A RESEARCH PROJECT ON

CORPORATE RESTRUCTURING
(WITH REFERENCE TO STEEL INDUSTRY) Submitted To:KURUKSHETRA UNIVERSITY, KURUKSHETRA In partial fulfillment of the requirement of the award of the degree of MASTER OF BUSINESS ADMINISTRATION (MBA) (Session 2008-2010)

Under the Guidance of: Ms. Shuchi Gupta Faculty, MBA

Submitted By: Mahima Mittal MBA (final) Roll No.: 503

Maharaja Agarsen Institute Of Management And Technology Jagadhri-135003

CERTIFICATE

DECLARATION I, Mahima Mittal, hereby declare that the work embodied in the research project report MERGER & ACQUISITION was done by me under the able supervision of Dr. Shuchi Gupta (faculty MBA) This project is done for the partial fulfillment of Degree of Master of Business Administration program of Kurukshetra University Kurukshetra from Maharaja Agrasen Institute of Management & Technology, Jagadhri. I have not submitted his report to any other Institute or University for the award of any other degree.

(MAHIMA MITTAL)

ACKNOWLEDGEMENT It is matter of great satisfaction & pleasure to present this presentation on MERGER & ACQUISITION WITH REFERENCE TO STEEL INDUSTRY . I take this opportunity to owe my thanks to all my faculty members for their encouragement and able guidance at every stage of this report. There are people who simply by being there influence & inspire me to do thing. I am grateful to Dr. Raj Kumar Goyal (Director ,MAIMT) for creating a conducive environment in the institute for a purposeful education. I am grateful to Mr. Adarsh Aggarwal (HOD,MBA Deptt.) for his encouragement. I acknowledge my gratitude and indebtness to my internal project guide Dr. Shuchi Gupta (faculty, MBA) ,who spared her precious time in guiding me and for making valuable suggestions in compiling this project report . I express my gratitude towards all those people who have helped me directly or indirectly in completing this report.

PREFACE Learning comes from doing .To learn something one has to correlate the theoretical concepts with practical experience .Recognizing this fact , the KUK University has made it essential for Management students to undergo researches & project works . As without practical knowledge a student is just like getting a driving licence without having actually driven a vehicle. The research project Corporate Restructuring with reference to steel industry is undertaken to diagnose the impact of merger & acquisition on the performances of companies ,reasons behind the strategic decision , critical issues involved in the same . Firstly, the project includes the overview of merger & acquisition , then the successful stories of TATA CORUS, ARCELOR - MITTAL

CONTENTS

INTRODUCTION Mergers & Acquisitions Mergers: When two or more companies agree to combine their operations ,where one company survives and the other loses its corporate existence , a merger is effected.the surviving company acquires all the assets & liabilities of the merged company. the company thar survives is generally the buyer and it either retain its identity or the merged company is provided with a new name.

FORMS OF MERGER

ABSORPTION

CONSOLIDATION

Absorption: it involves the combination of two or more companies, in which one of the companies survives with its identity and the other is dissolved. Consolidation: in a consolidation, the existing companies are dissolved , a new company is formed to combine the assets of the combining companies , and stock in the consolidated company is issued to the shareholders of both companies. Example; the exxon merger with mobil oil company is technically a consolidation. 7

TYPES OF MERGER

HORIZONTA L MERGER

VETICAL MERGER

CONGLOMERAT E MERGER

Horizontal Mergers This type of merger involves two firms that operate and compete in a similar kind of bussiness .the merger is based on the assumption that it will provide economies of scale from the larger combined units Vertical Mergers: Vertical mergers take place between firms in different stages of production/operation, either as forward or backward integration .the basic reason is to eliminate costs of searching for prices, contracting, payment collection and advertising and may also reduce the cost of communicating and coordinating production.Both production and inventory can be improved on account of efficient information flow within the organization .Forward integration takes place when a raw material supplier finds a regular procurer of its products while backward integration takes place when a manufacturer finds a cheap sorce of raw material supplier. Conglomerate Mergers: Conglomerate mergers are affected among firms that are in different or unrelated business activity .Firms that plan to increase their product lines carry out these types of mergers. Firms opting for conglomerate merger control a range of activities in various industries that require different skills in the specific managerial funcins of research, 8

applied engineering , production, marketing and so on. This type of diversification can be achieved mainly by external acquisition and mergers and is not generally possible through internal development . These types of mergers re also called concentric mergers.

COSTS & BENEFITS OF MERGER When Company A acquires another company say B ,then it is a capital investment decision for company A and it is a capital disinvestment decision for company B. Thus, both the companies need to calculate the NET PRESENT VALUE (NPV), of their decisions. To calculate the NPV to company A there is a need to calculate the benefit and cost of the merger. The benefit of the merger is equal to the difference between the value of the combined identity (PVAB) and the sum of the value of both firms as a separate entity. It can be expressed as : Benefit = (PVAB) (PVA + PVB) Assuming that compensation to firm B is paid in cash , the cost of the merger from the point of view of firm A can be calculated as : Cost = Cash PVB Thus, NPV for A = Benefit Cost = (PVAB (PVA+ PVB)) (Cash PVB) The net present value of the merger from the point of view of firm B is the same as the cost of the merger for A. Hence, NPV to B =( Cash PVB)

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In the above scenario we assumed that compensation is paid in cash , however in real life compensation is paid in terms of stock. In that case, cost of the merger needs to be calculated carefully .

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MODEL FOR DETERMINING EXCHANGE RATIO MODEL FOR DETERMINING EXCHANGE RATIO IS GIVEN BY LARSON & GONEDES . This model holds that each firm will ensure that its equivalent price per share will be at least maintained as a sequel to the merger. This model has been simplified using following symbols: ER P EPS PE E S AER Firm-1 Firm-2 Firm-12 Exchange Ratio Price Per Share Earnings Per Share Price Earnings Earnings No. of Outstanding Equity Shares Actual Exchange Ratio Acquiring Firm Acquired Firm Combined Firm

Firm1- would insist that the wealth of its shareholders is preserved i.e. the price per share of the combined firm is at least equal to the price per share of firm-1 prior to the merger P12>=P1 For simplicity, the equality relationship will be used P12=P1 The market price per share of the combined firm is experienced as the product of price earnings ratio & earnings per share. P12=(PE12)(EPS12)=P1 The earnings per share of the combined firm are expressed as: EPS12 = E1+E2 S1+S2(ER1) ER1 represents the no. of shares of FIRM-1 given in lieu of one share of FIRM-2

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EPS12 may be related as: P1 = (PE12)(E1+E2) S1+S2(ER1) Solving the ER1 yields: ER1 = -S1+(E1+E2)(PE12) S2 EXAMPLE: Firms 1&2 are discussing a merger deal in which Firm-1 will acquire firm2 the relevant information about the firm is given below: Total Earnings No. of Outstanding Shares Earning Per share(EPS) Price Earning Ratio(PE) Market Price Per Share(P) Put in the above equation: ER1=-1.5 + 1/6(PE12) The maximum exchange ratio acceptable to the shareholders of Firm-1 depends on the value of PE!2 PE12 3 Max.ER1 -1 9 0 10 0.17 11 0.33 12 0.50 15 1 20 1.83 FIRM-1 Rs 18mln Rs. 9 mln Rs. 2 mln 12 Rs 24 mln FIRM-2 Rs. 6 mln Rs. 6 mln Rs. 1 mln 8 Rs.8 mln P1S2

MINIMUM EXCHANGE RATIO Required by the shareholders of Firm-2 in order to preserve their wealth can be determined in the following manner : P12 ER2>=P2 For simplification we use: (PE12)(EPS12)(ER2)=P2 Replacing EPS12 PE12 * [E1+E2]*ER2 =P2 13 [P12=(PE12)(EPS12)]

S1+S2(ER2) Solving for ER2 ER2 = P2S1________ (PE12)(E1+E2)-P2S2 Putting the values we get ER2 = ER2= 8+9 24(PE12)-8*6 3___ PE12-2 The minimum exchange ratio acceptable to the shareholder of Firm-2 depends on the value of PE12 PE12 Min. ER2 3 3 9 0.43 10 0.38 11 0.33 12 0.30 15 0.23 20 0.17

Maximum ER1 and minimum ER! Coincide at 0.33 i.e. PE12 should be 11 and exchange ratio acceptable to both the shareholders of Firm 1 & 2.

ACQUISITIONS: The term acquisition means an attempt by one firm , called the acquiring firm, to gain a majority interest in another firm , called target firm. The effort to control may be a prelude: To a subsequent merger or To establish a parent subsidiary relationship or 14

To break up the target firm , and dispose off its assets or To take the target firm private by a small group of investors .There are broadly three kinds os strategies that can be employed in corporate acquisitions .These include:

MODES OF ACQUISITION /TAKEOVER

FRIENDLY TAKEOVER

BAILOUT TAKEOVER

HOSTILE TAKEOVER

FRIENDLY TAKEOVER : It is organized by the management view of parting with the control of management to another group through negotiation .the terms and conditions of takeover are mutually settled by both the groups. BAILOUT TAKEOVER: It is an acquisition when a profit earning company takes over a financially sick company to bail it out. Normally such takeovers are in pursuance of a scheme of rehabilitation approved by public financial institutions. HOSTILE TAKEOVER: It is also referred to as RADE or company in order to takeover the management of , or acquire controlling interest in the target company .A person or group of persons acquire share from the open market financial institutions/ mutual funds/willing shareholders at a price higher than the prevailing market price such takeover are the hostile for the existing management.

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Acquisition can take place in two forms these are:

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FORMS OF ACQUISITION

SHARE PURCHASES

ASSET PURHASES

SHARE PURCHASES: In this buyer, buys the shares of the target company from the shareholders of the target company.The buyer will takeon the company with all its assets and liabilities . ASSET PURCHASES: In this buyer buys the assets of the target company from the target company. In simplest form this leaves the target company as an empty shell and the cash it receives from the acquisitions is then paid bac to its shareholders by dividend or through liquidation. However, one of the advantages of an asset purchase for the buyer is that it can :cherry-pick the assets that it wants and leave the assets and liabilities that it does not. This leaves the target in a different position after the purchase , but liquidation is nevertheless usually the end result.

MANAGING AN ACQUISITION PROGRAMME To make an acquisition strategic decision to be a successful one we have develop a disciplined acquisition programme consisiting of the following steps:

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Manage the pre-acquisition phase

Screen candidate

Evaluate the remaining candidates

Determine the mode of acquisition

Negotiate the deal

Manage the post-acquisition integration Step-1: Managers before going for mergers & acquisition must evaluate its company itself. This will enable the acquiring company to understand well its strengths and weaknesses and deepen the acquirers insight into the structure of its industry. Also the entire exercise of identifying targets must be kept very confidential .Should the market come to know of a proposed takeover ,the price of the target will rise and perhaps jeopardize the deal itself. Step-2: The ideas generated in above stage will have to be filterd .screening criteria that make sense for the acquiring companys perspective need to be used.For example, an acquirer may eliminate companies that are; Too large (market capitalization of equity in excess of rs.100 crore ),or Too small (revenues less than Rs.10 crore);or

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 Engaged in a totally unrelated activity, or commanding a high price earnings multiple(in excess of 25), and so on the others criteria. Step-3: Screening criteria applied in stage-2 will narrow down the list of candidates . Now each of them should be examined thoroughly on the basis of financial capability,earning capacity,viability study. Step-4: A company can go for any of the given modes i.e. friendly ,bailout or hostile takeover .the choice of the mode is guide d by the regulations governing them, the time frame the acquirer has in mind ,the resources the acquiree wishes to deploy,the degree of control the acquirer wants to exercise, and the extent to which the acquirer is willing to assume contingent and hidden liabilities. Step-5: For successful negotiation ,the acquiring firm should know how valuable the acquisition candidate to the firm, to the present owner and to other potential acquirers.While negotiating the deal an acquirer would do well to remember the following advice of Copeland,your objective should to pay one dollar more than the value to the next highest bidder ,and an amount is less than the value to you. This implies that the acquiring firm should identify not only the synergies that it would derive but also what other acuirers may obtain .Further, the acquiring firm should assess the financial condition of the existing owner and other potential acquirers.

Step-6: After acquisition, changes sought to be introduced by the new controlling group are likely t o challenge deep-seated values,beliefs,styles,traditions and practices. So to manage the post integration two guidelines are: Treat people with dignity & concern

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 Anticipate the problem and solve it as early as possible.

FINANCING M& A 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:

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CASH Payment by cash .such transactions are usually termed acquisition rather than merger because the shareholders of the target company are removed from the picture and the target comes under the (indirect) control of the bidders shareholders alone. A cash deal would make more sense during a downward trend in the interest rates .Another advantage of using cash for an acquisition is that these trends in 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. FINANCING Financing capital may be borrowed from a bank ,or, raised by an issue of bonds .Alternatively, the acquirers stock may be offered as consideration. Acquisitions financed through debts are known as leveraged buyouts if they take the target private ,and the debt will often be moved down onto the balance sheet of the acquired company. HYBRIDS An acquisition can involve a combination of cash and debt, or a combination o cash and stock of the purchasing entity. FACTORING Factoring can provide the necessary extra to make a merger or sale work.

SWOT ANALYSIS OF THE STEEL INDUSTRY Strengths 1. Availability of iron ore and coal 2. Low labour wage rates

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3. Abundance of quality manpower 4. Mature production base Weaknesses 1. Unscientific mining 2. Low productivity 3. Coking coal import dependence 4. Low R&D investments 5. High cost of debt 6. Inadequate infrastructure Opportunities 1. Unexplored rural market 2. Growing domestic demand 3. Exports 4. Consolidation Threats 1. China becoming net exporter 2. Protectionism in the West 3. Dumping by competitors

LEGAL & PROCEDURAL ASPECTS OF MERGERS & ACQUISITIONS

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Examination of object clause

Intimation to stock exchange

Approval of the draft

Application to the high court

Dispatch of notice to shareholders

Holding of meetings

Petition to the court

Filing the order with the registrar

Transfer of assets & liabilities

Issue of shares & debentures

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1.EXAMINATION OF THE OBJECT CLAUSE this clause defines the areas in which management can take their decisions.So before going for the merger & acquisitions you have to check whether your object clause allows you or need any alteration accordingly. 2.INTIMATION TO STOCK EXCHANGES if the companies or any company listed into the stock exchange has to intimate the respective exchanges for their action of mergers or acquisition. 3.APPROVAL OF THE DRAFT OR AMALGAMATION PROPOSAL BY THE RESPECTIVE BOARDS- board of directors of both the companies must give their approval for entering into mergers or acquisitions of their firms. 4.APPLICATION TO HIGH COURT High court observes whether this action is taken after considering the interest of all the parties or not, if required make arrangements for the meeting of shareholders ,creditors for protecting their interest. 5.DISPATCH companies. It is mandatory to publish the notice in 2 types of newspapers ,one must be in regional newspaper and another in English. 6.HOLDING OF MEETING OF SHAREHOLDERS & CREDITORS- minimum quota is 75% of shareholders or creditors in each class to vote either in person or by proxy must approve the scheme. 7.PETITION TO THE COURT- is necessary for confirmation or passing of court orders, court after hearing the interested parties passes the orders that whether this merger or acquisition is fair or not. On this scheme if any party has some objection then court if find necessary makes orders for changes . OF NOTICE TO SHAREHOLDERSshareholders includes

shareholders,creditors,suppliers or other parties have interest associated with the

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8.FILING THE ORDER WITH THE REGISTRAR- it includes submitting all the necessary documents and the order passes by the court with the registrar so that scheme will be properly registered. 9.TRANSFER OF ASSETS & LIABILITIES- into the acquiring firms 10.ISSUE OF SHARES & DEBENTURES- in the name of new entity.

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CONTRIBUTION OF COUNTRIES TO GLOBAL STEEL INDUSTRY

The countries like China, Japan, India and South Korea are in the top of the above in steel production in Asian countries. China accounts for one third of total production i.e. 419m ton, Japan accounts for 9% i.e. 118m ton, India accounts for 53m ton and South Korea is accounted for 49m ton, which all totally becomes more than 50% of global production. Apart from this USA, BRAZIL, UK accounts for the major chunk of the whole growth. The steel industry has been witnessing robust growth in both domestic as well as international markets.

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LITERATURE REVIEW

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LITERATURE REVIEW P.SURESH & PROF. R. PADMANABHAN (2007), MERGERS &

ACQUISITIONS In todays global business environment, companies may have to grow to survive, and one of the best ways to grow is by merging with another company or acquiring another company. This study highlights the importance of mergers and acquisition through the successful stories of MITTAL-ARCELOR who has become the worlds number one steel company. TATA-CORUS deal which is the largest takeover of a foreign company and will create the worlds fifth largest steel group. KINGFISHERDECCAN deal results show that the synergies between Kingfisher and Deccan have resulted in cost performance improvements that have defied popular predictions. ADHIKARI, ANAND (2006), ON TOP OF THE WORLD A flurry of M&A has pitch forked some Indian companies into the global league .After the rash of global mergers & acquisitions by Indian companies , many of them find themselves in the rarefield top echelons of world rankings. For instance, BHARAT FORGE is today the second largest forgings company in the world after acquiring Germanys largest forging company in November 2003. Likewise , Tata Tea has emerged as the second largest branded Tea company after it bought UKs Tetley in February 2000, more recently, after it acquired the operations of France based Thomson SA, Videocon became the worlds largest television picture tube maker and, after it closes the deal to acquire CORUS, TATA STEEL could become the fifth biggest steel company. ENVESTINDIA.COM (2005), Essar steel buys out Hy- grade Pellets Ltd. (HGPL) and steel corporation of Gujarat Ltd. (SCGL) from stemor for $450 mn June 9- With these acquisitions ,Essar Steel becomes a totally integrated steel producer with end- to end control over raw materials , processess, technology, and finished products. Commenting on the completion of the transaction, Essar Steel managing director Prashant Ruia said, we expect these acquisitions to bring in increased synergy and

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seamless integration in our operations and help strengthen the company .we look forward to consolidating our position in the market ,especially in the value added segment ,he added. The acquisition of HGPL is expected to bring in benefits of high quality Raw material and considerably better yields in steel making , Essar steel reckons, SCGLs acquisition will bring in 1.2 million tonne of cold rolling capacity into Essar Steel , making it one of indias largest producers of cold rolled products.The company expects this to provide a wider market penetration capability and offer a hedge against cyclacity in domestic and international markets. DASH, ASHUTOSH (2004), VALUE CREATION THROUGH MERGERS ; the Myth and reality - the study focuses on the wake of the recent changes in the Indian economic scenario ; many companies have embraced mergers as a restructuring tool for salvation . Such a move, though supported by powerful arguments and theories , is questioned in many empirical studies. It examines economic consequences of mergers with a view of resolving a conflict , the event study methodology employed to assess the extent of value creation by mergers, indicates that on an average mergers lead to values destruction , irrespective of their pattern over a long period of time and the destruction of value is relatively greater in case of unrelated mergers.

SCHWEIGER (2003), FRAMEWORK FOR EXECUTIVES AND MANAGERS,the study focuses on the very nature of mergers and acquisitions is to provide ompanies with new markets and lowering operating costs through consolidation of resources .In the process, challenges ar often overlooked such as clashes in culture , style and egos .It further leads to most opportunity , diminished shareholders value and significant trauma to shareholders, employees and importantly to the company itself .M&A integration provides a practical and easy to follow for managing and directing each step in the volatile integration explaining how to master each step in the process.

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ABDUL RAHIM AHMED (2007),CORPORATE GOVERNANCE IN BANKS UNDERGOING M&A,- This paper on Corporate Governance In Banks Undergoing Merger And Acquisition presents a case on banks that have recently undergone the process of M&A in Pakistan and the steps these banks should take in order to encompass corporate governance to ensure higher profitability and employees' satisfaction. Effective corporate governance involves a set of relationships between a company's management, its board, its shareholders and other stakeholders. It is also about promoting corporate fairness, transparency and accountability. Banks can easily safeguard their risk exposures and build their sustainable competitive advantage via imposing corporate governance. This paper also explains the six key tools of corporate governance that can be used by banks to counter problems that are evident during M&A. RAINER LENZ (2008),THE LOGIC OF M&A PRICING- The valuation of synergy is vital to the success of any merger, however, given current valuation methodologies and the complexity of the task; it is also the most challenging element of merger and acquisition pricing. Conventional valuation methods assume that sales figures and market share of the acquiring company are easily transferable within the new entity. Current synergy practices also assume amalgamating various corporate functions will produce significant cost reductions. The key component missing from current methodologies is the failure to analyze every corporation as a complex system containing various elements and relations. If such a delicate system is segmented due to a merger, the outcome measured in turnover and profit figures can not be accurately forecasted by simply aggregating key financial figures. The goal of this article is to go beyond the simplicity of current methods in order to develop a methodology better suited for evaluating synergy effects. This new approach integrates elements from both the framework of knowledge management and the sociological theory of systems and elements. The alternative methods proposed in this article will simultaneously deliver creative and innovative solutions to enhance the success of mergers and acquisitions. These new proposals also help to clarify the short comings plaguing traditional methods which inevitably lead to the destruction of shareholder wealth

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MARTIN.J.CONVON (2003), DO WAGES RISE OR FALL FOLLOWING MERGER?- This paper provides a systematic empirical analysis of the effects of merger and acquisition activity on profitability and firm level employee remuneration in the United Kingdom, using a specially constructed database for the period 1979-1991. It finds that both profitability and wages rise following acquisition, and firms that merge within the same industry division experience larger increases in profitability and pay their workers higher wages than those engaged in unrelated acquisitions. This is, in part, the result of an increase in the efficiency with which labour is used following related acquisition

THEODORE EISENBERG,GEOFFREY P. MILLER, Ex Ante Choices of Law and Forum: An Empirical Analysis of Corporate Merger Agreements - Legal scholars devote much attention to the incorporation puzzle - why corporations so frequently incorporate in Delaware. This paper suggests that focusing on the incorporation decision overlooks a broader but intimately related set of questions. Choosing Delaware as the incorporation situs is, effectively, a choice-of-law decision. Incorporating in Delaware selects Delaware law for (and authorizes Delaware courts to adjudicate) legal disputes about the allocation of a firm's governance authority. In this sense, the incorporation decision is similar to any setting in which a company selects a law or authorizes a dispute resolution forum. We study a data set of 412 merger and acquisition contracts contained as exhibits in SEC Form 8-K filings over a seven month period in 2002 to assess the decisions the parties have made regarding choice-of-law and choice-of-forum. Although these contracts frequently select Delaware law and Delaware as a forum, there is a relative "flight" from Delaware in this contractual setting. Delaware corporations choose Delaware law less than other corporations choose the law of their state of incorporation. Furthermore, many contracts specifying Delaware law did not specify Delaware as the litigation forum. Contracts designating Delaware law tend to choose Delaware as a litigation forum less than contracts that designate other states' laws tend to choose such states as a litigation forum. Delaware was the place of incorporation for 189 merger contracts; it was the choice of law for 132. With respect to forum

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selection, 115 contracts that designated a forum had Delaware corporate acquirers. Yet only 64 contracts specified Delaware as the litigation forum. In contrast, for example, New York had eight corporate acquirers and 45 contracts specifying that New York law governed. We investigate the determinants underlying these decisions about choice-oflaw and forum selection. Regression results NIGEL FINCH,TYRONE M CARLIN,GUY FORD (2006), A Deal Too Far - the Case of the Killer Acquisition Merger and acquisition transactions are often explained and justified by reference to their potential capacity to generate value - for example through the achievement of operational synergies, critical scale or optimal scope. In contrast, a significant and growing literature questions the worth of acquisition transactions as value generating devices, and the motivations of managers who initiate them. This literature sheds light on the impact of corporate acquisitions by pointing to evidence of the consistent failure of significant numbers of such transactions to generate improved shareholder value, and, concomitant with this, the loss of shareholder value which often results. In some transactions however, the loss of value attributable to acquisitions is of such a magnitude that it threatens the continued existence of the firm initiating the purchase - a phenomenon which has to date attracted comparatively little attention. This paper provides insights into the "killer acquisition" phenomenon by means of a detailed review of one such transaction, the acquisition of Australian bulk wine producer Cranswick Premium Wines by Australian boutique producer Evans & Tate limited. The analysis demonstrates how factors such as failed governance arrangements, lack of due diligence, pursuit of an inappropriately sized target and failure to appreciate the impact of a shifting strategic environment can transform the adverse value consequences of an acquisition transaction from regrettable but manageable to existence threatening within a short timeframe. HUONG N. HIGGINS (2006), Impact of Pro-M&A Legislation in the 1990s This paper examines the markets reaction to news of corporate mergers and acquisitions (M&A) by Japanese bidders during the 1990s. Domestic versus global bids and proM&A legislation are considered as determinants of bidders abnormal returns. The results show that bidders for domestic targets earn significant abnormal returns after the 32

institutions of pro-M&A legislation in Japan. These findings help determine gains from trading strategies for M&A deals in Japan, and provide insight into the current M&A environment in Japan as shaped by pro-M&A legislation.

EDWARD PEKAREK,MICHELA HUTH (2008), Bank Merger Reform Takes an Extended Philadelphia National Bank Holiday -The past, present and future of banking consolidation is examined with an aim toward modernizing the approach of multi-agency antitrust analysis in the U.S. that is based on the Supreme Court's decision in the matter of United States v. Philadelphia National Bank, 374 U.S. 321 (1963). Reform of outdated merger review methodologies is advocated. CONSUELO L WAIGHT (2004), HRD Involvement in the Investigative Phase of a Merger & Acquisition - This qualitative study describes the involvement of human resource development (HRD) professionals in the investigative phase of merger and acquisitions (M&As). Telephone interviews were completed with 38 HRD professionals and 17 business managers in 12 organizations that had undergone M&As between 1996 and 1999. The results show that there is some cognizance between business managers and HRD professionals on what HRD professionals do during an M&A. What is most significant, however is that the activities identified by both business managers and HRD professionals are all human-capital related; this shows that business managers and some organizations are not only involved in finance related but also human capital duediligence during an M&A. The study results show that M&A activities are team-oriented and HRD professionals need to be prepared to work in different projects during an M&A, especially during the investigative phase. The notion that HRD professionals will be solely working on HRD-related activities is non-existent during the investigative phase of an M&A. REBEL A COLE, KENNETH R FERRIS, ARIE MELNIK (2010), The Cost of Advice in Merger & Acquisition Transactions - In this study, we estimate the cost of advice associated with pre-merger or pre-acquisition due diligence. Mergers and

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acquisitions (hereafter 'mergers') are significant resource-consuming activities for businesses. The benefits of synergism, efficiency and market power associated with a merger may be realized at some point in the future, but real spending commitments (e.g., the cost of merger advice) are made by a potential acquirer even before any announcement of a proposed transaction. Using the actual amounts paid to accounting firms as the 'cost of advice,' we find that these short-term costs are nontrivial. Consequently, we hypothesize that the cost of pre-merger advice explains a large share of the decline in acquiring-firm shareholder wealth that is frequently observed in such transactions. We also find that the primary determinants of these costs are the financial size of a deal and the complexity of a deal as proxied by whether the transaction involved a domestic or international target. We do not find that the method of payment utilized to facilitate a transaction affects the cost of the merger advice. ELY R LEVY (2002), Corporate Courtship Gone Sour: Applying a Bankruptcy Approach to Termination Fee Provisions in Merger and Acquisition Agreements This paper examines Delaware's judicial treatment of deal protection measures, particularly termination fee provisions. The paper explores the tension between the economic function of these provisions in inducing bidders and potentially compensating them for opportunity and transaction costs in the event of deal termination vs. the ability of large termination fees to constrain and coerce shareholder choice by obligating the target to pay out the fee in the event of a shareholder no vote.. In light of these issues, the paper explores the different standards of review that Delaware courts have and could potentially apply in ex post review of agreements containing termination fees. Ultimately, the paper argues that there are sufficient policy justifications to adopt more substantive review of these provisions. In light of several identifiable policy justifications, the paper suggests that a best interest standard that is used by bankruptcy courts in their more substantive review of termination fees in asset purchase agreements be adopted by the Delaware Courts analogously in the mergers and acquisitions context.

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.PHILIP ALSTON , (2002), Resisting the Merger and Acquisition of Human Rights by Trade Law:- Petersmann's proposal for the enforcement of human rights through the WTO is presented as though it were simply a logical development of existing policies, rather than representing a radical break with them. In a form of epistemological misappropriation he takes the discourse of international human rights law and uses it to describe something which is in between a Hayekian and an ordoliberal agenda. It is one which has a fundamentally different ideological underpinning from human rights law and would have extremely negative consequences for that body of law. Many of his characterizations of the existing state of the law - whether at the national, EU or international levels - are questionable. What is needed is for all participants in the debate over the future relationship between trade and human rights, be they ordoliberals such as Petersmann or mainstream human rights proponents, to move beyond such analyses and to engage in a systematic and intellectually open debate which acknowledges the underlying assumptions and meets a higher scholarly burden of proof than has so far been the case. RACHEL A.J CAMPBELL, ROMAN KRAUSSL,(2007), Merger and Acquisition Behavior in European Banking- This research is the first to examine the empirical predictions of a real option-pricing model using a large sample of data on mergers and acquisitions in the European banking industry. We find empirical support for a model that estimates the value of an option to wait in accepting an initial tender offer. Market prices reflect a premium for the option to wait to accept an offer that has a mean value of 14% for a sample of 100 mergers or acquisitions in the European banking industry. We provide evidence that the size of the acquiring banks and the debt to equity ratio of the target bank play a significant role in determining the premium paid in the acquisition process. Our findings have important implications for future M&A behavior in the banking industry. .SURASAK (MATT) NGAMMEKCHAI, (2008), How Do Human Capital Assets Affect Cumulative Abnormal Returns During Merger and Acquisition Announcements?- The acquisition of physical assets is very different from acquisition

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of human capital assets. Holding physical asset size fixed, acquisitions involving more target employees are associated with lower announcement period returns. This effect is strongest in 1) within-industry mergers, 2) cross-region mergers, and 3) mergers involving employees with high-valued skill sets. Each of these conditions suggests M&A transactions that require significant integration of human capital, and therefore, possible employee resistance. This EF effect subsumes the size effect seen in previous literature; that is, controlling for this EF, merger size is unrelated to announcement period returns. GEORGIA SIOUGLE, SPYROS I. SPYROU,(2010), Informed Trading Around Merger and Acquisition Announcements - This paper offers new evidence on informed trading around merger and acquisition announcements from the UK equity and options market. The analysis suggests that in about 25%-33% of events there is abnormal option trading volume during the month that precedes the announcement. Such evidence is found in both call and put option volumes, is robust to different estimation and event window lengths, different sub-samples, and to liquidity considerations. In addition, the findings indicate abnormal pre-event stock returns, mainly for large firms that have equity option contracts traded on their common shares. These results support the argument that informed investors will transact in both the options and the stock market, and are comparable to results reported by the FSA in the cash market. HAZEM DAOUK, GUOHUA LI, (2009), Institutional Trading and Front-Running Behavior Around Corporate Merger and Acquisition Announcements - Merger and Acquisition (M&A) activities are not well-anticipated corporate events in the equity market. Do institutional investors have material non-public information before M&A announcements, and front-run other investors? Using a high frequency institutional trading dataset that combines publicly available NYSE Trades and Quotes (TAQ) data with the institutional ownership report (13F), this paper investigates the daily trading behavior of institutional investors on target firms before and after M&A announcements in the US equity market from 1993 to 2004. I find that all institutional investors start to accumulate net buying positions on target firms at far ahead of time as 30 days before an announcement date. Institutional investors are not a homogeneous group in terms of

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trading strategies, regulations or information venues, but, surprisingly, they exhibit similar trading patterns prior to the event. Controlling for other factors, this significant trading pattern indicates that institutional investors may possess material non-public information and use it to exploit profits. On and after announcement day, investment advisors tend to be merger arbitragers and buy more shares of target firm stocks to speculate on final deal consummation; while banks, insurance companies, and mutual funds immediately reverse their positions to cash in, a behavior consistent with the early informed traders acting as 'short-term profit takers.' Using probability of informed trading (PIN) as a proxy to measure the cross-sectional degree of information asymmetry, I confirm that the significant front-running pattern of institutional investors is associated with a high probability of informed trading. Further, institutional net selling pattern on rival firm of targets before the announcements shows that institutional investors have better information on actual targets rather than have better models to predict possible takeovers.

20.JULAPA JAGTIANI, ELIJAH BREWER III ,( 2007) , Target's Corporate Governance and Bank Merger Payoffs - Commercial bank merger and acquisition (M&A) transactions are especially informative for analyzing the impact of differing corporate governance structures on the balance of corporate control between managers and shareholders. We exploit these special characteristics to investigate the balance of control between top-tier managers and shareholders using data from bank M&A transactions over the period 1990-2004. Unlike research on non-financial firms, the impacts of independent directors, managerial share ownership, and independent blockholders on bank merger purchase premiums in this environment are likely to be measured more consistently because of industry operating standards and regulations. It is also the case that research on banks in this area has not received adequate attention. Our model controls for risk characteristics of the target and the acquiring banks, the deal characteristics, and the economic environment. The results are robust. Our results are consistent with those found for non-financial firms, and are consistent with the hypothesis that independent directors could provide an important internal governance

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mechanism for protecting shareholders' interests especially in large scale transactions such as mergers and takeovers. We also find results consistent with the conflict of interest argument, where top-tier managers tend to trade potential takeover gains in return for their own personal benefits, such as job security and other employment related perquisites. Our overall findings would support policies that promote independent outside directors on the board of commercial banking firms in order to provide protection for shareholders and investors at large.

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SIGNIFICANCE OF THE STUDY In todays global business environment, companies are focusing on corporate

restructuring, and one of the best ways of it is Merger & Acquisition .Projects and research works are the means to get an insight of the practical situations.Master of Business Administration degree has given me a chance to carry out wholesome research. The topic of my research is Merger & Acquisition with special reference to merger and acquisition .in this new area there are many reasons for merger and acquisition it can be growth , increased market share, increase the competency , reduce the high wallet of taxes and many more. The whole research revolves around the already merged and acquired companies who made a history in business world specifically related to steel sectors i.e. Tata And Corus, Arcelor Mittal.

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OBJECTIVES OF THE STUDY 1 .To study the impact of global crisis on steel industry. 2. To compare the performance of companies before and after merger & acquisition 3 To evaluate the strategic reasons behind the M&A decisions 4 To study the various issues involved in merger & acquisition

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RESEARCH METHODOLOGY Redmen and Mory Defines: Research as a systematic effort to gain new knowledge. Why a research has been undertaken , how the research problem has been defined,in what way the problem has been defined , what data have been collected and a lot of similar other questions coined for research methodology. RESEARCH DESIGN The researcg design is a master plan specifying the method and procedures for collecting and analyzing needed information . the research design in this research is the EXPLORATORY RESEARCH. DATA COLLECTION This study depends upon the Secondary Data Collection. And the sources from where the data is collected are INTERNET BOOKS JOURNALS MAGAZINES NEWSPAPERS

SCOPE OF STUDY: This study is limited to the merger & acquisition of two corporate entities.These are: Arcelor & Mittal TATA & Corus 41

INTRODUCTION TO COMPANIES JAMESTJI TATA, FOUNDER Tata Steel, formerly known as TISCO (Tata Iron and Steel Company), is a steel company based in Mumbai, India. It is part of Tata Group of Companies. Its main plant is located in Jamshedpur, Jharkhand, though with its recent acquisitions, the company has become a multinational with its operations in various countries. The registered office of Tata Steel is in Mumbai. In the year 2000, the Company was recognized as the worlds lowest-cost producer of steel. The company was also recognized as the worlds best steel producer by World Steel Dynamics in 2005. The company is listed on BSE and NSE, and employs about 82,700 (2007). Ratan Tata is the Chairman and B. Muthuraman is the Managing Director of the company. Tata Steel is a limited company registered in India under the Companies Act, 1956. Tata Steel was established by Indian Parsi businessman Jamshedji Nusserwanji Tata in 1907 (he died in 1904, before the project was completed)

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CORUS TAKEOVER On October 20, 2006, Tata Steel announced that it had agreed to pick up a 100% stake in the Anglo-Dutch steel maker Corus Group at 455 p. per share in an all cash deal, cumulatively valued at GBP 4.3 billion (USD 8.04 billion). On November 19, 2006, the Brazilian steel company CSN launched a counter offer for Corus at 475 pence per share, valuing it at $8.404 billion). On December 11, 2006, Tata preemptively upped the offer to 500 pence, which was within hours trumped by CSNs offer of 515 pence per share, valuing the deal at $ 9.6 Billion. The Corus board promptly recommended both the revised offers to its shareholders. On January 3, 2007, following the lack of agreement on an offer, the previously mentioned auction process was triggered. Following the conclusion of the auction process ( at an unprecedented length of nine rounds) conducted by the Panel in accordance with Rule 32.5 of the Code (the Auction), Tata Steel announced the proposed acquisition of Corus Group at 608p per share, that being 5p more than CSNs top offer of 603p. The 6.7 billion deal includes 500 million of debt. Corus is a customer focused, innovative-solutions driven company, which manufactures, processed and distributes steel and aluminium products and services to customers worldwide. Corus is Europes second largest steel producer with annual revenues of over 11 billion and a crude steel production of about 20 million tones and was formed on 6 October, 1999 through the merger of British steel and kininklije hoogovens. Combining global expertise with local customer service, Corus offers value, reliability and innovation. Corus supplies a variety of innovative solution to a broad range of market.

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Arcelor was the worlds largest steel producer in terms of turnover and second largest in terms of steel output, with a turnover of 30.2 billion and shipments of 45 million metric tons of steel in 2004. The company ws created by a merger of the former companies Aceralia (Spain), Usinor (France) and Arbed (Luxembourg) in 2002. BUSINESS Employing 94,000 employees in over 60 countries, it is a major player in all its main markets: automotive, construction, metal processing, primary transformation, household appliances and packaging, as well as general industry. With total sales of over 30 billion, Arcelor is the worlds largest steel producer in terms of turnover. It produces long steel products and inox-steel. IN January 2006, Arcelor announced the acquisition of Dofasco, Canadas largest steel producer with an annual output of 4.4 million tons. Corus decides to sell Reasons for decision: Total debt of Corus is 1.6bn GBP Corus needs supply of raw material at lower cost Though Corus has revenues of $18.06bn, its profit was just $626mn (Tatas revenue was $4.84 bn & profit $ 824mn) Corus facilities were relatively old with high cost of production Employee cost is 15 %( Tata steel- 9%) Tata Decides to bid: Reasons for decision: Tata is looking to manufacture finished products in mature markets of Europe. At present manufactures low value long and flat steel products while Corus produces high value stripped products A diversified product mix will reduce risks while higher end products will add to bottom line. Corus holds a number of patents and R & D facility. Cost of acquisition is lower than setting up a green field plant and marketing and

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distribution channels Tata is known for efficient handling of labour and it aims at reducing employee cost and improving productivity at Corus It had already expanded its capacities in India. It will move from 55th in world to 5th in production of steel globally.

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MERGER WITH MITTAL Arcelor declares merger with Mittal Steel The company was the target of a takeover bid by its rival Mittal Steel on 2006-01-27. However, the bid resulted in substantial increase in Arcelors share value. Two members of the board of Arcelor, Guillermo Ulacia and Jacques Chabanier also resigned suddenly. On May 26, 2006 Arcelor announced its intention to merge with Severstal. Since then several economists, media and shareholders have questioned the intentions of Arcelor announcing its merger with Severstal due to a perceived opacity in the transaction. But on 25 June, 2006, the Arcelor board decided to go ahead with the merger with Mittal Steel and scrapped plans for Severstal merger. The new company is now called Arcelor Mittal. Arcelor also paid Severstal 140 million as a fine for the fall out of their failed talks. Lakshmi Mittal (owner of Mittal Steel) became the president and Joseph Klinsch (formerly Arcelor chairman) was appointed chairman of the new company till his retirement. Arcelors merger with Mittal created the worldwide leader in the steel industry, increasing its bargaining power with suppliers and consumers. Arcelor Mittal is the largest steel company in the world. The company was founded in 2006 when Arcelor and Mittal Steel merged. The company is headquartered in Luxembourg, the former seat of Arcelor.

BUSINESS The company is headquartered in Luxembourg, though Lakshmi Mittal works out of offices in Berkeley Square in London. In its current form, it is expected to have a planned capacity of 120 million tones. Its annual revenues are expected to be around $108 billion, earnings of $20 billion and market capitalization of about $96 billion and will have 320,000 employees.

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Arcelor shareholders will receive 13 Mittal Steel shares and 155.06 euros in cash for 12 Arcelor shares. Mittal steel is also offering 13 Mittal steel shares and 188.42 euros in cash for 12 Arcelor convertible bonds. Current Arcelor shareholders will own 50.5 percent of the combined group and the Mittal family 43.6 percent of the capital and voting rights. The companys profit went up by 40% after the merger.

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ANALYSIS & INTERPRETATIONS

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OBJECTIVE 1 IMPACT OF GLOBAL CRISIS ON STEEL INDUSTRY

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IMPACT OF GLOBAL CRISIS ON STEEL INDUSTRY According to Prof.Nouriel Roubini, "This is the worst financial crisis we had since the Great Depression" The crisis is not v-shaped rather it is U-shaped as is shown in the figure 1 The three key pillars of the international financial markets are confidence, capital and liquidity and these three are somewhat interrelated.Until ,September 2008 all these three pillars were on a high and therefore, businesses across the various sectors were performing in a robust manner.However, the confidence in the financial system was shaken with successive crises across various banks in the US and Europe.This then resulted in a significant erosion of capital in the banking industry in the developed world which eventually spiralled into an unprecedented global financial crisis .This phenomenon brought about a sharp decline in consumption of steel as it did in other products , affecting the steel demand across the globe. Consequently , global liquidity was choked and the manufacturing sectors including the consumers of the steel industry were severely effected . It is estimated that during the second half of the year , the steel demand declined by around 20% globally over the same period last year. The steel industry has traditionally been very sensitive to the changing economic conditions.The recent economic meltdown has created several challenges- which when addressed appropriately , can be countered to positive effect. However, unlike the previous global recessions, this time around , all the countries have come together and taken action. Additionally, there has been a tremendous amount of governmental response to the global depression which is helping to bring about a possible easing of the situation. The economic crisis has led to the cancellation or review of many planned investments in capacity expansions in the steel industry.However, since many expansion projects continue to advance in some emerging economies, world steel making capacity is expected to maintain an upward trend in 2010

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 This imbalance between capacity and demand is likely to hasten retirement of inefficient , more environmentally polluting or high cost capacities in certain countries, further effecting industry employment. Massive job cuts in USA, UK, Japan by major companies. Adverse impact on exports & deffered capital expenditure Slowing down of industrial output and corporate profits, finally resulting into lower GDP rate. Rise in Non- Performing loans that made the banks cautious in funding. Much more stressful environment for employees Loss of individual consumers confidence and spending has come to a halt.

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OBJECTIVE 2 CRITICAL EXAMINATION OF PERFORMNACE OF COMPANIES BEFORE AND AFTER M&A

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TATA STEEL CORUS ON ,JANUARY 31,2007 TATA ANNOUNCED THE ACQUISITION OF CORUS OBJECTIVE 2 To compare the performance of companies before and after M&A YEAR ENDING 31ST MARCH 2006 2007 2008 2009 TOTAL INCOME (in crores) 15,470.26 17,984.76 20,028.28 24,624.04

TOTAL INCOME
30000 25000 INCOME 20000 15000 10000 5000 0 1 2 YEAR 3 4 15470.26 2006 17984.76 2007 20028.28 2008 24,624.04 2009

Interpretation: On the basis of above table & graph it can be interpreted that the total income of the Tatasteel has been continuously increasing after the acquisition of Corus by Tata

COMPARISON OF TOTAL ASSETS:

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YEAR ENDING 31ST MARCH 2006 2007 2008 2009

TOTAL ASSETS (in crores) 14,617.16 25,597.50 47,075.52 58,741.77

TOTAL ASSETS
70000 60000 TOTAL ASSETS 50000 40000 30000 20000 10000 0 1 2 YEAR 3 4 14617.16 2006 25597.5 2007 47,075.52 2008 58741.77 2009

Interpretation: On the basis of above table & graph it can be interpreted that the total assets of the Tatasteel has been continuously increasing after the acquisition of Corus by Tata

COMPARISON OF NET SALES / INCOME FROM OPERATIONS:

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YEAR ENDING 31ST MARCH 2006 2007 2008 2009

NET SALES/ INCOME FROM OPERATIONS (in crores) 3637.46 5118.10 6254.20 17397.22

NET SALES/INCOME FROM OPERATIONS

8000 7000 NET SALES 6000 5000 4000 3000 2000 1000 0 1 2 YEAR 3 4 3637.46 2006 5118.1 2007 6254.2 2008 7397.22 2009

Interpretation: On the basis of above table & graph it can be interpreted that the NET SALES of the Tatasteel has been continuously increasing after the acquisition of Corus by Tata

COMPARISON OF PROFIT BEFORE TAXES: YEAR ENDING 31ST MARCH 55 PROFIT BEFORE TAXES (in crores)

2006 2007 2008 2009

5239.96 6261.65 7066.36 7315.61

PROFIT BEFORE TAXES

7315.61, 29% 2009

5239.96, 20% 2006

6261.65, 24% 2007 7,066.36, 27% 2008

Interpretation: On the basis of above table & graph it can be interpreted that the PROFIT BEFORE TAXES of the Tatasteel has been continuously increasing after the acquisition of Corus by Tata

COMPARISON OF EARNING PER SHARE; YEAR ENDING 31ST MARCH 2006 2007 2008 2009 EARNING PER SHARE 63.65 73.76 61.63 61.78

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EARNING PER SHARE

61.78, 24% 2009

63.65, 24% 2006

61.63, 24% 2008

73.76, 28% 2007

Interpretation: On the basis of above table & graph it can be interpreted that the EARNING PER SHARE of the Tatasteel has been continuously increasing after the acquisition of Corus by Tata ARCELOR MITTAL ON JUNE 25,2006 MERGER OF ARCELOR & MITTAL WAS ANNOUNCED COMPARISON OF TOTAL ASSETS: YEAR ENDING DECEMBER,31 2006 2007 TOTAL ASSETS (in million $) 116,784 133,625

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2008 2009

133,088 127,697

TOTAL ASSETS
135000 130000 AMOUNT IN $ 125000 120000 115000 110000 105000 1 2 YEARS 3 4 116,784 2006 133,625 2007 133,088 2008 127,697 2009

Interpretation: On the basis of above table and graph it can be said that the total assets of the firm has increased as compared prior to merger. There has been both rise and decline in the level of assets held by the firm over he period of four years.

COMPARISON OF SALES: YEAR ENDING DECEMBER,31 2006 2007 2008 2009 SALES (in million $) 23,203 105,216 124,936 65,110

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SALES
140000 120000 100000 80000 60000 40000 20000 0 1 2 3 4 23203 2006 65110 2009 105216 2007 124,936 2008

Interpretation: On the basis of above table and graph it can be said that the sales of the firm has shown variations since 2006 till 2008 the sales were continuously increasing but in 2009 there has been some decline in sales due to global crisis.

COMPARISON OF NET INCOME: YEAR ENDING DECEMBER,31 2006 2007 2008 2009 NET INCOME (in million $) 1,917 11,850 10,439 118

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NET INCOME
4 AMOUNT IN $ 3 2 1 0 1,917$ 2006 2000 4000 6000 YEARS 8000 10000 12000 14000 118$ 2009 10,439$ 2008 11,850$ 2007

Interpretation: On the basis of above table and graph it can be said that the net income of the firm has increased in 2007 to a large extent as compared to 2007 . However, the net income declined in 2008 & 2009 due to decline in sales .

COMPARISON OF EARNIING PER SHARE: YEAR ENDING DECEMBER,31 2006 2007 2008 2009 EARNING PER SHARE(In Million $) 1.38 2.45 6.78 0.08

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EARNING PER SHARE

0.08 1.38 2009 2006

2.45 2007 6.78 2008

Interpretation: On the basis of above table and graph it can be said that the earning per share of the firm has increased substantially till 2008 but after 2008 in 2009 the eanings reduced to 0.08 due to global crisis.

COMPARISON OF DIVIDEND PAY: YEAR ENDING DECEMBER,31 2006 2007 2008 2009 DIVIDEND PAY (in million $) 210 (2269) (2576) (1,338)

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DIVIDEND PAY

-1,338, 2009

210, 2006 -2269, 2007

-2,576, 2008

Interpretation: On the basis of above table and graph it can be said that the dividend pay of the firm has reduced to a large extent as compared prior to merger.

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OBJECTIVE -3 REASONS FOR ACQUISITION

REASONS FOR MERGER & ACQUISITIONS CORPORATE GREED: THE DESIRE FOR MORE RATHER THAN LESS IS AN INTEGRAL PART OF HUMAN Similar is the case here:

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 Mittal after merger with Arcelor the worlds largest steel producer in terms of turnover & the second largest in terms of steel output became the largest steel company in the world . In 2005 Tata steel was only the worlds 56
th

biggest steel producer and corus

takeover deal is the largest Indian takeover of a foreign company which creates Tata steel fifth-largest steel group of the world. ELIMINATE COMPEITION: One important reason that companies combine is to eliminate competition .Acquiring a competitor is an excellen t way to improve a firms position in the market place.It reduces competition, and allows the acquiring firm to use the targets resources & expertise. ECONOMIES OF SCALE: As Corus is also very strong in research and development ,which would add to the competitive strength for Tata steel in future on the other hand, Tata steel was recognized as the worlds lowest-cost producer of steel .The company was also recognized as the worlds best steel producer by World Steel Dynamics in 2005. Thus, they can maximize their efficiency with minimizing the cost .Similarly, for Arcelor Mittal steel also. EXPLORE NEW MARKETS: With the merger & acquisitions, both Tata and Mittal has become a multinational with operations in various countries. Arcelor is the worlds largest steel manufacturer in terms of turnover and corus being the second largest steel maker in Europe ,provide Tata and Mittal steel access to largest steel buyers of world.

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RESOURCE TRANSFER: Resources are unevenly distributed across firms and the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources. SYNERGY: Synergy, a term made popular in 1960s , states that there are efficiencies gained in all the things you do because you do more than one thing .The related catch phrase of the time was two plus two equals five . This refers to the fact that the combined company can often reduce duplicate departments or operations , lowering the costs of the company relative to the same revenue stream , thus increasing profit. CORPORATE TAX SAVINGS: Although tax savings may not be the primary motivation fr a combination , it can sweeten the deal. When a purchase of either the assets or common stock of a company takes place, the tender offer less the stocks purchase price represents a gain to the target companys shareholders .Consequently, the target firms shareholders will usually experience a taxable gain .However, the acquiring company may reap tax savings depending on the market value of the target companys assets when compared to the purchase price .The acquiring company can write up the target companys assets .This difference can then be charged off to depreciation with resultant tax savings .depending on the method of corporate combination, further tax savings may accrue to the owners of the target company. ADD TO PRODUCTION CAPACITY:

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With the acquisition Corus by Tata , the combined entity of Tata-Corus would have a capacity of 40 million tonnes by 2011-12.Overseas acquisitions have already added upto 21.4 million tonne to Tata capacity, which include Corus production at 18.2 million tonne .Similarly, Arceor-Mittal in its current form ,expected to have a planned capacity of 120 million tonnes in coming future.

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OBJECTIVE -4 ISSUES IN MERGER & ACQUISITION

ISSUES RELATED TO MERGER AND ACQUISITION. In any merger or acquisition planning you need to understand what you are getting into (do I go ahead? Adjust the price? Walk away?). This is your one shot to understand the business before you close the deal. You also want to reduce any post-acquisition surprises (what will we need to work on after acquisition, integration issues, personal issues,

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obsolete equipment requiring replacement, warranty exposures, major contracts and customer base). An important key to remember is Its not only the numbers!! Critical Issues In any merger and acquisition you need to focus on: Financial issues (what is the potential exposure, understanding what you are buying). The control environment ( understand weaknesses and how this may impact future operations , what are the risks?). Additionally, a focus needs to be placed upon financial and operational integration concerns ( will major restructuring and integration be required, how difficult will it be to integrate new acquisition into our business?). Information system issues can be key areas of concern (compatible systems, major integration costs after acquisition , old equipment). Marketing issues ( will customers stay? What will it take to support customers?). Legal ( any pending suits and exposures) Business processes (do good processes exist? Any integration concerns?). Human resource issues ( combining different corporate cultures , handling downsizing o combined organizations and the potential of loosing key personnel , differing benefit plans etc.) Also there are any anti-trust regulatory/ tax issues requiring analysis? Factors that may not be very crucial in domestic M&As become critical in international merger and acquisition like in the case o Tata and Corus ,Arcelor-Mittal who face various adventures in merger/ acquisition. These constraints are: 68

According to the current RBI regulations, companies cannot bid for an overseas acquisition under the automatic route , if the total funds required for the acquisition exceed 200 per cent of the Indian companys net worth. There are several other aspects which need to be looked at to determine if the proposed acquisition falls within the 200 per cent limit. Also, according to the Indian Companies Act , if the acquisition value exceeds 60 per cent of the Indian companies net worth or 100 per cent of its free reserves , and then the Indian company is required to make prior approval from its shareholders for making the investment in the target company. It means disclosing vital details about the target company to the shareholders , including the price being paid. This results in certain sensitive and confidential information, which would be of critical importance to competing bidders becoming available in the public domain even prior to submitting a bid to the target company. Due diligence is a critical factor in M&As . Due diligence , with reference to M&As is the process of examining all aspects of a company including manufacturing, financial, legal, tax, IT systems , labour issues , checking for regulatory issues , as well as understanding issues related to IPR , the environment and other factors.It is done to investigate and evaluate a potential company for acquisition purposes. It helps the acquiring company to determine whether it is worth pursuing a target and at what price. Legal due diligence covers contractual documentation, litigation,ownership of movable, fixed and intangible assets like IPR, etc. Deciding acquisition price: the value or amount is finally decided only after the due diligence exercise is completed and the valuer has considered how the findings impact the valuation. If the target company has a presence in several countries, the exercise becomes even more difficult. One needs to rely on local lawyers and tax experts in each of the different geographies to get the flavor of local regulatory and tax issues and then

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factor them into the valuation exercise as well as in the contractual documentation to protect ones interests. Another major challenge is the varying accounting standards adopted by different countries for accounting treatment of different items .This poses a very significant challenge in ascertaining the true value of the target company. The most crucial aspect in any overseas acquisition is the structuring of the deal and the vehicle used for funding .This is generally dictated by Double Taxation Avoidance Treaties (DTAs) between various countries. Government Regulatory Approvals, every cross-border M&A transaction requires regulatory approvals not only in India but also overseas where the target company is located. In India, post 1991, monopoly legislation was scrapped when the entire chapter 3 of the MRTP Act was established. But in the west, a paramount consideration is whether the proposed acquisition would lead to market dominance by the acquirer. Challenges related to post merger & acquisition , Surveys have shown that more than 90 percent of international M&As have been failures. There are classic examples of large companies having failed due to the wrong M&A strategy and profitable companies having got into rough weather because they acquired a wrong company. The real challenge, after an acquisition ,is the integration of the two companies . That is why the Tata group gives so much emphasis to integration. There is a focus on aligning the acquired companys processes with the Groups through the business excellence model and the adherence to the Tata code of conduct.Successful integration is an intrinsic part of the Tata Groups M&A strategy.

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FINDINGS
71

FINDINGS Tata steels acquisition of Corus and Areclor Mittal are the major and successful stories in international market. As per my objective following indings are given: OBJECTIVE: To critically examine the performance of companies before and after M&A

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TATA & CORUS Findigs are based on the results for the four financial years ending on MARCH,31 1 Total Income : total income has been continuously increasing . It has increased by 11% for the year ending march 31, 2009 since march 31,2006 2. Total Assets : total assets of the company have shown an increase of 30% from March 31, 2006 to March 31, 2009. 3. Net sales / Income from operations : net sales of the company have shown an increase of 17 % from March 31, 2006 upto March 31, 2009 4.Profit before taxes : profit before taxes of the company have shown an increase of 9% from March 31, 2006 to March 31, 2009 5. Earning per share : earning per share of the company increased from 24% in 2006 to 28% in 2007 thereafter it has remained constant at 24% uptill March 31,2009. Tata steel industry after acquiring the Corus have shown positive results on its performance and through this acquisition it became the fifth largest industry in the world

ARCELOR MITTAL Findigs are based on the results for the four financial years ending on December,31 1. Total assets: total assets of the company has been continuously increasing since the acquisition of Arcelor by Mittal. It has increased by 2% since December 31,2006 till December 31, 2009.

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2. Sales : the sales of the company has been continuously increasing since 2006.However, the increase in sales in 2007 & 2008 is more as compared to 2009 due to global crunch. 3. Net Income : net income of the company has shown significant growth since 2006 uptill 2008 but in 2009 there has been significant decline in2009 due to decline in sales as a result of global crunch.. 4. Earning per share : earning per share of the company increased since 2006 upto 2008 but in 2009 there has been a significant fall of 62% 5. Dividend Pay ; the dividend pay of the company has gone in negative after 2006. Similarly , Arcelor Mittal merger has helped in improving their performance and in becoming the largest steel producer in the world

OBJECTIVE TO STUDY VARIOUS ISSUES INVOLVED IN MERGER & ACQUISITION. Before into merger & acquisition , all issues effecting the deal must be analyzed There should be no undisclosed issues both on the part of target firm and acquirer, OBJECTIVE : TO EVALUATE THE STRATEGIC REASONS BEHIND M&A DECISIONS. The urge behind the M&A of Tata and Corus , Arcelor-Mittal is of growth and expansion worldwide

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LIMITATIONS

LIMITATIONS OF THE STUDY The study is based on only secondary data due to lack of resources to collect data from primary sources. Scope is limited to two companies only: Tata and Corus

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Arcelor & Mittal Time constraints because this research involves in depth study of each and every aspect of deal that has taken place.

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SUGGESTIONS

SUGGESTIONS While evaluating the merger/ acquisition proposal all the critical issues discussed above must be kept in mind

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 The step for M&A should be opting not to just increase the size of operation of company but it must create value for customers.

There should not be over valuation of the firm otherwise you will be the unfortunate winner not the fortunate one. Companies should try to focus on building proper relationships with the targeted firm so that there is no loss of key employee

Companies must define their objective in quantified terms to enter into M&A deal , means your objective should not be subjective one.

BIBLIOGRAPHY BOOKS: Chandra prassana , financial management , by Tata Mc Graw Hill (2008)

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 Jain.P.K and Khan.M.Y , financial management , by Tata Mc Graw Hill (2007) Cooper Donald.R and Schindler Pamela , Business Research methods , by Tata Mc Graw Hill. MAGAZINES , JOURNALS AND NEWSPAPERS: Dash Ashutosh , Value Creation through Mergers: Myth & Reality , ICFAI Journal of Applied Finance , vol 10.no. 10 October 2004 , pp 20-33. P.suresh and Prof.r.padmanabhaman (2007) , MERGERS & ACQUISITIONS , ITM n-Ach, vol.1 No.2 December, page 16-22 Adhikari , Anand (2006) ON TOP OF THE WORLD, Business Today December 3, page 97 Schweiger David.M, a framework for Executives and Managers, ICFAI Journal of Applied Finance, vol.9.no.2, March 2003, pp 71-79. SITES: www.tatasteel.com www.arcelormittal.com www.corusgroup.com www.managemantparadise.com www.envestindia.com www.sebi.gov.in www.arcelor.com www.icfai.com www.moneycontrol.com www.equitymaster.com www.answers.com

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