MERGERS AND TAKE OVERS

MERGERS

WHAT IS MERGER ?
COMPANY B

COMPAny C
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DEFINITION
A transaction where two firms agree to

integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage.

TYPES OF MERGERS

TYPES
HORIZONTAL

VERTICAL

MERGERS

CONGLOMERATION

MARKETEXTENDED

And
PRODUCT EXTENDED
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HORIZONTAL MERGER
COMPANY A

COMPANY B

Example:-Daimler-BENZ and Chrysler

VERTICAL MERGER
COMPANY A

COMPANY B
EXAMPLE:-FORD and BENDIX
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CONGLOMERATION
COMPANY A

COMPANY B

EXAMPLE:-WALT DISNEY AND AMERICAN BROADCASTING COMPANY

OTHER TYPES OF MERGERS

PRODUCT EXTENSION EXAMPLE:-PEPSICO AND PIZZA

HUT
MARKET - EXTENSION EXAMPLE :-TIME WARNER AND

TCL
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MERGER:WHY & WHY NOT

WHY IS IMPORTANT
i. Increase Market Share. ii. Economies of scale iii. Profit for Research and
PROBLEM WITH MERGER

development. iv. Benefits on account of tax shields like carried forward losses or unclaimed depreciation. v. Reduction of competition.

Clash of corporate cultures. ii. Increased business complexity. iii. Employees may be resistant to change
i.

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ACQUISITION

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WHAT IS AN ACQUISITION ?

COMPANY B

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DEFINITION
A transaction where one firms buys

another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of business

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ACQUISITION:WHY & WHY NOT

WHY IS IMPORTANT
PROBLEMS WITH ACQUISITION

i.
ii.

iii.
iv. v.

Increased market share. Increased speed to market Lower risk comparing to develop new products. Increased diversification Avoid excessive competition

Inadequate valuation of target. ii. Inability to achieve synergy. iii. Finance by taking huge debt.
i.

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WAYS OF ACQUISITION
SHARE FOR SHARE.
ASSETS FOR SHARE.

CASH FOR SHARE.

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RESPONSE OF THE TARGET COMPANY

Accept the Terms of the Offer

Attempt to Negotiate

Find a White Knight Execute a Poison Pill or Some Other Hostile Takeover
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CASE STUDIES

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ACQUISITION

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 ICICI bank is Indias largest private bank with total assets of Rs.3,634.000 billion.

The bank has a network of 2,035 branches and about 5,518 ATMs in INDIA and presence in 18 countries.
Bank offers a wide range of banking products and

financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries in the area of investment banking , life and non-life insurance , venture capital and asset management.
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 Bank of Rajasthan ,with its stronghold in the state of Rajasthan , has a nationwide presence , serving its customers with a mission of Together we Prosper engaging in Commercial Banking , Merchant Banking , Auxiliary services , Consumer Banking ,Deposit Banking , and Money Placement services , Trust and

Custodial Services ,International Banking , Priority Sector Banking. Till March 31,2009 BOR had 463 branches and ATMs ,Total assets of Rs.172.24 billion. 21

PROCESS OF AQUISITION
Haribhakti & Co was Appointed jointly by

both the banks to access the valuation. Swap ratio of 25:118(25 shares of ICICI for 118 shares of Bank of Rajasthan) i.e. one ICICI Bank share for 4.72 BoR shares. Post-Acquisition ICICIBanks branch network would go up to 2,463 from 2000.

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EFFECTS OF ACQUISITION
BORs stock rise on the day of acquisition Swap ratio favorable for BOR Back of the envelope calculation ICICIS Network strengthening

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Advantages for ICICI

Acquisition enhanced ICICIS network Strengthened ICICIS presence in northern &

western parts of the country.

Increase in CASH flows

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ISSUES
BORs promoter Tayal &people associated

with his family were banned by Indias capital market regulator for improper disclosure about their holdings in the bank. BOR was under RBIs scan for violation of banking regulation. G Padmanabhan BOR MD & Chief Executive was appointed by RBI for two years to improve corporate governance practices at the bank
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 BHUSHAN NAIK 50 KAUSTUBH POTNIS 56 VEDANT CHAVAN 19

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THANK YOU
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