of the target company, buying it
outright for its shareholders.

In this context, it would be essential for us to understand what corporate restructuring and
mergers and acquisitions are all about.

8
 MERGERS

Mergers involve the mutual decision of two companies to combine & become one
entity. The combined business can cut cost of operation & increase profit which will
boost shareholders value for both groups of shareholders. In Merger of two corporations,
shareholders usually have their shares in the old organization & are exchanged for an
equal numbers of shares in the merged entity.

According to the Oxford Dictionary “merger” means “combining of two companies into
one”. Merger is a fusion between two or more enterprises, whereby the identity of one or
more is lost and the result is a single enterprise. In merger the assets and liabilities of the
companies get vested in another company, the company that is merged losing its identity
and its shareholders becoming shareholders of the other company. All assets, liabilities
and the stock of one company are transferred to Transferee Company in consideration of
payment in the form of:
 Equity shares in the transferee company,
 Debentures in the transferee company,
 Cash, or
 A mix of the above modes.
In the pure sense, a merger happens when two firms, often of about the same size, agree
to go forward as a single new company rather than remain separately owned and
operated. This kind of action is more precisely referred to as a "merger of equals." For
example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged,
and a new company, Daimler Chrysler, was created.

9
 ACQUISITION

Acquisition in general sense is acquiring the ownership in the property. In the

context of business combinations, an acquisition is the purchase by one company of a
controlling interest in the share capital of another existing company.
On the other hand, Acquisition means the purchase of a smaller company by much larger
one. A larger company can initiate an Acquisition of smaller firm which essentially
amounts to buy the company in the face of resistance from smaller company’s
management. Unlike Mergers in an Acquisition the acquiring firm usually offers a cash
price per share to target firm’s shareholders.
Acquisition means an attempt by one firm to gain majority interest in the another firm
called target firm &dispose-off it‘s assets or to take the target firm private by small group
of investors.
A company can buy another company with cash, stock or a combination of the two.
Another possibility, which is common in smaller deals, is for one company to acquire all
the assets of another company.

An acquisition may be affected by;

(a) agreement with the persons holding majority interest in the company management
like members of the board or major shareholders commanding majority of voting
power;
(b) purchase of shares in open market;
(c) to make takeover offer to the general body of shareholders;
(d) purchase of new shares by private treaty;
(e) Acquisition of share capital through the following forms of considerations viz. means
of cash, issuance of loan capital, or insurance of share capital.

10
There are broadly two kinds of strategies that can be employed in corporate acquisitions.
These include:

I. Friendly Takeover:-

The acquiring firm makes a financial proposal to the target firm’s management
and board. This proposal might involve the merger of the two firms, the
consolidation of two firms, or the creation of parent/subsidiary relationship.

II. Hostile Takeover:-

A hostile takeover may not follow a preliminary attempt at a friendly takeover.

For example, it is not uncommon for an acquiring firm to embrace the target
firm’s management in what is colloquially called a bear hug.

11
 THE GREAT MERGER MOVEMENT OF
MERGER & ACQUISITION

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 withsimilar firms to form large, powerful institutions that dominated their
markets. It is estimated thatmore than 1,800 of these firms disappeared into
consolidations, many of which acquiredsubstantial shares of the markets in which they
operated. The vehicle used were so-called trusts.To truly understand how large this
movement was—in 1900 the value of firms acquired inmergers was 20% of GDP. In
1990 the value was only 3% and from 1998–2000 is was around10–11% of GDP.
Organizations that commanded the greatest share of the market in 1905 sawthat
command disintegrate by 1929 as smaller competitors joined forces with each
other.However, there were companies that merged during this time such as DuPont,
Nabisco, US Steel,and General Electric that have been able to keep their dominance in
their respected sectors todaydue to growing technological advances of their products,
patents, and brand recognition by theircustomers. These companies that merged were
consistently mass producers of homogeneousgoods that could exploit the efficiencies of
large volume production. Companies which hadspecific fine products, like fine writing
paper, earned their profits on high margin rather thanvolume and took no part in Great
Merger Movement.
SHORT-RUN FACTORS
One of the major short run factors that sparked in The Great Merger Movement
was thedesire to keep prices high. That is, with many firms in a market, supply of the
product remainshigh. During the panic of 1893, the demand declined. When demand for
the good falls, asillustrated by the classic supply and demand model, prices are driven
down. To avoid this declinein prices, firms found it profitable to collude and manipulate
supply to counter any changes in demand for the good. This type of cooperation led to
widespread horizontal integration amongst firms of the era. Focusing on mass production
allowed firms to reduce unit costs to a much lower rate. These firms usually were capital-
intensive and had high fixed costs. Because new machines were mostly financed through
bonds, interest payments on bonds were high followed by the panic of 1893, yet no firm
was willing to accept quantity reduction during this period.

LONG-RUN FACTORS
In the long run, due to the desire to keep costs low, it was advantageous for
firms to merge and reduce their transportation costs thus producing and transporting from

12
one location rather than various sites of different companies as in the past. This resulted
in shipment directly to market from this one location. In addition, technological changes
prior to the merger movement within companies increased the efficient size of plants with
capital intensive assembly lines allowing for economies of scale. Thus improved
technology and transportation were forerunners to the Great Merger Movement. In part
due to competitors as mentioned above, and in part due to the government, however,
many of these initially successful mergers were eventually dismantled. The U.S.
government passed the Sherman Act in 1890, setting rules against price fixing and
monopolies. Starting in the 1890s with such cases as U.S. versusAddyston Pipe and Steel
Co., the courts attacked large companies for strategizing with others orwithin their own
companies to maximize profits. Price fixing with competitors created a greaterincentive
for companies to unite and merge less than one name so that they were not
competitorsanymore and technically not price fixing.

CROSS-BORDER MERGERS AND ACQUISITIONS

In a study conducted in 2000 by Lehman Brothers, it was found that, on
average, large M&A deals cause the domestic currency of the target corporation to
appreciate by 1% relative tothe acquirer's. For every $1-billion deal, the currency of the
target corporation increased in valueby 0.5%. More specifically, the report found that in
the period immediately after the deal is announced, there is generally a strong upward
movement in the target corporation's domestic currency (relative to the acquirer's
currency). Fifty days after the announcement, the target currency is then, on average, 1%
stronger.
The rise of globalization has exponentially increased the market for cross border M&A.
In 1996alone there were over 2000 cross border transactions worth a total of
approximately $256 billion. This rapid increase has taken many M&A firms by surprise
because the majority of them never had to consider acquiring the capabilities or skills
required to effectively handle this kind of transaction. In the past, the market's lack of
significance and a more strictly national mindset prevented the vast majority of small and
mid-sized companies from considering cross border intermediation as an option which
left M&A firms inexperienced in this field. This same reason also prevented the
development of any extensive academic works on the subject.
Due to the complicated nature of cross border M&A, the vast majority of cross border
actionshave unsuccessful results. Cross border intermediation has many more levels of
complexity to it than regular intermediation seeing as corporate governance, the power of
the average employee, company regulations, political factors customer expectations, and
countries' culture are all crucial factors that could spoil the transaction. However, with the
weak dollar in the U.S. and soft economies in a number of countries around the world, we

13
are seeing more cross-border bargain hunting as top companies seek to expand their
global footprint and become more agile at creating high-performing businesses and
cultures across national boundaries.

Even mergers of companies with headquarters in the same country are very much of this
type(cross-border Mergers). After all, when Boeing acquires McDonnell Douglas, the
two Americancompanies must integrate operations in dozens of countries around the
world. This is just as truefor other supposedly "single country" mergers, such as the $27
billion dollar merger of Swissdrug makers Sandoz and Ciba-Geigy.

A number of western government officials are expressing concern over the

commercialinformation for corporate acquisitions being sourced by sovereign
governments & stateenterprises.

14
 DISTINCTION BETWEEN
MERGERS AND ACQUISITIONS

Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the new owner,
the purchase is called an acquisition. From a legal point of view, the target company
ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be
traded.

In the pure sense of the term, a merger happens when two firms, often of about the same
size, agree to go forward as a single new company rather than remain separately owned
and operated. This kind of action is more precisely referred to as a "merger of equals."
Both companies' stocks are surrendered and new company stock is issued in its place. For
example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged,
and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one
company will buy another and, as part of the deal's terms, simply allow the acquired firm
to proclaim that the action is a merger of equals, even if it's technically an acquisition.
Being bought out often carries negative connotations, therefore, by describing the deal as
a merger, deal makers and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining together
is in the best interest of both of their companies. But when the deal is unfriendly - that is,
when the target company does not want to be purchased - it is always regarded as an
acquisition.
Whether a purchase is considered a merger or an acquisition really depends on whether
the purchase is friendly or hostile and how it is announced. In other words, the real
difference lies in how the purchase is communicated to and received by the target
company's board of directors, employees and shareholders.

15
 TYPES OF MERGERS

There are three main types of mergers which are Horizontal merger, Vertical merger
& Conglomerate merger. These types are explained as follows;

1. Horizontal Merger:-
This type of merger involves two firms that operate & compete in a similar kind of a
business. Horizontal merger is based on the assumptions that it will provide economies of
scale from the larger combined unit. The economies of scale are obtained by the
elimination of duplication of facilities, broadening the product line, reduction in the
advertising cost. Horizontal mergers also have potentials to create monopoly power on
the part of the combined firm enabling it to engage in anti-competitive practices.
Examples: -
 Mumbai - Glaxo India Limited and Smith Kline Beecham Pharmaceuticals (India)
Limited have legally merged to form GlaxoSmithKline Pharmaceuticals Limited
in India (GSK). A merger would let them pool their research & development funds
and would give the merged company a bigger sales and marketing force.
 Merger of Centurion Bank & Bank of Punjab.
 Merger between Holicim & Gujarat Ambuja Cement ltd

2. Vertical Merger:-
A vertical Merger involves merger between firms that are in different stages of
production or value chain. A company involved in vertical merger usually seeks to merge
with another company or would like to takeover another company mainly to expand its
operations by backward or forward integration. The acquiring company through merger
of another units attempt to reduce inventory of raw materials and finished goods. The
basic purpose of vertical merger is to eliminate cost of searching raw materials. Vertical
merger takes place when both firm plan to integrate the production process and capitalize
on the demand for the product. A company decides to get merged with another company

16
when it is not in a position to get strong position in a market because of imperfect market
of intermediary product, scarcity of resources.

Example: - Among the Indian corporate that have emerged as big international players is
the Videocon group. The group became the third largest colour picture tube
manufacturer in the world when it announced the purchase of the colour picture tube
business of France-based Thomson SA, which includes units in Mexico, Poland and
China, for about Rs 1260 crore.

3. Conglomerate merger:-
Conglomerate mergers means mergers between firms engaged in unrelated types
of business activity. The basic purpose of such combination is utilization of financial
resources. Such type of merger enhances the overall stability of the acquirer company
and creates balance in the company’s total portfolio of diverse products and
production processes and thereby reduces the risk of instability in the firm’s cash
flows.
Conglomerate mergers can be distinguished into three types:
I. Product extension mergers These are mergers between firms in related business
activities and may also be called concentric mergers. These mergers broaden the
product lines of the firms.
II. Geographic market extension mergers: These involve a merger between two
firms operating in two different geographic areas.

III. Pure conglomerates mergers: These involve mergers between two firms with
unrelated business activities. They do not come under product extension or market
extension.

17
 MOTIVES BEHIND MERGERS & ACQUISITIONS

There are many reasons or factors that motivate companies to go for mergers and
acquisitions such as growth, synergy, diversification etc.

1. Growth: One of the most common reason for mergers is growth. There are two
broadways a firm can grow. The first is through internal growth. This can be slow and
ineffective if a firm is seeking to take advantage of a window of opportunity in which
it has a short-term advantage over competitors. The faster alternative is to merge and
acquire the necessary resources to achieve competitive goals.
Even though bidding firms will pay a premium to acquire resources through mergers,
this total cost is not necessarily more expensive than internal growth, in which the
firm has to incur all of the costs that the normal trial and error process may impose.
While there are exceptions, in the vast majority of cases growth through mergers and
acquisitions is significantly faster than through internal means.
Mergers can give the acquiring company an opportunity to grow market share
without having to really earn it by doing the work themselves - instead, they buy a
competitor's business for a price. Usually, these are called horizontal mergers. For
example, a beer company may choose to buy out a smaller competing brewery,
enabling the smaller company to make more beer and sell more to its brand-loyal
customers.
Example- RPG group had a turnover of only Rs. 80 crores in 1979, which has
increased to about Rs.5600 crores in1996. This phenomenal growth was due to the
acquisitions of several companies by the RPG group. Some of the companies
acquired are Asian Cables, Calcutta Electricity Supply and Company, etc.

2. Synergy: Another commonly cited reason for mergers is the pursuit of synergistic
benefits. The most commonly used word in Mergers & Acquisitions is synergy,
which is the idea of combining business activities, for increasing performance and
reducing the costs. Essentially, a business will attempt to merge with another business
that has complementary strengths and weaknesses. This is the new financial math that

18
 shows that 1 + 1 = 3. That is, as the equation shows, the combination of two firms
will yield a more valuable entity than the value of the sum of the two firms if they
were operating independently.
Value (A + B) > Value (A) + Value (B)
Although many merger partners cite synergy as the motive for their transaction,
synergistic gains are often hard to realize. There are two types of synergy one is
derived from cost economies and other one is derived from revenue enhancement.
Cost economies are the easier to achieve because they often involve eliminating
duplicate cost factors such as redundant personnel and overhead. When such
synergies are realized, the merged company generally has lower per-unit costs.
Revenue enhancing synergy is more difficult to predict and to achieve. An example
would be a situation where one company’s capability, such as research process, is
combined with another company’s capability, such as marketing skills, to
significantly increase the combined revenues.

3. Diversification : Other reasons for mergers and acquisitions include diversification.

A company that merges to diversify may acquire another company engaged in
unrelated industry in order to reduce the impact of a particular industry's
performance on its profitability. The track record of diversifying mergers is generally
poor with a few notable exceptions. A few firms, such as General Electric, seem to be
able to grow and enhance shareholders wealth while diversifying. However, this is the
exception rather than a norm. Diversification may be successful, but it needs more
skill and infrastructure than some firms have.

4. Economies of scale: Yes, size matters. Whether it's purchasing stationery or a new
corporate it system, a bigger company placing the orders can save more on costs.
Mergers also translate into improved purchasing power to buy equipment or office
supplies - when placing larger orders, companies have a greater ability to negotiate
prices with their suppliers. This refers to the fact that the combined company can
often reduce duplicate departments or operations, lowering the costs of the company
relative to theoretically the same revenue stream, thus increasing profit.

19
5. Increase Market Share & Revenue: This reason assumes that the company will be
absorbing a major competitor and increasing its power (by capturing increased market
share) to set prices. Companies buy companies to reach new markets and grow
revenues and earnings. A merge may expand two companies' marketing and
distribution, giving them new sales opportunities. A merger can also improve a
company's standing in the investment community: bigger firms often have an easier
time raising capital than smaller ones.
Example-Premier and Apollo Tyres,

6. Increase Supply-Chain Pricing Power: By buying out one of its suppliers or one of
the distributors, a business can eliminate a level of costs. If a company buys out one
of its suppliers, it is able to save on the margins that the supplier was
previously adding to its costs; this is known as a vertical merger. If a company buys
out a distributor; it may be able to sale its products at a lower cost.

7. Eliminate Competition: Many mergers and acquisitions deals allow the acquirer to

eliminate future competition and gain a larger market share in its product's
market. The downside of this is that a large premium is usually required to convince
the target company's shareholders to accept the offer. It is not uncommon for the
acquiring company's shareholders to sell their shares and push the price lower in
response to the company paying too much for the target company.

8. Acquiring new technology: To stay competitive, companies need to stay on top of

technological developments and their business applications. By buying a smaller
company with unique technologies, a large company can maintain or develop a
competitive edge and vice versa.

9. Procurement of production facilities: Procurement of production facilities may be

the reason for acquiring company to go for mergers and acquisition. It is a kind of
backward integration. Acquiring Firms will take the decision of merging with another

20
 firm who supplies raw material to acquiring firm in order to safeguard the sources of
supplies of raw material or intermediary product. It will help acquiring firm to bring
economies in purchasing of raw material. It will also help to cut down the
transportation cost.
Example- Videocon takes over Thomson picture tube in China to procure supply of
picture tube required for producing television sets.

10. Market expansion strategy: Many firms go for mergers and acquisitions as a part
of market expansion strategy. Mergers and acquisitions will help the company to
eliminate competition and to protect existing market. It will also help the firm to
obtain new market for promoting their existing or obsolete products.
Example, Lenovo takes over IBM in India to increase market for Lenovo products
like desktops, laptops in India.

11. Financial synergy: Financial synergy may be the reason for mergers and
acquisitions. Following are the financial synergy available in case of mergers and
acquisitions;
I. Better credit worthiness- This helps companies to purchase good on credit,
obtain bank loan and raise capital in the market easily.
II. Reduces cost of capital- The investors consider big firms as safe and hence they
expect lower rate of return for the capital supplied by them. So the cost of capital
reduces after merger.
III. Increase debt capacity- After the merger the earnings and cash flows become
more stable than before. This increase the capacity of the firm to borrow more
funds.
IV. Rising of capital- After the merger due to increase in the size of the company,
better credit worthiness and reputation the company can easily raise the capital at
any time.

12. Own development plans: The purpose of mergers & acquisition is backed by the
acquiring company’s own developmental plans. A company thinks in terms of

21
 acquiring the other company only when it has arrived at its own development plan to
expand its operation having examined its own internal strength where it might not
have any problem of taxation, accounting, valuation, etc. but might feel resource
constraints with limitations of funds and lack of skill managerial personnel. It has to
aim at suitable combination where it could have opportunities to supplement its funds
by issuance of securities; secure additional financial facilities eliminate competition
and strengthen its market position.

13. Corporate friendliness: Although it is rare but it is true that business houses exhibit
degrees of cooperative spirit despite competitiveness in providing rescues to each
other from hostile takeovers and cultivate situations of collaborations sharing
goodwill of each other to achieve performance heights through business
combinations. The combining corporate aims at circular combinations by pursuing
this objective.

14. General gains:

I. To improve its own image and attract superior managerial talents to manage its
affairs.
II. To offer better satisfaction to consumers or users of the product.

15. Taxes: 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 company.

 Ahmadabad Cotton Mills Merged with Arvind Mills ( Rs =3.34 crores)

 Sidhaper Mills merged with Reliance Industries Ltd.(Rs. 3.34 crores)

22
 BENEFITS & DRAWBACKS OF
MERGERS & ACQUISITIONS

BENEFITS
Mergers and acquisitions is the permanent combination of the business which vest
management in complete control of the business of merged firm. Shareholders in the
selling company gain from the mergers and acquisitions as the premium offered to induce
acceptance of the merger or acquisitions. It offers much more price than the book value
of shares. Shareholders in the buying company gain premium in the long run with the
growth of the company.

Mergers and acquisitions are caused with the support of shareholders, managers and
promoters of the combing companies. The advantages, which motivate the
shareholders and managers to give their support to these combinations and the
resulting consequences they have to bear, are briefly noted below.

 From shareholders point of view: - Shareholders are the owners of the company so
they must get be benefited from the mergers and acquisitions. Mergers and
acquisitions can affect fortune of shareholders. Shareholders expect that investment
made by them in the combining companies should enhance when firms are merging.
The sale of shares from one company’s shareholders to another and holding
investment in shares should give rise to greater values. Following are the advantages
that would be generally available in each merger and acquisition from the point of
view of shareholders;

1. Face value of the share is increased.

2. Shareholders will get more returns on the investments made by them in the
combining companies.

3. Sale of shares from one company’s shareholder to another is possible.

4. Shareholders get better investment opportunities in mergers and acquisitions.

23
 From managers point of view: - Managers are concerned with improving operations
of the company, managing the affairs of the company effectively for all round gains
and growth of the company which will provide them better deals in raising their
status, perks and fringe benefits. Mergers where all these things are the guaranteed
outcome get support from the managers.

 From Promoters point of view: -

1. Mergers offer company’s promoters advantages of increase in the size of their

company, financial structure and financial strength.

2. Mergers can convert closely held and private limited company into public
limited company without contributing much wealth and losing control of
promoters over the company.

 From Consumers point of view: - Consumers are the king of the market so they
must get some benefits from mergers and acquisitions. Benefits in favour of the
consumer will depend upon the fact whether or not mergers increase or decrease
competitive economic and productive activity which directly affects the degree of
welfare of the consumers through changes in the price level, quality of the products
and after sales service etc.
Following are the benefits that consumers may derive from mergers and
acquisitions transactions;
1. Low price & better quality goods: - The economic gains realized from
mergers and acquisitions are passed on to consumers in the form of low priced
and better quality goods.
2. Improve standard of living of the consumers: - Low priced and better
quality products directly improves standard of living of the consumers.

24
DRAWBACKS
Merger or acquisition of two companies in the same field or in diverse field may involve
reduction in the number of competing firms in an industry and tend to dilute competition
in the market. They generally contribute directly to the concentration of economic power
and are likely to lead the merger entities to a dominant position of market power. It may
result in lesser substitutes in the market, which would affect consumer’s welfare. Yet
another disadvantage may surface, if a large undertaking after merger because of
resulting dominance becomes complacent and suffers from deterioration over the years in
its performance. Following are some disadvantages of mergers and acquisitions;

 Creates monopoly- when two firms merged together they get dominating
position in the market which may lead to create monopoly in the market.
 Leads to unemployment-Raiders shouldn’t have the right to buy up firms they
have no idea how to run – the employees who have spent their lives building up
the firm should be making the decisions.
 Raiders become filthy rich without producing anything, at the expense of
hardworking people who do produce something.
 M&A damages the morale and productivity of firms.
 Corporate debt levels have risen to dangerous levels.
 Managers pressured to forego long-term investment in favour of short-term profit.
 Shareholders may be payed lesser dividend if the firm is not making profits. There
may be a possibility that shareholders would be paid less returns on investment if
the company is not earning enough profit.
 Corporate raiders use their control to strip assets from the target, make a quick
profit, destroying the company in the process, throwing people out of work.

25
 PROCEDURE OF MERGER

1. Search for merger partner- The first step in mergers is to search for merger partner.
The top management may use their own contact in the same line of economic activity
or in the other diversified field which could be identified as a better merger partners.
Such identification should be based on the detail information of the merger partners
collected from public and private sources.

2. Agreement between the two companies- The beginning of actual merger procedure
starts with agreement between the merging companies, but mere agreement does not
provide legal cover to the transaction unless it is sanctioned by the Court under
section 391 of Companies Act 1956.

3. Scheme of merger – The scheme of merger should be prepared by the companies

which have taken decision of merging. There is no specific form prescribed for
scheme of merger but scheme should contain following information;

 Particulars about the merging companies.

 Main terms of transfer of assets and liabilities from transferor to transferee.

 Conditions of conducting business.

 Particulars about share capital of merging companies specifying authorized

capital issued capital and paid up capital.

 Description of proposed profit sharing ratio and any condition attached to it.

 Conditions about payment of dividend.

 Status of employees of the merging companies and also status of provident

fund, gratuity fund or any funds created for the benefits of existing employees.

 Treatment of debit balance of merging companies.

 Miscellaneous provisions covering income tax dues, contingencies and other

accounting entries.

26
4. Approval of Board Of Directors for the scheme- The scheme for merger must be
approved by the respective Board Of Directors of transferor and transferee
companies.

5. Approval of scheme by financial institutions- The Board of Directors should in fact

approve the scheme after it has been approved by the financial institutes, debenture
holders, banks which have granted loans to the companies. Approval of Reserve Bank
of India is also needed.

6. Application to the Court- The next step is to make an application under section
39(1) of Indian Companies Act 1956 to the High Court for getting permission for
merging between companies.

7. Approval of scheme by the Court- On the receipt of the application for merger the
Court will decide whether to approve the scheme of merger or not. Once the Court
has approved the application then firms can merged.

8. Transfer of assets and liabilities- The High Court has the power to give order for
transfer of any property from Transferor Company to Transferee Company. By the
virtue of such order assets and liabilities of the Transferor Company shall
automatically stand transferred to Transferee Company.

9. Allotment of shares to shareholders of transferor company- By the virtue of

sanctioned scheme of merger, the shareholders of Transferor Company are entitled to
get shares in Transferee Company in the exchange of ratio provided under the said
scheme.

10. Intimation to stock exchanges- After merger is effected; the company which takes
over assets and liabilities of the Transferor Company should apply to the Stock
Exchanges where its securities are listed, for listing the new shares allotted to the
shareholders of the company.

11. Public announcement- Public announcement of merger is mandatory as required

under SEBI regulations. The Transferee Company shall appoint merchant bank to
make a public announcement of merger on the behalf of Transferee Company. Public
announcement shall be made at least in one national English daily one Hindi daily

27
and one regional language daily newspaper of that place where the shares of that
company are listed and traded. Public announcement should be made within four days
from finalization of negotiations or entering into any agreement of merger. Public
announcement should contain following information;

 Paid up share capital of the transferee company, the number of fully paid up
and partially paid up shares.
 The minimum offer price for each fully paid up or partly paid up share.
 Mode of payment of consideration.
 Salient features of the agreement, if any, such as the date, the name of the
seller, the price at which the shares are being acquired, the manner of payment
of the consideration and the number and percentage of shares in respect of
 which the acquirer has entered into the agreement to acquire the shares or the
consideration, monetary or otherwise, for the acquisition of control over the
transferee company, as the case may be;
 Objects and purpose of the mergers and acquisitions and the future plans of
the transferor company for the transferee company. Provided that where the
future plans are set out, the public announcement shall also set out how the
transferor proposes to implement such future plans.

 The date by which individual letter of offer would be posted to each of the
shareholder.
 The date of opening and closure of the offer and the manner in which and the
date by which the acceptance or rejection of the offer would be communicated
to the share holders.
 The date by which the payment of consideration would be made for the shares
in respect of which the offer has been accepted.

 Approvals of banks or financial institutions required, if any;

 Such other information as is essential for the shareholders to make them
informed about the offer.

28
MERGERS AND ACQUISITIONS VALUATION MATTERS

Investors in a company that are aiming to take over another one must determine

whether the purchase will be beneficial to them. In order to do so, they must ask
themselves how much the company being acquired is really worth. Naturally, both sides
of a mergers and acquisitions deal will have different ideas about the worth of a target
company. The seller will tend to value the company at highest price as possible, while the
buyer will try to get the lowest price that he can. There are, however, many legitimate
ways to value companies. The most common method is to look at comparable companies
in an industry, but deal makers employ a variety of other methods and tools when
assessing a target company. Following are some methods that are employed by the
merging firms;

1. Comparative Ratios - The following are two examples of the many comparative
metrics on which acquiring companies may base their offers:

 Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring

company makes an offer that is a multiple of the earnings of the target company.
Looking at the P/E for all the stocks within the same industry group will give the
acquiring company good guidance for what the target's P/E multiple should be.
 Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring
company makes an offer as a multiple of the revenues, again, while being aware
of the price-to-sales ratio of other companies in the industry.

2. Replacement Cost - In a few cases, acquisitions are based on the cost of replacing
the target company. For simplicity's sake, suppose the value of a company is simply
the sum of all its equipment and staffing costs. The acquiring company can literally
order the target to sell at that price, or it will create a competitor for the same cost.
Naturally, it takes a long time to assemble good management, acquire property and
get the right equipment. This method of establishing a price certainly wouldn't make
much sense in a service industry where the key assets - people and ideas - are hard to
value and develop.

29
3. Discounted Cash Flow (DCF) - A key valuation tool in mergers and acquisitions,
discounted cash flow analysis determines a company's current value according to its
estimated future cash flows. Forecasted free cash flows (net income +
depreciation/amortization - capital expenditures - change in working capital) are
discounted to a present value using the company's weighted average costs of
capital (WACC). Admittedly, DCF is tricky to get right, but few tools can rival this
valuation method.

30
 PARTICIPANTS TO MERGERS AND ACQUISITIONS

Mergers and Acquisitions process requires highly skilled and qualified group of
advisers. Each advisor specializes in a specific aspect of the merger and acquisition
process. The role played by such advisers or professional experts are as follows;

1. Investment bankers: Investment banking is one of the most important department in

the process of mergers and acquisitions. It is fee based adviser department which
works with the company that wish to acquire other company or with industries that
wish to purchase a smaller industry. The main role of investment banks is to provide
finance for mergers and acquisitions transactions.
2. Lawyers: The legal framework surrounding a typical transaction has become so
complicated that no one individual can have sufficient expertise to address all the
issues. In large and complicated transactions, legal teams consists of more than one
dozen lawyers each of them represents specialized aspects of law. Lawyers are
expected to perform all legal proceedings.
3. Accountants: Services provided by accountants include advice on the optimal tax
structure, financial structuring and performing financial due diligence. A transaction
can be structured in many different ways, with each having different tax implications
for the parties involved. Tax accountants are vital in determining the appropriate tax
structure. Accountants also perform the role of auditors by reviewing the transferor
company’s financial statements and operations through a series of interviews with
senior and middle level managers.
4. Valuation experts: They may be appointed either by the bidder or the Transferor
Company to determine the value of the transferor company. They build models that
incorporate various assumptions such as costs or revenue growth rate.
5. Institutional investors: They include public and private pension funds, insurance
companies, banks, mutual funds. Collection of institutions can influence firm’s
action. They invest their money in the company.

31
 SUCCESS & FAILURE OF MERGERS & ACQUISITIONS

Factors responsible for successful mergers and acquisitions

The success of merger depends upon many critical factors but the main factor is that
Transferor Company should buy Transferee Company at right time, at right place and at
right cost. Just because of company is for sale and another company can afford buying
that company is not good reason to do a deal. The success of mergers and acquisitions
depend on how realistic deal makers are and how well they can integrate two companies
while maintaining day-to-day operations. There are several key ingredients that need to
come together for merger and acquisitions to be successful;

I. Strategy- Strategy is the basis for any merger and acquisition. Company should
be able to express in one sentence the motive behind merger and acquisition. If
the transferor company is not able to express the motive for doing a deal for
merger then the deal should not be done. There are many strategic reasons to buy
a company some of them are listed as follows;
 Acquire Innovative technical skills.
 Obtain new markets and customer.
 Enhance product line.
II. Motive- Buying company i.e. transferor company does not know reasons why
another company is being sold. It should ask reasons for selling the company.
Transferor Company should also try to know what selling company knows about
the business that they are not telling potential buyers. After knowing all reasons
for selling a company buying company would be in a position to decide whether
to go for a deal or not. If they are going for deal then buying company should
decide appropriate price for the deal. Buying company should also examine its
own motive for wanting to acquire the company, whether it is good asset for the
company that would enhance the market of buying company.
III. Price- A low price does not always equate to a good deal, but higher the price; it
is fewer cushions for unexpected problems. Buying company is often forced to

32
 pay more price than they want to pay for the deal. In a competitive situation the
buying company needs to decide how much it is willing to pay and not exceed
that level, even if it means losing the company. However, in any merger and
acquisition there is a pricing range, based on different assumptions of the future
performance of the merger and acquisition. The buying company has to decide the
price to offer for the deal, or how risk will be divided between shareholders of
merging company. .

IV. Post Merger Management- For a merger to succeed much work a remains after
the deal has been signed. The strategy and business model of the old firms may no
longer be appropriate when a new firm is formed. Each firm is unique and
presents it’s own set of problems and solutions. It takes a systematic effort to
combine two or more companies after they have come under a single ownership.
V. DUE DILIGENCE- Due diligence means, “A large part of what makes a deal
successful after completing it, is what is being done before completing it”. Before
the closing of the deal, the buyer should engage in a thorough due diligence
review of the sellers business. The purpose of the review is to detect any financial
and the business risk that the buyer might inherit from the seller. The due
diligence team can identify ways in which assets, process and other resources can
be combined in order to realize cost saving and other expected synergies. The
planning team can also try to understand the necessary sequencing of events and
resulting pace at which the expected synergies may be realized.

Factors responsible for failure of mergers and acquisitions

As there are many factors responsible for success of mergers similarly there are many
factors responsible for failure of the merger. The main factor is buying wrong company at
wrong time, at wrong place and by paying wrong price. If the process through which
merger is executed is faulty then it will affect merger adversely. Historical trends show
that roughly two thirds of big mergers will disappoint on their own terms, which means
they will lose value on the stock market. Some of reasons for failure of mergers and
acquisitions are listed below;

33
 I. Payment of high price- The merger fails when the maximum price is paid to
buy another company. In such situation shareholders of Transferee Company
will receive more cash but the shareholders of Transferor Company will pay
more cash. As a result of this deal for merger will fail.
II. Culture clash- Lack of proper communication, differing expectations and
conflicting management styles due to differences in corporate culture contribute
to failure in implementing plan and therefore, failure of mergers and
acquisitions.
III. Overstated synergies: - An acquisition can create opportunities of synergy by
increasing revenues, reducing costs, reducing net working capital and improving
the investment intensity. Over estimation of such synergies may lead to a failure
of this merger. Inability to prepare plans leads to failure of mergers and
acquisitions.
IV. Failure to integrate operations- Once firms are merged management must be
prepared to adapt plans in favour of changed circumstances. Inability to prepare
plans leads to failure of mergers and acquisitions.
V. Inadequate due diligence- The process of the due diligence helps in detecting
any financial and business risks that the buyer might inherit from the seller.
Inadequate due diligence results in the failure of the mergers and acquisitions.

34
 DIFFICULTIES IN MERGERS AND ACQUISITIONS

No marketplace currently exists for the mergers and acquisitions of privately-owned

small to mid-sized companies. Market participants often wish to maintain a level of
secrecy about their efforts to buy or sell such companies. Their concern for secrecy
usually arises from the possible negative reactions a company's employees, bankers,
suppliers, customers and others might have if the effort or interest to seek a transaction
were to become known. At present, the process by which a company is bought or sold
can prove difficult, slow and expensive.
A transaction typically requires six to nine months and involves many steps. Locating
parties with whom to conduct a transaction forms one step in the overall process and
perhaps the most difficult one. Qualified and interested buyers of multimillion dollar
corporations are hard to find. Even more difficulty is to bring a number of potential
buyers forward simultaneously during negotiations. Potential acquirers in industry simply
cannot effectively "monitor" the economy at large for acquisition opportunities even
though some may fit well within their company's operations or plans.
An industry of professional "middlemen" (known variously as intermediaries,
business brokers, and investment bankers) exists to facilitate mergers and acquisitions
transactions. These professionals do not provide their services cheaply and generally
resort to previously-established personal contacts, direct-calling campaigns, and placing
advertisements in various media. In servicing their clients they attempt to create a one-
time market for a one-time transaction. Many but not all transactions use intermediaries
on one or both sides.
Despite best intentions, intermediaries can operate inefficiently because of the slow
and limiting nature of having to rely heavily on telephone communications. Many phone
calls fail to contact with the intended party. Busy executives tend to be impatient when
dealing with sales calls concerning opportunities in which they have no interest. These
marketing problems typify any private negotiated markets.
The market inefficiencies can prove detrimental for this important sector of the
economy. Beyond the intermediaries' high fees, the current process for mergers and
acquisitions has the effect of causing private companies to initially sell their shares at a

35
significant discount. Furthermore, it is likely that since privately-held companies are so
difficult to sell they are not sold as often as they might or should be.
Previous attempts to streamline the mergers and acquisitions process through
computers have failed to succeed on a large scale because they have provided mere
"bulletin boards" hence; it becomes difficult to maintain secrecy. There is a need of a
method for efficiently executing mergers and acquisitions transactions without
compromising the confidentiality of parties involved and without the unauthorized
release of information which is difficult rather almost impossible. It's no secret that
plenty of mergers don't work.
Those who advocate mergers will argue that the merger will cut costs or boost
revenues by more than enough to justify the price premium. It can sound so simple: just
combine computer systems, merge a few departments, use sheer size to force down the
price of supplies and the merged giant should be more profitable than its parts but to
apply all these things in practical is very difficult. In other words, in theory, 1+1 = 3
sounds great, but in practice, it is not so easy.
Another difficulty may be Government rules and regulations. Countries like India do
not allow foreign companies to enter into the domestic market. Thus foreign companies
are forced to merge with Indian company to enter into Indian market even though they
have the power and funds to enter in India alone that is without merging with any other
company.
Example- 1) Wal-Mart is trying to enter into Indian market by merging with
Bharti telecom.
Historical trends show that roughly two thirds of big mergers will disappoint on their
own terms, which means they will lose value on the stock market. The motivations that
drive mergers can be flawed and efficiencies from economies of scale may prove elusive.
In many cases, the problems associated with trying to make merged companies work are
all too concrete.

36
 FINANCING MERGERS AND ACQUISITIONS

Mergers are generally differentiated from acquisitions partly by the way in which they
are financed and partly by the relative size of the companies. Various methods of
financing an M&A deal exist:

1. Cash- Payment by cash such transactions are usually termed acquisitions rather than
mergers because the shareholders of the target company are removed from the picture
and the target comes under the control of the acquirer's shareholders alone.
2. Financing- Financing cash can be borrowed from a bank, or raised by an issue of
bonds. Mergers and Acquisitions financed through debt are known as leveraged
buyouts, and the debt will often be moved down onto the balance sheet of the
acquired company. A cash deal would make more sense during a downward trend in
the interest rates. Another advantage of using cash for mergers and acquisition is that
there tends to lesser chances of EPS dilution for the acquiring company. But a caveat
in using cash is that it places constraints on the cash flow of the company.
3. Hybrids- Mergers and acquisition can involve a combination of cash and debt, or a
combination of cash and stock of the purchasing entity.
4. Factoring-Factoring can provide the necessary extra to make a merger or sale work.
Hybrid can work as ade-denit.

37
 MERGERS AND ACQUISITIONS LAWS

Business firms opt for mergers and acquisitions mostly for consolidating a fragmented
market and also for increasing their operational efficiency, which give them a
competitive edge. Nations across the globe have promulgated Mergers and Acquisitions
Laws to monitor the functioning of the business units therein. An estimate made in 2007
put the number of global competition law sat 106. They possess merger control
provisions.
While most mergers and acquisitions increase the operational efficiency of business firms
some can also lead to a building up of monopoly power. The anti-competitive effects are
achieved either through coordinated effects or unilateral effects. Sometimes mergers and
acquisitions tend to create a collusive market structure.
However, free and fair competition is seen to maximize the consumers' interests both in
terms of quantity and price.

MERGERS AND ACQUISITIONS LAWS: THE GLOBAL PERSPECTIVE

As per global experience around 85% of acquisitions and mergers are devoid of any
competitive
concerns. They get approval within a period of 30 to 60 days.
The remaining percentages of firms usually have a substantially long gestation period for
getting the legal approval. These cases are relatively complex and need a close
examination of the various aspects by the regulatory bodies.
As per the guidelines from “The International Competition Network” simple merger and
acquisitions cases should receive approval within a period of 6 weeks. The comparable
timeframe for complex cases is 6 months.
It may be noted that the 'Competition Network' mentioned above is actually an
association of international competition authorities.

MERGERS AND ACQUISITIONS LAWS: THE INDIAN PERSPECTIVE

Indian competition law grants a maximum time period of 210 days for the determination
of thecombination, which comprises acquisitions, mergers, amalgamations and the like.
One needs totake note of the fact that this stated time frame is clearly distinct from the
minimum compulsorywait period for applicants.
As per the law, the compulsory period of waiting for applicants can either be 210 days
starting from the day of notice filing or receipt of the Commission's order, whichever
occurs earlier.
The threshold limits for firms entering business combinations are substantially high under
the Indian law. The threshold limits are set either in terms of the asset value or or in terms

38
the firm's turnover. Indian threshold limits are greater than those for the EU. They are
twice as high when compared with UK.
The Indian law also provides for the modern day phenomenon of merger and
acquisitions, which are cross border in nature. As per the law domestic nexus is a pre-
requisite for notification on this type of combinations.
It can be noted that Competition Act, 2002 has undergone a recent amendment. This has
replaced the voluntary notification regime with a mandatory regime. Of the total number
of 106 countries, which possess competition laws only 9 are thought to be credited with a
voluntary notification regime. Voluntary notification regimes are generally associated
with business uncertainties.
Post-combination, if firms are seen to be involved in anti-competitive practices de-merger
shows the way out.

MORE ON INDIAN MERGERS AND ACQUISITIONS LAWS

Indian Income Tax Act has provision for tax concessions for mergers/demergers between
two Indian companies. These mergers/demergers need to satisfy the conditions pertaining
to Section2(19AA) and section 2(1B) of the Indian Income Tax Act as per the applicable
situation.
In case of an Indian merger when transfer of shares occur for a company they are entitled
to aspecific exemption from the capital gains tax under the “Indian I-T tax Act”. These
companies can either be of Indian origin or foreign ones.
A different set of rules is however applicable for the 'foreign company mergers'. It is a
situation where an Indian company owns the new company formed out of the merger of
two foreign companies.
It can be noted that for foreign company mergers the share allotment in the merged
foreign company in place of shares surrendered by the amalgamating foreign company
would be termed as a transfer, which would be taxable under the Indian tax law.
Also as per conditions set under section 5(1), the 'Indian I-T Act' states that, global
income accruing to an Indian company would also be included under the head of 'scope
of income' for the Indian company.

CERTIFIED MERGERS AND ACQUISITIONS

There are a number of certified mergers and acquisitions advisory programs available at
the present time. With the help of these programs, a lot of commercial entities are getting
involved in merger and acquisition activities. These programs are offered by numerous

39
merger and acquisition consultants and agencies. Some of them are also conducting
educational programs and seminars for the purpose of educating financial professionals
about the nuances of certified mergers and acquisitions and growing the knowledge base
of the merger and acquisition professionals.
One of the most important certified merger and acquisition advisory programs is the
CertifiedValuation Manager Program offered by the American Academy of Financial
Management(AAFM). The American Academy of Financial Management is also hosting
a number ofCertified Valuation Manager Training Conferences throughout the year.
The certified mergers and acquisitions agencies help commercial enterprises or
businesscorporations in acquiring or taking over other companies and also in significant
issues related tomergers and acquisitions. These agencies also help business entities
regarding management

40
 Part-II

TREND AND MARKET ANALYSIS

&
STUDY OF MAJOR M&A’s

41
 Objective

i. To understand the current trends in the Mergers and Acquisition Markets.

ii. To understand the employees perceptions towards Mergers and Acquisitions’.
iii. To get the views of different professional advisors on the Mergers and Acquisitions’
market..
iv. To understand some of the major Mergers and Acquisitions of the decade in the Indian
markets.

42
 Research Methodology

The project is divided into two parts. The first part of the project deals with Mergers and
Acquisitions as a concept on a whole. I have researched about the basic knowhow of
Mergers and Acquisitions, the history of the industry and the present state by using
secondary data. The first part of the project is descriptive study giving an overview of the
Mergers and Acquisitions. The first part of the project is collected through secondary data
obtained from the internet, newspaper, magazines whereas the second part of the project
relating to the Trends in Mergers and Acquisitions and the analysis of the M&A Market
in India and the senior executives perception of Mergers and Acquisitions is covered
using primary data.

Both primary and secondary data are required in this study.Primary data is the first hand
information collected directly from respondents. The tool used here is questionnaire.
Primary Data is collected through surveys conducted among existing executives and
employees working in todays Global Work Environment,including some top level
executives from some of the big MNC’s functioning in Gurgaon.

The survey process involved two phases: First phase included identification and selection
of the target audience to be studied and to determine the parameters on which
respondents will justify their preferences. A questionnaire was designed to collect the
needed information from the respondents. The Second Phase involves collection of the
primary data by making the respondents fill up questionnaires.

43
 TRENDS & OVERVIEW
IN MERGERS AND ACQUISITIONS

Airline mergers and acquisitions are on the rise across the globe. Theses mergers
and acquisitions are highly strategic involving several considerations.

Moreover airline mergers and acquisitions bear serious implications for travelers as well
as airline employees. Important issues related to airline mergers and acquisitions are
time, approvals, efficiency, competition, passenger benefits and strife. 

The airlines industry is abuzz with news of mergers and acquisitions. In the last few
years airline mergers and acquisitions have been a growing trend in several countries
across the globe. However mergers and acquisitions in the aviation industry are highly
strategic in nature and are undertaken after taking into consideration several important
factors. 

Some of the important factors considered by airlines in taking merger and acquisition
decisions are -

 The coverage area of the other airline. Strategically an airline would like to merge
with or acquire an airline that operates in routes different from its own. This helps in
expanding service coverage and avoiding overlapping of flight schedules.
 The quality of service and brand image of the other airline.
 If the other airline has any partnership with a rival group of airlines.

From the point of view of customers mergers and acquisitions may lead to increased
airfares. This is because mergers and acquisitions reduce the number of operators
thereby reducing competition and pushing up prices in the aviation industry. 

Airline mergers and acquisitions also have important impacts on the employees of the
participating airlines. 

The major concerns that airline employees are faced with in case of mergers and
acquisitions are -

 Layoffs - Mergers and acquisitions in most cases are accompanied by layoffs.

 New job rules.
 Salary concerns - The new acquiring airline or the new group arising out of a
merger may not pay the old salaries.

44
 Pensions and other benefits.
 Seniority - A senior employee of an airline that is acquired may find himself to be
not considered senior by the new employer.

Some of the important issues related to airline mergers and acquisitions are -

 Time - Airline mergers and acquisitions take much longer time to materialize than
mergers and acquisitions in other industries. This is due to the fact that a lot of
considerations are involved from costs to operational issues which are generally large in
magnitude and complex in nature.
 Approvals - Approvals are required from governments, often from different
levels and different authorities to establish airline mergers and acquisitions.
 Efficiency - Airline mergers and acquisitions can lead to cost efficiency of the
operators by the elimination of overlapping routes. For the travelers however, this often
leads to lesser frequency of flights.
 Competition - Mergers and acquisitions in the airline industry help to reduce
competition significantly. This helps airlines to achieve higher operating margins. On the
other hand, passengers may face higher airfares.
 Passenger Benefits -Passengers, who are enlisted for frequent-travel schemes
and other similar ones, will have higher mileage pints.
 Strife - Airline mergers and acquisitions are often accompanied by strife related
to seniority issues, new work rules, etc.

45
 MERGER OF INDIAN AIRLINES AND AIR INDIA

The merger of Air India and Indian Airlines cleared the last legal hurdle on 24th
August 2007 with corporate affairs ministry giving its green signal, setting the creation of
mega national airline. State-owned carriers Air-India and Indian Airlines)were formally
merged on Friday after the Ministry of Corporate Affairs gave its formal approval to the
merger of the two carriers, which will have a combined fleet of 112 carriers.

The merger carrier would have about 34000 employees and equity base of Rs 150 crore.
Air India would have total fleet of 112 by 2011-12 when all the planes ordered by two
carriers are delivered.

The two airlines were merged into a new company -- National Aviation Company of
India Ltd-- a government release said.

V Thulasidas will be the chairman while Vishwapati Trivedi will be managing director of
the new company that will fly under the brand name 'Air India'. The merged entity will
operate on the domestic and as well as international sectors, the release said. 

Air-India will have a combined fleet of 112 aircraft and will be among the top 10 airlines
in Asia and among the leading 30 airlines globally.As a part of its fleet acquisition
program of 112 aircraft, the new airline will induct 21 new aircraft this year including
seven Boeing 777s, 10 A-320s and 4 Boeing 737-800 this year. Air India has already
launched its inaugural flight between Mumbai and New York as a joint entity from
August 1. This is the first time a national carrier is offering a non-stop flight between
India and the United States.

Air India has already launched its inaugural flight between Mumbai and New York as a
joint entity from August 1. This is the first time a national carrier is offering a non-stop
flight between India and the United States.

46
Air India will have two more brands along with the main carrier, its low-cost arm Air
India Express (which will operate on international and domestic sectors) and Air India
cargo.

The airline also plans to tie up with one of the aircraft manufacturer for a maintenance,
repair and overhaul facility which will also serve as a strategic business unit for the
airline the statement said.

47
 MERGER OF MITTAL AND ARCELOR

It seems that finally Arcelor is relenting. Some rumors state that Arcelor's CEO Guy
Dolle may recommend Mittal's offer to the board. Some say that Mittal will increase his
bid. It seems the 5 month long saga may be reaching its climax soon.

June 23 - Mittal Steel Co., the world's largest steelmaker, said it's approaching an
agreement to buy Arcelor SA that would end a five-month struggle and lead to the
biggest steel-industry merger.

The two companies will continue talks on Mittal's 24 billion-euro ($30 billion) offer
today and tomorrow, Sudhir Maheshwari, Mittal's managing director for business
development and treasury, said in an interview today. Luc Scheer, a spokesman for
Arcelor in Luxembourg, declined to comment. Arcelor's board is scheduled to meet June
25.

Mittal may increase its offer by 3 billion euros, which would value each Arcelor share at
40.62 euros, according to Bloomberg calculations before it was 36.04 euros per Arcelor
share.

Mittal has already increased its offer, first made Jan. 27, by 34 percent. As part of the
improved terms, billionaire Chairman Lakshmi Mittal agreed to eliminate his preferential
voting rights in the combined company.

Mittal is now offering to give Arcelor shareholders more than half the new company's
shares and keep Dolle as CEO, the Wall Street Journal reported today. Lakshmi Mittal
would probably be chairman or president, according to the report.

Mittal needs Arcelor to control 10 percent of global steel production. If Arcelor merges
with Mittal’s, it will replace Mittal as the world's biggest producer of steel.

48
Mittal’s Steel shareholders on Tuesday approved the merger with Arcelor Mittal, paving
the way for the merger between Mittal and Arcelor, expected to conclude later this year.
Mittal Steel won approval from 98.8 % of its shareholders present or represented by
proxy voting to merge with Arcelor Mittal. Mittal Steel, incorporated in the Netherlands,
is finalizing its merger with Arcelor in a two-step process, to create a company governed
by Luxembourg law, Mittal Steel said during its extraordinary shareholders meeting held
in Amsterdam.

49
 ACQUISITION OF UNITED SPIRITS LTD. WHYTE AND
MACKAY

Scottish spirits maker Whyte & Mackay, popularly identified by its iconic double
red lion symbol,was made a part of the United Breweries (UB) Group. United Spirits Ltd
(USL), the flagship of the UB Group, had acquired 100 per cent equity in Whyte &
Mackay for 595 million (about Rs 4,783 crore) in Glasgow, Scotland.

The acquisition plugs a "missing link" in the UB product portfolio by giving the company
the strong presence it needed in the scotch whiskey market.

The acquisition pushes USL's consolidated sales up to 75 million cases per annum. USL
closed 2006-07 at 66.4 million cases, he said.

Due to the shortages and rapidly increasing prices of Scotch Whisky, United Spirits
Limited needed a reliable supply source to secure their future considering that we use
scotch in our Indian blends. The potential for premium Scotch Whisky in India is
enormous and, with the acquisition of Whyte & Mackay they now have a strong portfolio
of internationally recognised brands that they will immediately introduce into the Indian
market and use their strong distribution muscle fully to their advantage.

In addition United Spirits Ltd. now has access to international distribution and can look
forward to exporting their brands from India.

Product Portfolio

Whyte & Mackay recorded sales of 9 million case and case equivalents in the last 12
months. The leading Scotch whiskey distiller owns brands including The Dalmore, Isle of
Jura, Glayva, Fettercairn, Viadivar vodka and Whyte & Mackay blended Scotch.

The company has 140 brands, some dormant, but that can be revived, he said. USL will
look to bring the W&M brands into India and China and there will be a revamp of the
product portfolio depending on the requirements of these markets, he said.

50
Global demand for Scotch whisky is showing strong growth and prices are increasing
rapidly, Dr Mallya said. W&M's bulk scotch inventories of 115 million litres will allow
USL the opportunity to meet their growing requirements for their brands in India.

Financial Details

Explaining the corporate structure of the deal, Mr Mallya said that W&M is a 100 per
cent subsidiary of USL, through an intermediary holding company established for the
purpose. Acquisition finance for the transaction to United Spirits was provided by ICICI
Bank and Citibank. The debt of 325 million was extended by ICICI to the intermediary
holding company, while 310 million was extended by Citibank to USL, said the UB
Group President (finance), Mr Ravi Nedungadi.

In the day of consolidated statements, these financial details would be reflected in the
company's accounts, he added. "I have repeatedly stated that we will not over pay in any
acquisition and I am satisfied that the price agreed is attractive. Further, the combined
profits of United Spirits and Whyte & Mackay are expected to be earnings accretive from
the first completed year of operations after accounting for the cost of funds applied to the
acquisition," Mr Mallya said.

Mr Vivian Imerman, Chairman and Chief Executive Officer and majority shareholder in
W&M, will remain in the group as a Strategic Advisor to Mr Mallya. The acquisition
brings into USL's fold The Invergordon Distillery, near Inverness. W&M also owns four
malt whisky distilleries in Scotland and a bottling facility in Grangemouth.

United Spirits shares closed at Rs 895.20, up 6.88 per cent, on BSE on Wednesday.

51
Results were viewed cautiously as sample was from a specific population. The responses
that were generated during this exercise were converted in the form of percentages to
have a comparative outlook, as the numbers itself cannot explain the true picture. These
percentages were then represented through the simple tools like pie charts.

Sample size
A sample is a part of the target population carefully selected to represent that population.
As this study is based on finding the investment behavior towards different investment
options in the market. The sample size is 50.

Limitations of the study

Every research is incomplete without its own limitations. In this research too there were
some limitations. They are:
i. Results are just an indication of the present scenario and may not be applicable in the
future.
ii. As the study was conducted only in Delhi & NCR so it can be said that the study has a
regionally biased.
iii. Since sampling was done under the simple random sampling method, where easily
approachable respondents were picked up. So this may not represent the whole universe.
iv. The size of the sample is small i.e. 50.

52
 DATA INTERPRETATION AND ANALYSIS

1.How strong will the overall Indian M&A market be during the next 12 months?

STRONG NEUTRAL WEAK

4%

32%

64%

64 percent of survey respondents saw the future of the M&A market as strong or
somewhat positive. Advisors were slightly more confident than company respondents on
the future of the Indian M&A market. 38 percent of respondents had a neutral view of the
market. 

2. Which of the following is most responsible for fueling current Indian M&A
active? 

STRATEGIC BUYERS PRIVATE EQUITY BUYERS

STRONG ECONOMY FOREIGN BUYERS
ROBUST FINANCIAL MARKETS OTHERS

4% 6% 26%
10%

6%

48%

In a continued trend, about 48 percent of respondents feel current M&A activity is

being fueled by private equity buyers. However, 26 percent of respondents said
strategic buyers have the most influence. Foreign buyer currently just at a 10% are
playing an important role in this matter, since they are in the race to establish
themselves in the growing Indian markets by merging with existing firms.

53
 3. What is your outlook for the Indian economy, generally, over the next 12
months? 

POSITIVE NEUTRAL NEGATIVE

20% 6%

74%

74 percent of respondents have a Positive outlook for the Indian economy in the next
year, considering that we are growing at a rate of 8 percent, making India stand amongst
the fastest growing economies in the world. India also has the youngest population and is
the main source for Human resources in an aging world. 20 percent have a Neutral
outlook.

4. Which of the following buyers will INCREASE their presence the most in the
Indian M&A Market over the next 12 months (as a percentage of total
transactions)? 

STRATEGIC BUYERS FINANCIAL BUYERS FOREIGN BUYERS

20%

58%
22%

Survey results indicate that there is more emphasis on Foreign Buyers since inflow of
FDI’s is increasing at a rapid rate. Thus fuelling the economic growth in the country.

54
5. Which of the following types of buyers have been most responsible for high
company valuations over the past 12 months? 

STRATEGIC BUYERS FINANCIAL BUYERS FOREIGN BUYERS NONE OF THE ABOVE

16% 24%

10%

50%

24 percent of respondents thought strategic buyers had the most influence driving up deal
valuations. Opinions regarding financial and foreign buyers were that 50 percent of
participants felt financial buyers were most responsible for high valuations and 10
percent of participants felt foreign buyers had the most influence.

6. What sector will see the most M&A activity, globally, in the next 12 months? 

FINANCIAL SERVICES HEALTHCARE

MANUFACTURING(NON-AUTOMOTIVE) TECHNOLOGY
TELECOMMUNICATIONS AUTOMOTIVE
BIOTECHNOLOGY AND LIFE SCIENCES 14% ENERGY
12%
10%
10%

12%

20%
18%

4%

20 percent of company respondents selected the automotive industry, 18 percent chose

technology, and 10 percent chose biotechnology and life sciences as the industry which
will see the most global activity in the coming year. 18 percent of respondents selected
energy, 18 percent said technology, and 16 percent named the automotive industry.

55
7. Where will the most foreign buyers in the Indian M&A market come from in the
next 12 months? 

AUSTRALIA BRAZIL CHINA FRANCE GERMANY USA UNITED KINGDOM OTHERS

14% 4% 2% 2%

44%
24%
8%

2%

Respondents agreed that most foreign buyers in the Indian M&A market will come from
China. Survey analysts note that Chinese investors in the M&A market are generally
more visible shoppers because they tend to come to the market in groups. The second
choice was the United States of America (24 percent). After USA, respondents pointed to
United Kingdom (14 percent)

8. What is the single biggest challenge you encounter when dealing with INBOUND
cross-border mergers and acquisitions? 

DOING EFFECTIVE DUE DILIGENCE ABSENCE OF A PREDICTABLE LEGAL ENVIRONMENT

CORRUPT LEGAL COMPLIANCE IMPACT ON EMPLOYEES AND LABOR ISSUES
IMPACT ON STAKEHOLDERS OTHERS

10% 2%
36%

30%

16% 6%

Those respondents who felt that the most foreign buyers in the Indian M&A market will
come from China are most concerned about doing effective due diligence (36 percent),
followed by labor issues (30 percent). 

56
9. In the next 12 months, do you believe your company will be involved in an
acquisition? 

YES NO

40%

60%

60 percent of all respondents who identified themselves as a company officer or

executive felt they would be involved in an acquisition in the coming year.

10. In the next 12 months, do you believe your company will be sold, downsized, or
involved in a spinoff? 

YES NO

42%

58%

58 percent of all respondents who identified themselves as a company officer or

executive felt their company will be involved in a sale, downsizing, or spinoff in the
coming year.

57
11. Do you feel the management and position of a company’s employees is
compromised upon after an acquisition take place. 

NO MAYBE

22% 4%

74%

The majority of the respondents(74 percent) believed that Post merger or acquisition
,their place in the organization does get jeopardized. There could be many chances of
either of the two organizations employees not settling in with the other. This could lead to
inefficient functioning of the organization till the time a synergy is created.

58
 CONCLUSION

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. At least in theory, mergers
provide economies of scale by expanding operations and cutting costs. Investors can take
comfort in the idea that a merger will deliver enhanced market power.

Now a day, many companies are taking decision to go for merger and acquisitions to
expand their business. But, the procedure for merger is time consuming it almost takes 6
to 7 months. Therefore, most of the mergers and acquisitions are not completed.

Mergers and acquisition transactions are often affected by government rules and
regulations, most of the countries do not allowed foreign companies to enter into local
market alone. Such foreign companies can enter only when they make merger with any
local company.

The current trend shows that there is decline in the number of mergers and acquisitions.
It is because of mergers and acquisitions transactions the needs of expertise persons have
increased. Expertise persons include valuation expert, lawyers, accountants, etc.
Merger and acquisition will give positive result only when it is executed properly.

59
 QUESTIONNAIRE

Respondent Name: Age: 18-30 31-40 41-50

>50
Telephone No:
Employer Name:

1. How strong will the overall Indian M&A market be during the next 12 months?

a) Strong b) Neutral
c)Weak

2. Which of the following is most responsible for fueling current Indian M&A
active? 

a)Strategic Buyers b) Strong Economy

c) Private Equity Buyers d) Foreign Buyers
e)Robust Financial Markets f)Others

3. What is your outlook for the Indian economy, generally, over the next 12
months? 

a) Positive b) Neutral
c) Negative

4. Which of the following buyers will INCREASE their presence the most in the
Indian M&A Market over the next 12 months (as a percentage of total
transactions)? 

a) Strategic Buyers b) Financial Buyers

c) Foreign Buyers

5. Which of the following types of buyers have been most responsible for high
company valuations over the past 12 months? 

a)Strategic Buyers b) Financial Buyers

c) Foreign Buyers d)None of the above

6. What sector will see the most M&A activity, globally, in the next 12 months? 

a) Financial Services b) Healthcare

c) Manufacturing(Non-Auto) d) Technology
e) Telecommunications f) Automotive
g) Biotechnology and Life Sciences h) Energy

60
7. Where will the most foreign buyers in the Indian M&A market come from in the
next 12 months? 

a) Australia b) Brazil
c) China d) France
e) Germany f)USA
g)United Kingdom

8. What is the single biggest challenge you encounter when dealing with INBOUND
cross-border mergers and acquisitions? 
a) Effective Due Diligence b) Unpredictable Legal Environment
c) Corrupt legal compliance d) Impact on Employees and labour issues
e) Impact on Stakeholders

9. In the next 12 months, do you believe your company will be involved in an

acquisition? 

a) Yes b) No

10. In the next 12 months, do you believe your company will be sold, downsized, or
involved in a spinoff? 

a) Yes b)No
c) Maybe

11. Do you feel the management and position of a company’s employees is

compromised upon after an acquisition take place. 

a) Yes b)No
c) Maybe

61
BIBLIOGRAPHY

1. CMIE Reports
2. Economic Times
3. DNA money
4. Essentials of Business Environment – K. Ashwathapa
5. Business Environment – Kale Ahmed

WEBLIOGRAPHY

1. www.bseindia.com
2. www.yahoo.com (links and search data)
3. www.google.co.in (links and search data)
4. www.investopedia.com
5. http://en.wikipedia.org/wiki/Mergers_and_acquisitions"
6. www.chartadvisor.com (term of the day)
7. www.moneycontrol.com
8. www.lenovo.com
9. www.hindubusiness.com

62