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Presented By:1.Jitin Sachdev 2.Kawaljit Singh 3.

Suhdeep Cheema

What Do you Mean By Merger ?

The term merger refers to a combination of two or more companies in to a single company and this combination may be either through consolidation or absorption. Mergers Mean when Share is taken By the other Company or A company & B Company Merge and make the AB Ltd. Company. Two Similar-sized firms are combined Mergers is a transaction that results in the transfer of ownership and control of the corporation. Merger refers to the aspect of corporate strategy corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.

Nature of Mergers

AS14 states that if ALL the following conditions are satisfied, the merger will be termed as amalgamation in the nature of merger: Conditions: All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. Shareholders holding not less than 90% of the face value of the equity shares of the transferor company become equity shareholders of the transferee company by virtue of the amalgamation. The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company except that cash may be paid in respect of any fractional shares. The business of the transferor company is intended to be carried on by the transferee company after amalgamation. No adjustment is intended to be made to the book values of assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.

Mergers can take plays in to following four ways:By Purchase of Assest:- The assest of the company A may be sold to company B. Once this is done, company A is then legally terminated and company B survives. For eg:- Asian paints-Berger International By the Purchase of Common Shares:-The common Share of the company A may be purchased by company B. when company B holds all the shares of company A, it is dissolved. For eg:- Ranbaxy-Tokyo based nippon chemiphar co. Ltd.

By The Exchange Of Shares For Assest:-company B may give its shares to shareholders of company A for its net assest. Then company A is terminated by its shareholders who now holds share of company B. for eg;- AOL sells call centre to Essar Exchange Of Shares For Shares:-Company B gives it shares to the shareholders of company A and then company A is terminated. For eg:- HP and Compaq product line synergy

Different Types Of Mergers

1.Horizontal Merger 2.Vertical Merger 3.Conglomerate Merger 4.Congeneric merger/concentric mergers:5. Dilutive merger 6. Accretive merger

1.Horizontal A merger in which two firms in the same industry combine. Often in an attempt to achieve economies of scale and/or scope. 2. Vertical merger A merger in which one firm acquires a supplier or another firm that is closer to its existing customers. Often in an attempt to control supply or distribution channels. 3. Conglomerate A merger in which two firms in unrelated business combine. Purpose is often to diversifythe company by combining uncorrelated assests and income streams

HORIZONTAL MERGER SIMILAR LINES OF ACTIVITY as Ford announced the sale of the two British iconic cars to Tata Motors Ltd. Ford acquired Jaguar for $2.5 bn in 1989 and Land Rover for $2.75 bn in 2000 but put them on the market last year after posting losses of $12.6 bn in 2006 - the heaviest in its 103-year history. HDFC Bank's merger with Centurion Bank of Punjab and Walt Disney Company's acquisition of 17.2per cent stake in UTV Software Communication to increase its stake to 32.10 per cent in the company.

In February 2008, as many as 38 cross-border deals were announced with total value of $2.80 billion, of which 27 were outbound deals with a value of $2.57 billion.

1. Horzontal Mergers:-When one company acquire the competing company after careful review it may be deemed as anticompetitive or ..In a horizontal merger, one firm acquires another firm that produces and sells an identical or similar product in the same geographic area and thereby eliminates competition between the two firms. Eg:- Mc Donald & burgers King 2. Vertical Mergers:-When a company acquires one of its suppliers or custmers. Eg:-Bajaj with MRF tyres

3. Conglomerate Mergers:- When a company acquires a companay that is not a competitor, supplier or customers or when two companies that have no common business areas. Eg:- battery products, undersea fiber optic cable, fire protection systems, industrial products, Water & gas flow control products, metal framing

4. Congeneric mergers occur where two merging firms are in the same general industry, but they have no mutual buyer/customer or supplier relationship, such as a merger between a bank and a leasing company.
Eg: 1. Prudential's acquisition of Bache & Company;a producer of sports goods might acquire a leisure-wear manufacturer. 2. Ex:Time warner-(they were into media & movie production) & AOL-(leading American website)



Conglomerate mergers Encompass all other acquisitions, including pure conglomerate transactions where the merging parties have no evident relationship (e.g., when a shoe producer buys an appliance manufacturer), Geographic extension mergers, where the buyer makes the same product as the target firm but does so in a different geographic market (e.g., when a baker in Chicago buys a bakery in Miami), product-extension mergers, where a firm that produces one product buys a firm that makes a different product that requires the application of similar manufacturing or marketing techniques (e.g., when a producer of household detergents buys a producer of liquid bleach).


What is concentric mergers?

Mergers take place when two firms from different but "adjacent" industries merge. For example, if an auto manufacturer and a motorcycle manufacturer merge, the merger is a concentric one .Although both industries serve the transportation needs of their customers, the two are quite unique in their competitive structures.


EXAMPLE OF CONCENTRIC MERGER:Nextlink is a competitive local exchange carrier offering services in 57 cities and building nation wide IP network. Concentric, a national ISP, offers dedicated and dial-up Internet access, high-speed DSL and VPN services across the U.S. and overseas. Citigroup (principally a bank) buying Salomon Smith Barney (stock brokerage investment operation.).


What is a Dilutive Merger?

A merger in which the acquiring companys earnings per share decreases as a result of the merger. Also remember the P/E rule: A dilutive merger happens when a company with a lower P/E ratio acquires a company with a higher P/E ratio.


Pre-deal situation
BuyCo plans to acquire 100% shares of SellCo in a stock-for-stock transaction. BuyCo has a net income of $300,000 and 100,000 shares outstanding Market shareprice of BuyCo is $50.0 Pre-deal EPS = $3.0 Pre-deal P/E = 16.7 SellCo has a net income of $100,000 and 50,000 shares outstanding Market shareprice of SellCo is $60.0 Pre-deal EPS = $2.0 Pre-deal P/E = 30.0x

Post-deal situation
EPS of NewCo fall from $3.0 to $2.25, so the deal is 25% dilutive for BuyCo shareholders BuyCo shareholders own 100,000/178,000 = 56.18% of NewCo SellCo shareholders own 78,000/178,000 = 43.82% of NewCo


The deal

BuyCo agrees to pay a premium for control of 30%, so the offer price for one SellCo share is 1.3*$60.0 = $78.0 Stock-for-stock exchange ratio is $78/$50 = 1.56 of BuyCo shares for one SellCo share BuyCo issues 1.56*50,000 = 78,000 new shares to exchange them for all the SellCo shares outstanding Total shares of NewCo = 100,000 (pre-deal shares of BuyCo) + 78,000 (new shares) = 178,000 shares NewCo expected EPS = Total net income/Total shares outstanding = ($300,000+$100,000)/178,000 = $2.25 NewCo expected shareprice = (P/E of BuyCo)*(expected EPS) = 16.7x*$2.25 = $37.45


What is an accretive merger

The type of merger in which the acquiring companys earnings per share increase. With regard to P/E ratio, this happens when a company with a higher P/E ratio acquires a company with a lower P/E ratio. The acquiring companys earnings per share should rise following the merge


Major Mergers in the telecom

Acquirer Vodafone MCL worldcom Bell atlantic AT&T SBC

Target Mannes man Spirit GTE MeCaw Celluar Pacific Telesis


Major Mergers in Media and Entertainment sector




License era-Unrelated diversification Conglomerate merger Friendly take over and hostile bids by buying equity shares Example: Swaraj paul attempted to raid on Escorts Ltd.and DCM Ltd but could not succeed. The Hindujas raided and took over Ashok leyland and Ennore Foundaries. Chhabria Group acquired stake in Shaw Wallace, Dunlop india and Falcon Tyres. Goenka group from culcutta took over Ceat tyres. The Obroi-Pleasant hotels of Rane group. 1989- Tata Tea acquired 50% of the equity shares of Consolidated Coffee Ltd from resident shareholders. merged to form HCL Ltd??. Hindustan Computers, Hindustan Reprographic, Hindustan Telecommunications and Indian Software Ltd.


Horizontal:1.Boeing-mc donnell depot manhattan-chemical banks.

Vertical mergers:1.time warner-TBS; 2.disney-ABC capitol cities; 3.cleveland cliffsiron-detroit steel; 4.brown shoe-kinney,

Conglomerate Merger:1.cardinal healthcare-allegiance; 2.AOL-time warner; 3.phillip morris-kraft;citicorp-travelers insurance; 4.pepsico-pizza hut; 5.proctor & gample-clorox.


Merged company
Period deal value Target company acquirer

Feb07 13.1 Jun08 4.6 Apr06 Jan06 Aug06 0.5



Ranbaxy Lab

Daiichi Sankyo
0.9 0.6

Flextronics KRP & Vo LP Ambuja Cement Holcim Matrix Lab Mylan Inc


Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999:
Rank Year Purchaser mil. USD) 1. 1999 Vodafone Airtouch PLC 2. 1999 Pfizer 3. 1998 Exxon 4. 1998 Citicorp 5. 1999 SBC Communications 63,000 6. 1999 Vodafone Group 60,000 7. 1998 Bell Atlantic 8. 1998 BP 9. 1999 Qwest Communications 10 . 1997 Worldcom Purchased
Transaction value (in

Mannesmann 183,000 Warner-Lambert 90,000 Mobil 77,200 Travelers Group 73,000 Ameritech Corporation
AirTouch Communications GTE 53,360 Amoco 53,000 US WEST 48,000 MCI Communications 42,000


Cross-border M&A 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 to the acquirer's local currency. The rise of globalization has exponentially increased the necessity for MAIC Trust accounts and securities clearing services for Like-Kind Exchanges for cross-border M&A. In 1997 alone, there were over 2333 cross-border transactions, worth a total of approximately $298 billion. Due to the complicated nature of cross-border M&A, the vast majority of cross-border actions have unsuccessful as companies seek to expand their global footprint and become more agile at creating highperforming businesses and cultures across national boundaries. Even mergers of companies with headquarters in the same country are can often be considered international in scale and require MAIC custodial services. For example, when Boeing acquired McDonnell Douglas, the two American companies had to integrate operations in dozens of countries around the world (1997). This is just as true for other apparently "single country" mergers, such as the $29 billion dollar merger of Swiss drug makers Sandoz and Ciba-Geigy (now Novartis).