Mergers and Acquisitions

By vinay Click to edit Master subtitle style Bhaskar

4/27/12

Mergers

A transaction where two firm agree to integrate their operation on a relatively coequal basis because they have resource and capabilities that together create a strong competitive advantage

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Acquisitions

A transaction where one firm buys another firm with the intent of using core competence by making the acquired firm a subsidiary within its portfolio of the businesses

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Reasons for Merger and Acquisition

Increased market power Overcome entry barrier Cost of the new product development Increased speed to market Lower risk compared to developing new products Increased diversification Avoid excessive competition 4/27/12

Reason for Merger and Acquisition

Adoption of modern technology Increased Market Power Acquisition intended to reduce the competitive balance of the industry Example British petroleum's acquisition of U.S Amoco

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Top Acquisitions
Rank Year Purchaser Purchased Transaction value (in mil. USD)

1 2 3 4 5 6 7 8

2000 2000 2004 2006 2001 2004 2000 2002 2004

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America Online Inc. Time Warner (AOL) Glaxo Wellcome SmithKline Plc. Beecham Plc. Royal Dutch Shell Transport & Petroleum Co. Trading Co BellSouth AT&T Inc. Corporation Comcast AT&T Broadband Corporation & Internet Svcs Sanofi-Synthelabo Aventis SA SA Spin-off: Nortel Networks Corporation Pharmacia Pfizer Inc. Corporation JP Morgan Chase & Bank One Corp Co

164,747 75,961 74,559 72,671 72,041 60,243 59,974 59,515 58,761

Top 10 acquisitions made by Indian companies worldwide:

Acquirer Tata Steel Hindalco Videocon Dr. Reddys Labs Suzlon Energy HPCL Target Company Corus Group plc Novelis Daewoo Electronics Corp. Betapharm Country targeted UK Canada Korea Germany Deal value ($ Industry ml) 12,000 5,982 729 597 565 500 324 293 290 239 Steel Steel Electronics Pharmaceutical Energy Oil and Gas Pharmaceutical Steel Electronics Telecom

Hansen Group Belgium Kenya Petroleum Refinery Ltd. Natsteel Thomson SA Teleglobe Kenya Romania Singapore France Canada

Ranbaxy LabsTerapia SA Tata Steel Videocon 4/27/12 VSNL

Merger can take place in following ways

By purchase of asset By purchase of common share By exchange of share for asset By exchange of shares for shares

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By Purchase of Asset

The asset of company Y is sold to company X and Once it is done, Company Y is legally terminated and company X survives

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By Purchase Of Common Shares

The common share of the company Y may be purchased by company X.

When company X holds all shares of company Y it is dissolved 4/27/12

By exchange of shares for Asset

Company X can give its share to the share holders of the company Y for its net assets. The Company Y is terminated by its Shareholders who now hold the share of the company X

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By Exchange of shares for shares

Company gives it shares to the shareholders of the company Y and then company Y is terminated

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Examples of Mergers

Asian paint-Berger international Year-2002 Asian acquired 50.1% controlling stake in Berger international Deal Rs57.6 Crores Berger international have no operation in India but formed Berger paints India Ltd in Kolkata
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Asian Paint and Berger

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Vodafone and Hutch

Vodafone purchased stakes in Hutch (Hutchison Telecom international) for USD 11.08 billion

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Background of Vodafone

Founded Group

: 1983 as Rascal Telecom independent 1991 : Vodafone Plc : Berkshire,Uk : 2,30,000 (Employees) :$35,478 million :$10047 million :7.51 pence Dividend per Share

Headquarter Strength Revenue Net Income EPS

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Background of Hutch-Essar

Operation Circles Revenue EBITDA

: 1992 : 16 + license for 67 circle :$ 1,282 million :$ 415 million :$313 million

Operating profit

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Reason for Hutchisons Exit

Urban market in the country had become saturated Future expansion would have been only in rural areas which would have lead to falling average revenue per User (ARPU) The sales of its interests in India will enable Hutchison Telecom to become one of the Asias best 4/27/12 capitalized company

The Merger

Deal size and stake:

Fourth largest deal of the year 2007 at $13.3 billion. Hutchison Essar valued at $18.8 bn
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Benefit For Vodafone

Accelerates Vodafones move to controlling position in leading operator in attractive and fast growing Indian mobile market India is fastest growing mobile market in the world. So it increases Vodafones presence in higher growth emerging markets
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Hutch is now Vodafone!!!

Potential of Hutch Essar to bring Vodafones innovative products and services to Indian market including Vodafone focus on total communication solutions for customers. Vodafone and Hutch Essar both expected to benefit from the 4/27/12 increased purchasing power and the

Hewlett Packard and Compact merger

Hewlett Packard also know as HP Started in 1938 by two Stanford graduate, William Hewlett and David Packard It is a well respected system vendor Hp had 85,000 employees and revenue of $48.8 bn
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Compact

Compaq Founded in 1982 Primary strength - Innovation Compaqs primary business divisions

Access, commercial and consumer PCs Enterprise computing: servers and storage products Global services

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Market leader in PCs, with more

Growing problems at HP

HP was not adapting to technological innovation fast enough Margins were going down IPG (HPs Imaging and Printing Group) was the leader in its market segment but did not rank anywhere among top 3 in servers, storage or services Printing line was facing competition 4/27/12 from Lexmark and Epson which were

Pre-merger statistics for Compaq andRevenue HP Company Market share in high

end servers 3% 11.4% Compaq HP Company $134 mn $512mn

Market share in mid- Revenue range UNIX servers 4% 30.3% $488 mn $3,675 mn

Compaq HP Company

Market share in Market share in PCs laptops for quarter 2 for quarter 2 (volume (volume share) share) 12.1% 6.9% 11.6% 4.5%

Compaq HP 4/27/12

Potential impact of Merger

Merger would create a full-service technology firm capable of doing everything from selling PCs and printers to setting up complex networks Merger would eliminate redundant product groups and costs in marketing, advertising, and shipping, while at the same time preserving much of the two companies revenues. 4/27/12

Operational benefits of Merger

HP and Compaq have highly complimentary R&D capabilities

HP was strong in mid and high-end UNIX servers, a weakness for Compaq; while Compaq was strong in low-end industry standard (Intel) servers, a weakness for HP

Top management has experience with complex organizational 4/27/12 changes

Financial Benefits

Merger will result in substantial increase in profit margin and liquidity 2.5 billion is the estimated value of annual synergies Provides the combined entity with better ability to reinvest

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Summary of Deal
Announcement Date Name of the merged entity Chairman and CEO President Ticker symbol change Form of payment Exchange Ratio Ownership in merged company September 4, 2001 Hewlett Packard Carly Fiorina Michael Capellas From HWP to HPQ Stock 0.6325 HPQ shares to each Compaq Shareholder 64% - former HWP shareholders 36% - former CPQ shareholders 18.6% before merger 8.4% after merger Purchase Reverse Triangular Merger

Ownership of Hewlett and Packard Families Accounting Method

4/27/12 method Merger